Low Prices of Crude Oil Pulled Gas Prices Along in 2023

Average crude oil prices fell below 2022 levels at all three major benchmarks in 2023. A multitude of factors, including the ongoing conflict in Europe, emerging geopolitical issues in the Middle East, and OPEC’s production plans have all made significant impacts on oil prices. U.S. gasoline prices followed suit.

Crude oil is primarily purchased and sold using three different pricing benchmarks, indicating where the oil was produced. Brent crude prices oil extracted from European operations in the North Sea, the West Texas Intermediate (WTI) handles American oil, and the Dubai benchmark is used for oil derived from countries near the Persian Gulf. Each of these regions produces different qualities of oil that are exported to specific markets.

A recent Energy Information Administration (EIA) analysis comparing Brent crude prices illustrates the year-over-year fall. According to the report, Brent crude had an average price of $101 per barrel in 2022, which then fell to $83 in 2023. On average, a barrel of Brent crude oil in 2023 was $19 less expensive than the year prior. In addition to Brent, WTI and Dubai price averages follow the same trend.

The fall in oil prices can be attributed to a collection of ongoing and emerging regional and global issues. According to the EIA, in the case of Brent oil, the European Union’s (EU) blockade of Russian oil and inflationary concerns caused volatility in prices for the first half of 2023, as Russia found new markets. This in turn led to lower-than-expected demand for oil, which put downward pressure on prices. Prices began to rise slightly in the mid-year in response to OPEC+’s decision to continue with production cuts to combat low prices and demand.

Production cuts helped raise prices into Q3 of 2023, which continued as a response to potential supply instability driven by the Israeli-Hamas conflict. Prices began to fall again as the conflict in the Middle East proved to be less disruptive to oil supplies but then increased dramatically in December as shipping vessels in the Red Sea came under attack by insurgent forces. This forced vessels to reroute their voyages using longer, but safer, passages, and pay higher insurance rates given the increased risk of attack. These factors combined then caused prices to rise again.

The effects of 2023’s volatile oil market can be seen in gasoline prices in the United States. Weekly average regular gasoline prices in the United States fell in all regional markets, culminating in an average price 40 cents lower than 2022 prices.

Volatility and instability may be trends that follow the global oil market in 2024 as increasing pressures from geopolitical conflicts and global economic concerns continue to grow.