Oil Prices Expected to Finish 2023 Lower Despite Recent Gains
LONDON – After experiencing two years of gains, oil prices are projected to end 2023 approximately 10 percent lower due to a combination of geopolitical concerns, production cuts, and central bank measures aimed at curbing inflation. The recent surge in prices was driven by increased shipping activity in the Red Sea route, following a period where major firms had halted their use of the route due to attacks by Yemen’s Houthi group on vessels.
As of the last trading day of 2023, Brent crude futures were up 0.8 percent at $77.73 a barrel, while U.S. West Texas Intermediate (WTI) crude futures were up 0.6 percent at $72.19. However, despite these gains, both benchmarks are set to reach their lowest year-end levels since 2020, when the COVID-19 pandemic caused a significant drop in demand and prices.
The efforts of the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, to cut production have proven insufficient in propping up prices. Currently, OPEC+ is reducing output by approximately 6 million barrels per day, which represents around 6 percent of global supply. Nevertheless, the benchmarks remain down nearly 20 percent from their peak earlier in the year.
Looking ahead to 2024, OPEC is expected to face weakening demand for its crude in the first half of the year. This comes at a time when its global market share is declining due to output cuts and Angola’s departure from the organization. A Reuters survey of economists and analysts predicts that Brent crude will average $82.56 in 2024, slightly lower than the previous consensus of $84.43 in November. The forecast reflects expectations of weak global growth limiting demand, although geopolitical tensions could provide some support.
While oil prices have experienced a lackluster performance at the end of the year, global equities have fared better. The MSCI equity index, which tracks shares in 47 countries, has increased by approximately 20 percent as investors anticipate rapid rate cuts from the U.S. Federal Reserve in the coming year.
In the currency market, the dollar is poised to end the year with a 2 percent decline after two years of significant gains.
By Ahmad Ghaddar
