Oil Market Report – April 2022 – Analysis

Oil markets struggling to weather supply losses and dislocations stemming from Russia’s invasion of Ukraine received much-needed support from the US and IEA-coordinated action releases. IEA member countries agreed on April 1 to tap into their emergency reserves for the second time in the space of a month, this time to the tune of 120 mb. The record volumes will provide welcome relief to an already tight oil market facing heightened uncertainty amid the multitude of repercussions stemming from sanctions and embargoes targeting Russia by the international community and consumer boycotts. Crude oil prices are down almost $10/bbl following the announcements in the US stock publications and the IEA, with the latest ICE Brent trading around $104/bbl.

Insisting that there is no shortage of supply, OPEC+ countries agreed on March 31 to maintain a modest monthly production increase for May. In March, production from the 19 alliance members with quotas increased by just 40 kb/d, well below its planned increase of 400 kb/d and 1.5 mb/d below its target. Production from non-OPEC+ producers, notably the US, also fell short of expectations at the start of the year. Non-OPEC+ production is now forecast to grow 2 mb/d in 2022, down 100 kb/d from last month’s Report. Starting this month, our OPEC+ supply estimates will be published on our website.

Russian oil supply and exports continue to fall. So far in April, roughly 700 kb/d of production was reported to have been shut down. We assume these losses will rise to an average of 1.5 mb/d for the month as Russian refiners extend production cuts, more buyers shun barrels and Russian storage fills up. . As of May, about 3 mb/d of Russian production could be offline due to international sanctions and as the impact of a growing customer-driven embargo takes effect.

While some buyers, especially in Asia, increased purchases of heavily discounted Russian barrels, traditional customers are cutting back. For now, there is no sign of an increase in volumes destined for China, where refiners have curtailed operations due to a recent spike in Covid-19 cases and new restrictions have hit oil demand.

The strict lockdowns in China have led us to further revise down our estimate for oil demand in 2Q22 and for the full year. Furthermore, the most complete demand data for 1Q22, especially in the US, was much lower than preliminary estimates. As a result, global oil demand has fallen by 260 kb/d by 2022 and is now forecast to average 99.4 mb/d, an increase of 1.9 mb/d from 2021.

Lower demand expectations and steady production increases from Middle Eastern OPEC+ members along with the US and other countries outside the OPEC+ alliance should bring the market back into balance. But the outlook is mired in uncertainty and OECD industry shares in February continued to rise at a brisk pace to settle 320mb below their five-year average. Thus, the latest IEA stock release provides a crucial buffer for oil markets and much-needed relief for consuming countries.

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