1: OIL & GAS MARKET DYNAMICS

A. Crude Oil, Natural Gas, and Diesel Average Prices

On 24 February 2022, the Russian-Ukraine war started when Russia invaded parts of Ukraine. Russia is a major player in the global oil & gas market, being one of the largest crude oil exports as Russia exported 7.8 million barrels per day (mmbbl/d) in December 2021 which accounted for 64%. Accordingly, the oil and gas industry was significantly affected, pushing up prices to unprecedented levels. During 2021, the prices of brent crude oil ranged between the sixties and seventies to reach $86.51 per barrel in January 2022.

One month after the Russia-Ukraine war started, the prices of crude oil, natural gas, and other petroleum products climbed up to its highest point since 2008. The price of brent crude oil soared to more than $100 per barrel in March 2022, which increased by 78.16% compared to March 2021.

The Brent price rose significantly during the H1 of 2022 and reached its peak in June. Then, it started to decline gradually in H2 of the year. The reason behind the increase in H1 is the combination of Russia’s invasion of Ukraine with low global crude oil inventories, according to US Energy Information Administration (EIA). After just three months following the peak, in September 2022, prices slipped below $90 per barrel, reflecting a seasonal slowdown in refinery purchases, increased supplies, and concerns about a possible economic recession reducing demand, as explained by the International Energy Agency (IEA). Brent prices reached $84.64 per barrel in April 2023 down from 97.13 per barrel in February 2022 which declined by 12.86%.

Similarly, natural gas prices were affected by the war, as the prices reached $4.9 per million British thermal units (mmBtu) in March 2022, which increased by 87% compared to March 2021. Natural gas surged above $9 per mmBtu on May 25, 2022, the highest level since 2008 due to declining inventories, according to EIA. The prices of natural gas declined at the beginning of 2023 to record $2.16 per mmBtu in April which declined by 53.94% compared with 4.69 mmbtu in February 2022.

Moreover, the war has impacted the prices of petroleum products, as diesel prices have stayed steady at around $3 per gallon before the war and then jumped by 62.2% in March 2022, compared to the previous year. In June 2022, diesel prices reached their peak of $5.75 per gallon, the highest level in a while as the European Union adopted the sixth package of sanctions that banned seaborne imports of petroleum products from Russia including diesel fuel, according to EIA. Diesel prices declined to reach $4.211 per gallon in March 2023 down from $4.71 per gallon in December 2022.

B. Crude Oil & Natural Gas Inventories Withdrawals

The inventories of the oil and gas industry were exhausted rapidly after the war and even before it. Over 2022, the inventories withdrawal trend declined from March 2022. In June 2022, global oil inventories withdrawal increased with recent builds concentrated in China, where refiners reduced runs due to weaker demand amid COVID-19 lockdowns. The sharpest decline in inventories withdrawals in 2022 was in October, as explained by the IEA.

Natural gas inventories were slightly affected by the war, which recorded a decline in February and March 2022 and then the inventories declined yet in an increasing trend. European natural gas inventories recorded an increase due to lower demand and strong LNG inflows, according to the World Bank (WB).

MONTHLY CRUDE OIL & NATURAL GAS INVENTORIES WITHDRAWALS OVER (JAN 2021 - FEB

C. Petroleum & Natural Gas Supply & Demand

One of the critical aspects which were affected by the war is the supply and demand dynamics of crude oil, natural gas, and other petroleum products. Oil supply started to record a remarkable increase from June 2022 as resilient Russian production and higher output from the US and Canada offset steep maintenance-related losses from Kazakhstan. Supplies from the Organization of the Petroleum Exporting Countries and its alliance (OPEC+) and non-OPEC rose as agreed during their meeting on 30 June 2022 to increase production by 0.648 mmbbl/d for August. In July, petroleum and other liquids supply hit a post-pandemic high of 100 mmbbl/d as maintenance wound down in the North Sea, Canada, and Kazakhstan. Moreover, OPEC+ and non-OPEC ramped up total oil products in line with higher targets at that time, as explained by the IEA.

On the oil demand side, the growth was slow over 2022 driven by a weaker economic outlook. In the International Monetary Funds’ (IMF) World Economic Outlook, in October 2022, global growth is forecasted to slow from 6% in 2021 to 3.2% in 2022 and 2.7% in 2023. This is the weakest growth profile since 2001, except for the global financial crisis and the acute phase of the COVID-19 pandemic. In April 2022, petroleum and other liquids demand decreased to reach 97.27 mmbbl/d as China, the world’s second-largest oil consumer, struggled to contain the spread of COVID-19, according to the IEA.

The war added further pressure and uncertainty to an already tight natural gas market. The supply and demand of US natural gas exceeded 100 billion cubic feet per day (bcf/d) at the beginning of 2022, then ranged between the seventies and eighties to hit 100 bcf/d at the end of the year and the beginning of 2023. The natural gas supply of Europe had been a concern since mid-2021 as storage inventory levels had remained below average. The natural gas crisis triggered by the war has caused a series of market adjustments. European buyers had enormously increased their LNG procurement, resulting in market tightening and demand destruction in different importing regions, according to the IEA.