Road to Nowhere - IEA Charts a Course Through Oil Market Turmoil, But Does it Go Anywhere?

Increases in crude oil and gasoline prices have caused widespread concern in recent months, made worse after Russia’s invasion of Ukraine that added even more uncertainty to the market. With the average U.S. price for regular gasoline now topping $4/gal — nearly 50% above where it was a year ago — the rising fuel costs have been especially painful for everyday drivers and threaten to slow or derail a global economy still recovering from the pandemic-induced recession. Government officials in the U.S. and elsewhere, while urging oil producers to ramp up output, have turned to their strategic reserves as a way to quickly balance the market and rein in prices. In today’s RBN blog, we look at the International Energy Agency’s (IEA) latest announced release from oil reserves, how the global drawdowns are intended to create a bridge to when increased production comes online, and the skepticism about whether those plans will work out as intended.

Crude oil prices have been on a steady rise over the last year. WTI settled at $104.25/bbl on Wednesday, up from about $44/bbl in early January 2021 and $63/bbl at the start of January 2022 before spiking to  $123.70/bbl on March 8, not long after Russia’s invasion of Ukraine. Until recent years, an increase in crude oil prices of that magnitude would result in a corresponding increase in producer activity and rig counts, leading to a significant boost in production. But as we noted recently in What’s Going On? and I Can’t Go For That (No Can Do), that’s not happening now for a number of reasons. (More on that in a bit.) While U.S. crude oil production has moved up to 11.8 MMbbl/d, according to the latest weekly data from the Energy Information Administration (EIA), it’s still well below the pre-pandemic peak of about 13 MMbbl/d.

To bridge the gap between today’s demand and the time it may take to bring new production online, the U.S. and others have been increasingly turning to their own strategic reserves.

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