Oil Inventories Worldwide And Oil Price Trends

Key takeaways

• Oil prices have slowly recovered since the start of the pandemic, topping $120 in the summer of 2022.
• Prices have since dipped below $100, and OPEC plans to cut production as a result.
• Stubbornly high inflation and fears of a recession could keep oil prices below $100.

The COVID-19 pandemic upended many aspects of our lives, including a period of relatively stable oil prices in 2019. While the most significant price swings might be over, plenty of uncertainty remains.

Fears of a recession due to rising inflation, conflict in eastern Europe and OPEC’s planned cuts raise concerns about supply and demand. The current price of Brent crude is approaching $100 and could reach that level if demand increases faster than supply.

Supply and demand trends

Worldwide oil consumption dropped sharply in 2020 due to the pandemic, resulting in prices under $25 per barrel. Since then, prices have slowly recovered. Oil demand and consumption increased as economies reopened, but both began to stabilize in the latter half of 2021.

In the summer of 2022, global economic conditions contributed to demand concerns. China, the world’s largest oil consumer, took renewed measures to curb an outbreak of COVID-19, leading to reduced demand.

Other issues, such as rising interest rates, are also putting a strain on demand.

Global oil inventories

According to an August 2022 report from the International Energy Agency (IEA), OECD’s total industry oil stocks stood at 2,681 million barrels. This was 292.1 million barrels below the five-year average.

The U.S. Energy Information Agency (EIA) reported global oil inventories totaling 2,744 million barrels in 2022 for OECD countries. It also forecasted a slight decrease in global stocks to 2,738 million barrels in 2023.

Furthermore, on September 30, the EIA reported that U.S. commercial crude oil inventories were down 1.4 million barrels from the week prior. It also noted that U.S. crude oil inventories stood at 429.2 million barrels, 3% below the five-year average for this time of year.

U.S. crude oil stocks have been declining since the early 2010s. With the Biden administration releasing one million barrels of oil daily, EIA data shows that U.S. oil stocks are at their lowest point since the 1980s.

OPEC production cuts

OPEC+ members now plan to cut oil production by two million barrels per day, which may push oil prices back to $100. This move caused some investors to hedge their bets on the oil market, perhaps because demand is weak and getting weaker.

From OPEC’s perspective, the reduction is an effort to raise prices, which have fallen from a high of more than $120 in June. In light of the move, President Biden said the U.S. would look to additional tools to lessen OPEC’s control over oil prices.

Russia-Ukraine war

Russia is not officially part of OPEC, but it is part of the group known as OPEC+. While this group agreed to cut oil production by two million barrels per day, Russia faces its own production issues due to the war.

The country has already lost one million barrels per day of production since the start of the war. However, Russia could suffer further supply constraints since the European Union will impose an oil embargo on them that starts in December.

There was also talk among EU countries about setting a price cap on Russian oil.

Some countries have even issued import bans on Russian oil. Plus, damage to the Nord Stream pipeline creates more questions about supply from Russia.

EIA forecast

The EIA forecasts an oil price of $93/b in Q4 2022 and $95/b in 2023. The EIA’s forecast projects a supply-demand parity midway through 2023, which it predicts will last for the rest of the year.

At the beginning of the pandemic, consumption was approximately five million barrels lower than the supply. The EIA’s report projects consumption only slightly below production for 2022, at 99.55 million barrels and 100.03 barrels, respectively.

However, it shows a slight reversal of this balance in 2023. The agency forecasts consumption of 101.50 million barrels and production of 101.28 million barrels for 2023.

The bottom line

The COVID-19 pandemic saw oil consumption drop to a level well below production. This resulted in oil prices falling to under $25 per barrel. However, demand and supply have rebounded, leading to oil prices of over $120 this past summer.

Since then, prices have dipped again, falling below $100. While OPEC has decided to cut production by two million barrels per day, questions remain about how strong demand will be going forward.

Moreover, while the price could reach $100 yet again, high inflation rates and fears of a looming recession could keep prices below $100 for some time. One way investors can profit from these swings in pricing, supply and demand is to invest in these markets in a diversified way. Q.ai takes the guesswork out of investing. Our artificial intelligence scours the markets for the best investments for all manner of risk tolerances and economic situations. Then we bundle them into Investment Kits, like the Global Trends Kit.

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