U.S. oil production last week held at a record high for the year as overall oil demand increased, driven by consumption of travel fuels, the Energy Information Administration reported Thursday. (EIA) of the United States.
Producers pumped 12.1 million bpd for the week ended July 1, according to the EIA’s weekly State of Oil report. This continued the pace of the previous week, when production first exceeded the 12.0 million bpd threshold in 2022.
Demand, meanwhile, grew by more than 2% week/week, with solid increases in the consumption of motor gasoline, jet fuel and distillates, including diesel fuel.
Analysts expect demand readings to be strong again with the next report from the EIA, which would capture travel over the July 4 holiday weekend.
That said, oil consumption has been uneven week-over-week this summer following a surge in global crude prices.
Crude price increases are linked to a supply/demand imbalance exacerbated by Western sanctions against Russia’s oil and gas complex due to that country’s invasion of Ukraine. This has spilled over into travel fuel costs that have, at least for some weeks, given American consumers pause.
Total oil consumption over the past four weeks averaged 20.0 million barrels per day, down 4% from the same period last year, the EIA reported.
Oil prices have been volatile in recent days, but West Texas Intermediate crude prices are still up around 35% in 2022. The US benchmark hovered around $103/bbl in Thursday trading .
Rystad Energy said this week that its real-time road and aerospace demand trended “stable” globally in July. Still, analyst Louise Dickson said moves by central banks in Europe and the United States to raise interest rates to fight a spike in inflation have fueled fears of a recession that could remove demand after the end of summer travel. Historically, when interest rates soar – they more than doubled in the US in 2022 – economies have slowed dramatically.
“If a recession materializes and inflation continues to drive up the prices of almost anything, demand for oil is almost certain to fall,” Dickson said.
She added, however, that the consumption trajectory is “difficult to read as post-Covid-19 demand growth is mixed with the impacts and market reaction of an expected economic downturn.”
OPEC-Plus Exit, Leadership
Despite the uncertainty, OPEC and allied oil-rich nations, including Russia, pledged last week to increase production this month and next. The group is aiming for production growth of 648,000 bpd in the two months.
If the cartel could hit its targets, its average crude output would climb to nearly 44 million bpd in August, in line with pre-pandemic levels.
OPEC-plus cited stable global demand for travel fuels this summer and China’s recent emergence from coronavirus-related lockdowns.
Separately, OPEC Secretary General Mohammad Barkindo died this week at the age of 63, the cartel announced on Wednesday.
Barkindo, an oil industry veteran who helped the group form OPEC-plus and guided it through the pandemic, was due to step down as the organization’s director at the end of July.
The Nigerian had led OPEC for six years.
“It is indeed a very sad day for the OPEC family,” said Haitham Al-Ghais, the Kuwaiti oil official who is expected to become the next secretary general in August. “The legacy that Mohammad leaves behind will live on in OPEC history for many years to come.”