Oil and gas extraction in the North Sea. /
Asia has taken the opportunity to buy cheaper Russian crude, but the International Energy Agency (IEA) foresees a collapse in exports in the country
Until now, the sanctions against Russia for the invasion of Ukraine had been a symbol of unity in Europe and the US against the war. Until now. The idea of imposing new import sanctions on Russian oil and gas threatens to split the bloc, with some countries like Germany heavily dependent on this part of the world for their raw materials.
Just this week, the Organization of the Petroleum Exporting Countries (OPEC) warned the European Union (EU) that the sanctions could generate one of the worst energy supply crises in history. And that substituting the crude oil exported by the country is practically impossible. It must be remembered that Russia exported five million barrels of oil per day (mb/d) in 2020, half of it to European countries, especially Germany, the Netherlands, and Poland.
While tensions rise in the region due to possible new sanctions, Asia has taken over from the Old Continent, agreeing to cheaper Russian oil supply contracts than until now, according to the latest monthly report from the International Energy Agency ( IEA).
On the basis of lower prices, Russia hopes to be able to keep its pumping capacity afloat. So Asian companies are taking the opportunity to strengthen their position as customers of that cheaper crude, given the withdrawal from the market of companies such as Shell or Vito Group, which have already committed to reducing and even eliminating product of Russian origin.
drop in demand
Despite everything, the IEA does not expect the country to be able to maintain this situation in the medium term. In fact, it estimates that the supply and exports of oil from Russia have continued to fall and so far in April the loss of some 700,000 barrels per day of production is estimated, “which will increase at an average of 1.5 mb/d for the month as Russian refiners extend production cuts, more buyers eschew their crude and Russia’s storage capacity is topped up.”
Thus, as of May, the IEA estimates that about 3 mb/d of Russian oil production could be off the market due to international sanctions and as the impact of the customer-driven embargo comes into effect.
“While some buyers, especially in Asia, increased purchases of Russian barrels at deep discounts, traditional customers are cutting back,” the IEA recalls in its report. But he adds that, for now, there is also no worrying increase in volumes destined for China, where refineries have reduced operations due to the stoppage due to the increase in coronavirus cases and the new restrictions, which have affected oil demand. .
Precisely, the agency attached to the Organization for Economic Cooperation and Development (OECD) has lowered its estimate of growth in consumption by 260,000 barrels per day and now forecasts that world demand for crude oil will increase in 2022 to an average of 99.4 mb /d, compared to 97.5 mb/d corresponding to 2021.
“The strict confinements in China have led us to further revise down our estimate of oil demand in the second quarter of 2022 and for the whole year,” explained the IEA in its monthly bulletin for April, where it has pointed out also that the most complete demand data for the first quarter of the year, especially in the United States, were much lower than initially estimated.