Oil posts biggest yearly drop since 2020 amid demand worries
Oil prices, which endured another roller-coaster ride in 2023, posted their biggest annual drop since 2020 amid persistent concerns about lower demand as well as geopolitical and economic uncertainties.
Brent, the global benchmark for two thirds of the world’s oil, shed 0.14 per cent to settle at $77.04 per barrel on Friday, the last trading day of the year. West Texas Intermediate, the gauge that tracks US crude, settled 0.17 per cent lower at $71.65 a barrel.
Both benchmarks shed more than 10 per cent, or about $8.60, from a year ago – Brent ended 2022 at $85.62 per barrel, while WTI settled at $80.26 – ending two years of gains.
“Despite oil demand growth surprising to the upside and the production cuts by Opec+, oil prices ended lower in 2023 as supply growth also exceeded expectations, resulting in a less undersupplied oil market,” Giovanni Staunovo, strategist at Swiss bank UBS, told The National.
“Oil production in the US and Brazil hit a new record high, while production from cuts-exempted Opec+ members, particularly Iran and Libya, recovered strongly in 2023.”
The crude oil market remains downbeat, and a failure to add to gains is now “bringing the oil bears back to the market”, Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said in a note on Friday.
“Opec’s efforts to curb production and the rising geopolitical tensions in the Middle East remained surprisingly inefficient to boost appetite in oil this year,” she said.
Demand growth in 2023 was also hit hard by expectations of an economic slump as central banks around the world tightened monetary policy to tame inflation.
Sentiment in the oil industry turned “decidedly bearish” in November and early December as non-Opec+ supply strength coincided with slowing global oil demand growth, according to the International Energy Agency.
The Israel-Gaza war, which started in early October, initially pushed prices up, although crude soon shed those gains on demand concerns.
Prices again rose on supply concerns after attacks by Houthi rebels in the Red Sea – a key waterway for global trade.
However, the slowdown in oil demand is expected to continue in 2024, as gross domestic product growth stays below trends in major economies, MUFG said, in addition to a steadily growing electric vehicle industry.
Prices are being weighed down by worries of slow demand growth in the US and China, the world’s biggest consumers of crude.
On the supply side, Opec+ will continue output cuts next year as the oil producers group seeks to better balance the market. The group’s members, led by Saudi Arabia and Russia, in November extended their voluntary oil output reductions until the end of the first quarter of 2024 amid concerns over future fuel demand.
The kingdom will keep its voluntary output cut of one million barrels per day until the end of March, while Russia is expected to deepen its cut to 500,000 bpd in the same period. In total, the group revealed supply reductions of almost 2.2 million bpd for the first quarter.