Is It Safe To Buy Oil Amid Delivering Negative Returns On The Year?

2022 turned out to be a tricky year for oil traders. Until recently, oil delivered positive returns on the year, moving to the $130/barrel area.

It opened the year around $80/barrel and spiked higher on the news that Russia has invaded Ukraine. In the following months, sanctions imposed by Western nations on Russia led to chaotic price movements in the context of a European energy crisis.

But after failing to hold above $120/barrel in the summer, the price of oil gave up all of its gains. And some more.

Oil currently trades below the 2022 opening levels – which is curious given the fact that the war did not end in the meantime. But oil prices are influenced by various factors, geopolitical strategies being just one of them.

Given that oil now trades below $80/barrel, is it time to go long? 

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Crude oil chart by TradingView


Fears of a global economic recession keep down the price of oil

One of the reasons why oil prices tumbled from the highs is the slowdown in global economic growth. Oil demand closely tracks changes in the world GDP and a global economic recession is in the cards in the first half of the upcoming year.

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While oil supply is close to all-time high levels, a world economic recovery in the second half of next year should boost demand and, thus, oil prices.

Moreover, the United States might be tempted to replenish its Strategic Petroleum Reserve at the current price levels. It deployed massive oil quantities to the market in a desperate attempt to bring oil prices down this year.

The reason was that inflation in the United States (and the world) has risen to levels not seen in more than four decades, and higher oil prices fuel inflation. But now that oil fell below 2022 opening levels, it might be an interesting bet to be long a commodity that tracks the world GDP given the prospects of global economic growth in H2 2023.

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