Crude oil price poised to end year little changed from 2021

2022 saw prices spike to over $139 a barrel in early March 7 in the initial fall-out from the Russian invasion of Ukraine, before dropping to around $75 a barrel early in December as global recession fears stoked demand fears.

The folly and futility of forecasting commodity prices was rammed home this year, with Russia's invasion of Ukraine upending markets and rendering all prior expectations largely irrelevant.

Nonetheless, analysts are drawn like moths to a flame at this time of the year, churning out new forecasts in the all-too-often vain hope that their soothsaying will prove on the money this time around.

Rather than criticise this orgy of self-flagellation, it's a great exercise in taking stock and identifying trends that may persist or evaporate in the year ahead.

The first thing to note about 2022 was that while commodity prices were shocked by Russia's February 24 attack on Ukraine, many are ending the year little changed or weaker than where they concluded 2021.

The question for 2023 is whether the impact of the war in Ukraine fades as producers supply more coal and liquefied natural gas, or LNG, or whether these markets will remain tight and at elevated prices. 

If the conflict in Ukraine becomes a protracted stalemate, it's likely that the market impact gradually fades away as participants adapt to the loss of supply. 

This dynamic is probably already on display in crude oil, the world's most important commodity, with Brent crude poised to end the year little changed from the last trading day of 2021.

However, this modest change comes after an incredibly volatile year, which saw prices spike to over $139 a barrel in early March 7 in the initial fall-out from the Russian invasion of Ukraine, before dropping to around $75 a barrel early in December as global recession fears stoked demand fears.

If the Ukraine dynamic does fade from global commodity markets, the likely driver for crude is going to be fears of a global economic slowdown, with a generous side-helping of will China's demand recover as the world's biggest oil importer loosens its strict Covid-19 measures.

On the supply side, there is always the risk of more output cuts from the Opec+ group, although a global recession may cause some strains within the alliance, especially if Russia does struggle to find new buyers for its crude and products in the wake of the Group of Seven price cap and the EU ban on imports.

The global economy seems destined for a soft 2023 as central banks continue to tighten monetary policy, while China's re-opening is probably more of a certainty. But whether it will rapidly increase crude imports is less assured. 

Reuters