Oil prices swung wildly in 2022, climbing on tight supplies amid the
war in Ukraine, then sliding on weaker demand from top importer China
and worries of an economic contraction, but closed the year on Friday
with a second straight annual gain.
Prices surged in March as Russia’s invasion of Ukraine upended global crude flows, with international benchmark Brent reaching $139.13 a barrel, highest since 2008. Prices cooled rapidly in the second half as central banks hiked interest rates and fanned worries of recession.
“This has been an extraordinary year for commodity markets, with supply risks leading to increased volatility and elevated prices,” said ING analyst Ewa Manthey. “Next year is set to be another year of uncertainty, with plenty of volatility,” she said.
Brent crude on Friday, the last trading day of the year, settled at $85.91 a barrel, up nearly 3% to $2.45 per barrel. U.S. West Texas Intermediate crude settled at $80.26 a barrel, up $1.86 or 2.4%.
For the year, Brent gained about 10%, after jumping 50% in 2021. U.S. crude rose nearly 7% in 2022, following last year’s gain of 55%. Both benchmarks fell sharply in 2020 as the COVID-19 pandemic slashed fuel demand.
Investors in 2023 are expected to keep taking a cautious approach, wary of interest rate hikes and possible recessions.
“The demand and demand growth is going to be a real question because of the heavy-handed actions by the global central banks and the slowdown that they’re trying to engineer,” said John Kilduff, partner at Again Capital LLC in New York.
A survey of 30 economists and analysts forecast Brent would average $89.37 a barrel in 2023, about 4.6% lower than the consensus in a November survey. U.S. crude is projected to average $84.84 per barrel in 2023, down from the prior view.
While a jump in year-end holiday travel and Russia’s ban on crude and oil product sales has supported crude, tighter supply will be offset next year by declining fuel consumption due to a deteriorating economic environment, said CMC Markets analyst Leon Li.
Oil’s decline in the second half of 2022 as rising interest rates to fight inflation boosted the U.S. dollar. That made dollar-denominated commodities like crude more costly for holders of other currencies.
The dollar was on track to post its biggest annual gain since 2015.
China’s zero-COVID restrictions, which were eased only this month, had squashed demand recovery hopes. The world’s top oil importer and second-biggest consumer in 2022 posted its first drop in oil demand for years.
While China’s oil demand is expected to recover in 2023, a recent surge in COVID-19 cases has dimmed hopes of an immediate boost in barrel buying.
In an indicator of future supply, the U.S. oil and gas rig count rose 33% for the year, energy services firm Baker Hughes Co (BKR.O) said in its latest report.