In a year marked by restricted supply because of the crisis in Ukraine, a strong currency, and poor demand from China, the world’s biggest crude importer, oil prices nudged up on Friday and were on course to achieve a second consecutive annual rise, albeit a small one.
Brent crude futures climbed 44 cents, or 0.5%, to $83.90 a barrel by 0138 GMT after settling 1.2% down in the previous session. U.S. West Intermediate crude was at $78.88 a barrel, up 48 cents, or 0.6%, after closing 0.7% lower on Thursday.
Brent is set to close 2022 with a 5.76% gain after rising 50.2% in 2021. Prices surged in March to a peak of $139.13 a barrel, a level not seen since 2008, after Russia invaded Ukraine and sparked supply and energy security concerns.
The WTI is on track to rise 4.5% in 2022 following a 55% gain last year. “This year has been an extraordinary year for commodity markets with supply risks leading to increased volatility and elevated prices,” ING analyst Ewa Manthey said.
“Next year is set to be another year of uncertainty, with plenty of volatility.” Oil prices cooled quickly in the second half this year as central banks across the world hiked interest rates to fight inflation and boosted 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 in December, squashed oil demand recovery hopes at the world’s No. 2 consumer. While China is set to recover in 2023, a surge in COVID cases in the country 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,” John Driscoll, director at consultancy JTD Energy Services, said.
Looking ahead on supplies, western sanctions will push Russia to divert more crude and refined products exports from Europe to Asia. Despite increasing prices, the expansion of output in the main oil-producing states of the US has slowed. According to the most recent study conducted by the Federal Reserve Bank of Dallas, CEOs have lowered their expectations due to inflation, supply chain issues, and economic uncertainty.
