One of the biggest storylines of 2022 has been the raging bull market in oil.

There are a couple of factors to note that drove the bulk of oil's gains in the first half of the year: during the coronavirus crisis, oil prices plunged due to diminished demand and projections of weak demand; it turned out that oil demand was much more resilient than expected, and this, in concert with lower supply, led to rising prices; this dynamic was exacerbated by Russia's invasion of Ukraine which led to all sorts of sanctions that are expected to impact Russia's ability to produce oil in the coming years.

In recent months, there have been some more developments to note that is more bearish in nature. Some of these include a continued slowing in economic growth which should negatively impact oil demand, the Biden Administration boosting oil production through relaxing sanctions on Venezuela and the strategic petroleum reserve (SPR), and Russian oil continuing to find its way onto global markets despite sanctions which are also impacting prices.

All in all, oil prices started the year around $75, rose to a peak of $130, and have backed off back to $75.

As we enter 2023, there are a few dynamics for investors to consider. The major one is economic growth and whether the U.S. and/or global economy fall into a recession which would certainly curtail oil demand and lead to a major plummet even if supply is tight.

Another factor is China reopening and whether or not it continues to pursue the path of normalization even at the cost of the pandemic essentially re-emerging in the country. And, the final major one is the Biden administration's attempts to refill the SPR as it recently announced plans to buy back 3 million barrels out of the 200 million that it sold.

On every timeframe, oil seems to have longer, bullish fundamentals that are being negated by short-term, bearish considerations. For instance, CAPEX in the sector has been below trend for many years which is an indication of lower oil production in the future, but in the short-term, the U.S. has increased its exports from 7 million barrels per day to 11 million per day in 2022. And, other countries have increased production to take advantage of higher prices.

If a recession does materialize and demand is meaningfully dented, then it's likely we see much lower prices in 2023 regardless of the longer-term picture. But these fundamentals do mean that if or when the Federal Reserve pivots and/or we get a turn in the global growth picture, then oil is likely to grab the baton and resume its leadership role.