Episode 125 | Q1 2023 Oil and Gas Markets Outlook

Dean Foreman, Chief Economist, American Petroleum Institute (API) joined Grayson Brulte on The Road To Autonomy Podcast to discuss his 2023 Q1 outlook for the oil and gas markets.

The conversation begins with Dean sharing his thoughts and insights into the current state of the oil and gas markets. 

As the economy goes, that is what we are going to look for in oil and gas markets. – Dean Foreman

The demand for oil has been strong. The U.S. Petroleum demand in December 2022 was 20.5 million barrels per day. For 2022, oil demand grew by 2.2%. Going back to 2000, 2022 was the forth highest year for growth. 

It says that on the heels of the pandemic, $20 trillion dollars worth of economic stimulus has continued to have a pretty positive effect for the economy, despite Fed Funds rate hikes, despite concerns about a recession, despite individual sectors that have been under pressure. – Dean Foreman

The trend of demand outpacing supply has continued for over a year now with inventories that are at historic lows. Oil demand is growing because of the rebound in travel and the increase in cargo shipping by air. 

During the last six months in 2022, 1.5 million barrels per day (1.5% of the global market) of new oil globally came online from Government reserves. While there was some downward price movement, there was also long-term negative consequences as oil companies were discouraged to start new drilling and new infrastructure projects. This could lead to a global imbalance as there will not be enough infrastructure to meet demand. 

The official estimates for demand growth this year range between basically 1 million barrels per day or about 1% of the market, up to 1.7 million barrels per day. – Dean Foreman

In order to meet this demand, investment has to be made and drilling has to expand around the world to ensure that new supply can come to the market. Adding more context to this, the U.S. Energy Information Administration is predicting that global oil demand is expected to reach a record-high of 101 million barrels per day in 2023. 

The U.S. Strategic Petroleum Reserve ended 2022 at the lowest point since 1983. When comparing 2022 to 1983, the U.S.’s oil consumption was more than 33% higher. There is little margin for error with solid oil demand and a dwindling Strategic Petroleum Reserve. When you factor in geo-politics and weather, the situation becomes even more unpredictable.

In 2022, the U.S. dollar rose 6.23%. So far this year (2023) the U.S. dollar has begun to weaken. With a weakening U.S. dollar that is projected to weaken by 3% this year according to Bloomberg, oil is beginning to trade on local currencies. 

For Q1 2023, the trends to watch in the oil and gas markets are the Russia/Ukraine conflict, systemic risks to the global food supply and emerging markets debt.

Wrapping up the conversation, Dean discuses the global economics and the impact it has on household budgets. 

Recorded on Tuesday, January 17, 2023

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