In a Shift, IEA Predicts World Will Withstand Loss of Russian Oil Supply, According to Reuters

By Noah Browning

LONDON – The International Energy Agency (IEA) stated on Thursday that the global oil supply will remain stable despite decreased output from Russia due to sanctions, marking a significant shift from its earlier prediction of a potential “global supply shock” in March.

Initially, the IEA had warned that approximately 3 million barrels per day (bpd) could go offline starting in April. However, they have since revised this estimate, noting that only 1 million bpd ceased production.

The agency attributed this stability to increased oil production in other regions and slower demand growth resulting from lockdowns in China. The IEA highlighted that as production rises from Middle Eastern OPEC+ members and the United States, coupled with a decrease in demand growth, the risk of a severe supply shortfall will be mitigated amidst ongoing disruptions in Russian supply.

The IEA’s updated assessment suggests that the economic effects of additional sanctions on Russian energy proposed by the European Union may be limited. They also forecast that soaring fuel prices and sluggish economic growth will likely hinder the recovery of oil demand through the remainder of this year and into 2023, with COVID-19 restrictions in China contributing to an extended economic slowdown there.

In March, about 1 million bpd of Russian oil production was curtailed, which is roughly 500,000 bpd less than the IEA’s earlier forecast. This figure is projected to rise to 1.6 million bpd in May, 2 million in June, and nearly 3 million starting in July if sanctions lead to further reductions in purchasing.

In response to these market conditions, the United States and other IEA member countries have committed to releasing 240 million barrels of oil from their emergency reserves this year, following a prior release in November when the agency believed there was no significant supply threat at that time.

Interestingly, Russian oil exports increased in April by 620,000 bpd from March, reaching 8.1 million bpd, as supply was redirected primarily to India instead of the U.S. and Europe.

While moving towards a ban on Russian oil, the European Union remains the leading destination for Russian oil exports. According to the IEA, this market has only dropped by 535,000 bpd from the beginning of the year and now accounts for 43% of total Russian oil exports, down from around 50%.