Surging commodity prices and international sanctions levied against Russia following its invasion of Ukraine are expected to significantly depress global economic growth, says the International Energy Agency (IEA) in its March 2022 Oil Market Report (OMR).
The IEA said as a result of the Russia-Ukraine conflict it has revised down its forecast for world oil demand by 1.3 mb/d for 2Q22-4Q22, resulting in 950 kb/d slower growth for 2022 on average. Total demand is now projected at 99.7 mb/d in 2022, an increase of 2.1 mb/d from 2021.
“The prospect of large-scale disruptions to Russian oil production is threatening to create a global oil supply shock,” the IEA said. “We estimate that from April 3 mb/d of Russian oil output could be shut in as sanctions take hold and buyers shun exports. OPEC+ is, for now, sticking to its agreement to increase supply by modest monthly amounts. Only Saudi Arabia and the UAE hold substantial spare capacity that could immediately help to offset a Russian shortfall.”
As the OMR went to print, ICE Brent oil futures slid to around $100/bbl after touching an intraday high of nearly $140/bbl on March 8. Prices jumped from $90/bbl in early February following the invasion of Ukraine as supply concerns mounted. Prices have eased again on economic concerns, surging Covid cases in China and traders reducing positions due to extreme volatility.
IEA said faced with what could turn into the biggest supply crisis in decades, global energy markets are at a crossroads.
“Russia’s invasion of Ukraine has brought energy security back to the forefront of political agendas as commodity prices surge to new heights,” the IEA said. “While it is still too early to know how events will unfold, the crisis may result in lasting changes to energy markets.”
Already, there are renewed calls in Guyana for the setting up of a modular refinery to help offset surging fuel prices. The South American country will be producing around 340,000 barrels of oil per day (bpd) by year-end in a ramp up that will see it crossing the 1 million bpd mark by 2027.
These new barrels from Guyana this year will be coming at a time when the loss of Russian oil exports to global markets will be devastating supply. The added barrels will also deliver more revenue to the country, with projections for 2022 already exceeding US$900 million.
Russia is the world’s largest oil exporter, shipping 8 mb/d of crude and refined oil products to customers across the globe. Unprecedented sanctions imposed on Russia to date exclude energy trade for the most part, but major oil companies, trading houses, shipping firms and banks have backed away from doing business with the country.
“For now, we see the potential for a shut-in of 3 mb/d of Russian oil supply starting from April, but losses could increase should restrictions or public condemnation escalate,” the IEA said. It also pointed out that in the absence of a faster ramp up in production, oil stocks will have to balance the market in the coming months.
