IEEJ：October © IEEJ 2022
Special Bulletin
A Japanese Perspective on the International Energy Landscape (605)

October 3, 2022

January-September 2022 Average Oil Prices at about $100/bbl up 51%
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
Daily closing prices of the front-month contract for the benchmark Brent crude in the firstnine months of 2022 averaged $102.46 per barrel, up $34.50/bbl or 51% from $67.96/bbl a year earlier.
The average futures price for West Texas Intermediate, another benchmark crude, came to $98.25/bbl,up $33.20/bbl or 51% from $65.04/bbl. The average prices for the first nine months of the year stoodat about $100/bbl for the first time in eight years since 2014.
The highest closing price in the first nine months of this year was $127.98/bbl for Brent and$123.70/bbl for WTI on March 8. Temporarily, both Brent and WTI prices rose above $130/bbl on
March 7, hitting the highest levels since the global financial crisis. Brent topped $139/bbl then. Thelowest price in the nine months was $78.98/bbl for Brent and $76.08/bbl for WTI on January 3. TheWTI price sank to the second lowest level at $76.71/bbl on September 26. The gap between the highest
and lowest levels in the nine months came to some $50/bbl, indicating wild fluctuations.
As a matter of course, the serious impacts of the Ukraine crisis have led to the high average
crude oil prices at some $100/bbl and the highest prices since the global financial crisis. Crude oil
prices followed an uptrend in the second half of 2021 and retained the trend in early 2022. Prices inthe beginning of the year thus came to the lowest levels for the nine months. Later, prices rose further.
In response to Russia’s invasion into Ukraine on February 24, crude oil prices topped $100/bbl. As
Western countries imposed tough economic sanctions on Russia, the United States in early Marchvowed to ban Russian energy imports. Canada and the United Kingdom followed suit. The news on
their energy embargo on Russia hit the crude oil market. Geopolitical risks and supply insecurity
pushed crude oil prices up to the abovementioned highs.
A week later, however, crude oil prices fell back below $100/bbl. This was because market
players realized that the United States and Canada had imported little energy from Russia, meaningthat their energy embargo on Russia would have no major impact on Russian crude oil supply. Leading
to the highs above $130/bbl were initial shocks of the reported U.S. energy embargo on Russia. Later,
the focus of attention shifted to how Europe, a key consumer of Russian crude oil, would react to theRussian invasion.
European and other Western countries initially adopted a Russian coal embargo to enhance
Russia sanctions. Later, they began to consider an oil embargo that had been viewed as difficult
initially. In May, the Group of Seven Western democracies decided on a Russian oil embargo. At theend of the month, the European Union announced an agreement to phase out Russian oil imports within
2022, with some exceptions. In response, crude oil prices hovered around $120/bbl in the first half ofJune, indicating serious impacts.
Later, however, crude oil prices declined gradually. The biggest factor behind the downturn1

IEEJ：October © IEEJ 2022
was the deceleration of the global economy. As inflation accelerated in the United States and Europe
due to spikes in crude oil and other energy prices as well as food prices, their monetary authorities
continuously raised interest rates to counter inflation. The shift to monetary tightening exposed theglobal economy to downside risks, leading the International Monetary Fund to lower global economic
growth projections every time when its “World Economic Outlook” was revised. The crude oil priceweakness amid concern about the economic slowdown became clearer in July. Crude oil prices sankbelow $100/bbl in July and fell further below $90/bbl in August. After seesawing later, the WTI priceslipped below $80/bbl in September. It hit the abovementioned second lowest closing level on
September 26.
The global economic slowdown has been a basic factor behind the downtrend in crude oilprices. Regarding oil demand, growing concern about the economic trend of China as the world’s
largest oil importer has greatly contributed to the oil price downtrend. As oil-consuming countriesincreasingly called for more oil production in response to the oil price spikes until June, the OPECplus group of oil-producing countries at last decided on an additional production increase for July andAugust, exerting some influence on the market. After U.S. President Joe Biden visited Saudi Arabiain July to urge the oil kingdom to increase production, the OPEC-plus group decided to increase oil
production by 0.1 million barrels per day from September. These developments exerted downsidepressure on crude oil prices.
At the same time, however, crude oil price falls brought about a new development. TheOPEC-plus group turned around its policy to cut production to support prices. After adopting a 0.1
million bpd production increase at its meeting in August, the group at the next meeting in September
decided on a 0.1 million bpd cut to offset the increase. Although the size of the production cut waslimited, the decision meant that the group reversed its policy of gradual production expansion after asharp cut from May 2020. The focus of attention has shifted to whether crude oil prices would cease
to weaken or turn up in response to the OPEC-plus policy shift.
In this way, speculative reports have emerged on the next OPEC-plus meeting on October
5, attracting attention from oil market players. Oil price moves may depend on the size of anotherproduction cut. While willing to support oil prices with an additional production cut, the group may
be concerned that its excessive production cut would produce upward pressure on crude oil prices andmeet strong opposition from major oil-consuming countries including the United States, Europeancountries and Japan. Given that the U.S. Biden administration hopes to see stable crude oil (andgasoline) prices at low levels towards the midterm congressional election in November, oil-producing
countries that must give consideration to relations with the United States may have to make a difficult
decision.
However, we must take note of the fact that the global economic slowdown still exerts great
influence on the oil market trend. In its next “World Economic Outlook” coming in October, the IMF
may lower global economic growth projections again. Then, global oil demand projections may berevised downward. If the Chinese economy weakens further under the so-called “zero-corona” policy,
downside pressure on oil prices may grow. The OPEC-plus group may prudently adjust production
while watching the global oil demand trend.
Another turbulent factor for the oil market is related to Russia. A price cap on Russian crudeoil, proposed by the United States at a G7 summit in June, is set to be introduced on December 5.
While how the price cap would work is still uncertain, Russia has vowed to ban oil exports to countries
adopting the price cap. As December approaches, we must pay attention to how the price cap would2

IEEJ：October © IEEJ 2022
affect Russian oil supply. If gas prices shoot up in the European gas market where the supply-demandbalance may tighten further in the coming winter after a sharp cut in Russian pipeline gas supply,
demand for oil as an alternative to gas may increase in a manner to push up oil prices. Uncertainties
regarding Russia may exert influence on crude oil prices. We will have to closely watch future
developments regarding Russia.

Contact: report@tky.ieej.or.jp
The back issues are available at the following URL
http://eneken.ieej.or.jp/en/special_bulletin.html

3