Following the Russia-Ukraine war and sanctions against Russia, the global oil markets will be deprived of three million barrels per day (mb/d) of production since April from Russia, estimates the International Energy Agency (IEA). It said the demand for oil globally will rise to 99.7 million barrels per day (mb/d) in 2022, an increase of 2.1 mb/d from 2021.
IEA observed that 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. It estimates, for now, 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. However, the Russian oil continues to flow for the time being due to term deals and trades made before Moscow sent its troops into Ukraine.
Russia is the world's largest oil exporter, shipping 8 mb/d of crude and refined oil products to customers across the globe. Earlier estimates were a drop of one million bpd per day demand drop due to high prices. It estimates a reduction in Russian exports of 2.5 million bpd, of which crude accounts for 1.5 million bpd and 1 million bpd of products in 2022. The agency has now revised down its forecast for world oil demand by 1.3 mb/d for 2Q22-4Q22, resulting in 950 thousand barrels per day (kb/d) slower growth for 2022 on average.
The report said the prospect of large-scale disruptions to Russian oil production is threatening to create a global oil supply shock. Without commenting India and China and discussions on buying oil from Russia, the report said, "some Asian oil importers have shown interest in the much cheaper barrels, but are for the most part sticking to traditional suppliers in the Middle East, Latin America and Africa for the bulk of their purchases".
"We now see oil demand growing by 2.1 mb/d on average in 2022, a downgrade of around 1 mb/d from our previous forecast. Surging commodity prices and international sanctions levied against Russia following its invasion of Ukraine are expected to appreciably depress global economic growth," the IEA said in its Oil Market Report (OMR) for March 2022. The IEA Oil Market Report (OMR) is one of the world's most authoritative and timely sources of data, forecasts and analysis on the global oil market.
The other major oil producing OPEC countries, for now, is sticking to its agreement to increase supply by modest monthly amounts. They had agreed on March 2 to scheduled output rise of 400 kb/d for April, insisting no supply shortage exists. Saudi Arabia and the UAE – the only producers with substantial spare capacity – are, so far, showing no willingness to tap into their reserves to offset a Russian shortfall. Prospects of any additional supplies from Iran could be months off. In the wake of the war, the 32 IEA member countries had agreed to release 62.7 mb of crude and oil products from their emergency reserves.