Oil prices jumped by 7% early on Thursday, after the International Energy Agency (IEA) warned on Wednesday that the market could lose 3 million barrels per day (bpd) of Russian oil supply starting next month.
As of 10:00 a.m. ET on Thursday, WTI Crude was up above $100 per barrel again, following three consecutive days of sell-offs amid a pullback of speculators from volatile futures and concerns about Chinese oil demand after China returned to lock down large cities after a spike in COVID cases. WTI Crude was trading up by 7.42% to $102.1, and Brent Crude was rallying by 7.71% at $105.6
The warning from the IEA’s Oil Market Report from Wednesday that the world could run into the biggest supply crisis in decades seems to reverberate through the market early on Thursday. The IEA estimates that 3 million bpd of Russian oil supply could be lost starting in April. This is much higher than the 1 million bpd hit to demand this year the agency now predicts could come from high energy prices, inflation, and the Russian invasion of Ukraine.
“Over the past week a lot of financial positions have been flushed out, but a tight, physical market remains with widespread voluntary sanctions towards Russian oil and product exports still at work,” Bjarne Schieldrop, chief analyst commodities at bank SEB, wrote in a note on Thursday.
“The Brent crude oil price is thus likely to be driven back up again in the coming weeks as the war in Ukraine continues. Both supply and demand are hurting but supply is currently hurting more and a tight oil market for the coming two quarters is to be expected,” Schieldrop added.
On Thursday, oil prices were largely shrugging off the Fed rate hike, the first since 2018, and the expectation that a number of additional interest rate hikes are coming by the end of this year alone as inflation is at its highest in 40 years.
In China, the source of concern about demand in recent days, authorities pledged to support economic growth, giving the market hopes that—at present—the COVID-related lockdowns would not materially hit the economy of the world’s largest crude oil importer.
By Tsvetana Paraskova for Oilprice.com
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If the IEA means that a loss of 3.0 million barrels a day (mbd) of Russian oil supplies starting next month is will due to consumers shunning Russian oil, then it is absolutely wrong. If there was a real shunning of Russian crude oil exports, prices in a tight market like the one prevailing now would have gone up not down. No one single producer in the world or even a group of producers could replace 8.0 million barrels a day (mbd) of Iraqi oil exports (5 mbd of crude and 3 mbd of products) now or possibly ever.
If on the other hand, the IEA means that Russia will halt its global oil and gas exports to the world with the exception of China in retaliation against Western sanctions against it, this will deprive the world of 8.0 mbd not 3.0 mbd of oil and hundreds of billion of cubic metres of gas supplies and will plunge the world into a very destructive global energy crisis.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London