More difficulties in maps for Russian oil, says IEA

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International pressure on Russia is poised to ‘shut down’ even more crude from the country, suggesting the already tight supply could tighten, the International Energy Agency (IEA) said in its latest monthly report. in global energy markets.

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The Paris-based organization said looming European Union sanctions could force Russia to leave up to three million barrels per day (mb/d) of oil in the ground in the second half of the year.

“Russia’s isolation following its invasion of Ukraine is deepening as the EU and G7 consider tougher sanctions that include a complete elimination of the country’s oil imports. If accepted, the new embargoes will accelerate the redirection of trade flows that is already underway and will force Russian oil companies to shut down more wells,” said the IEA May Report mentioned.

Russian crude exports fell by about one million barrels per day (mb/p) last month, the IEA said, as the United States, Canada and others stopped buying crude. country’s oil in retaliation for President Vladimir Putin’s invasion of Ukraine. The EU is currently trying to convince Hungary to join the other 26 members of the bloc by agreeing to ban all imports Russian oil. In addition, the EU this week formally banned commodity trading firms from doing business with state-controlled Rosneft, Gazprom Neft and Transneft.

There were other unusual forces at play in April, according to the report.

Crude oil – both Brent and West Texas Intermediate – traded in a relatively tight range of US$10 to US$100 a barrel more or less. However, that was not the case for crude products such as diesel and gasoline, which hit record highs last month. The IEA expects the divergence to continue into May, in part due to “limited spare capacity in the global refining system.”

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In Canada, the average national price per liter of regular gasoline was $2.06, according to Natural Resources Canada. In the United States, regular gasoline was US$4.32 a gallon on May 16, down from US$2.92 a year ago.

Reduced supply from Russia will not necessarily put additional upward pressure on prices. This is because the demand is expected to drop. For the year, the IEA expects high pump prices and an economic slowdown in China to dampen oil consumption for the rest of the year and into 2023.

China is the world’s second-largest oil consumer and it continues to insist on a “COVID-zero” policy that sees authorities shut down major cities to crush outbreaks. Closures in centers such as Shanghai have contributed to lower industrial production and slowing retail sales and analysts now expect the country to report a GDP contraction in the second quarter, according to Bloomberg.

Overall, the IEA said it expects oil demand to fall to 1.9 mb/d in the second quarter of 2022, from 4.4 mb/d in the first quarter. It forecasts demand of 490 kb/d on average in the second half.

Still, the IEA warns that as the summer driving season kicks off and demand for jet fuel increases, consumers should prepare for more pain at the pump.

“If refiners cannot keep pace, product markets and consumers could come under additional pressure,” the agency said.
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