U.S. oil producers remained active through January, with output last week holding at a pandemic-era high as it did across the month and in late 2022.

The U.S. Energy Information Administration (EIA) said Wednesday production for the period ended Jan. 27 stood at 12.2 million b/d – on par with the prior week and the average for the past month. That matched the high mark reported by EIA since the onset of coronavirus outbreaks in the spring of 2020, data from EIA’s latest Weekly Petroleum Status Report showed.

The latest print also topped the year-earlier level of 11.5 million b/d, though production continued to trail the pre-pandemic record of 13.1 million b/d set in early 2020.

[Want today’s Henry Hub, Houston Ship Channel and Chicago Citygate prices? Check out NGI’s daily natural gas price snapshot now.]

Total petroleum product demand for the Jan. 27 period, meanwhile, rose 3% week/week but declined 11% over the course of the past month amid weaker post-holiday demand for travel fuels and concerns about a looming recession, EIA data show.

Over the past four weeks, motor gasoline product supplied averaged 8.1 million b/d, down 2% from the same period last year. Distillate fuel demand, including diesel, averaged 3.9 million b/d, down 13%.

Central banks across western economies, including the U.S. Federal Reserve, have hiked interest rates to combat inflation. However, in doing so, they have slowed borrowing and economic activity, creating the potential for a global downturn this year that could further erode crude demand.

While U.S. gross domestic product grew at a 2.9% rate in the final quarter of 2022, for example, it marked a slowdown from the prior quarter. With business investment projected to ease further, economists at BNP Paribas projected the American economy would “fall into recession around midyear.”

On the domestic oil front, the combination of lighter demand and steady production resulted in U.S. commercial crude inventories, excluding those in the Strategic Petroleum Reserve, increasing by 4.1 million bbl from the previous week. At 452.7 million bbl, stocks were 4% above the five-year average last week.

OPEC Remains Cautious

Amid the recession fears, an advisory committee to OPEC-plus on Wednesday recommended the cartel stick with a plan to cut production.

The Saudi Arabia-led cartel in November 2022 launched a program to cut collective production by up to 2.0 million b/d after several months of increases.

The OPEC-plus Joint Ministerial Monitoring Committee’s recommendation to the cartel’s policymakers is not binding. The coalition could discard the advice and raise output, but it would be unusual. It also would run counter to OPEC’s public statements.

In their January 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.  

However, they also noted the Chinese government’s propensity to freeze economic activity during coronavirus outbreaks, leaving their outlook laced with skepticism. They also noted multiple pockets of geopolitical stress, notably including Russia’s war in Ukraine, as well as the threat of recession in the United States, Europe and parts of Asia.

“This forecast remains surrounded by uncertainties, including global economic developments, shifts in Covid-19 containment policies and geopolitical tensions.,” OPEC researchers said.

Brent crude prices, the international benchmark, traded near $85/bbl intraday Wednesday, relatively steady this year but off from highs above $120 in 2022.

Analysts have diverged on the demand outlook, but those on the bullish side anticipate prices would rise late this year should interest rates settle and the U.S. economy – and the global economy, by extension – tilt only into a shallow recession. In that case, lighter global production could leave supplies short of demand in an economic recovery late in 2023.

“We expect rising oil demand in the second half of 2023 to spark inventory draws and higher prices, with a price call for Q42023 an estimated $20-$30/bbl above the current forward strip,” Enverus Intelligence Research’s Bill Farren-Price, director, said Wednesday.