Dark clouds over oil market: Demand concerns threaten to erase year's gains

29 Dec 2023 , 10:39 AM

Oil prices are poised to experience their first annual decline in two years, with an expected drop of nearly 10% by the end of 2023. This downward trend is attributed to a combination of factors, including production cuts, geopolitical concerns, and global efforts to manage inflation.

On the final trading day of 2023, Brent crude prices saw a modest increase of 18 cents, or 0.2%, reaching $77.33 per barrel. Meanwhile, in early Asian trade, U.S. West Texas Intermediate (WTI) crude futures rose by 11 cents, reaching $71.88 per barrel. Both benchmarks are anticipated to conclude the year at their lowest levels since 2020, when the onset of the pandemic led to a significant decline in demand and oil prices.

The ongoing Middle East crisis and concerns about demand outpacing supply have contributed to a third consecutive monthly decline in oil prices. Benchmark prices have fallen by nearly 20% from their peak earlier in the year, despite the record high reached in September when the Organization of the Petroleum Exporting Countries (OPEC) and their allies implemented production cuts.

Recent stability in oil prices comes after a 3% drop the previous day, which was prompted by major shipping companies avoiding the Red Sea route following attacks by the Houthi group in Yemen.

Global efforts by central banks and governments to curb inflation have played a role in containing oil prices and counteracting rapid increases. Analysts and investors anticipate a potential increase in oil demand in 2024, driven by expected interest rate reductions in major oil-consuming regions and a weakening U.S. dollar.

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