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Oil prices seen to decline by 10 percent at year’s end

First annual decline in two years
Oil prices seen to decline by 10 percent at year’s end
Brent crude futures showed a marginal increase of 0.6 percent, reaching $77.63 a barrel

In a surprising turn of events, oil prices are expected to close the year with a 10 percent dip, marking the first annual decline in two years. The energy sector, which experienced wild fluctuations throughout 2023, faced significant challenges like geopolitical concerns, production cuts, and global efforts to control inflation.

Oil prices

As the last trading day of 2023 approaches, Brent crude futures showed a marginal increase of 0.6 percent, reaching $77.63 a barrel. Meanwhile, U.S. West Texas Intermediate (WTI) crude futures traded 0.5 percent higher at $72.14 per barrel.

However, the year’s end signifies a stark contrast to the optimistic highs seen earlier in the year. Oil prices struggled to recover from geopolitical tensions, notably tensions in the Red Sea. This prompted major shipping firms to reroute.

Despite concerted efforts by the OPEC+ alliance to implement production cuts, oil prices experienced a nearly 20 percent decline from their peak in 2023. The OPEC+ cuts, aimed at stabilizing prices, fell short as global factors continued to exert downward pressure on the market. The result is a year-end performance that mirrors the lows witnessed in 2020 during the peak of the pandemic, underscoring the ongoing volatility in the oil market.

Global equities

While oil prices face a challenging year-end, global equities are on track to finish 2023 higher. The MSCI equity index, tracking shares in 47 countries, has surged approximately 20 percent since the beginning of the year. Investors are hopeful for interest rate cuts from the U.S. Federal Reserve, contributing to the divergence in performance between oil markets and equities.

In the currency market, the U.S. dollar experienced a 2 percent decline in 2023, a notable shift from two years of strong gains. Analysts attribute this trend to expected interest rate cuts, potentially reducing consumer borrowing costs in major consuming regions. Additionally, a weaker dollar makes oil less expensive for foreign purchasers, potentially stimulating demand in 2024.

Read: What were the best-performing Wall Street stocks of 2023?

Analysts predict a rebound

As the year draws to a close, industry experts remain cautiously optimistic about the oil market in 2024. A Reuters survey of 30 economists and analysts projects Brent crude to average $84.43 a barrel in the coming year. This reflects a modest recovery from the average of around $80 per barrel in 2023. This forecast follows the high oil prices of over $100 seen in 2022, a period marked by Russia’s invasion of Ukraine.

As 2023 comes to an end, the oil market finds itself navigating uncertainties due to geopolitical tensions, production cuts, and global economic dynamics. The first annual decline in two years prompts reflection on the resilience of the industry in the face of multifaceted challenges. As stakeholders look toward 2024, they do so with a blend of caution and anticipation.

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