Oil’s Historic Plunge: Prices Post Steepest Annual Drop Since Covid

The Year Crude Lost Its Swagger

HOUSTON—On the final trading day of the year, Brent crude settled at $75.90 a barrel, down 27 % from January and its steepest annual slide since the pandemic wiped out demand in 2020. West Texas Intermediate fared worse, shedding 29 % and closing below $71 for the first December finish since 2021.

Surplus, Not Shortage, Spooks Traders

The story of 2023 was never about scarcity. Global supply rose by 1.8 million barrels a day, led by record U.S. shale output and a surprise 600,000-bpd rebound from sanctioned Russia. Meanwhile, Chinese consumption grew at its slowest pace since 1990 outside of lockdown years, leaving the market awash in crude.

“We went into the year fretting over $100 oil,” said Helima Croft, head of commodity strategy at RBC Capital. “We exit it worrying about storage tanks topping out in Cushing.”

From OPEC+ Cuts to OPEC+ Shrugs

OPEC+ removed a combined 1.66 million bpd from the market in two waves, yet prices kept sliding. Traders cited two reasons:

• Non-OPEC supply growth of 2.4 million bpd dwarfed the cartel’s restraint.
• Speculative net-long positions in Brent and WTI fell to a 12-year low, erasing the “fear premium” that once cushioned geopolitical shocks.

Consumers Win, Petro-States Wince

U.S. gasoline averaged $3.28 a gallon in December, down 42 ¢ year-on-year, gifting American drivers an estimated $55 billion in savings. Conversely, Saudi Arabia’s fiscal breakeven hovers near $84, putting pressure on Crown Prince Mohammed bin Salman’s giga-projects.

What 2024 Holds

Analysts at Goldman Sachs flag a potential 500,000-bpd deficit in the second half, citing declining U.S. shale growth and a rebound in jet-fuel demand. Yet the forward curve remains stubbornly backwardated, signaling little urgency to hoard barrels today.

For now, the market’s mantra is simple: surplus today, surplus tomorrow, surplus forever—until it isn’t.