With 8 million barrels per day (mb/d) sent around the world, Russia is the world’s largest exporter of crude oil and refined products. A production undermined by the flood of sanctions taken against him following his offensive in Ukraine. The International Energy Agency (IEA), which advises developed countries on their energy policy, warns in a monthly report that: “The prospect of large-scale disruptions to Russian production threatens to create a global oil supply shock.”
She estimates that 3 mb/d of Russian oil could be unavailable from April. A volume which could also increase if the sanctions become more severe or if public condemnations of Russia increase.
No producers willing to compensate for losses
In the face of these losses, the IEA notes that“there are few signs of an increase in supply from the Middle East or a significant reallocation of trade flows”. The Organization of the Petroleum Exporting Countries (OPEC) and its allies, notably Russia, within OPEC+, refuse to increase their production to relieve the market, sticking to a gradual increase of 400,000 barrels per day each month .
As for the countries with additional production capacities – Saudi Arabia and the United Arab Emirates – they show no desire to open the tap more. British Prime Minister Boris Johnson is traveling to these two countries this Wednesday, March 16 to convince them to increase their oil production. The G7 nations, including the UK, last week called on oil and gas producing nations to “increase their deliveries” to cope with rising energy prices due to the war in Ukraine and the sanctions imposed on Russia.
With regard to the prospect of a return of Iran, within the framework of a possible agreement on the nuclear file, it will not be immediate. The IEA also estimates that Iranian exports could increase by around 1 mb/d over six months, so not enough to compensate for the loss of Russian oil. Venezuela – with which Washington has resumed dialogue – could only provide a “modest” contribution in the event of the lifting of American sanctions.
Outside OPEC+, other countries will certainly increase their production – Brazil, Canada, the United States and Guyana – but the potential is “limited” in the short term. The United States in particular has significant potential with its shale oil reserves, but this should take months to materialize.
Recommendations to reduce the demand for oil
On the demand side, the IEA has also revised down its growth forecast for 2022 by around 1 mb/d, due to the effect of the increase in commodity prices and the sanctions against Russia on the economy. world. Global demand is now expected to rise by 2.1 mb/d this year, to a total of 99.7 mb/d.
The IEA – created in 1974 to deal with the oil shock – indicates that it will publish recommendations this week to reduce demand in the short term. In some countries, for example, it has been suggested to lower the speed limit on the roads, to lower the price of public transport or to resort to teleworking.
The agency says that while the current situation poses a huge challenge for energy markets, it also represents “opportunities”: “the current alignment between economic and energy security factors could well accelerate the transition to the detriment of oil”.
The barrel of Brent falls below the 100 dollar mark
The war in Ukraine created high volatility on the oil markets, whose prices approached their record highs. Brent thus reached 139.13 dollars on March 7, before retreating.
On Tuesday March 15, a barrel of the North Sea for delivery in May nevertheless fell by 6.53%, to end at 99.91 dollars. This is the first time this has happened since the second day of the invasion of Ukraine, almost three weeks ago. The barrel of American West Texas Intermediate (WTI), for delivery in April, for its part lost 6.37%, to 96.44 dollars.
“After falling more than 20% from last week’s highs, crude oil has entered bear market territory,” commented Fawad Razaqzada, analyst at ThinkMarkets. A decrease which is mainly explained by the fact that China has ordered the reconfinement of tens of millions of people. However, the country is by far the world’s largest importer of oil, with just over 10 million barrels per day.
Louise Dickson, an analyst at Rystad Energy, warns that while a slowdown in Chinese demand in the short term is likely to lower the price of black gold, it could, in the longer term, aggravate the problems of supply with further factory closures and generate further inflation.
Black gold prices also fell in response to hopes “that the talks between Russia and Ukraine can lead to a de-escalation of the conflict”, according to Ricardo Evangelista, analyst at ActivTrades. A resolution to the conflict in Ukraine “could lead to less severe sanctions against Russia and ease supply pressures,” he points out.
(With AFP)