About the author: Paul Sankey is president of Sankey Research, an independent energy research provider.
In response to high prices, in 2022 the Biden administration released a vast quantity of oil from the Strategic Petroleum Reserve. But at the time China was pursuing a zero-Covid policy that muted oil demand in the world’s biggest oil importer. Some of the SPR release was, ironically, sold directly to China, which took advantage of lower prices to build inventory.
Suddenly in 2023, even as China demand recovered, the oil market was under downward pressure. Saudi Arabia made cuts to production and export midyear with Russian vocal support. Those cuts have served not only to reduce global crude supply by more than a million barrels a day but also tighten the market for the heavier, sourer crude grades favored by the biggest, most complex refiners to make distillate, tightening the global diesel balance.
In principle, the oil cycle is: Prices rise, companies invest in more supply, then demand weakens, and prices fall. But that is completely distorted by heavy-handed politically driven government action.