Energy Prices Continue to Decline as Inventories Soar
In recent months, energy prices have seen a significant decline, with this trend expected to continue in the near future. The retail prices for gasoline and diesel have fallen by 33% since June, while the price of natural gas has experienced an even greater drop of 70%.
The increase in crude oil inventories is one of the key reasons for this price decline in gasoline and diesel. Since December, inventories have risen by 14%, with the Energy Information Administration (EIA) reporting a further increase of 1.6 million barrels this week. This brings total inventories (excluding the Strategic Petroleum Reserve) to 480 million barrels, up from 420 million barrels in December.
According to EIA, crude oil is forecast to average $77 per barrel in 2023, which is $11 less than its previous prediction of $86. Gasoline has also been revised down from $3.51 to $3.32, and diesel at $4.20 down 16%. Natural gas is expected to average $4.90 per million British thermal units, which is a 9.8% drop from its previous estimate of $5.43.
On Wednesday, West Texas Intermediate crude oil closed at $77 on the New York Mercantile Exchange. EIA stated that the national average for retail gasoline was $3.34 per gallon on Wednesday.
EIA based its new projections on expectations of a slowing economy, with a growth rate of 0.5% in GDP, and an increase in global petroleum supplies.
“Relatively flat economic growth in 2023 results in total U.S. energy consumption falling by 0.9% in our forecast,” EIA stated. “We forecast that global liquid fuels consumption will increase 1% in 2023 (1.0 million b/d),” EIA said. “Petroleum consumption growth is driven by rising petroleum demand in China and India in both years (2023 and 2024).”
EIA also forecast global petroleum production to increase by 1% (1.1 million b/d) from 2022 to 2023. “We forecast that U.S. production will grow by 5% (1.0 million b/d) in 2023, and OPEC liquid fuels production (which includes crude oil) will increase by 0.5% (160,000 b/d) in 2023.”
Despite this, the amount of oil produced and sold internationally by Russia remains uncertain. On Feb. 5, the European Union’s ban on seaborne imports of petroleum products from Russia became effective, which is expected to be more disruptive to global petroleum markets than the EU’s December 2022 ban on seaborne crude oil imports from Russia.
EIA said that oil production in the U.S. is expected to reach historic highs in 2023, averaging 12.4 million barrels per day (b/d), surpassing the previous high of 12.3 million b/d in 2019.
“Implied builds in global petroleum inventories (when there is more petroleum production than consumption) are driving these declines in crude oil prices,” EIA said.
In summary, the decline in energy prices is expected to continue as crude oil inventories continue to rise and the global petroleum market experiences an increase in supplies. With EIA forecasting historic highs in oil production, consumers can look forward to further declines in prices at the pump.