Oil and Natural Gas Market Assessment and Outlook

This assessment and outlook for oil and natural gas markets was written by Paige Lampman (lampman.11@osu.edu).


The key word in energy for 2022 is uncertainty, which has been growing throughout the year so far. And unfortunately for consumers, uncertainty almost always leads to volatility in prices, particularly on the upside. Russia’s invasion on Ukraine has made natural gas and oil prices spike, as well as threatening warfare that could lead to even greater losses for society. COVID-19 and its continuing stream of new variants have had widespread impacts on the global markets over the last 2+ years, and they continue to affect markets throughout the remainder of this year. Fluctuations in weather have also changed the timeline of demand.

To understand how price increases or decreases will affect you, first it is important to understand what is causing the price change – so you know what to expect.

Oil Market Update

Looking at the price of crude oil from 2012-2022, the price that it is peaking at right now has not occurred since 2013, the spike mainly due to Russia’s invasion of Ukraine. With less oil on the market, the price has increased dramatically since its last drop in 2020 due to less consumption during the pandemic (Monthly Crude Prices).

Although the US is the world’s largest producer of crude oil, we also import about 65% of our consumption (Oil & Petroleum, EIA) . The main contributor of the imports being the 13 nations that make up the Organization of Petroleum Exporting Countries (OPEC), and their other loosely affiliated members which include 10 of the world’s major oil exporting nations, making up OPEC+.

OPEC+ has continued to gradually release its outputs from the large production cuts it made in April of 2020 due to a growing surplus in the beginning of the pandemic. OPEC+ announced in July to increase production by 0.4 million barrels per day each month, but it has been continuously missing targets. This is because when oil production is halted it is challenging to get it back up to the original flow rate it was before. Recently, OPEC+ agreed on their January 4th meeting to increase output by another 0.4 mil bpd in February in line with its existing plan. The rise back up in price was due to more production and concerns that consumers would lower travel and thus demand, due to the knowledge that the Omicron variant was more contagious (January, EIA TIE).

Several forecasters had predicted that the future price of oil would fall throughout 2022 as global petroleum inventories increased. This projection has now been drastically affected by Russia’s invasion into Ukraine. The price of Brent crude oil rose to nearly $130/b and now has settled at $100 – $115/b. This is a large increase since January when the price was on average $88/b. There have been intraday swings of nearly 10$ for Brent crude oil, and swings like this are projected to continue (March, EIA TIE).

As a result of the invasion, US President Joe Biden announced a ban on Russian oil, natural gas and coal, and the UK joined this action, with EU pondering the choice. This has stimulated an additional spike in oil prices. The EU cannot currently fully commit to the sanctions placed on Russian oil since they are so dependent on it, it would shave off 4-5% of global oil supply if EU was to follow through (Reuters). The increase in gasoline and diesel prices are mainly due to the increase in price of crude oil. The total cost of producing gasoline and diesel is made up by 61% and 53% of crude oil prices, respectively (March, EIA TIE).

In Russia and Ukraine information has already been limited and as time continues it will be difficult to get true updates about what is happening, which will add even more uncertainty to the markets.

Natural Gas Market Update

Domestically produced natural gas makes up over 98% of U.S. consumption (Total Energy, EIA). Production of natural gas has become more efficient in the U.S. than coal due to improvements in technology over the past decade and it has substituted coal consumption.

Prices were expected to decline slightly in 2022 and even more so in 2023 but were still high compared to recent years in early February. This was because of reductions in coal-firing electric energy generation capacity and continued market restraints (January, EIA STEO). The projections now have been affected by Russia’s most recent invasion of Ukraine which began on February 24th.

US natural gas prices could further be affected by expected increases in exports projected to take place later this year. Exports are expected to reach a record high in 2022 because of pipeline exports to Mexico and Canada, as well as increasing LNG exports which are projected to be up 16% since last year (March, EIA STEO). Imports for natural gas will slightly decrease because of improvements in efficiency of domestic production. Weather could also continue to impact price, as residential and commercial sectors are projected to be up 4% from 2021, as 6% more heating days are expected in 2022. The electric sector is also forecasted to consume 6% less natural gas this year due to rising capacity of renewable electricity energy generation (January, EIA STEO).