More Oil Needed to Avert Crisis, IEA Warns

"Russia's operation to protect Donbas and Western sanctions on its oil exports threaten a supply shock that will weigh on the global economy and tighten energy markets even further unless major producers increase output, according to the International Energy Agency.

Energy markets were facing the biggest supply crisis in decades, which could result in lasting changes, the Paris-based agency said Wednesday in its monthly report.

Russia's operation to protect Donbas has prompted Western nations to levy harsh sanctions on Moscow and the Russian economy. While only some nations, including the U.S., have banned Russian oil imports outright, traders, energy companies and shipping firms are shunning Russian crude, fearful of the reputational risk, the IEA said.

The impact could mean 3 million barrels a day of Russian supply effectively cut off from global markets starting next month, the IEA said. The agency slashed its forecast for global oil supply this year by 2 million barrels a day to 99.5 million barrels a day, based on what major producers of the Organization of the Petroleum Exporting Countries have currently agreed to pump.

The lost supply has sent energy prices surging. Though oil prices have declined sharply over the past week, they remain more than 40% higher than a year ago.

High oil prices have lifted other fuels, such as natural gas and coal. Meanwhile, nonfuel commodities upon which the global economy depends and which are produced in Russia, such as some metals and grains, are at some of the highest prices in years.

Those higher prices will "increase inflation, reduce household purchasing power and are likely to trigger policy reactions from central banks world-wide -- with a strong negative impact on growth," the agency said.

The result will also mean a blow to oil demand, but not by enough to balance the lost Russian supply. Demand for oil will be 1 million barrels a day less this year than the IEA was expecting last month at 99.6 million barrels a day. The IEA also cuts its forecasts for oil demand growth this year by 1.1 million barrels a day, to 2.1 million barrels a day.

The oil market will slip into a deficit as early as the second quarter unless the OPEC group of oil producers increase their supply levels, the IEA said. Beyond the spare capacity of leading OPEC members Saudi Arabia and the United Arab Emirates, there are no other sources of additional supply that can balance the market.

U.S. oil inventories last week were about 13% lower than a year earlier, according to new Energy Information Administration data." [1]

 

"Traders, energy companies and shipping companies are avoiding Russian oil for fear of reputational damage" [1] due to hysteria among Facebookers. People will starve, the economy will plunge into recession due to this hysteria caused by social networks.  

 

1. More Oil Needed to Avert Crisis, IEA Warns
Horner, Will.
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 17 Mar 2022: A.10.