March 28, 2023 [NGI Natural Intelligence] – Domestic crude production climbed back to the high mark of the pandemic era as U.S. consumption of petroleum products increased and mounting Chinese demand fueled global growth expectations.
American exploration and production (E&P) firms boosted output by 100,000 b/d to 12.3 million b/d for the week ended March 17, according to the U.S. Energy Information Administration’s (EIA) Weekly Petroleum Status Report on Wednesday.
The print matched the 2023 peak and the production pinnacle since the onset of coronavirus outbreaks in early 2020. E&Ps posted a record 13.1 million b/d of output in March of that year, just prior to public health officials declaring the global pandemic.
The latest EIA result also far exceeded the year-earlier level of 11.6 million b/d.
Demand, meanwhile, increased 5% week/week, driven by gains in consumption of gasoline and distillate fuels. Crude exports, however, declined modestly, allowing inventories for the March 17 period, excluding those in the Strategic Petroleum Reserve, to increase by 1.1 million bbl from the previous week.
At 481.2 million bbl, stocks were 8% above the five-year average at the close of last week.
While the latest week of data pointed to a spring pickup in domestic demand, consumption has proven relatively light so far this year. This developed alongside a slowing economy and forecasts for a potential recession in 2023.
Such concerns were amplified over the past two weeks by the failures of Silicon Valley Bank in California and Signature Bank in New York – meltdowns that exposed weaknesses in the banking system.
Following failures, other banks tend to pull back on lending. In turn, businesses and consumers, unable to get credit, slow their investments and spending. Against such a backdrop, the economy historically has stalled, as analysts at RBC Capital Markets noted.
However, while recession risk is elevated, they do not see reason for panic in the financial system – in the United States or globally.
That’s because the analysts view the recent failures as isolated, the result of overconcentration in the technology sector in Silicon Valley Bank’s case and cryptocurrency in Signature’s.
“The biggest pressure point or danger is market participants conflating these events into a 2008 crisis narrative, when we do not view it as that at all,” the RBC analysts said.
That leaves the economy in somewhat of a limbo state – and oil demand, by extension, in a similar place.
Total petroleum products supplied over the last four-week period averaged 19.7 million b/d, down 6% from the same period last year, EIA said. Over the same period, gasoline consumption averaged 8.8 million b/d, down only 0.2%
Distillate fuel demand averaged 3.8 million b/d, down 13%, while jet fuel product supplied was up 7% to 1.6 million b/d.
Both the International Energy Agency and OPEC – prior to the recent financial sector troubles – said they expected global crude demand growth this year, with robust Chinese consumption more than offsetting flattish demand in the United States and Europe.
Goldman Sachs Group analysts, in the days since the bank failures, said the collapses and heightened recession worries could further curb Western oil demand. But they still expect consumption in China – where strict pandemic restrictions were lifted early this year, unleashing pent-up demand for travel fuels – to drive growth this year. This would justify the strong levels of U.S. production, given American E&Ps lead the world in output along with OPEC.
“We have lowered our demand projections for Europe and North America in 2023 and 2024, incorporating softer realized data,” the Goldman analysts said this week. “In contrast, we have further front-loaded the recovery in Eastern demand, especially in China. On net, our annual average demand estimates are unchanged for 2023” at around 100 million b/d.