Oil prices fluctuated wildly in 2022. The year was marked by concerns over the Ukraine-Russian war supply and Chinese demand decline. It rose on tight supplies caused by its war, then fell on weak demand from top importer China and economic contraction concerns, but closed the year on Friday for the second year in a row with annual gains.
Prices rose in March as the Russian invasion of Ukraine upset global crude flows, and the international benchmark Brent reached $139.13, its highest level since 2008. Prices fell sharply in the second half as central banks raised interest rates and fueled recession concerns.
This year has been an extraordinary year for commodities markets, with supply risks leading to increased volatility and high prices. Next year will be another year of uncertainty with a lot of volatility. As we head into 2023, China’s COVID surge negatively impacts the demand outlook, economic weakness will put pressure on oil prices in 2023.
On Friday, the last trading day of the year, Brent crude oil settled from $2.45 to $85.91 per barrel, up nearly 3%. West Texas Intermediate (WTI) crude was up $1.86, or 2.4%, to settle at $80.26 a barrel.
Brent is up nearly 10% this year after rising 50% in 2021. WTI crude was up nearly 7% in 2022 after a 55% increase last year. Both benchmarks had fallen sharply in 2020 as the COVID-19 pandemic lowered fuel demand.
In 2023, investors are expected to continue to take a cautious approach, being cautious about interest rate hikes and possible recessions.
Demand and demand growth will be a real question after the slowdown caused by the harsh actions and engineering of global central banks.
A poll of economists and analysts predicts Brent will average $89.37 a barrel in 2023; this is about 4.6% lower than the consensus in a survey conducted in November. WTI crude oil is estimated to average $84.84 per barrel in 2023.
While the increase in holiday travels at the end of the year and Russia’s ban on sales of crude oil and petroleum products support crude oil, the contraction in supply caused by the decreasing fuel consumption due to the worsening economic environment in the coming year will be a balancing factor.
The dollar recorded its biggest annual gain since 2015. Increasing interest rates to fight inflation contributed to the decline of oil in the second half of 2022. This made dollar-denominated commodities such as crude oil more costly for those holding other currencies.
The late easing of zero COVID restrictions, which China had resisted until the last month of the year, stifled hopes for demand recovery. In 2022, the world’s largest oil importer and second-largest consumer reported the first drop in oil demand in years.
While China’s oil demand is expected to recover in 2023, the recent surge in COVID-19 cases dampens hopes for an immediate increase in purchases.
Energy services company Baker Hughes Co said in its latest report, the number of U.S. oil and gas rigs rose 33% for the year, as an indicator of future supply.
