OIES Oil Monthly – Issue 13
This month’s Special Issue continues to assess the implications of the Ukraine war on our short-term oil market outlook for supply/demand and price dynamics to 2023, featuring the first detailed assessment of the impacts on OECD products demand.
The analysis considers two principal scenarios. A Reference case in which self-sanctioning measures and obstacles in redirecting Russian crude and petroleum products result in a loss of 1.1 mb/d of Russian crude output by May 2022; and a Full curtailment case in which governments’ sanctions extend to Russian oil exports and results in the loss of 3.9 mb/d of Russian oil production by May 2022. Both scenarios persist throughout our forecast horizon and are presented against a no-disruption baseline that corresponds to the latest forecast prior the Ukraine war.
- On the demand side, our Reference global oil demand forecast this month sees y/y growth at 2.6 mb/d in 2022, while the forecast remains relatively unchanged at 1.5 mb/d in 2023. Under the Full curtailment case, demand growth falls y/y to 2.2 mb/d in 2022 and 0.5 mb/d in 2023.
- On the supply side, the prospect of large supply disruptions in Russian oil and production bottlenecks elsewhere to fill the supply gap aggravate the supply pressures to the outlook. In our worst case, global supply is 2 mb/d less by 2023 compared to the baseline.
- The risk of large disruptions in Russian oil rises in Q2, as a prolonged war raises the risk of bigger-than- anticipated disruptions, even in the absence of direct oil and gas sanctions, on self-sanctioning and operational constraints deepening. Uncertainty over the actual Russian oil lost however remains high, but the first tentative signs of disruption are starting to emerge such as a notable increase in Russian crude- on-water and floating storage, cuts in Russian refining runs and lack of storage.
- Capacity constraints for most OPEC+ producers are expected to halve the OPEC+ response relative to their pledged target with replacement barrels in our Reference averaging 1.3 mb/d between April and September 2022, relative to the headline 2.5 mb/d.
- Overall, replacing big losses of Russian supplies under the Full curtailment case remains extremely challenging. That said, replacement crude could fill the gap by year end, but severe near-term pressures persist between April and October 2022.
- The decision to release 240 mbbls from SPR between May and October 2022 would ease some of the near- term pressure on balances, but the impact on prices appears to be short lived and largely dependent on the size of the supply shock.
- Our Reference Brent forecast is $110.5/b for 2022 and $94.6/b for 2023, but risks to the price outlook continue to be tilted to the upside.
- In terms of balances,our best-case scenario now sees supply/demand conditions only balanced in 2022 by 0.15 mb/d, with a small surplus of 0.63 mb/d building in 2023. Combined with the SPR releases the market surplus under Reference builds to 65 mb/d in 2022. In the more severe Full curtailment case, the market fails to build a surplus in 2022 under all response scenarios.