At risk of making a silly suggestion that's precisely how the year might unfold with pressure building for a price surge back to last year's peak of around $125/bbl.

 

War in Ukraine was the trigger for an oil boom in the first half of '22, followed by a slide even as the world slowly re-opened after the COVID slowdowns of the previous two years.

 

Ukraine and a belligerent Russia could again be a major factor in the oil market, especially if Russian production is curtailed by a US and European price cap.

 

But the big price driver this year looks like being China which has dropped its economy damaging lockdowns and declared itself open for business at whatever the human cost among the unvaccinated.

 

Hints of something big brewing in oil have been evident for the past 12-months as speculators started to place bets on a global economic rebound after COVID restrictions were lifted in most countries - other than China.

 

ExxonMobil, the US oil industry leader, has seen its share price rise by 57% since this time last year. Shell, Europe's leader, is up 34% -- with both comfortably outperforming the broader stock market.

 

The next leg up, pushing oil back over the $100/bbl mark, will be all about China with investment banks swarming all over the oil sector.

 

Goldman Sachs oil guru Jeffrey Currie describes oil as the best "China reopening play" with the price of crude heading for $110/bbl by the September quarter.

 

Morgan Stanley, in a research note published last week, said that uncertainties about the oil outlook were turning into tailwinds with Brent crude trading between $100-and-$110/bbl in the second half of '23.

 

Piper Sandler, a US bank, is tipping an average price this year of $110/bbl with its oil analysts, Jan Stuart, telling the Financial Times newspaper that: "the only reason oil prices did not stay north of $130/bbl last year was because Chinese demand fell away".

 

Uncertainties remain in forecasting the price trend for the year ahead, especially the response of Russia to western price caps, and the potential for the Ukraine war to spill over into Europe.

 

But in terms of identifiable issues there is nothing to match the combination of Chinese demand pull and a continued weak outlook for new supply.

 

Daily Chinese oil demand, according to a survey by the Bloomberg news service, will climb by 800,000 barrels a day over the course of this year, taking consumption to a record 16 million barrels a day.

 

Oil sector uncertainties identified by Morgan Stanley in a November report included the timing of China's reopening, the speed of recovery in aviation, downside risks to Russian supply, a slowdown in U.S. shale oil production and an end to releases from the U.S. Strategic Petroleum Reserve.

 

"From the perspective of the oil price, news flow on those factors has mostly been positive since November," Morgan Stanley said in last week's note under the headline "Heavy Now, Higher Later".

 

The current (March) quarter is expected by the bank to see the oil price trade in a range of $80-to-$85/bbl but "with inventories low and spare capacity thin when demand growth returns the oil market will find that the supply ceiling is not far away".

 

The event which has caught everyone off guard is the stunning about face over COVID by the Chinese government which panicked when civil unrest started to develop in a number of major cities.

 

Rather than persist with tough isolation rules China has switched focus from public health controls to economic growth prompting comments that a mad dash for growth reminiscent of what happened after the global financial crisis in 2008.

 

Daniel Moss, a Bloomberg columnist, last week compared what's happening in China today with what happened in the US after 2008 when a series of tentative revival measures after the GFC were suddenly replaced by all-in economic stimulation.

 

The effect on oil back then was spectacular with a price low of US$45/bbl reached in December '08 quickly replaced by a surge to $80/bbl and then up to $124/bbl in early 2011.

 

History never repeats exactly but China's reopening can easily be compared with the US government's '08 stimulus with a similar impact on the oil price.

 

In fact, it could be even more significant this time because of the decline in exploration spending and limited new project development outside the Middle East.

Morgan Stanley sees under-investment in oil field development as a major concern with spending dropping to a 10-year low and discoveries at "an historical low".

 

An oil price rise back to $100/bbl seems highly likely mid-year, and perhaps soon, with $125/bbl in sight by the end of year.