Domestic crude oil production is holding up despite falling demand; OPEC sends mixed signals
U.S. oil production was flat for a third straight week as demand fell amid growing dismay over a looming economic recession, according to data from the U.S. Energy Information Administration (EIA). published on Wednesday.
Production for the period ended Sept. 9 was equal to that of the previous two weeks at 12.1 million barrels per day, the EIA said in its weekly State of Oil report. This kept production near the 2022 peak of 12.2m bpd reached earlier this summer, but was still around 1m bpd below the pre-pandemic peak reached in early 2020. .
Exploration and production (E&P) companies have been cautious about rapidly ramping up production due to political and investor pressure to focus more on renewables and share buybacks. Now, with stubbornly high inflation threatening to tip the U.S. economy into recession and dampen energy demand, E&Ps have an additional reason to hold the production line, analysts say.
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Global demand has also fallen, partly due to inflation in Europe and elsewhere, and partly due to lower consumption in China. The Chinese government remains committed to a zero-tolerance policy against coronaviruses, necessitating continued economic lockdowns in major cities and minimizing demand for travel fuels in the world’s second-largest economy.
In the United States – home to the largest economy – aggregate oil demand in the latest EIA period fell 3% week/week to 19.3m bpd.
Gasoline and distillate fuel demand are both “well below their respective five-year averages,” said BMO Capital Markets analyst Randy Ollenberger.
Consumption over the past four weeks averaged 19.7 million barrels per day, down 7% from the same period last year. Over the past four weeks, motor gasoline demand averaged 8.6 million bpd, down 9% from a year earlier. Distilled fuel consumption averaged 3.6 million bpd, down 11%, while jet fuel products supplied increased 2.5% to 1.6 million bpd .
U.S. commercial crude inventories, excluding those in the Strategic Petroleum Reserve, rose 2.4 million barrels from the previous week. At 429.6 million barrels, inventories are about 2% below the five-year average, although this is about a third of the shortfall reported at the start of the summer.
Oil prices — and, by extension, gasoline prices — are down more than 20% since a 2022 high reached in June. But they remain high by historical standards at nearly $90 a barrel, contributing to a headline inflation rate that has hovered around a 40-year high and raised the specter of a recession that could further hamper economic growth. request.
The US Bureau of Labor Statistics said on Tuesday its consumer price index, a broad measure of inflation that includes fuel and energy costs, rose 8.3% in August from the same month in 2021. That was down from 8.5% in July and 9.1% in June — the highest rate in four decades — but remained four times the level at which the Federal Reserve says it is healthy for the US economy.
As such, the Fed this year launched its most aggressive interest rate hike campaign since the early 1980s, raising rates multiple times and increasing borrowing costs for consumers and businesses. The hope is that this will slow spending and cool inflation, but market participants are increasingly concerned that this could cause a slowdown. Several Fed officials have said publicly this month that they plan to raise rates again when they meet next week – likely by the same amount as last time, by 0.75 percentage points, although an even bigger raise is on the table.
Stock markets – and various commodities, including oil – fell on Tuesday as investors increasingly brace for a prolonged period of higher borrowing costs and potential economic weakness.
“The bigger picture ultimately means inflation could be more rigid than markets had anticipated, and the Federal Reserve will need to act decisively next week,” said HYCM analyst Giles Coghlan. Capital Markets. “Calls for an even bigger 100 basis point hike are already starting to mount.”
Saudis gain ground, OPEC retreats
OPEC said this week that Saudi Arabia boosted crude production to more than 11 million barrels a day in August, surpassing that level for the first time since the pandemic began.
Saudi-led OPEC said the increase was due to growing demand it expects to support amid global economic momentum. The Kingdom’s increased production has helped the cartel drive a wider production increase in partnership with allies known as OPEC-plus over the summer months.
In its monthly oil market report, OPEC maintained its global economic growth forecast of 3.1% for this year and next.
“Economies like India and the eurozone showed strong growth momentum” in the first half of 2022, “compensating very well for the relatively – and probably temporary – weaker performance of the United States and China,” said OPEC in the report Tuesday.
Thus, cartel researchers have forecast oil demand to increase by 3.1 million bpd this year and 2.7 million bpd in 2023 to reach 102.7 million bpd, eclipsing the pre-pandemic levels.
Despite the report’s upbeat tone, OPEC-plus recently agreed to cut crude oil production by 100,000 bpd in October. The move would effectively offset a targeted increase of 100,000 bpd in September, signaling that cartel production increases have come to an end.
In its monthly oil report, OPEC noted a “continuing high level of uncertainty” in major economies and “increased volatility” in oil markets.