Look at year-end crude oil futures prices for clues

However, the futures markets are forecasting a slight decline in the price of crude oil for the next calendar year … [+] Prices are likely to be volatile heading into New Year’s Eve 2023.

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Nearby crude oil futures contracts, also known as spot monthly contracts, closed at just over $80 a barrel on the last trading day of 2022. What could be in store for us in 2023?

The US benchmark crude price, most evident in the CME Group West Texas Intermediate (WTI) Light Sweet Crude Oil futures contract price, was $80.26 per barrel in 2022 for the February 2023 contract, which is currently the cash month is.

The spot month futures contract represents the next price for physical crude oil currently being traded by those who, as producers and consumers, buy and sell actual barrels of crude oil. Eighty dollars a barrel, according to the above December 30, 2022 settlement price on the CME, is approximately the current price for liquid black gold, as some have put it. But what will the price be a year from now at the end of 2023?

Futures prices are just that, they are prices that represent what the collective market believes today will be the price of crude oil at some point in the future.

Interestingly, the February 2024 CME Crude Oil Futures contract, which will be the spot contract a year from now on the last trading day of 2023, was priced at $76.30/barrel.

This means that the crude oil futures markets are expecting the price of crude oil to fall by almost 5 percent in the coming year. This is good news for inflation and consumers. But it’s a one-time snapshot of expectations, not an indicator of the ups and downs that oil markets are sure to have between now and next year’s New Year’s Eve.

Some believe that crude oil markets will rise in 2023, back towards the $100/barrel mark, partly due to the reopening of China and the threat of production cuts in Russia. Others, like this author, believe that an economic downturn triggered by Europe’s catastrophic winter energy costs and the resulting global fallout (all of which will coincide with the arrival of cold weather) will push crude oil prices closer to $50/barrel will.

Based on last year’s oil price volatility, the most likely scenario is that both of the above price predictions will materialize in calendar year 2023. Anything can happen and perceptions of the future will change, but as of now, New Year’s Eve 2022, futures markets are forecasting a slight year-on-year decline in the price of crude oil in 2023.