The energy crisis and the Russian oil turmoil... The worst is yet to come (report) - Energy

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  • Russian oil production will not withstand Western sanctions very much.
  • The exit of major oil companies negatively affects Russian production.
  • Russian oil supplies could fall by 3 million barrels per day in May.
  • Falling oil stocks exacerbate the supply shortage crisis.
  • Expectations of a shortfall of up to 4 million barrels per day in oil supplies.

The current energy crisis is afflicting the whole world, with a sharp rise in oil and gas prices due to the Russian invasion of Ukraine, but it seems that the worst is yet to come.

Despite the Russian-Ukrainian war, and the subsequent decisions to ban the import of Russian oil, by the United States and others, Moscow’s exports and production of crude proved very resilient, for several weeks, it seems that this situation has begun to change, according to a report published by Open Insights. ).

Even without the European Union’s plans to move away from Russian imports, oil production in Russia is expected to decline significantly, with several major companies announcing their withdrawal from the Russian crude trade, deepening the global energy crisis.

Russian oil challenges

The Open Insights report finds that with the outflow of capital and oil service companies, and the dwindling of materials for drilling and maintenance of wells; Russian oil production faces many headwinds.

Meanwhile, the European Union plans to start moving away from Russian oil, as the old continent tightens European sanctions on Moscow.

All of these things could reduce Russian oil production at a significant pace, and the world finds itself facing severe supply shortages that are difficult to compensate, according to the report.

Energy Aspects estimates that by May next year, Russian oil production will have fallen by 3 million barrels per day, before that drop stabilizes at 2 million barrels per day thereafter, as India and China increase their imports of cheaper Russian crude.

The International Energy Agency had made it clear that the impact of Western sanctions on Russian oil will begin to fully appear from May 2022, with the possibility of disruption of about 3 million barrels per day “Moscow production”; Exacerbating the energy crisis.

Russia is the largest exporter of crude; Its exports of 5 million barrels per day of crude oil account for nearly 12% of global trade, and 2.85 million barrels per day of petroleum products account for 15% of global trade in refined products, according to the IEA.

energy crisis

Short supply

These concerns coincide with the decline in global oil stocks to 2.614 billion barrels in the first quarter of this year, compared to 2.908 billion barrels in the same quarter of last year.

What has mitigated the global energy crisis somewhat, is that estimates indicate a decline in oil demand by about 1.2 million barrels per day in the past few months, with an increase in Corona injuries in China, the largest consumer of crude in the world, according to the report.

Inspite of that; Beijing has provided support to the economy and is working to reduce the repercussions of Corona injuries; So the slowdown in demand does not look like it will last for long.

The Open Insights report estimates the potential for oil supply shortages to be between 3 and 4 million barrels per day in the coming months, given seasonal demand during the summer.

The report indicated that the market will need time to absorb the release of 240 million barrels of oil reserves approved by the members of the International Energy Agency, led by the United States, for a period of 6 months.

oil liquids

Oil demand

Given the possibility of slowing oil demand; Estimates of a drop in global consumption of about one million barrels per day may be exaggerated; Due to the continued growth of the global economy, despite its slowdown from the beginning of the year.

Even in the worst-case scenario of a decline in oil demand of about 2.7 million barrels per day, which is equivalent to the loss of demand during the worst quarter of the 2008 global financial crisis; The oil market will continue to suffer from a supply shortfall of between 0.3 and 1.3 million barrels per day (assuming an expected supply shortfall of between 3 and 4 million barrels per day).

As for production; Oil companies are more interested in capital control and shareholder bonuses than increasing supplies.

Also, the OPEC + alliance, even if it decides to raise production at its next meeting; Its spare production capacity is only between 1 and 1.5 million barrels per day, which is roughly the shortfall of the expected deficit, according to the report.

Therefore, the report believes that the only viable solution currently to avoid a supply deficit and a deepening of the energy crisis is the skyrocketing oil prices above $130 a barrel or so, which leads to curbing demand for crude.

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