Oil set to end turbulent 2022 with second annual gain

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

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

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

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« Next year should be another year of uncertainty, with a lot of volatility. »

On Friday, Brent was up 5 cents at $83.51 a barrel at 11:05 GMT. U.S. West Texas Intermediate crude fell 12 cents, or 0.2%, to $78.28.

For the year, Brent is expected to gain more than 7%, after jumping 50% in 2021. U.S. crude is expected to rise 4.1% in 2022, following last year’s 55% gain. Both benchmarks fell in 2020 when the pandemic hit demand.

“Investors enter 2023 with a cautious mindset, prepared for further rate hikes and expecting recessions around the world,” said Craig Erlam, analyst at OANDA.

« Volatility is probably not going anywhere fast as we navigate another very uncertain year. »

While increased year-end holiday travel and Russia’s ban on sales of crude oil and petroleum products are supportive, tighter supply will be offset by lower consumption due to the deterioration of the economic environment next year, said Leon Li, an analyst at CMC Markets.

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“The global unemployment rate is expected to rise rapidly in 2023, limiting energy demand. So I think oil prices could fall to $60 next year,” he said.

Oil’s fall in the second half of 2022 came as central banks raised interest rates to fight inflation, boosting the US dollar. This made commodities denominated in dollars a more expensive investment for holders of other currencies.

Additionally, China’s zero-COVID restrictions, which were only eased this month, have dashed hopes of demand recovery. The world’s second-largest consumer in 2022 saw its first decline in oil demand in years.

With China set to recover in 2023, a recent surge in COVID-19 cases has dimmed hopes for an immediate surge in demand.

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


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