The world will have more than enough oil because the Russian supply loss could be lower than feared. But it will also have enough oil simply because demand growth could slow down with higher prices and COVID lockdowns in China, analysts at Citigroup say.
"Even as Russian production slides and OPEC+ actually reduces total flows to markets, a slowdown in global growth is reducing oil demand growth, and the IEA release of 220mln barrels of oil between now and October point to market weakness and inventory builds ahead," Citi analyst Edward Morse said in a note carried by Proactive Investors.
Moreover, Citi believes that the fears of a loss of up to 3 million barrels per day (bpd) of Russian oil supply are exaggerated.
"Of 1.9-m b/d of European seaborne exports of crude oil, around 900-k b/d is being pushed to other markets such as India or will likely stay in some European markets with limited access to non-Russian oil," Citi's analysts wrote.
Therefore, the world will have more than enough oil in coming months, the analysts noted.
"Without a deeper Russian cut, which is possible, the numbers add up to much more than enough oil," according to Citi.
Citi's view is contrary to other analysts and investment banks which see severe constraints in oil supply.
Commodities have room to soar by another 40 percent on top of the gains in recent months, as investors could pour more money into raw materials as a hedge against the highest inflation in 40 years, JPMorgan Chase & Co says.
There is "absolutely" a supply problem in the oil sector, Jeff Currie, global head of commodities at Goldman Sachs, told Bloomberg on Wednesday.
There are broad-based supply constraints in oil producers, particularly non-core OPEC, Currie said. Every producer except for Saudi Arabia and the UAE is producing less today than they were in 2020, he added. Throw in the Russian shock, and the supply constraints are the most severe in decades, since the 1970s, according to Currie.
The record release of U.S. Strategic Petroleum Reserve (SPR) "is still insufficient to be able to deal with the scale of the problem," he noted.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More