Oil Markets Deal with Mixed Economic News

  1. EIA projects higher fuel costs this winter
  2. SPR releases accelerated; SPR replenishment planned
  3. “Mild” recession is expected
  4. Natural Gas prices under pressure.



Alan Levine, Chairman


(202) 333-5380


The Matrix

Last week oil futures reacted strongly to headlines. Market actions and analytical opinions fed bulls and bears as winter moved closer.

  • The Energy Information Administration forecast higher fuel costs this winter, reflecting higher costs and higher demand due to colder conditions.
  • Removals from the Strategic Petroleum Reserve were accelerated, but a plan to replenish the now-depleted Reserve suggests a price floor around $70 for WTI crude oil.
  • Economic expectations moved toward a “1990’s style mild recession,” reflecting concerns that efforts to contain inflation could impact the economy negatively.

A weakened economy is bearish for oil demand, but the current situation argues for a lesser blow to the economy than in recent recessions. Consumers do not carry as much debt as in the past.

Moreover, the disastrous effects of a poorly-administered banking system as was revealed in 2008 have been strengthened materially. The upside is a more responsive, stable financial system.

Housing does not appear to be over-supplied. And various government programs like the Inflation Reduction Act and other infrastructure programs could support employment.

The Covid-induced recession of 2020 saw unemployment spike towards 15%. A recession now is likely to create unemployment of 5.4% in 2024 from its current 3.5%.

This analysis focuses on the United States in a period following a once-in-a-lifetime pandemic. Its effects have influenced patterns of work, leisure time, the education of our next generation and many other aspects of American life. The past may have been prologue in Shakespeare’s Tempest, but there’s little past on which to rely here.

And none of these deals with global events, themselves subject to real uncertainty. Russia, India, Iran, China and the European Union are engaged in realignments, amalgamations and other changes that will, inevitably, affect the petroleum world’s prices and availability.


Supply/Demand Balances

Supply/demand data in the United States for the week ended October 14, 2022, were released by the Energy Information Administration.

Total commercial stocks of petroleum fell 2.5 million barrels to 1.227 billion barrels for the week ended October 14, 2022.

Commercial crude oil supplies in the United States decreased by 1.7 million barrels from the previous report week to 437.4 million barrels.

Crude oil inventory changes by PAD District:

PADD 1: Plus 0.5 million barrels to 8.6 million barrels

PADD 2: Plus 0.1 million barrels to 109.5 million barrels

PADD 3: Down 1.4 million barrels to 247.7 million barrels

PADD 4: Plus 0.1 million barrels to 23.7 million barrels

PADD 5: Down 0.9 million barrels to 47.9 million barrels


Cushing, Oklahoma, inventories were up 0.6 million barrels from the previous report week to 26.2 million barrels.

Domestic crude oil production was up 100,000 from the previous report week at 12.0 million barrels daily.

Crude oil imports averaged 5.908 million barrels per day, a daily decrease of 156,000 barrels. Exports increased 1.266 million barrels daily to 4.138 million barrels per day.

Refineries used 89.5% of capacity; 0.4 percentage points lower than the previous report week.

Crude oil inputs to refineries decreased 132,000 barrels daily; there were 15.550 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, fell 67,000 barrels daily to 16.080 million barrels daily.

Total petroleum product inventories dropped by 0.8 million barrels from the previous report week, falling to 789.1  million barrels.

Total product demand increased 1.490 million barrels daily to 20.761 million barrels per day.

Gasoline stocks decreased 0.1 million barrels from the previous report week; total stocks are 209.4 million barrels.

Demand for gasoline increased 401,000 barrels per day to 8.678 million barrels per day.

Distillate fuel oil stocks increased 0.1 million barrels from the previous report week; distillate stocks are at 106.2 million barrels. EIA reported national distillate demand at 4.072 million barrels per day during the report week, a decrease of 298,000 barrels daily.

Propane stocks increased by 0.5 million barrels from the previous report week to 86.0 million barrels. The report estimated current demand at 1.486 million barrels per day, an increase of 591,000 barrels daily from the previous report week.


Natural Gas

Natural gas futures, unlike petroleum liquids, appear to have committed to the short side of the market – at least for now. Last week, ended October 21, spot futures prices fell $1.856 from the settle of the prior week. This was a 23% loss of value. The decline opens the way to major support at $3.60, last seen during the week ended December 24, 2021.

This is a remarkable result when so much recent concern has been expressed about the winter outlook in Europe. Failures of pipelines and European resolve to reduce regional reliance on Russian natural gas supply were contributors. (Part of U.S. improved availability resulted from the diversion of natural gas from export because of downtime at Freeport, LA.)

In reality, however, natural gas stockpiles in Europe have expanded massively. Natural gas storage is 92% full in Europe. There is a similar situation in Asia.

The supply situation in Europe and Asia has so improved that LNG is also being parked in tankers. One estimate is 2.6 million tons of LNG are being housed at sea.

According to the EIA:

Net [natural gas] injections into storage totaled 111 Bcf for the week ended October 14, compared with the five-year (2017–2021) average net injections of 73 Bcf and last year’s net injections of 91 Bcf during the same week. Working natural gas stocks totaled 3,342 Bcf, which is 183 Bcf (5%) lower than the five-year average and 106 Bcf (3%) lower than last year at this time.

The average rate of injections into storage is 5% higher than the five-year average so far in the refill season (April through October). If the rate of injections into storage matched the five-year average of 7 Bcf/d for the remainder of the refill season, the total inventory would be 3,462 Bcf on October 31, which is 183 Bcf lower than the five-year average of 3,645 Bcf for that time of year.


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