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Business News/ Markets / Commodities/  Oil reports biggest annual drop since 2020, declines 10% in 2023 on demand-supply concerns; Brent sits at $77/bbl
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Oil reports biggest annual drop since 2020, declines 10% in 2023 on demand-supply concerns; Brent sits at $77/bbl

Both oil contracts- Brent crude and US WTI slipped more than 10 per cent in 2023 to close out the year at their lowest year-end levels since 2020.

FILE PHOTO: A view shows oil pump jacks outside Almetyevsk in the Republic of Tatarstan, Russia. REUTERS/Alexander Manzyuk/File Photo (REUTERS)Premium
FILE PHOTO: A view shows oil pump jacks outside Almetyevsk in the Republic of Tatarstan, Russia. REUTERS/Alexander Manzyuk/File Photo (REUTERS)

Crude futures lost over 10 per cent in 2023 in a volatile year of trading and reported their biggest annual drop since 2020, marked by geopolitical conflict in the Middle East and concerns about the oil output levels of major producers around the world. Organisation of Petroleum Exporting Countries (OPEC) is currently cutting output by around six million barrels per day, representing about six per cent of global supply.

Brent crude on Friday, the last trading day of the year, settled at $77.04 a barrel, down 11 cents or 0.14 per cent. US West Texas Intermediate crude settled at $71.65 a barrel, down 12 cents or 0.17 per cent. Both contracts slipped more than 10 per cent in 2023 to close out the year at their lowest year-end levels since 2020.

Also Read: India's crude oil output down 0.4% to 2.4 MMT in November, imports decrease 2.3% YoY: PPAC

Back home, on the Multi Commodity Exchange (MCX), crude oil futures due for a January 19 expiry, settled 0.15 per cent lower at 5,998 per bbl, having swung between 5,965 and 6,062 per bbl during the session, against a previous close of 6,007 per barrel.

What weighed on crude oil prices?

-Brent had climbed 10 per cent and WTI by seven per cent last year, supported by supply concerns following Russia's invasion of Ukraine. The war in the Middle East prompted jitters about potential supply disruptions in the final few months of 2023 that are expected to last into 2024..

-Economists surveyed by news agency Reuters estimate that Brent crude will average $82.56 in 2024, down from November's $84.43 consensus, as they expect weak global growth to cap demand. The ongoing geopolitical tensions could provide support to prices.

-Analysts have also questioned OPEC and its allies or OPEC+ will be able to commit to the supply cuts they have pledged to prop up prices. OPEC is facing weakening demand for its crude in the first half of 2024 just as its global market share declines to the lowest level since the pandemic on output cuts and Angola's exit from the group.

Also Read: Year 2023 | From $82 to near $100 and back: How Brent crude moved in 2023 over OPEC+ cuts and more

-This month, the attacks by Yemen's Houthi militant group on shipping vessels transiting the Red Sea route forced major firms to reroute their shipments. Certain companies are preparing to resume movements through the Suez Canal, but some crude oil and refined product tankers are still opting for the longer route around Africa to avoid potential conflicts in the region.

-By the end of 2023, oil prices dropped to their lowest levels since 2020. The geopolitical tensions in the Middle East escalated on the last day of 2023 as Israel intensified its attacks in southern Gaza, putting upward pressure on prices.

-Data by the US Energy Information Administration (EIA) that showed strong oil demand in October offered some support to prices in intra-day trading. The total US oil demand rose 3.4 per cent in October versus the prior year. US crude oil output fell slightly in October to 13.248 million barrels per day, after it set monthly records in August and September.

Where are prices headed?

Analysts noted that crude oil continued its decline as tensions eased in the Red Sea, coupled with discouraging US economic data. Several shipping companies had halted the use of Red Sea routes earlier this month due to the targeting of vessels by Yemen's Houthi militant group, causing disruptions in global trade and introducing a risk premium to the crude market. 

The situation improved with the deployment of a multi-national task force for patrolling in the Red Sea. On Thursday, US data fell below expectations, exerting additional downward pressure on oil prices. The decrease in US oil inventories provided some support at lower price levels. 

‘’Anticipating ongoing volatility, we project that crude oil prices will fluctuate. Support for crude oil is identified at $71.10–70.50, with resistance at $72.50-73.20 for the current session. In terms of INR, crude oil finds support at Rs5,950-5,880, while resistance is observed at 6,150-6,240,'' said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

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Published: 30 Dec 2023, 07:53 PM IST
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