American exploration and production (E&P) companies raised oil output modestly last week as overall petroleum demand recovered some ground after multiple declines earlier in the fall, the U.S. Energy Information Administration (EIA) said Wednesday.

U.S. oil production last week increased by 100,000 b/d to 12.0 million b/d, EIA said in its latest Weekly Petroleum Status Report.

Output for the week ended Oct. 14 was up by 700,000 b/d from a year earlier, but it was below the 2022 high of 12.2 million b/d and far off the record level of 13.1 million b/d reached in March 2020, just prior to the pandemic’s onset.

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E&Ps have walked a tightrope, trying to meet demand that rebounded from the depths of the pandemic early this year without overshooting in the second half of 2022, when consumption has been uneven and the specter of a recession looms large.

Overall petroleum demand in the United States rose 8% week/week to nearly 20.1 million b/d for the Oct. 14 period, EIA said, essentially offsetting the drop in consumption during the first week of the month. Such has been the case in recent weeks, with choppy demand littering the EIA’s box scores through the fall season.

What’s more, nagging inflationary pressures and rising interest rates threaten to tip the U.S. economy into a recession that could stunt demand next year. Economists polled by Bloomberg said there is a 100% change of a downturn in 2023, citing multiple Federal Reserve rate hikes this year.

Economists polled by the American Bankers Association (ABA) expect the economy to begin contracting in the current quarter, albeit slightly, as borrowing costs spike. Mortgage interest rates this year, for example, have doubled.

“The probability of an economic downturn is higher in 2023 as rate hikes intended to cool inflation also trigger slower growth,” ABA Chief Economist Sayee Srinivasan said, noting Fed officials have cautioned more rate increases lie ahead.

“Consumers continue to benefit from a strong labor market, but inflation and the Fed’s efforts to fight it are clearly weighing on credit market conditions,” Srinivasan added. “Given the Fed’s clear signal that it expects to continue raising rates until inflation is contained, it is not surprising that bank economists’ short-term expectations for credit markets have deteriorated.”

Global Recession?

Globally, OPEC and the International Energy Agency this month both downgraded their demand expectations for this year and next, citing inflation-induced recessionary concerns in the United States and Europe as well as pandemic-related lockdowns in China.

“With unrelenting inflationary pressures and interest rate hikes taking their toll, higher oil prices may prove the tipping point for a global economy already on the brink of recession,” IEA researchers said in the watchdog agency’s monthly oil report

This all adds to America E&P’s caution. 

However, Saudi Arabia-led OPEC and its allies led by Russia, OPEC-plus, further complicated matters this month by announcing plans to cut their production by up to 2 million b/d beginning in November. President Biden’s administration said this shift could throw supply/demand out of balance even if there is a global recession, further spurring price spikes.  

The OPEC-plus move helped to drive up Brent crude prices more than 10% after its announced move earlier this month. International benchmark prices leveled off around $91/bbl Wednesday, roughly where they started October. But further increases are widely expected when the producer group presses ahead with the output cuts next month.

Meanwhile, U.S. commercial crude inventories, excluding those in the Strategic Petroleum Reserve (SPR), decreased last week by 1.7 million bbl from the previous week. Supplies in storage dropped nearly 10 million bbl a week earlier. At 437.4 million bbl, stocks as of Oct. 14 were 2% below the five-year average.

Biden Leans On SPR

The SPR is shrinking, too. The White House on Wednesday said the president would direct the U.S. Department of Energy to sell the final 15 million bbl of the 180 million bbl from the SPR that he had authorized in March amid a rebound in demand and rising prices.

Biden also said Wednesday he is mulling further sales from the roughly 400 million bbl left in the SPR to lower oil costs and, by extension, gasoline expenses for consumers.

The average price of regular gasoline on Wednesday was $3.854/gal, according to AAA, down from the 2022 peak but up 5% from a month earlier and up 15% from the comparable date in 2021.

“Prices should be lower,” Biden said in televised remarks.

Critics, however, called Biden’s strategy a political ploy to curry favor with voters ahead of the mid-term elections in November.

“At a time when American energy can be a stabilizing force at home and abroad, we urge caution in continuing to rely on short-term efforts that are no substitute for sound long-term policies that enable American energy leadership,” American Petroleum Institute President and CEO Mike Sommers said.

“The administration should instead focus on addressing the fundamental economic and security challenges we face by spurring more investment in American energy, infrastructure and markets that enable U.S. consumers to benefit from America’s reliable energy resources.”