As 2023 draws to a close, oil is poised to register its most significant annual decline since 2020, despite efforts by OPEC+ and geopolitical factors such as the Israel-Hamas war. Brent crude is holding above $77 per barrel but is on track for weekly, monthly, and quarterly losses. West Texas Intermediate is trading near $72 per barrel. The global benchmark has seen a decrease of about 10% throughout the year, mirroring the retreat of the US marker by a similar amount. A broader Bloomberg commodities gauge has also experienced a comparable decline over the past 12 months.
On Thursday, oil prices closed lower following official US data revealing a reduction in nationwide crude stockpiles but an expansion of holdings at the crucial Cushing, Oklahoma storage hub for the 11th consecutive week, reaching the highest level since August. US crude production continues to operate at a record pace.
The oil market has navigated through a turbulent year, influenced by the Israel-Hamas conflict outbreak and speculation surrounding the Federal Reserve’s stance on interest rates amid decreasing inflation. Despite persistent production cuts by OPEC+ nations, which include Russia, the United Arab Emirates, Kuwait, and Iraq, augmented by concerns about demand growth slowing down, crude futures have faced downward pressure.
Throughout this month, traders have grappled with heightened tensions in the Red Sea following vessel attacks by Houthi rebels in Yemen. Approximately half of the world’s container-ship fleet routinely avoiding the waterway, coupled with the diversion of crude tankers, has extended voyage durations.
Yeap Jun Rong, a market strategist at IG Asia Pte, noted that the prolonged conflict in Gaza is keeping geopolitical tensions elevated. However, a broader equities rally, often referred to as a “Santa rally,” and the US dollar’s recent struggle to gain traction are providing some support for oil as the year concludes.
In the latest round of cuts, OPEC+ members, including Russia, the United Arab Emirates, Kuwait, and Iraq, have committed to additional reductions effective January 1. Additionally, Saudi Arabia plans to maintain a 1 million barrel-a-day cut through the first quarter, with the potential for extension.
