U.S. commercial crude inventories, which trailed historic averages throughout 2022 amid growing demand, flipped to a surplus to start the new year. With consumption now falling and production relatively strong, stocks jumped by 19 million bbl in the first week of January.

That left stockpiles, excluding those in the Strategic Petroleum Reserve, at 439.6 million bbl – 1% above the five-year average, the Energy Information Administration (EIA) said Wednesday in its latest Weekly Petroleum Status Report.

Following holiday travel and amid increased recession worries, total petroleum demand fell 3% week/week for the period ended Jan. 6. That followed a 20% drop the prior week, as Americans pulled back on spending and economists increasingly warned that surging interest rates could push the economy into a downturn.

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At the same time, following OPEC forecasts in recent months for global demand to rise this year, exploration and production companies boosted output last week to a pandemic-era high of 12.2 million b/d. That was up 100,000 b/d from the final week of December and matched the 2022 peak reached last summer.

West Texas intermediate crude oil prices rose about 2% at one point in morning trading Wednesday. But the U.S. benchmark is down more than 35% from its 2022 high as recession looms.

An Ernst & Young survey of 1,200 CEOs across the world, released this week, found that 98% are braced for gross domestic product (GDP) contraction this year. 

“Price- and GDP-sensitive oil consumption could weaken” further in 2023, analysts at ClearView Energy Partners LLC said.

Total U.S. petroleum products supplied over the last four-week period averaged 19.9 million b/d, down 4% from the same period a year earlier, EIA said. Over the same span, motor gasoline demand averaged 8.3 million b/d, down 5%, while distillate fuel product consumption averaged 3.6 million b/d, off 6%. Jet fuel demand slid 1% to 1.5 million b/d.

Global Uncertainty 

The United States and its Western allies are currently debating more sanctions against Russia’s energy complex in an effort to cripple the Kremlin during its ongoing invasion of Ukraine. These new penalties are likely to include additional price caps and take effect next month, according to ClearView. The new sanctions would come on top of the Group of Seven nations’ (G-7) – which included the United States – decision to cap the price of Russian crude exports at $60/bbl.

“This year will test a further expansion of U.S. economic and financial sanctions authorities in conjunction with the G-7’s price cap,” the ClearView analysts said. Should the sanctions work, global supply could come under pressure, they noted. But if they fail and Russia remains a prominent oil exporter, supply could outstrip demand this year.

In their December oil market report, OPEC researchers, citing China’s eased pandemic-era rules, forecast global crude demand would expand by 2.2 million b/d this year, following slightly stronger growth in 2022.

However, given the Chinese government’s proven history of clamping down on economic activity during coronavirus outbreaks, the researchers conceded their outlook was peppered with skepticism. They also noted multiple pockets of geopolitical chaos, notably including the conflict in Ukraine, as well as the threat of recession in the United States, Europe and parts of Asia.

“The year 2023 is expected to remain surrounded by many uncertainties, mandating vigilance and caution,” OPEC researchers said.

Citing the potential for oversupply, the Saudi Arabia-led cartel and its allies, aka OPEC-plus, announced last October a program to cut collective production by up to 2.0 million b/d after several months of increases.

Goldman Sachs Group analysts said this week they still expect global oil demand growth in 2023 — 2.7 million b/d – given growing populations in Asia and pent-up demand in China. However, they also hedged that bet. “If the market turned out to be softer,” they said, “then OPEC could stick to its October cuts or cut production even further.”