The International Energy Agency has forecast the global oil market will avoid a “sharp” shortfall this year as emergency stock releases and slowing demand from China offset the impact of lower post-invasion Russian production. from Ukraine.
In its monthly report, the Paris-based organization, which advises major oil-consuming nations on energy policy, lowered its forecast for global fuel consumption to 99.4 million barrels a day from 99.7 million. barrels per day earlier, citing the series of lockdowns in Shanghai and other Chinese cities.
“While news headlines have understandably focused largely on the severe lockdown measures implemented in Shanghai, China’s largest city and home to the world’s largest port, the towns, cities and districts in nearly all regions of the country have been affected and cases have recently been reported. have been reported in all but three of the nation’s provinces,” the report says.
Combined with plans by IEA member countries, which include the US, UK and Germany, to release 240 million barrels of fuel from emergency stockpiles over the next few months, the IEA believes this should be enough to prevent a “pronounced deficit” from developing in the oil market. this year even as Russian production declines.
The IEA expects Russian production to fall 1.5 million b/d in April and losses to double in May due to official sanctions and the impact of a widening customer-driven embargo.
Vitol, the world’s largest independent oil trader, said on Sunday it intended to stop trading Russian-origin crude and products by the end of this year.
“European buyers have begun to cut back on imports, while shipments to the US, which averaged around 600,000 b/d before the invasion, have ground to a halt,” the IEA report said. “Contrary to expectations, there are no signs so far of an increase in Russian exports to China, where rising Covid-19 cases and severe mobility restrictions have reduced economic activity and demand for oil.”
One country that has stepped up purchases of Russian oil is India, taking advantage of deep discounts to grab crude shipments, according to Helima Croft, an analyst at RBC Capital Markets.
“India has become a major energy outlet for Russia, allowing it to mitigate the impact of the initial buyer strike and providing a critical financial lifeline for the president. [Vladimir] Putin,” he wrote in a report.
She estimates that Russian crude exports to India have risen from less than 50,000 b/d in February to more than 300,000 in March.
“Prime Minister [Narendra] Modi shows no apparent willingness to stop providing financial support to Moscow in the form of increased oil imports despite the White House’s request to reconsider such an energy strategy,” Croft added.
The global oil market has been extremely volatile since the Russian invasion of Ukraine on February 24 and has become less liquid as traders have stood still. This has been reflected in a sharp decline in open interest – the number of active futures contracts.
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Brent, the international oil benchmark, soared to $140 a barrel shortly after the invasion. In response, IEA members last week announced the biggest share launch on record.
That move pushed Brent below $100 a barrel on Monday, but it returned to $106 on Wednesday after Putin said peace talks with Ukraine were at a “dead end.” That has put the possibility of an EU embargo on Russian oil back on the agenda.
“Crude benchmark prices are now close to pre-invasion levels but remain worryingly high and pose a serious threat to global economic prospects,” the IEA said.