Save for later Print Download Share LinkedIn Twitter Oil prices have reached an inflection point, with the threat of recession now grappling with supply concerns in battle that will decide the commodity's trajectory. Supply and demand shocks have defined oil markets over the past two years, and it looks like there will be more to come. Western sanctions and efforts to punish Russia for its war in Ukraine could have the most impact on supply balances in the rest of 2022. The risk is that significantly lower Russian supply drives Brent higher, well beyond current levels near $114 per barrel. But new shocks are also possible for oil consumption. Higher prices coupled with a recession could decimate product demand and prompt a price crash. Uncertain oil market fundamentals for 2022 only seem to deliver extreme outcomes. Oil traders say the market is focused on the present since the future throws up so much uncertainty. Russian oil exports have held up against dire forecasts of collapse, thanks to robust discounts. Global crude inventories rose for three consecutive months in March, April and May, partly thanks to huge releases from consuming nations’ strategic petroleum reserves. Demand is set to rise sharply over the next few months as consumers drive and fly more freely than ever before since the start of the pandemic in 2020. Energy Intelligence balances now show a slight crude surplus in 2022 and a bigger one in 2023 — but this assumes some measure of market normalcy, which has been rare since 2019. Product markets, on the other hand, look set to remain tight. After a seasonal lull in the fall, demand should rise again in winter. High prices and economic downturn pose a threat to demand, but this could be partly offset by fuel switching away from higher-priced natural gas and rising demand for heating oil this winter. Energy Intelligence sees supply in 2022 at 99.6 million b/d, narrowly above demand at 99.4 million b/d.