Oil market report Q3 2022

Key takeaways

1. In Q3 2022 global oil demand rose 0.8 mln bbl/d, driven by seasonally high fuel consumption and additional oil demand against a backdrop of high gas prices. According to IEA estimates, due to gas-to-oil switching, demand will increase in the next two quarters, averaging 0.7 mln bbl/d – double last year's level.

Macroeconomic instability continues to gain traction across the globe. In September 2022 the Federal Reserve raised interest rates to 3-3.25%, due to high inflation, which reached its highest levels in 40 years. A high level of interest rates negatively affects business activity, which leads to a downturn in the economy. The further trajectory of demand growth will largely be determined by the pace of GDP
slowdown.

2. In Q3 2022 global oil supply increased by 2.5 mln bbl/d. OPEC members, as well as Brazil, Russia, and the US, made a significant contribution to the growth in production. An additional oil inflow of approximately 1 mln bbl/d came from the release of US strategic petroleum reserves to reduce fuel prices on the US market. This boosted the oil surplus to 1.6 mln bbl/d and oil prices fell to USD90/bbl for the first time since the beginning of the crisis. In October OPEC decided to cut production sharply, by 2.0 mln bbl/d, over fears of lower demand.

3. At the end of Q3 2022, oil and condensate production in the Russian market recovered to 10.9 mln bbl/d as a result of export channels being redirected and high demand from Asian countries. However, oil supply dynamics in the short term may be impacted by the EU embargo and a price cap from December 2022. In the US significant growth in crude oil production was recorded during the year, and the highest level in two years was recorded. By the end of 2023 experts forecast a further 0.8 mln bbl/d increase, which will replace the lost volumes from Russia predicted by analysts. However, a lack of industry investment and the high sensitivity of shale oil profitability to oil prices continue to be significant constraints.

4. Expectations of an economic downturn triggered a decline in oil prices: at the end of September 2022 the price reached its lowest level (USD85/bbl) since the start of the crisis. Oil price volatility in the future will be shaped by demand dynamics, the geopolitical situation, whether OPEC  members reduce production, the effect of the embargo, and the price cap for Russian energy resources imposed by the EU. Based on expert estimates, the average Brent price will not go below USD100/bbl in 2022. And, as the situation stabilises, the market expects a gradual decline to USD90/bbl in 2023. The long-term forecast for Brent has not changed significantly compared to forecasts from the previous period, and stands at USD68/bbl.