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The price of oil spiked to a fresh yearly high ($130.50) in March amid the disruptions caused by the Russia-Ukraine war. Current market conditions may lead to higher crude prices as expectations for strong demand are met with indications of limited supply.
US Crude Inventories Hold Below Pre-Pandemic Levels
The recent rally in the price of oil appears to have stalled ahead of the record high ($147.27) as the rapid rise dampens the outlook for consumption. However, recent data prints coming out of the US suggest demand will remain robust in 2022 amid a downward trend in crude inventories.
Weekly U.S Ending Stocks excluding SPR of Crude Oil
Source: US Energy Information Administration
US stockpiles remain well below the levels seen at the onset of the pandemic, sitting at their lowest levels since 2018. Easing COVID-19 restrictions may continue to fuel crude consumption. The Organization of Petroleum Exporting Countries (OPEC) retains an upbeat outlook for 2022.
OPEC Retains Upbeat Forecast for 2022
OPEC’s Monthly Oil Market Report (MOMR) for March revealed that “world oil demand recorded robust growth of 6.5 mb/d y-o-y in December 2021.”The update went on to say that “for the time being, world oil demand growth in 2022 remains unchanged at 4.2 mb/d, given the high uncertainty and extreme fluidity of developments in recent weeks.”
Nevertheless, the MOMR states that “the latest available monthly data for the US implies strongly increasing oil requirements.” Expectations for robust demand may see OPEC and its allies retaining the current production schedule. The group plans to “adjust upward the monthly overall production by 0.4 mb/d for the month of April 2022.”
US Crude Oil Output Remains Stagnant
This upbeat outlook suggests OPEC will maintain a gradual approach to restoring production to pre-pandemic levels. Meanwhile, current market conditions may keep the price of oil afloat over the coming months as US output remains stagnant.
Weekly U.S Ending Stocks excluding SPR of Crude Oil
Source: US Energy Information Administration
According to the Energy Information Administration (EIA), US crude output has held steady for six consecutive weeks, with production printing at 11.6 million barrels in the week ending March 18. With that in mind, the decline from the yearly high ($130.50) may turn out to be a correction in the broader trend as expectations for strong demand are met with indiciations of limited supply, Crude may stage further attempts to test the record high ($147.27) as long as OPEC remains relucant to adjust the production schedule.
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