Crude oil prices typically fluctuate based on seasonal demand and supply. Most recently, the COVID-19 pandemic caused crude price changes through a drop in demand. While economic recovery is underway, oil prices continue to be affected by global uncertainties.
- The EIA forecast that Brent crude oil prices will average $103.37/b in 2022.
- WTI is forecast to average $97.96/b in 2022.
- Oil prices are rising due to an increase in demand and a decrease in supply.
- OPEC is gradually increasing oil production after limiting it due to a decreased demand for oil during the pandemic.
Current Oil Prices
There are two grades of crude oil used as benchmarks for other oil prices: the West Texas Intermediate (WTI) at Cushing and North Sea Brent. WTI at Cushing comes from the U.S. and is the benchmark for U.S. oil prices. North Sea Brent oil comes from Northwest Europe and is the benchmark for international oil prices.
Internationally, Brent crude oil prices averaged nearly $117 per barrel (/b) in March 2022, up $20/b from February's average. Prices are expected to average $103.37/b in 2022, according to the U.S. Energy Information Administration's (EIA) Short-Term Energy Outlook released on April 12, 2022. This is up from an annual average of $70.89 in 2021.
West Texas Intermediate averaged $91.64 per barrel in February 2022, and rose to an average of $108.50/b in March. The EIA forecasts that WTI prices will average $97.96/b in 2022, up from $68.21 in 2021.
Oil prices are affected by several factors that include everything from weather to economic and political instabilities.
The EIA also reports that global oil and liquid fuels demand was 102.30 million b/d in December 2021. That's an increase of 7.47 million b/d from December 2020, but only 0.57 million b/d higher than December 2019. However, the EIA expects demand to fall in 2022, reaching an annual average of 99.80 million b/d.
2021 Oil Prices
Brent crude oil prices started low in 2021, averaging $54.77/b in January. But they rose in the second quarter, closing at $67.73/b in April 2021. West Texas Intermediate (WTI) at Cushing in the United States performed similarly, closing at $63.50/b in April. The third quarter saw massive hikes in prices, with Brent prices increasing to a height of $84.52/b in early November, and WTI reaching $85.64/b in late October. By the end of 2021 Brent sold at $77.24/b, and WTI at $75.33/b.
Oil Price Forecast 2025 to 2050
The EIA predicts that by 2025 Brent crude oil's nominal price will rise to $66/b. By 2030, world demand is seen driving Brent prices to $89/b. By 2040, prices are projected to be $132/b. By then, the cheap oil sources will have been exhausted, making it more expensive to extract oil. By 2050, oil prices could be $185/b.
WTI per barrel price is expected to rise to $64 per barrel by 2025, increasing to $86 by 2030, $128 by 2040, and $178 by 2050.
The EIA assumes that demand for petroleum flattens out as utilities rely more on natural gas and renewable energy. It also assumes the economy grows around 1.9% annually, while energy consumption decreases by 0.4% a year.
Future oil prices will depend greatly on innovations in energy, transportation, and other industries as societies work to become less fossil fuel dependent.
5 Reasons for Today’s Volatile Oil Prices
Oil prices used to have a predictable seasonal swing. They spiked in the spring as oil traders anticipated high demand for summer vacation driving. Once demand peaked, prices dropped in the fall and winter.
Global supply and prices are also affected greatly by geopolitical conflict and civil unrest.
Oil prices are more volatile today due to many factors, but five are the most influential.
The Russian Invasion of Ukraine
Russia is the third-largest producer of liquid fuels and petroleum, so when the country invaded Ukraine in late February 2022, it had immediate impact on Brent crude oil futures prices. As the conflict continued, the prices of crude oil settled in out on an upward trajectory, reaching nearly $130/b in early March, and staying well above $100/b into April.
US Oil Supply
The coronavirus pandemic and natural events are still affecting oil demand and supply. The U.S. experienced a drop in production following Hurricane Ida in September as the storm shut at least nine refineries.
The EIA estimates that U.S. crude oil production will average 12.01 million b/d in 2022 and 12.95 million b/d in 2023.
Diminished OPEC Output
Oil price increases also reflect supply limitations by the Organization of the Petroleum Exporting Countries (OPEC) and OPEC partner countries. In 2020, OPEC cut oil production due to decreased demand during the pandemic. It gradually increased oil output through 2021 and into 2022. Supply chain disruptions in late 2021 affected global trade as well.
At its most recent meeting in December 2021, OPEC stated it would continue to gradually adjust oil production upward by 0.4 million barrels per day (mb/d) in January 2022.
Countries in Asia have relied on coal to generate power, but recent shortages have turned them to natural gas. Higher temperatures in parts of Asia and Europe have led to high demand for natural gas to generate power.
COVID-19 has hampered Europe's natural gas production, and a colder-than-expected heating season in early 2021 reduced supplies further.
As a result, natural gas prices soared in 2021 and are expected to remain high in 2022, and affected countries have turned to gas-to-oil switching to reduce power generation costs.
Global Inventory Draw
As a reduction in oil production continues globally, countries are forced to draw from their stored reserves (not including the strategic petroleum reserves). This steady draw of oil is contributing to the increase in prices, because inventories are decreasing.
Frequently Asked Questions (FAQs)
What is crude oil?
Crude oil is a liquid found beneath the Earth's surface. It's made up of a mix of hydrocarbons formed by subjecting organic plant and animal material to millions of years of intense heat and pressure. It forms the basis for many petroleum products, including plastic, gas, and lubricating oils.
What is the process that turns crude oil into gasoline?
The refinery process turns crude oil into products like gasoline.
How do you invest in crude oil?
There are many ways to invest in the oil industry, but the most direct way to invest in crude oil as a commodity is with futures contracts. You can also invest in an ETF that replicates exposure to crude oil futures.
How many gallons are in a barrel of oil?
There are 42 gallons in each barrel of oil.