Oil expected to conclude turbulent 2022 marginally higher
Oil prices edged up on Friday, on track for their second straight annual gains, although modest, in a stormy year marked by tight supplies because of the Ukraine war, a strong dollar and weakening demand from the world’s top crude importer, China.
Brent crude futures rose 59 cents, or 0.7%, to $84.05 a barrel by 0730 GMT, after settling down 1.2% in the previous session.
Brent looked set to end the year with a gain of 8%, after jumping 50.2% in 2021. Prices had surged in March to a peak of $139.13 a barrel, a level unseen since 2008, after Russia invaded Ukraine, sparking supply and energy security concerns.
U.S. West Texas Intermediate crude was at $78.90, up 50 cents, or 0.6%, after closing 0.7% lower on Thursday. It is on track to rise 4.8% in 2022, following last year’s gain of 55%.
While an increase in year-end holiday travel and Russia’s ban on crude and oil product sales are supportive of oil prices, supply tightness will be offset by declining consumption due to a deteriorating economic environment next year, said CMC Markets analyst Leon Li.
“The global unemployment rate is expected to rise rapidly in 2023, restraining energy demand. So, I think oil prices may fall to $60 next year,” he said.
Oil prices cooled quickly in the second half of this year as central banks hiked interest rates to fight inflation, boosting the U.S. dollar. That made dollar-denominated commodities a more costly investment for holders of other currencies.
Also, China’s zero-COVID restrictions, which were only eased this month, squashed oil demand recovery hopes for the world’s No. 2 consumer. While China is expected to slowly recover in 2023, its surge in COVID infections and global recession concerns are clouding the commodities demand outlook.
“The recent easing of travel restrictions was expected to boost oil demand; however, the sharp increase in COVID cases in China has raised serious concerns over a potential global outbreak,” said John Driscoll, director at consultancy JTD Energy Services.
