There are likely to be large-scale oil supply disruptions because of the sanctions that could reduce Russian oil exports, the International Energy Agency said in its March Oil Market Report published on Wednesday.
The agency also forecast that global oil demand growth will decline due to a slowdown in economic growth driven by the latest surge in commodity prices and Western sanctions against Russia.
“From April, 3 mb/d of Russian oil output could be shut in as sanctions take hold and buyers shun exports,” the IEA said in its latest report.
Based on these projections, the IEA revised down its oil demand estimates by 1.3 million barrels daily for the rest of the year, which would mean a 950,000-bpd decline in the annual rate of oil demand growth.
“The implications of a potential loss of Russian oil exports to global markets cannot be understated,” the IEA wrote.
“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.”
Alternative suppliers that can step in and fill the void are few and not necessarily willing to do it, the report also noted. OPEC+ is sticking to its original agreement of a gradual ramp-up of production, and Iran’s return to international oil markets could take months. Even if a new deal is agreed, the IEA said, it would take six months for Iran to boost its production by 1 million bpd, which is a third of potential Russian oil output losses.
“The current crisis comes with major challenges for energy markets, but it also offers opportunities,” the IEA noted. “Indeed, today’s alignment of energy security and economic factors could well accelerate the transition away from oil.”
At the same time, the IEA said it would be releasing advice on how to reduce oil demand more speedily later this week.
By Irina Slav for Oilprice.com