Thu. Sep 29th, 2022

Prof. ST Hsieh

Director, US-China Energy Industry Forum

626-376-7460

[email protected]

March 16, 2022

Membership of The International Energy Agency (IEA) covers 31 OECD nations, but it does not include global major energy producers such as Russia and major energy consumers such as China and India. IEA is definitely a Eurocentric Organization and even the US has limited influences in the past.

IEA’s projection is always well respected, so it is really bad news for the world that “market may lose 3 million bpd of Russian oil next month,” which is two weeks away. Further, according to IEA, there is nothing much any nation can do to eliminate the risk. IEA has coordinated the release of 60 million barrels from nations SPR already. The impact on the global energy price was minimal. IEA may try it again, but it will fail again to tame the global oil prices.

There is no doubt that the root cause of the current challenge is the Ukraine war. But the war has changed the geopolitics, the European energy security strategy is to be independent of Russia energy supply in five years. Thus, even a cease fire was to be reached soon, Russian oil supply to Europe will be damped.

It is also clear that only Saudi and UAE have some spare oil production capacities that could make up some of the Russian oil supply shortfalls. But Saudi and UAE may not follow the calls for increasing output, aside from Geopolitics, where the US is the leader, higher oil price always means higher profits for oil exporter and that includes Russia.

From the demand side, high energy price causes consumer inflation and the worst case is a recession. If so, energy demand will shrink forcing energy price to go down. It is the worst scenario and there will be no winner.

IEA says market may lose 3 million bpd of Russian oil next month

Noah Browning Wed, March 16, 2022, 2:07 AM

LONDON (Reuters) – Oil markets could lose three million barrels per day (bpd) of Russian crude and refined products from April, the International Energy Agency (IEA) said on Wednesday, exceeding the one million bpd per day demand drop high prices are expected to cause.

The Paris-based watchdog said sanctions and buyer reluctance to purchase Russian crude were pushing up oil prices in a way that would hit personal budgets, drive up inflation, which has already hit multi-decade highs, and undercut economic recovery.

“The impact of loftier prices for oil and other commodities will … increase inflation, reduce household purchasing power and are likely to trigger policy reactions from central banks worldwide – with a strong negative impact on growth.”

“Surging energy and other commodity prices, along with financial and oil sanctions against Russia, are expected to depress world GDP and oil demand,” it said in a report.

It was the first monthly report on oil from the IEA, which represents 31 mostly industrialised nations but not Russia, since Russia’s invasion of its neighbour briefly sent Brent crude to a 14-year high of nearly $140 a barrel.

“We see a reduction in total (Russian) exports of 2.5 million bpd, of which crude accounts for 1.5 million bpd and products 1 million bpd,” the IEA said in its monthly oil report.

Additionally, it projected lower Russian domestic demand for oil products.

“These losses could deepen should bans or public censure accelerate,” the Paris-based IEA said.

Russia exports 7 million to 8 million barrels of crude and products daily.

The IEA lowered its forecast for world oil demand for the second to fourth quarters of 2022 by 1.3 million bpd. For the full year it cut its growth forecast by 950,000 bpd to 2.1 million bpd for an average of 99.7 million bpd.

That would mean a third year of demand below pre-pandemic levels. Previously, the agency had expected demand to recover in 2022.

The Ukraine crisis has exacerbated the issue of limited output capacity.

Top OPEC+ producers Saudi Arabia and United Arab Emirates, which are rare among global producers, in having surplus capacity, are not fully opening their taps and the IEA does not expect output rises from Canada, the United States and others to eliminate global undersupply.

The world is set for a supply deficit of 700,000 bpd in the second quarter, the IEA said.

Storage levels in OECD countries in January stood at their lowest levels since April 2014, it said.

Unless OPEC increases output, oil market will fall into deficit after Russian invasion, IEA says

Last Updated: March 16, 2022 at 5:18 a.m. By Will Horner

Russia’s invasion of Ukraine and sanctions on its oil exports threaten a supply shock that will weigh on the global economy and push the oil market into a deficit unless major producers increase output, according to the International Energy Agency.

Energy markets were facing the biggest supply crisis in decades that could result in lasting changes, the Paris-based agency said Wednesday in its monthly report.

Russia’s invasion of its neighbor has prompted Western nations to levy harsh sanctions on Moscow and the Russian economy. While only some nations–including the U.S.–have banned Russian oil imports outright, traders, energy companies, and shipping firms are shunning Russian crude, fearful of the reputational risk, the IEA said.

The impact could mean 3 million barrels a day of Russian supply effectively cut off from global markets starting next month, the IEA said. The agency slashed its forecast for global oil supply this year by 2 million barrels a day to 99.5 million barrels a day, based on what major producers of the Organization of the Petroleum Exporting Countries have currently agreed to pump.

The lost supply has sent energy prices surging. Oil prices have jumped to multiyear highs while prices for natural gas, gasoline, and also coal have also spiked. Other commodities upon which the global economy depends and which are produced in significant amounts in Russia, such as some metals and basic foodstuffs like wheat, have also jumped in price.

Those higher prices will “increase inflation, reduce household purchasing power and are likely to trigger policy reactions from central banks world-wide–with a strong negative impact on growth,” the agency said.

The result will also mean a blow to oil demand, but not by enough to balance the lost Russian supply. Demand for oil will be 1 million barrels a day less this year than the IEA was expecting last month at 99.6 million barrels a day. The IEA also cuts its forecasts for oil demand growth this year by 1.1 million barrels a day, to 2.1 million barrels a day.

The oil market will slip into a deficit as early as the second quarter unless the OPEC group of oil producers increase their supply levels, the IEA said. Beyond the spare capacity of leading OPEC members Saudi Arabia and the United Arab Emirates, there are no other sources of additional supply that can balance the market with oil inventories having already been depleted to multiyear lows and the prospect of additional supplies from Iran seemingly a long way off.

The warning highlights how the situation in Ukraine is also increasingly looking like a political headache for OPEC which since 2016 has struck an uneasy alliance with Russia and a group of other oil-producing countries, known as OPEC+.

The cartel has rebuffed pressure from major Western oil consumers to increase the pace of its monthly supply hikes which have so far been capped at 400,000 barrels a day. Doing so could appear to be taking sides–against Russia.

There were signs that a U.S. diplomatic push urging Gulf oil producers to pump more was working. The United Arab Emirates said last week that it would push other OPEC members to pump more oil.

The issue has been compounded by OPEC+’s own inability to meet its supply targets, due in part to ailing oil infrastructure in some member countries. The group’s output lags its targets by 1.1 million barrels, the IEA says.

The IEA has taken its own steps to ease oil-market tightness. Its members agreed earlier this month to release around 60 million barrels of oil from emergency stockpiles, but the amount was seen as too little to have a meaningful impact. The IEA said that its members were ready to release more crude from inventories.

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