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FSUOGM COMMENTARY FSUOGM

IEA reports 9% drop in Russian oil

output in April

The Paris-based agency warns that a bigger reduction is yet to come

RUSSIA RUSSIAN oil production slipped 9% in April,
the International Energy Agency (IEA) esti-
WHAT: mated last week, amounting to a loss of 900,000
Russian oil output fell 9% barrels per day.
in April. The country’s oil exports have been heav-
ily affected in recent months by sanctions that
WHY: have caused problems with transactions, as well
Sanctions have as buyers and traders shunning the supplies
complicated trades because of reputational damage. In its monthly
and some buyers are report on May 12, the IEA said it expected out-
shunning Russian oil. put to drop by a further 600,000 bpd this month.
And if the EU’s proposed embargo of Russian oil
WHAT NEXT: comes to fruition, the loss could reach as high as
The IEA predicts a further 3mn bpd from July, bringing the country’s out-
drop of 600,000 bpd this put to its lowest level in nearly two decades.
month. The EU has slashed purchases of Russian
crude oil and petroleum products by around
15% since before the invasion, the IEA estimates. in OPEC+ have held back on delivering extra
But the bloc has been reluctant to impose a full barrels to the market. This, and constrained
ban because of the economic impact, given its growth in other supplies, has led the IEA to
significant dependency on Russian supplies. cut its forecast for global oil supply this year by
Several member states have spoken out against 100,000 bpd to 99.2mn bpd. This means it will
the embargo, most notably Hungary, which has outstrip demand, which is anticipated to reach
warned that such a move would be “tantamount 99.4mn bpd.
to dropping a nuclear bomb on the Hungarian On the other hand, the loss of Russian supply
economy.” is partly being balanced out by drops in demand
Hungary has said it needs at least five years as a result of recent coronavirus (COVID-19)
and hundreds of billions of forints to convert its outbreaks in China that have prompted Beijing
Szazhalombatta refinery near Budapest to run to impose strict lockdowns. Global economic
on alternatives to Russia’s main Urals blend. They growth is also flagging, which should cut into oil
could source this alternative crude from Croa- demand further.
tia, but that would require the latter to expand Oil consumption should grow by 1.9mn bpd
its infrastructure. and 1.2mn bpd in the second and third quarters
While the IEA is still predicting a sizeable of this year respectively, according to the IEA.
drop in Russian oil output, its forecasts for lost That is 200,000 bpd less for each quarter than the
production have narrowed. In a previous report Paris-agency had predicted last month. It also
after the war in Ukraine began, it expected the envisages a 200,000 bpd contraction in demand
loss to reach 3mn bpd in the current month. in the final three months of the year.
Russian oil and petroleum product exports As of May 13, Brent is trading at over $110 per
actually rebounded in April from the previous barrel, and for most of the past two months it has
months, when the first packages of Western hovered at between $100 and $120 per barrel.
sanctions took effect. They rose by 620,000 bpd “Oil prices have recently experienced inten-
to 8.1mn bpd, which was close to the pre-war sified bouts of volatility caused by the supply
level. risk of losing Russian oil barrels from the mar-
The loss in supplies to Europe was more than ket and demand downswings from China and
offset by increases in shipments to India and Tur- the greater Asia continent,” analysts at Nor-
key of 730,000 bpd and 180,000 respectively The way-based consultancy Rystad Energy said in
two countries have been taking advantage of the a research note on May 13. “In terms of global
significant discount Urals now has to other oil supply, an extensive range of Russian barrels are
blends to acquire cheap cargoes. at risk, with between 1.5mn bpd and 4.5mn bpd
Despite declines in Russian flow, its partners at risk of dropping off the market.” ™

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