For the past 18 months, API’s Industry OutlookTM has shown how oil and natural gas markets were notably short, with demand outpacing production entering 2022, according to data from the U.S. Energy Information Administration (EIA).
Russia’s invasion of Ukraine amplified pre-existing pressures on market fundamentals and increased the costs of fuels and everyday products of concern to American families and policymakers.
The implications of this outlook have continued to suggest that either economic growth could slow, or energy markets could remain under pressure.
Additionally, as U.S. commercial crude oil and product inventories fell to their lowest levels since 2014, U.S. economic and energy security could hinge on what policymakers choose to do next. With sincerity and humility, it is past time that policymakers put partisan politics aside and take action, like API’s 10 in 2022 policy plan to restore U.S. energy leadership, which could help to address the pressures on U.S. petroleum markets.
The highest price inflation in 40 years, compounded by Russia’s war in Ukraine, has led to broadly lower economic growth expectations for 2022, per the International Monetary Fund, World Bank and Bloomberg economic consensus.
Yet, these forecasters still expect global real GDP growth of about 3 percent year on year in 2022. While it is important to acknowledge that slowing growth could stress already fragile macroeconomic balances, particularly among emerging economies that are commodity importers, the diminished growth expectations still exceed long-run average growth rates, both for the U.S. and the world.
Consequently, based on historical relationships and by official estimates, the world still likely needs more energy in this and coming years than it did in 2021. Global growth of about 3 percent could correspond with the world needing about two million barrels per day more oil and over 6 billion cubic feet per day more natural gas in 2022 than it did in 2021, per the U.S. EIA and International Energy Agency.
Consequently, the leading figure in May’s primary data was a record-high inter- national pull for U.S. petroleum exports: 9.6 million barrels per day of crude oil and refined petroleum products, the highest level on record for any month since 1947.
By contrast, while U.S. crude oil production and refining activity rose in recent months, U.S. commercial inventories of crude oil and refined products through July remained at their lowest for the month since 2014. Moreover, as of July 29 the U.S. Strategic Petroleum Reserve was at its lowest level since 1985 and could decrease further if the administration’s publicly announced prospective releases of up to 180 million barrels over six months in 2022.
For U.S. natural gas, the story is similar in that production growth has not kept pace with resilient domestic demand plus a strong international pull for U.S. exports. In turn, natural gas storage injections so far this season have lagged those of last year, as well as the five-year range per EIA and supported higher prices.
The myriad implications of this combination of market fundamentals could spell caution for consumers and highlight the need to monitor product stocks, especially on the East Coast, which normally relies on European trade for part of its supplies.
It also raises questions about whether policymakers will come together to address the situation in a cogent fashion — or whether the natural gas and oil industry will continue to face disjointed and often hostile administration policies aimed at motivating a transition from fossil fuels.
Let’s be clear: The Biden administration’s desired path to decarbonization relies critically on consumers’ ability to afford the transition. And, before the energy transition, we need to satisfy the “energy expansion” with continued economic, and therefore demand growth.
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