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What’s happening: Crude oil settled slightly lower on Friday, after recording a sharp decline in the previous session.
What happened: Crude oil prices closed 2023 down more than 10% following two years of gains.
Oil prices ended the year at their weakest levels since 2020, when the pandemic weighed on energy demand.
Why it matters: Oil prices remained highly volatile in 2023 due to several factors, including geopolitical conflict, output cuts by the OPEC, central banks around the world tightening their monetary policy and a slow recovery in the Chinese economy.
The OPEC+ (Organization of the Petroleum Exporting Countries and allies) had announced several production cuts last year, but those provided only short-term support to oil prices. Both WTI and Brent crude fell around 20% from their 2023 highs. The OPEC+ is currently lowering oil output by approximately 6 million bpd (barrels per day).
Expansion in crude production by non-OPEC countries, along with uncertainty in oil demand, negatively impacted oil prices last year. Angola’s surprise exit from the OPEC group also impacted oil markets.
Crude oil declined by around 3% on Thursday, with more shipping companies saying that the Red Sea route was open again.
Strength in the US dollar also exerted pressure on crude oil prices, as a higher greenback generally makes commodities like oil more expensive for foreign currency holders.
On the last trading day of 2023, Brent crude futures fell 11 cents, or 0.1%, to close at $77.04 per barrel, while WTI crude futures slipped 12 cents, or 0.1%, to settle at $71.65 per barrel on the New York Mercantile Exchange.
WTI crude lost around 10.7% in 2023, while Brent recorded an annual loss of 10.3%. The weak performance of oil last year contrasts with the global stock markets, which closed the year higher. The MSCI equity index, which tracks equity markets in 47 nations, gained around 20% in 2023, with investors looking forward to rate cuts by the US Federal Reserve.
In other energy trading, January gasoline gained 0.8% to $2.103 a gallon, while January heating oil slipped 0.1% to $2.553 a gallon and February natural gas fell 1.7% to close at $2.514 per million British thermal units on Friday.
Gasoline futures ended the year with losses of 14.5%, while heating oil and natural gas were down 24.1% and 44%, respectively.
What to watch: Investors await release of US crude stockpiles data, due on Thursday. Crude oil inventories in the US contracted by 6.911 million barrels in the week ending December 22, the most in four months. US natural gas inventories declined by 87 billion cubic feet during the week.
Context: European stocks closed higher on Friday and recorded gains for the year.
Details: High inflation rates and monetary policy tightening were among the major concerns for investors last year. However, the annual headline inflation in the US eased to 3.1% in November, from 6.4% in January, while inflation in the Eurozone slowed to 2.4% in November, from 8.5% at the beginning of 2023.
At its final meeting of 2023, the European Central Bank (ECB) kept its benchmark deposit rate unchanged at a record-high of 4% and lowered its inflation projections for 2024.
The STOXX Europe 600 Index gained 0.2% to close at 479.02 on Friday, with most sectors closing higher amid thin trading. The leading European index closed 2023 with gains of around 12.7%, following a decline of 12.9% in 2022.
Germany’s DAX 40 climbed 0.3% to close at 16,751.64 on Friday, gaining more than 20% in 2023. France’s CAC 40 rose 0.11% to settle at 7,543.18, adding around 16.5% for the year. London’s FTSE 100 gained 0.14% on Friday and rose around 3.8% last year.
What to watch: Traders await the release of economic data on manufacturing PMI, loans to non-financial corporations, household credit growth and money supply M3 from the Eurozone today. The HCOB Eurozone manufacturing PMI is expected to remain unchanged at 44.2 in December.
Lending to companies in the Eurozone, which declined by 0.3% year-over-year in October, is expected to contract by 0.7% in November. Analysts expect bank lending to households in the Eurozone to grow by 0.3% year-over-year in November, following a 0.6% rise in October.
Other Markets: US trading indices closed lower on Friday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.05%, 0.28% and 0.43%, respectively.
Russian President Vladimir Putin vowed to intensify strikes on military targets in Ukraine after an unprecedented attack over the weekend on the Russian city of Belgorod. The news sent the safe-haven US dollar index higher this morning.
Ireland’s AIB manufacturing PMI declined to 48.9 in December, from 50 a month ago, exerting pressure on the EUR/USD forex pair.
Qatar’s trade surplus shrank by 36.3% year-over-year to QAR 16.7 billion in November, from QAR 26.2 billion in the year-ago month. This being the smallest surplus since May 2021 sent the QAR/USD pair lower in forex trading this morning.
Australia’s Judo Bank manufacturing PMI fell to 47.6 in December, from a preliminary estimate of 47.8. This represented contraction in the manufacturing sector at the quickest pace since May 2020 and exerted pressure on the AUD/USD forex pair.
China’s official NBS manufacturing PMI declined to 49.0 in December, from 49.4 in the earlier month. The figure also missed market expectations of 49.5 and sent the CNY/USD pair lower in forex trading this morning.
Australia’s commodity prices, Türkiye manufacturing PMI and balance of trade, Spain’s manufacturing PMI and new passenger car registrations, Italy’s manufacturing PMI, France’s manufacturing PMI, Germany’s manufacturing PMI, UK’s manufacturing PMI, Brazil’s manufacturing PMI, balance of trade and Central Bank of Brazil focus market readout, Canada’s manufacturing PMI, US manufacturing PMI and construction spending, as well as Russia’s consumer price index.
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