Oil Prices Poised For 10% Year-End Decline Amid Growing Demand Worries, Breaking Winning Streak

Oil prices are anticipated to conclude 2023 roughly 10% lower, marking a reversal after two years of gains. Geopolitical concerns, production cuts, and central bank measures to control inflation have led to significant price fluctuations.

Despite a 3% drop the previous day, oil prices climbed on Friday as more shipping firms prepared to transit the Red Sea route. Brent crude futures were up at $77.87 a barrel, while U.S. West Texas Intermediate (WTI) crude futures stood at $72.53.

However, these benchmarks are on course to record their lowest year-end levels since 2020, when the pandemic drastically impacted demand and caused prices to plummet. Production cuts by the Organization of the Petroleum Exporting Countries and allies (OPEC+) have not been sufficient to support prices, and the benchmarks are down nearly 20% from the year’s highs.

OPEC+ is currently implementing output cuts of around six million barrels per day, representing approximately 6% of global supply. OPEC faces declining demand for its crude in the first half of 2024, coinciding with a reduction in its global market share due to output cuts and Angola’s departure from the group.

Analysts predict that Brent crude will average $82.56 in 2024, a decrease from the November consensus of $84.43. This projection reflects expectations of weak global growth capping demand, despite potential support from geopolitical tensions.

In contrast to the weak performance of oil, global equities are expected to end 2023 higher. The MSCI equity index, tracking shares in 47 countries, has risen by about 20%, with investors betting on rapid-fire rate cuts from the U.S. Federal Reserve in the coming year.

In the currency market, the dollar is poised for a 2% decline in 2023 after two years of robust gains.