IEEJ： February ©IEEJ 2024
Special Bulletin
A Japanese Perspective on the International Energy Landscape (673)January 24, 2024

Crude Oil Prices in 2023 Higher Than in 7 Years before 2022
Ken Koyama, PhD
Chief Economist, Senior Managing Director
The Institute of Energy Economics, Japan
Daily closing prices of the front-month futures contract in 2023 averaged $82.15 per barrel
for the benchmark Brent crude and $77.60/bbl for West Texas Intermediate, another benchmark crude.
In 2022 when crude oil prices rose far above $100/bbl in response to the international energy market’ssudden destabilization caused by the outbreak of the Ukraine crisis, the average soared to $99.04/bbl
for the Brent and $94.33/bbl for WTI. From the 2022 levels, the Brent and WTI average prices dropped
by some $17/bbl.
The highest price in 2023 was $96.55/bbl for the Brent and $93.68/bbl for WTI on
September 27. The lowest was $71.64/bbl for the Brent on June 12 and $66.74/bbl for WTI on March
17. The highs and lows deviated by a little more than $10/bbl from the respective averages. Crude oil
prices were thus becoming calm again in 2023 after soaring steeply amid the Ukraine crisis. In thefirst half of the year, in particular, downward pressure continued on crude oil prices as a global
economic slowdown became remarkable. In response, the OPEC-plus group of oil-producing
countries enhanced production cuts to support crude oil prices. Due to additional voluntary production
cuts by Saudi Arabia and some others, crude oil prices entered an upward phase from June toSeptember and hit the year’s highs in late September, as mentioned above. After a temporary surge
upon the outbreak of the Gaza crisis in October, crude prices declined again, prompting the OPECplus group to enhance production cuts again in late November.
As indicated by the average decline of $17/bbl in crude oil prices and the OPEC-plus group’s
repeated efforts to resist downward pressure on prices, the year 2023 seemed to feature a downward
phase for crude oil prices. Despite the downward phase, however, the 2023 average prices of around$80/bbl cannot be viewed as low.
Rather, the 2030 average prices were higher than in seven years before 2022 when oil prices
shot up amid the Ukraine crisis. From 2011 to 2014, crude oil prices basically remained at levels above$100/bbl. Stimulated by the high prices, U.S. shale oil production expanded tremendously. In the fouryears to 2014, U.S. oil production increased by more than 4 million barrels per day. The drastic
increase in supply led the supply-demand balance to ease, pushing down crude oil prices since 2015.
The annual average Brent price came to about $54/bbl in 2015, about $45/bbl in 2016, about$55/bbl in 2017, about $72/bbl in 2018, and about $64/bbl in 2019. In 2020, however, it fell back toabout $43/bbl due to the enormous impact of the COVID-19 crisis. The average Brent price soared
later, hitting a high close to $100/bbl in 2022 and retaining its strength in 2023.
Incidentally, it should be recalled that the OPEC-plus group was created as a new frameworkin the international oil market to counter occasional but very strong downward pressure on oil prices
amid their weakening from 2015. As crude oil prices slipped below $30/bbl temporarily in 2016 under1

IEEJ： February ©IEEJ 2024
downward pressure of the shale oil production expansion, the Organization of the Petroleum ExportingCountries and some of the non-OPEC oil-producing countries issued their Declaration of Cooperation
to form the OPEC-plus group in December 2016. After WTI futures prices abnormally plunged to thenegative territory amid the COVID-19 crisis, the OPEC-plus group launched the largest evercoordinated production cuts, which successfully formed the basis for price hikes in 2021 and beyond.
In the three weeks from the start of 2024, the Brent has remained in a narrow range above$75/bbl, continuing the trend seen since the OPEC-plus group’s announcement of additional
production cuts at the end of November 2023. Although there are various price-moving factors in theinternational oil market, they might have reached a strange kind of equilibrium.
According to the International Energy Agency’s latest monthly Oil Market Report (January2024), global oil demand in 2024 is expected to increase by 1.24 million bpd or 1.2% from the previousyear to 102.96 million bpd under moderate economic growth. On the other hand, the expansion of oil
supply will continue steadily in 2024. Non-OPEC production is expected to increase by 1.3 million
bpd (including 0.62 million bpd in U.S. production) to 70.37 million bpd. Since the increase in nonOPEC production is slightly larger than the rise in oil demand, the call on OPEC (demand for OPEC
crude oil or oil demand minus non-OPEC production) will decline slightly in 2024 from the previousyear. Over the course of the year, OPEC will need to keep production unchanged or slightly reduce it.
In this sense, the overall supply-demand situation in 2024 may be close to equilibrium.
Under these circumstances, various factors are expected to exert influence on the marketand crude oil prices. First of all, a representative potential factor to push up oil prices is the impact ofgeopolitical risks or oil supply disruptions. In this regard, the Gaza crisis and the destabilization of theMiddle East, which have continued to escalate, expand and spread conflicts and tensions since theoutbreak of the crisis in October last year, are the largest matters of concern at present. As the Gazacrisis itself has continued to worsen in terms of human casualties and humanitarian crises, geopoliticalrisks in the Middle East have remained extremely high amid conflicts between Hezbollah and Israel,
Houthi attacks on tankers, U.S. and other attacks on Houthis, and rising tensions over Iran. So far, theissue of the Houthis has raised concerns about the safety of tanker traffic, forcing tankers to bedetoured at the cost of freight fare hikes. However, the oil supply itself from the Middle East has notbeen particularly affected. If some unforeseen events cause turmoil or destabilization in the Middle
East to directly affect oil supply, strong upward pressure may be placed on crude oil prices.
With regard to geopolitical risks, we should pay close attention to the situation in East Asia
as well. The energy market may be affected depending on how China-Taiwan relations will unfold inresponse to the recent Taiwanese presidential election or whether tensions in the Taiwan Strait willrise. For Japan and South Korea, the stability of the Taiwan Strait is important for maritime energy
transportation routes. In this regard, attention should be paid to the existence and impact of geopoliticalrisks on the international oil and energy market in 2024.
On the other hand, China's economic and energy demand/import trends also need to beclosely watched in the future in the wake of the recent announcement that China achieved an economic
growth rate of 5.2% in 2023. Given concerns over growing uncertainties about the current state andoutlook of the Chinese economy, China’s economic slowdown and subsequent demand slump may
have a significant impact on the global energy market as a whole. Amid rising stock prices in Japanand the United States, there are hopes for global economic growth. However, some observers are stillconcerned about an economic downturn. Furthermore, oil supply has the potential to increase.
Downward pressure thus remains on the market. When downward pressure materializes, the OPEC2IEEJ： February ©IEEJ 2024
plus group may be prompted to enhance production cuts to support oil prices. Then, the group’s unity
and implementation of further production cuts may be tested. Depending on the success or failure ofOPEC-group actions, crude oil prices may move significantly. We should pay close attention to whenand how the market will change from the relatively quiet equilibrium that has continued so far.

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