The economic slowdown in the US will affect oil and gas consumption and affect benchmark oil and gas prices, negatively impacting upstream activity, Dominika Rzechorzek, senior oil and gas analyst at BMI, told Rigzone.
Rzechorzek said the company currently expects the U.S. to experience a modest recession in the second half (S2) of 2023, but noted that the annual real GDP growth rate is set at one percent year-on-year “taking into account reasonably robust economic activity in the first half of 2023.”
“So we see that total fuel consumption will only decrease marginally, by 0.5 percent year-on-year,” Rzechorzek said.
“The impact on certain fuels is expected to vary with demand for gasoline and middle distillate reducing by 1.0% and 2.0%, respectively, while jet fuel consumption continues.[es] growth of 1.2 percent year-on-year,” the analyst added.
“Natural gas consumption will also decline by 0.3 percent year-on-year, likely driven by lower demand from industrial consumers,” Rzechorzek continued.
If there was a more severe recession in the second half of 2023, the IMC analyst noted that the company would expect fuel and gas consumption, especially by industrial and electric users, to decline more rapidly.
“A prospect of weakening oil and gas demand in the US is a key bearish factor for oil and gas prices,” Rzechorzek said.
“A lower oil and gas price environment would erode investor sentiment in the US upstream market, further weakening drilling activity and negatively impacting oil and gas production growth over the medium term,” he added the analyst
Dan Kish, a distinguished senior fellow at the Institute for Energy Research (IER), told Rigzone that a 2023 recession would be bad for the oil and gas industry “and obviously for Americans in general”.
“At a time when more than 125 anti-energy actions by the Biden administration are starting to get underway, it will be harder to produce in the US than in other countries,” Kish added.
“It would also reset the table for American energy dominance, because additional taxes and indirect taxes through federal regulations would make it more difficult for American producers to turn things around if a recovery were to occur,” he continued.
“With the world already short on energy, it would allow countries for whom oil and gas are important to their governments to gain market share. It took the United States a long time to achieve its place as the world’s top producer . It wouldn’t take that long to destroy that,” Kish continued.
Rigzone has asked the US Department of Energy (DOE) for comment on Rzechorzek and Kish’s statements. As of this writing, the DOE has not yet responded to Rigzone’s request.
To contact the author, please send an email andreas.exarcheas@rigzone.com
