Line chart shows a volatile relationship between Brent oil prices vs. global oil demand/supply balance.
Left y-axis: Global demand growth minus supply growth (%) YoY (12-month average); right y-axis: Brent crude price (U.S. dollars per barrel); x-axis: 2002 – 2022.
Brent crude rises from about $19 per barrel in 2002 to a peak of roughly $140 per barrel in 2008. Since then the price has fluctuated considerably, ending at about $66 per barrel by year-end 2019. From there it fell sharply to less than $23 by March 2020, eventually recovering somewhat to nearly $52 by year-end 2020. As of Q2 2022 it stood at about $115. Global demand growth minus supply growth also fluctuated, beginning at about 1.00% in 2002 and ending just under 0.99% at the end of November 2020. As of the end of June 2022 it stood at a negative 1.6%.
Historically, global demand growth minus supply growth rose to several peaks during this time period, in 2002 (over 2.2%) 2007 (over 1.9%), 2013 (over 1.7%), 2017 (over 2.1%), and 2021 (near 5.6%). These peaks were followed by steep declines, to about -2% (2004), near -2.2% (2009), -1.6% (2015), about -1.7% (2019), -2.7% (2020) and -1.6% (June 2022).
Sources: Bloomberg, Energy Information Administration, and Wells Fargo Investment Institute. Monthly data from January 1, 2002 to June 30, 2022. YOY = year-over-year.
- The rate of change of demand growth versus supply growth has had a strong influence on oil prices.
- Global oil producers were hesitant to bring extra production back in 2021. We expect demand growth to slow as economic growth slows, which could lead to some near-term consolidation in oil prices.
- Tight supply should remain a concern over the next two years, and we suspect oil prices could spend much of that time above $90 per barrel.