U.S. crude oil sheds more than 10% for the year in first annual decline since 2020

Key Points

• Oil Prices and Annual Decline: U.S. crude oil closed the year with a more than 10% decline, influenced by bearish sentiment and concerns about oversupply from record production outside OPEC. The West Texas Intermediate (WTI) contract for February settled at $71.65 a barrel, down 12 cents, and the Brent contract for March settled at $77.04, losing 11 cents. Despite ongoing geopolitical risks in the Middle East, such as the war in Gaza, both WTI and Brent experienced their first annual decline since 2020, with losses of 10.73% and 10.32%, respectively.
• Record U.S. Production and Supply Dynamics: The United States is producing crude oil at a record pace, reaching an estimated 13.3 million barrels per day, contributing to historic production levels in Brazil and Guyana as well. This surge in production outside OPEC has coincided with an economic slowdown in major economies, particularly in China. OPEC and its allies have committed to cutting production by 2.2 million barrels per day in the first quarter of 2024, but traders show little confidence in the effectiveness of these measures. The International Energy Agency (IEA) anticipates that oil production outside OPEC, especially in the U.S., will exceed demand growth in 2024, impacting the global oil trade significantly.
• Middle East Geopolitical Tensions: While fears of escalation in the Middle East have briefly spiked crude prices, the market primarily focuses on the supply and demand balance. Geopolitical events, such as a drone attack in Iraq by Iran-backed militants, retaliatory strikes ordered by President Joe Biden, and attacks on vessels in the Red Sea by Iran-backed militants in Yemen, have caused concerns. Analysts, including Helima Croft of RBC Capital Markets, emphasize the importance of monitoring developments in the Middle East closely, particularly anything that may lead to a more direct confrontation between Iran and the United States. The situation in Israel’s northern border with Lebanon is described as a “multiarena war,” involving areas like Gaza, the West Bank, Iran, Iraq, Lebanon, Syria, and Yemen.