Oil prices rose on Friday, on track for a second but modest annual gain in a row in a tumultuous year marked by supply shortages from the Ukraine war, a strong dollar and weakening demand from the world’s top crude importer China.
The futures of the Brent crude They advanced 59 cents, or 0.7 percent, to $84.05 a barrel at 0730 GMT, after falling 1.2 percent in the previous session.
Brent was on track to end the year up 8%, after jumping 50.2% in 2021. Prices soared in March to a high of $139.13 a barrel, a level not seen since 2008, after Russia invaded Ukraine, sparking concerns about supply and energy security.
U.S. crude West Texas Intermediate It was trading at $78.90, up 50 cents, or 0.6 percent, after closing down 0.7 percent on Thursday. It is on track to rise 4.8% in 2022, following last year’s 55% advance.
While an increase in year-end holiday travel and Russia’s ban on sales of crude oil and petroleum products support oil prices, supply shortages will be offset by declining consumption due to a deteriorating economic environment next year, CMC Markets analyst Leon Li said.
“The global unemployment rate is projected to rise rapidly in 2023, which will dampen energy demand. So I think oil prices may fall to $60 next year,” he said.
Oil prices cooled rapidly in the second half of this year, as central banks raised interest rates to fight inflation, boosting the U.S. dollar. This made dollar-denominated commodities a more expensive investment for holders of other currencies.
In addition, Chinese coronavirus restrictions and the “zero contagion” policy, which were not eased until this month, crushed hopes of recovery in oil demand of the world’s second largest consumer. Although China is expected to recover slowly in 2023, rising COVID-19 cases and concerns about the global recession cloud the outlook for commodity demand.
“The recent easing of travel restrictions was expected to boost oil demand; however, the sharp rise in COVID cases in China has raised serious concerns about a potential global outbreak,” said John Driscoll, director of consultancy JTD Energy Services.
Countries such as Japan, South Korea and the United States responded to China’s uptick by mandating mandatory COVID-19 testing for travelers coming from the country.
A health data firm estimates that about 9,000 people have died daily from COVID-19 in China, as infections spread in the world’s most populous nation.
As for supplies, Western sanctions will push Russia to divert more exports of crude and refined products from Europe to Asia.
In the United States, production growth in major oil-producing states has slowed despite rising prices. Inflation, supply chain problems and economic uncertainty have led executives to lower their expectations, according to the latest survey by the Federal Reserve Bank of Dallas.
“This has been an extraordinary year for commodity markets, with supply risks leading to increased volatility and prices,” said Ewa Manthey, an analyst at ING.
“Next year will be another year of uncertainty, with a lot of volatility.”