The price of Brent crude ended the week at $83.00 after closing the previous week at $86.39. The price of WTI ended the week at $76.34 after closing the previous week at $79.72.

One reason for the drop in oil prices is that US crude inventories increased by 16.28 million b/d. In comparison to the same period of the previous year, crude inventories are 59.89 million barrels greater, and are 20.55 million barrels greater than the level of 2019, and are 49.30 million barrels more than in 2018. Since 2015, the lowest US crude inventories were 394 million barrels, which was reached in September of 2018. Currently, US crude inventories are 471 million barrels. The decision by the US government to sell another 26 million barrels from the Strategic Petroleum Reserve (SPR) also did not help oil prices. Since the beginning of 2022, inventories in the SPR have been drawn down by 222 million barrels. In comparison, commercial inventories have increased by some 54 million barrels. Additionally, the market shook off Russia recently announcing a cut of 500,000 b/d of oil production starting in March. (The announced production cut is consistent with our current short-term forecast, which includes a reduction of 670,000 b/d in 1Q 2023 in comparison to 1Q2022 and an average reduction of 460,000 b/d in 2023 compared to 2022).

For 1Q we are forecasting that global supply will be essentially balanced and that the price of Brent crude will stabilize between $80.00 and $90.00. The main downside risk remains a slowdown in the global economy. Currently, this risk is less concerning than at the end of 2022 with China moving away from its zero-COVID policies and the economies of the US and Europe showing signs of strengthening.

The most prominent risk is now turning back to geopolitics and the Russia-Ukraine conflict. Russia continues to attack the infrastructure in Ukraine and has apparently initiated a new offensive in the east and south. Furthermore, the risk of the conflict escalating and expanding beyond the borders of Ukraine continues to increase, as explicitly exhibited by the US now raising concerns about the possibility of China providing lethal military support to Russia and joining the support being provided by Iran and North Korea. Obviously, this would be a major development that would have huge geopolitical consequences, which would most likely affect the oil market. For example, there have long been concerns about the security of oil flows through the Strait of Hormuz and the growing ties between Russia, Iran and China only increases these concerns.

For a complete forecast of refined products and prices, please refer to our Short-term Outlook