Weak oil demand, especially in China, could ease the supply crisis

The International Energy Agency said Wednesday that the Covid lockdown in China could potentially sharpen the country’s growing oil demand, possibly easing the supply crisis due to sanctions on Russia.

The agency said China, the world’s largest oil importer, had cut its overall forecast for oil demand growth to just 1.9 million barrels a day this year, down nearly 40 percent from December. . Last year, demand rose 5.6 million barrels a day as the world recovered from the epidemic.

The agency’s new forecast could be a sign of expanding energy market concerns. So far, such concerns have largely focused on the possibility of a loss of oil and gas supplies from Russia, one of the world’s largest producers and exporters, due to sanctions on Ukraine’s war. There is now a growing awareness that high energy prices and other ripples of war will slow global economic growth, reduce energy demand.

“It seems to me that there is a terrible macroeconomic headwind here that could weigh on oil demand over the course of the year,” said David Fife, chief economist at Argus Media, a product research firm.

In their monthly oil market report, analysts at the Paris-based firm noted that many forecasting firms are revising their economic forecasts because the war in Ukraine “has a strong impact on commodity flows, prices, inflation and currency.”

The agency added that global shipping container trade had appeared to have shrunk significantly since the start of the war due to growing sanctions and uncertainty over Russia.

The report estimates that about 700,000 barrels a day have been taken offline on the day of Russian oil production due to a lack of buyers. The agency said that number could double in April and again in May, reaching close to 3 million barrels per day from the market, accounting for about 30 percent of Russia’s output and 3 percent of global supply.

As an indication of the problems facing the Russian industry, Vitel, one of the world’s largest energy trading companies, has decided to suspend trading in oil from Russian sources by the end of the year.

But increased output from other oil producers will help fill that gap. The agency said world production was expected to grow 3.9 million barrels per day by the end of the year as OPEC producers such as Saudi Arabia and the United Arab Emirates continued to ramp up and production in the United States and elsewhere increased.

Analysts say lower demand, combined with expected supply growth from the Middle East and the United States, “should prevent a serious deficit from developing.”

The agency added that the massive release of strategic oil stocks from the United States and other countries, which the agency is helping to coordinate, would also help to buffer the market.

Prices have moderated somewhat since the international benchmark Brent crude rose above 12 123 a barrel in the early stages of the war, but have remained subdued. Futures traded up about 1 percent at 10 106 a barrel on Wednesday.

Analysts acknowledge that the outlook is “sinking in uncertainty” and that oil in storage tanks is declining as fast as February, a situation that could lead to further price increases.

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