Since the third quarter of 2020, global consumption of crude oil and petroleum products has increased faster than production, which has caused lower inventory levels and higher crude oil prices. In our November Short-Term Energy Outlook (STEO), we forecast that rising production from OPEC+ countries and the United States will lead to global liquid fuels inventories increasing and crude oil prices falling in 2022.

We estimate world crude oil consumption exceeded crude oil production for five consecutive quarters, starting in the third quarter of 2020. During this period, petroleum inventories in OECD countries (the Organization for Economic Cooperation and Development) fell by 424 million barrels, or 13%. We forecast global crude oil demand will exceed global supply through the end of the year, contribute to some additional inventory draws, and keep the Brent crude oil price above $80 per barrel (b) through December 2021.

However, we forecast that global oil inventories will begin building in 2022, driven by rising production from OPEC+ countries and the United States and slowing growth in global oil demand. We expect this shift will put downward pressure on the Brent price, which will average $72/b during 2022.

Spot prices of Brent, an international crude oil benchmark, and West Texas Intermediate (WTI), a U.S. crude oil benchmark, have risen since their April 2020 lows and are now above pre-pandemic levels. In October, the price of Brent crude oil averaged $84/b, and the price of WTI averaged $81/b, the highest nominal prices since October 2014. We expect that the price of Brent will fall from an average of $84/b in October 2021 to $66/b in December 2022 and the price of WTI will fall from an average of $81/b in October 2021 to $62/b in December 2022.

The futures markets are similarly showing high prices for near-term contracts compared with longer-dated contracts, a situation known as backwardation. Crude oil inventory levels, among other factors, affect the difference between near-term and longer-term futures prices. Differences in prices between crude oil contracts for delivery in the near term compared with contracts for delivery at later dates indicate market expectations that inventory draws will moderate.

Low crude oil inventories, both globally and in the United States, have put upward price pressure on near-dated crude oil contracts, whereas longer-dated crude oil contract prices are lower, likely reflecting expectations of a more balanced market.

Low crude oil inventories in the United States—particularly in the transportation and storage hub of Cushing, Oklahoma, where NYMEX WTI futures contracts are physically settled—have likely contributed to additional backwardation in WTI compared with Brent. According to our Weekly Petroleum Status Report, crude oil inventories in Cushing were 26.6 million barrels on November 12, which was 49% below the previous five-year average and 32% of the working storage capacity.