Crude oil and petroleum product prices fell in the second half of 2022 from multi-year highs

Crude oil and petroleum product prices were higher in 2022 than in 2021, on average, following Russia’s full-scale invasion of Ukraine on February 24, 2022. The invasion prompted concerns about the availability of global petroleum supplies, particularly Europe’s capability to replace sanctioned Russian exports. These supply concerns contributed to crude oil, gasoline, and diesel prices rising in the United States and globally in the first half of the year. U.S. prices generally decreased in the second half of the year as refinery runs ramped up and global economic concerns reduced the expectation for increased demand for petroleum products.

Crude oil prices generally increased in the United States in 2021 and early 2022 because crude oil supply could not keep up with rising demand as pandemic-related travel restrictions eased. Russia’s full-scale invasion of Ukraine came during a period of eight consecutive quarters (from the third quarter of 2020 to the second quarter of 2022) of global petroleum and other liquid inventory decreases, affecting an already tight crude oil market. After beginning 2022 at $78 per barrel (b), the spot price of Brent crude oil surpassed $100/b on February 28 and then increased to a high of $134/b on March 8 (Figure 1). Brent crude oil prices averaged $114/b from March through June of 2022.

Lower petroleum demand in the second half of 2022 contributed to lower crude oil prices, while crude oil futures prices were also pulled down by mounting concerns about an economic recession. High petroleum prices contributed to persistent, broad-based inflation in the United States in 2022. This inflation has affected consumer budgets and petroleum consumption, leading to less driving in the United States. Strict measures to prevent the spread of COVID-19 in China also contributed to reduced global petroleum demand. Meanwhile, crude oil supply increased in the second half of 2022 from U.S. and international Strategic Petroleum Reserve release programs, further alleviating tightness in global crude oil markets. On December 8, Brent crude oil reached its lowest price in 2022, at $75/b. The spot price of Brent crude oil closed the year at $85/b, $7 higher than the January 3, 2022, price of $78/b, although the average Brent price across the month of December was lower than in January.

The spot price of West Texas Intermediate (WTI) crude oil followed a similar price path to Brent crude oil. The WTI crude oil price averaged $5/b lower than Brent crude oil in 2022, compared with $3/b lower in 2021. The Brent-WTI crude oil price spread widened in 2022 relative to 2021 because of strong demand in Europe to replace crude oil supplies previously supplied from Russia.

Although crude oil prices are the largest determining factor in gasoline and diesel prices, prices of gasoline and distillate traced different paths than crude oil because of concerns specific to those markets. Prices for the front-month futures contract for Brent crude oil averaged 137% of its January price in June and 95% of its January price in December (Figure 2). Gasoline and distillate futures contract prices followed similar paths to each other in the first half of 2022, peaking at 166% and 165% of their respective average January prices in June. In the second half of 2022, however, seasonal changes in demand contributed to a more rapid increase in gasoline inventories relative to diesel inventories, which led to gasoline prices falling more than distillate prices.

Rising crude oil prices and increased gasoline demand early in 2022 contributed to rising U.S. retail gasoline prices during the summer. During the second half of 2022, more refinery production and less demand contributed to falling gasoline prices (Figure 3).

The U.S. retail price for regular-grade gasoline averaged $3.95 per gallon (gal) in 2022. The price hit its high point for the year at $5.01/gal in June before decreasing to $3.09/gal at the end of the year. At its height in mid-June, the U.S. average retail gasoline price was the highest gasoline price since 2012, when adjusted for inflation. Although the retail gasoline price increased significantly during the middle of 2022 and remained elevated through the end of the summer, the U.S. average retail gasoline price ended 2022 $0.19/gal lower than in the first week of the year.

U.S. gasoline prices vary regionally, reflecting local supply and demand conditions and differences in state fuel specifications and taxes. The annual average retail price for regular-grade gasoline in 2022 ranged from a low of $3.52/gal on the Gulf Coast to a high of $4.95/gal on the West Coast. Although gasoline prices in all regions were highest during the summer, West Coast gasoline prices had a second surge in October related to planned and unplanned refinery outages.

Unlike crude oil and gasoline prices, which finished 2022 below their January averages, the distillate price ended the year higher than both January 2022 and its five-year average. Through October 2022, strong distillate demand and disruptions to international trade contributed to drawdowns in distillate inventories globally and added upward pressure to prices that were already near eight-year highs before Russia’s full-scale invasion of Ukraine. In October, distillate inventories on the East Coast, where some diesel fuel is used for heating, were more than 40% below the five-year (2017–2021) average. Distillate prices were also affected by low inventories in international trading hubs as Europe faced trade disruptions following Russia’s full-scale invasion of Ukraine. At the Amsterdam Rotterdam Antwerp (ARA) and Singapore storage hubs, distillate inventories stayed more than 30% below their five-year averages for most of 2022.

At the end of 2022, U.S. gasoline and distillate inventories increased from their below-average levels in the middle of the year. As of December 30, 2022, gasoline inventories were 223 million barrels, 5% below the five-year average, and distillate inventories were 119 million barrels, 12% below the five-year average (Figure 4).

For questions about This Week in Petroleum, contact the Petroleum and Liquid Fuels Markets Team at 202-586-5840.