Oil Prices Forecast: 2023 Loss Marks First Annual Decline in Two Years

Highlights

• Annual oil prices set to drop 10%.
• Geopolitical tensions and production cuts weigh on oil.
• Short-term outlook suggests bearish trend.

Oil Prices Facing First Annual Decline in Two Years

Oil prices are on the verge of closing 2023 with an unexpected annual decline of approximately 10%, breaking a two-year streak of gains. This shift can be attributed to a tumultuous year marked by geopolitical tensions, production cuts, and global efforts to control inflation. As the year draws to a close, oil markets remain in a state of uncertainty, leaving traders and investors closely monitoring the situation.

Price Movements on the Last Trading Day

As of the final trading day of 2023, Brent crude futures managed to eke out a modest gain, rising by 48 cents to reach $77.63 per barrel. Simultaneously, U.S. West Texas Intermediate (WTI) crude futures edged up by 37 cents, closing at $72.14. This modest uptick follows a substantial 3% drop the previous day, which had been triggered by mounting concerns in the Red Sea region.

Annual Performance and Its Significance

Despite the recent stabilization in oil prices, both Brent and WTI benchmarks are on course to conclude the year at levels not seen since 2020. During that time, the COVID-19 pandemic ravaged global demand and sent oil prices plummeting. The fact that oil is poised for an annual decline after two years of growth underscores the challenges it has faced throughout 2023.

Factors Affecting the Oil Market

The production cuts implemented by the OPEC+ alliance, though significant, have struggled to provide sustained support to oil prices. This is evident in the nearly 20% decline from the year’s peak earlier.

Short-Term Outlook: Bearish

The outlook for oil prices in the short term appears bearish. The market continues to grapple with uncertainty and volatility, driven by geopolitical factors and the delicate balance between supply and demand. As a result, oil prices face headwinds as they head into the new year, with the potential for further declines in the near future.

Technical Analysis

The current daily price of Light Crude Oil Futures stands at $72.03, lower than the previous daily close of $74.11. In terms of moving averages, the asset is trading below both the 200-day moving average of $76.50 and the 50-day moving average of $76.97. This suggests a bearish trend, as the current price is below both longer-term and shorter-term averages.

The main support level is at $66.85, while the main resistance level is at $77.43. Minor support and resistance both coincide at $72.48, making it a pivotal price point.

In summary, considering the current price below both moving averages and the presence of key support and resistance levels, the market sentiment appears bearish. The position relative to moving averages indicates a potential downward trend. However, it’s crucial to monitor price action around the pivotal level of $72.48 for potential trend shifts.