Oil Prices Head for First Annual Decline in Two Years, Set to End 2023 10% Lower

The global oil market is poised to close out 2023 with the first annual decline in two years as it is expected to close at a 10% lower from previous levels.

The complex interplay of geopolitical concerns, production adjustments, and worldwide efforts to curb inflation has ushered in a rollercoaster ride of price fluctuations throughout the year.

As the curtains draw on the final trading day of 2023, Brent crude oil grew marginally by 0.4% to $77.48 a barrel while their U.S. West Texas Intermediate (WTI) counterparts show a 0.3% uptick to settle at $71.97.

However, despite this last-minute stabilization, both benchmarks are on track to conclude the year at their lowest levels since the tumultuous period of 2020, when the global pandemic wreaked havoc on demand, sending oil prices into a nosedive.

The efforts of OPEC+ to implement production cuts have proven insufficient to shore up prices, with the benchmarks experiencing a nearly 20% descent from their peak earlier in the year.

This contrasts starkly with the performance of global equities, as the MSCI equity index, tracking shares across 47 countries, is expected to close the year with a commendable 20% surge, driven by investor optimism around anticipated rate cuts from the U.S. Federal Reserve in the coming year.

While oil faces a lackluster year-end performance, a weakened dollar and the prospect of impending interest rate cuts may inject optimism into the market for 2024.

The anticipated rate cuts could potentially lower consumer borrowing costs in major consumption hubs, while a softer dollar renders oil more affordable for foreign buyers, potentially fueling increased demand.

Looking ahead, a Reuters survey involving 30 economists and analysts forecasts an average of $84.43 per barrel for Brent crude in 2024.

This projection reflects a notable increase compared to the average of around $80 per barrel witnessed in 2023, as well as the highs exceeding $100 in 2022 following Russia’s invasion of Ukraine.

As the oil market navigates these dynamic forces, the coming year holds the promise of renewed stability and potentially a rebound from the challenges of 2023.