One of the biggest stories of 2022 was inflation.

At its recent peak this summer, consumer prices in the U.S. were rising at a rate of 9.1% per year.

That’s worse than anything we’ve seen since the 1970s. And just like back then, a big driver of inflation has been rising energy prices – and oil in particular.

Crude oil more than doubled this year, from nearly $60 per barrel last December to as high as $131 this spring. And the cost of critical fuels like diesel and gasoline surged to record highs along with them.

At the peak of prices this summer, you couldn’t turn on the news without hearing about the soaring cost of filling up your gas tank or booking a flight.

However, that has changed over the past few months as the Federal Reserve’s aggressive interest rate hikes have seemingly worked their way through the economy.

Oil has fallen more than 40% from its recent highs and is currently trading around $75 per barrel. And the cost of gasoline and other fuels has followed it lower.

As a result, just about no one is worried about high energy prices anymore. In fact, if you listen to the financial media, you might believe prices are likely headed even lower as a coming recession reduces demand for oil and gas even more.

Now, it is true that recessions can temporarily weigh on energy demand. So, we could certainly see even lower prices in the near term if the economy continues to slow.

But that doesn’t necessarily mean we’ve seen the last of high energy prices.

You see, recessions aren’t always as damaging for energy demand as you might assume.

For example, the brief recession in early 2020 – driven by widespread COVID-19 lockdowns – was among the most dramatic economic slowdowns in history. Yet it caused oil demand to fall by just 8%. That’s a significant decline, but less than you’d probably expect considering a huge part of the global economy essentially shut down.

Oil demand fell by only 2% during the severe recession that followed the great financial crisis in 2008. And during the relatively mild recessions of the early 1990s and 2000s, oil demand actually continued to rise (though at a slower pace than usual).

More importantly, there are also a couple of notable factors that could significantly increase oil demand in the months ahead.

The biggest is China.

As you may know, the country’s “zero COVID” policies have kept significant parts of its economy locked down for most of the past few years. That, in turn, has dramatically reduced its energy demand.

But that could now be changing. In recent weeks, China appears to have started easing many of these restrictions, which could ultimately add 1 million barrels per day (bpd) or more demand to the global oil markets.

The second is so-called “oil switching” in Europe.

In short, due to natural gas shortages from the ongoing Russian war in Ukraine, countries are beginning to use oil for power generation. Analysts believe this could boost demand by another 0.7 million bpd going forward.

Either of these shifts could offset any demand lost to recession and put significant upward pressure on prices.

But demand is just part of the equation. Several factors could also significantly reduce supply in the months ahead.

The first relates to the U.S. Strategic Petroleum Reserve (SPR). As its name implies, the SPR holds hundreds of millions of barrels of oil in reserve for emergencies. However, the White House has released nearly 200 million barrels of oil from the SPR since March (roughly 35% of total reserves) in response to Russia’s invasion of Ukraine.

Whether or not this release was truly warranted is debatable. But what is certain is that these releases added roughly 1 million bpd of “new” supply to the market this year that didn’t actually exist. That supply wasn’t sustainable and is now going away.

Next is the oil cartel known as OPEC+. This group includes the 13 official member states of the original Organization of Petroleum Exporting Countries (OPEC), along with Russia and 10 other non-member allies. Together, they account for roughly 50% of global oil production.

As we witnessed in October – when this group cut its production target by a massive 2 million bpd – OPEC+ is able (and willing) to lower oil supplies when demand moves significantly lower. And it could certainly do so again if recession causes demand to move lower in the near term.

(It’s also worth noting that OPEC+ struggled to meet its targets even before October’s cuts. Its members had been producing roughly 1 million bpd less oil than promised for most of 2022. So it’s not clear the group could easily reverse its latest cuts even if it wanted to.)

Third, the European Union just instituted a ban on Russian seaborne oil exports earlier this month. According to the International Energy Agency, this move could remove as much as 1.4 million bpd of supply from the global markets next year.

And finally, U.S. shale oil producers are no longer in a position to “fill the void.” Shale had been the biggest marginal supplier of the last decade. Unfortunately, years of underinvestment in new production (driven by punitive U.S. energy policy) – along with the natural depletion of existing wells – means these producers can’t easily increase output in response to higher prices as they have in the past.

When considered together, these factors suggest oil prices could be “stickier” than many expect, even if the economy falls into recession next year. And if either should surprise – whether that’s stronger-than-anticipated demand or additional supply disruptions – we could easily see record-high prices once again.