November 30, 2022

Gasoline prices declined $0.11 in the week ending November 28  to $3.53 after having fallen $0.11 in the previous week. Prices have now fallen $1.47since reaching a high of $5.00 in mid-June.   In South Carolina gasoline prices tend to be about $0.25 below the national average or $3.28.  The EIA currently expects gasoline prices nationally to average $4.02 per gallon this year and $3.61 next year.  

Crude prices fell $3 in the week ending November 28 to $77 per barrel.   It appears that the markets are expecting a U.S. and/or global recession to begin soon which would reduce the demand for oil.  .

Once the recession ended in April 2020 the demand for oil exceeded supply for the rest of 2021 as the global economy gathered steam.  Both U.S. and OPEC have been increasing,  and now supply and demand are reasonably in balance globally and is expected to remain roughly in balance through the end of next year.                               .

Since the war between Ukraine and Russia began, sanctions initially reduced the  output of Russian by about 1 million barrels per day but Russian output has recently risen almost back to where it started.  Saudi Arabia has picked up the pace of production slightly.  The same is true in the U.S.

Last year’s recession caused oil production in the  U.S. to decline from about 13.0 million barrels per day to about 11.0 million.  Production has rebounded but to only 12.1 million barrels per day which is well below its pre-recession peak. One of the problems is that the current administration is doing everything in its power to drive the fossil-fuel industry out of business which is curtailing the willingness and ability of oil producers to significantly boost production.  The EIA currently expects production  to be 12.3 million barrels per day at the end of 2023..

In the U.S. inventory levels have been falling sharply in recent months as the global economy has begun to climb and U.S. output has not increased commensurately.  Those inventory levels have fallen well below their 5-year average which is why U.S. production needs to climb in the months ahead.  Indeed, inventory levels are the lowest they have been since April 1985.  With crude oil inventories the lowest they have been in 37 years it is hard to see how crude prices are going to decline any time soon.  The reduced inventory levels could become a serious problem if war were to break out somewhere in the world and the U;S; needed to expand.

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Stephen Slifer

NumberNomics

Charleston, SC