Oil prices shed 10% in 2023 as supply, demand concerns weigh

Brent crude on Friday, the last trading day of the year, settled at $77.04 a barrel, down 11 cents or 0.14%. U.S. West Texas Intermediate crude settled at $71.65 a barrel, down 12 cents or 0.17%.

Both contracts slipped more than 10% in 2023 to close out the year at their lowest year-end levels since 2020.

Brent had climbed 10% and WTI by 7% last year, supported by supply concerns following Russia's invasion of Ukraine.

A Reuters survey of 34 economists and analysts forecast Brent crude will average $82.56 in 2024, down from November's $84.43 consensus, as they expect weak global growth to cap demand. Ongoing geopolitical tensions could provide support to prices.

Analysts have also questioned whether the Organization of the Petroleum Exporting Countries and allies, or OPEC+, will be able to commit to the supply cuts they have pledged to prop up prices.

OPEC+ is currently cutting output by around 6 million barrels per day, representing about 6% of global supply.

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.

Meanwhile, 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.

"We are going to see continued volatility as we go into 2024 with the geopolitical events and the fear that the conflict could spread throughout the region," said Andrew Lipow, president of Lipow Oil Associates.

This month, attacks by Yemen's Houthi militant group on shipping vessels transiting the Red Sea route forced major firms to reroute their shipments.

Although certain companies are preparing to resume movements through the Suez Canal, some crude oil and refined product tankers are still opting for the longer route around Africa to avoid potential conflicts in the region.

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 released on Friday by the U.S. Energy Information Administration (EIA) that showed strong oil demand in October offered some support to prices in intra-day trading, said UBS analyst Giovanni Staunovo.

Total U.S. oil demand rose 3.4% in October versus the prior year, the report said.

U.S. crude oil output fell slightly in October to 13.248 million barrels per day, after it set monthly records in August and September.

Energy firms this week added oil and natural gas rigs for the first time in three weeks, energy services firm Baker Hughes said in a report on Friday, indicating output could rise in the future.

For the year, however, the rig count was down by 157 after gaining by 193 in 2022 and 235 in 2021.