After sustained price increases due to Russia’s invasion of Ukraine, oil prices are finally stabilising at lower figures. Saudi Arabia is cutting oil exports in an effort to drive up demand, and US crude oil is storing less. Perhaps most importantly, the EU will soon slash the amount of fuel they are buying from Russia. All of these events would normally trigger a price increase, yet oil prices have continued to slide. The West Texas Intermediate, the benchmark for US oil prices, has fallen to 10 USD since the beginning of November to 80 USD.
Even though supply is falling, demand is falling even faster. With economic growth slowing or even turning negative in many countries, the use of oil and petroleum products is falling sharply. This is typical of recessions, and there are recessions of varying degrees throughout the world. As might be expected, gasoline prices are falling, which has pleased average consumers before the holiday season, with prices now matching where they were a year ago, before the war.
Prices falling at the pumps in Europe and the US are in part due to China’s continued refusal to divert from their Zero COVID policy. Winter is coming, and with it comes the natural rise in COVID cases. That will certainly stifle the Chinese economy, which drastically reduces global oil demand. China has had this impact because it has been the world’s fastest-growing economy for the last twenty years, and it imports almost all of the oil it uses.
Some experts said they expected gasoline prices to continue falling because it takes time for oil price declines to be reflected in the price of fuels made from oil. Earlier this year, oil jumped from 80 to 120 USD a barrel, which caused gas prices in the US to exceed 5 USD per gallon. Now that they are back in the 3 USD range, there is some hope they may stay that way, although any war escalation could send those prices right back up. Another important data point to note is that oil prices typically fall between September and November because the summer is peak driving season; prices typically increase in December when people visit their relatives for the holidays.
The International Energy Agency forecasts that the global oil market, which totals roughly 100 million barrels a day, will slide by 240,000 barrels a day in the last three months of 2022, compared with a year earlier, because of the global slowdown. The agency expects that demand will rebound in the first quarter of 2023. Some major oil producers, including members of the OPEC Plus cartel, have already been reducing supply in response to softer demand. Saudi Arabia’s oil exports have fallen by nearly 500,000 barrels a day this month, and the kingdom is likely to press its allies to cut production even further when the group meets on Dec. 4. Last month, OPEC Plus moved to support prices by slashing production quotas by a total of two million barrels a day. The decision sent prices higher, but only for a few days. Lower gas prices may end up being one of the only silver linings of the global recession.