The volatility seen in oil prices in 2022 was phenomenal. From climbing to a record high in fourteen years hitting $140 per barrel on the back of supply issues to dropping on a weak economic outlook in China, oil prices swung massively during the year. The escalation in prices started with low inventory and tight oil supplies as Russia and Ukraine entered the war. On a larger scale, the world faced a major energy crisis in 2022. The decline in water availability and dependence on fossil fuels for power generation increased energy shortage. The crisis expanded with the geopolitics between Ukraine and Russia and the global supply chain crisis.
Crude oil prices dropped significantly in 2020 when the COVID pandemic hit the world and then reversed in 2021. The elevated prices marched from 2021 into 2022. For context, Brent crude oil jumped 50 percent in 2021, which went further to 10 percent in 2022. Similarly, the WTI benchmark gained 7 percent in 2022 after rising by 55 percent in 2021. The first half of 2022 was characterized by spiking commodity prices including crude oil with extreme supply risks. The Russian invasion of Ukraine played a major role in disruption in the course of global crude oil flows. The Russia-Ukraine debacle pushed oil prices to a record high since 2008. However, the second half of the year saw crude oil prices coming down as the global economy started showing signs of recession amid rising interest rates after the global pandemic.
Despite the uncertainty in the global economy, crude oil prices dropped in 2HCY22 due to rising interest rates as a measure across the globe to curb inflation. Also, the demand for the destruction that came from China’s zero COVID policy contributed to weaker growth prospects and hence lower oil prices. Plus the efforts by OPEC also played a role in balancing prices.
Entering 2023, the outlook for prices continues to be volatile – swayed by the pessimism of slipping into global recession as a result of high inflation and interest rates – and the cautious optimism from the demand recovery post-China’s lifting of zero-Covid restrictions.
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