Report: Oil Market Faces Supply Crisis Unless OPEC Production Increases
Energy security has been thrust back into the spotlight with the Russian invasion of Ukraine, as oil prices surge and supply tightens.
The International Energy Agency, in its monthly oil report, said that the prospect of large-scale disruptions in Russian oil production is threatening to create a “global oil supply shock” as up to 3 million barrels of oil per day from Russia is shut in as foreign sanctions take hold and buyers back away from importing from the country.
“Faced with what could turn into the biggest supply crisis in decades, global energy markets are at a crossroads,” the report states.
“The implications of a potential loss of Russian oil exports to global markets cannot be understated. Russia is the world’s largest oil exporter, shipping 8 million barrels per day of crude and refined oil products to customers across the globe,” the report notes. The only countries with spare capacity that could immediately help make up for the lost Russian output are Saudi Arabia and the United Arab Emirates, the IEA said.
“The OPEC+ alliance agreed on March 2 to stick with a modest, scheduled output rise of 400,000 barrels per day for April, insisting no supply shortage exists. Saudi Arabia and the UAE – the only producers with substantial spare capacity – are, so far, showing no willingness to tap into their reserves,” the report notes.
Prospects for additional supplies from other countries, including the U.S., Canada, Brazil, and Guyana, are limited in the near term, as oil well development is not a quick process.
The tight oil market and surging prices for oil and other commodities, will have a marked effect on inflation and depress economic growth.
While the IEA predicts that world oil demand will decrease by 1.3 million barrels per day, with total demand at 99.7 million barrels per day, it will not be enough to offset the loss of Russian oil, sending the oil market into a deficit unless production increases.
In response, the IEA issued a 10-point plan of steps countries and consumers can take to reduce oil consumption in the short term to help ease the strain and to support the energy transition.
“Since the majority of oil demand comes from transport, the IEA’s 10-Point Plan focuses on how to use less oil getting people and goods from A to B, drawing on concrete measures that have already been put to use in a diverse range of countries and cities,” the plan states.”The short-term actions it proposes include reducing the amount of oil consumed by cars through lower speed limits, working from home, occasional limits on car access to city centers, cheaper public transport, more carpooling and other initiatives – and greater use of high-speed rail and virtual meetings instead of air travel.”
However, it does not appear that the pain being inflicted by energy crunch and rising inflation will abate anytime soon unless U.S. diplomatic efforts to convince OPEC nations to immediately increase oil production are successful.