Oil set to end turbulent 2022 with second annual gain

Oil set to end turbulent 2022 with second annual gain
FILE PHOTO: A view shows Chao Xing tanker at the crude oil terminal Kozmino on the shore of Nakhodka Bay near the port city of Nakhodka, Russia August 12, 2022. REUTERS/Tatiana Meel

LONDON :Oil rose on Friday and was on track for a second straight annual gain in a volatile year marked by tight supplies because of the Ukraine war and weakening demand from the world’s top crude importer, China.

Crude surged in March with global benchmark Brent reaching $139.13 a barrel, the highest since 2008, after Russia’s invasion of Ukraine sparked supply concerns. Prices cooled rapidly in 2022’s second half on worries about global recession.

“This has been an extraordinary year for commodity markets, with supply risks leading to increased volatility and elevated prices,” said ING analyst Ewa Manthey.

“Next year is set to be another year of uncertainty, with plenty of volatility.”

On Friday, Brent crude was up 32 cents, or 0.4 per cent, to $83.78 a barrel by 0915 GMT. U.S. West Texas Intermediate crude added 31 cents, or 0.4 per cent, to $78.71.

For the year, Brent looked set to gain 8 per cent, after jumping 50 per cent in 2021. U.S. crude is on track to rise 4.6 per cent in 2022, following last year’s gain of 55 per cent. Both benchmarks fell in 2020 as the pandemic hit demand.

“Investors are going into 2023 with a cautious mindset, prepared for more rate hikes, and expecting recessions around the globe,” said Craig Erlam, analyst at brokerage OANDA.

“Volatility is likely going nowhere fast as we navigate another highly uncertain year.”

While an increase in year-end holiday travel and Russia’s ban on crude and oil product sales are supportive, 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’s fall in the second half of 2022 came 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 demand recovery hopes. The world’s No. 2 consumer in 2022 posted its first drop in oil demand for years.

While China is expected to recover in 2023, a recent surge in COVID-19 cases has dimmed hopes of an immediate demand boost.

(Additional reporting by Florence Tan and Emily Chow; Editing by David Evans)

Source: Reuters