Crude Oil Prices to Fall in 2022 and 2023 as Projected by EIA

Crude oil is a petroleum product that forms naturally from hydrocarbon reserves and other organic ingredients. Crude oil is a fossil fuel processed into products like gasoline, diesel, and a range of other petrochemicals. It's a finite resource because it's a nonrenewable resource that can't be replenished at the rate humans use it.

The world's economy is now heavily reliant on fossil fuels like crude oil, and the desire for these resources frequently causes political upheaval, as a small number of countries possess the major reservoirs. Crude oil pricing and profitability are significantly influenced by supply and demand, much like any other sector.

Crude oil futures prices might be higher, lower, or the same as spot prices. The price differential between the spot and futures markets reveals something about the oil market's general state and expectations. When futures prices are higher than spot prices, it usually suggests that buyers expect the market to improve and are prepared to pay a premium for oil delivered later. It indicates that purchasers believe the market will deteriorate.

Oil futures contract prices are primarily used as a barometer by central banks and the International Monetary Fund (IMF). Crude oil futures prices are determined by two factors, that is supply and demand and market sentiment. On the other hand, futures prices can be a poor prediction since they tend to add too much fluctuation to the current oil price.

Crude oil prices will fall from 2021 levels, according to the January 2022 Short-Term Energy Outlook (STEO). The international pricing standard, Brent crude oil, averaged USD 79 per barrel in the fourth quarter of 2021.  According to its projection, Brent crude oil will average USD 75/b in 2022 and USD 68/b in 2023.

The price fall is related to a shift in global petroleum inventory levels from declines in 2021 to increases in 2022 and 2023. When demand exceeds production, global petroleum inventories fall, and when production exceeds consumption, inventories rise.

The outflow of 1.4 million barrels per day (b/d) from global petroleum stockpiles in 2021 contributed to increased crude oil prices. After the COVID-19 epidemic began in 2020, petroleum demand returned quicker than petroleum output, resulting in these inventory draws. We anticipate that petroleum output will rise in 2022 while consumption growth will stagnate, increasing global petroleum stockpiles.

We forecast a 5.5 million b/d increase in global petroleum output in 2022, driven by increases in production in the United States, OPEC, and Russia, which together account for 84 percent of the gain, or 4.6 million b/d. Increased tight oil production in the United States, and progressively growing crude oil production from OPEC+ which includes OPEC countries and Russia, will account for the majority of increased crude oil production, according to their prediction.

It is estimated that worldwide petroleum consumption will rise by 3.6 million b/d in 2022, owing to increased consumption in the United States and China, which account for 39 percent of the growth. Global petroleum stockpiles are expected to rise by 0.5 million barrels per day in 2022, putting downward pressure on crude oil prices. As per their prediction, Brent crude oil prices are expected to fall from USD 79 per barrel in the first quarter to USD 71 per barrel in the fourth quarter of 2022.

Further, inventory rise in 2023, with an average of 0.6 million b/from 2022 to 2023, global petroleum output is predicted to rise by 1.8 million barrels per day (b/d), averaging 102.8 million b/d. The United States and Russia will account for most global petroleum output growth in 2023.

Production in the United States is expected to rise by 0.8 million barrels per day, while production in Russia is expected to rise by 0.3 million barrels per day. In 2023, we expect OPEC production to rise by 0.1 million barrels per day.