Recent fears of the US economy entering a recession, coupled with high inflation and rising interest rates, have caused a decline in the oil industry in Texas and across the United States. The decline in the oil industry has been reflected in a drop in crude oil prices, which have fallen by 40% from a year ago, now at $69 per barrel compared to $120 per barrel a year ago. The decrease in oil prices has also impacted gasoline and diesel prices, which have followed the decline and are now down by an average of $0.80 per gallon.
On March 20, the average U.S. retail gasoline price was $3.422, compared to $4.239 a year ago, and diesel averaged $4.185, compared to $5.134 last year. Federal Reserve Chairman Jerome Powell announced on Wednesday that the Federal Reserve Bank is increasing interest rates by another 0.25%, taking it from 4.75% to 5.00%. He said inflation remains elevated, and the Fed expects inflation to reach 3.5% by the end of the year. Chairman Powell also stated that the U.S. economy is slowing down, and he expects real GDP (gross domestic product) to grow slightly at a rate of 0.4%.
All these factors point to a decline in demand for petroleum products, leading to a rise in crude oil inventories. According to the Energy Information Administration (EIA), crude oil inventories are up by 14% since December, with an increase of 1.8 million barrels this week, bringing total inventories (excluding Strategic Petroleum Reserve) to 481 million barrels. Inventories in December were at 420 million barrels.
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EIA recently revised its crude oil price forecast for 2023 down to an average of $77 per barrel, $11 less than its previous prediction of $86. Gasoline and diesel prices were also revised down, with gasoline at $3.32 and diesel at $4.20, down 16%. EIA attributed the revisions to expectations of a slowing economy (0.5% growth in GDP) and an increase in global petroleum supplies.
EIA forecasted that global petroleum production will increase by 1% (1.1 million b/d) from 2022 to 2023, with the United States and OPEC accounting for most of the increase in global production, offsetting production declines in Russia. The forecast is that Russia’s petroleum production will fall from 10.9 million b/d in 2022 to 9.5 million b/d in 2023 as a result of sanctions related to Russia’s full-scale invasion of Ukraine. EIA also predicted 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.
The amount of oil produced and sold internationally by Russia remains uncertain. On February 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 stated that oil production in the U.S. will reach historic highs in 2023, averaging 12.4 million barrels per day (b/d), which would surpass 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.
