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Concerns about economies and oil demand amid rising interest rates have pushed oil prices down to a 10% decline this year, the first annual drop since 2020, despite the OPEC+ production cuts and a new war breaking out in the Middle East.
On Friday, the last trading day of 2023, oil prices were trading slightly higher and on track to post a 10% drop for the year compared to 2022. The U.S. benchmark, WTI Crude, was trading up by 0.33% at $72.01, and the international benchmark, Brent Crude, was set to end the year below the $80 a barrel mark, as it traded at $77.51, up by 0.47% on the day.
Oil prices have now lost around 20% since their highest level for 2023 of above $90 per barrel reached at the end of September.
Oil saw heightened volatility this year again, as concerns about demand pulled prices lower while the OPEC+ cuts and the extra Saudi cuts offset—but only to an extent—the drop in prices.
Overall, the OPEC+ group’s efforts to prop up prices have failed this year, as non-OPEC oil supply – led by the United States – grew faster than previously expected. The higher non-OPEC+ production, courtesy also of Brazil, Canada, and Norway, among others, prompted analysts to revise down their expectations of a market deficit at the end of this year and early next year.
China’s economy was also a major concern for oil market participants, with a mixed bag of monthly reports about manufacturing activity and crude oil imports. The rising interest rates in the United States also weighed on the market, which feared a recession would follow the rate hikes and depress oil demand.
The Hamas-Israel conflict, which added to the Russian war in Ukraine to increase geopolitical risks, hasn’t pushed up oil prices this year, either.
Although the Fed has signaled that there could be three rate cuts in 2024 that could boost economic growth and oil demand, analysts expect continued volatility next year, stemming from geopolitical flare-ups.
