Page 7 - FSUOGM Week 04 2023

FSUOGM COMMENTARY FSUOGM

In the first quarter, the IEA predicted an the expanding oil sanctions war, and even more
excess of oil on the market of about 1mn bpd, so in the coming years as Europe remakes its
but in the second that figure will decrease signif- energy supplies. It will become increasingly clear
icantly. By the third and fourth quarter, demand that India and China will not be able to entirely
will already exceed supply by 1.6mn and 2.4mn replace Russia’s European customers, the IEA
bpd respectively, pushing up prices, The Bell believes.
reports. On the same day the world's largest oil com-
Just when the inflection point arrives will pany, Saudi Aramco, released its outlook for
depend on two factors: the speed of China's 2023. It also hopes for a Chinese recovery and
economic recovery and the reaction of Russian predicts additional demand for jet fuel, pointing
production to the EU embargo on petroleum to a shortage of new production of 4mn-6mn
products. bpd.
The IEA is not optimistic about the prospects After the IEA’s forecasts of record demand,
for the Chinese economy, but nevertheless pre- the price of Brent rose above $87 – the level of
dicts that China will account for almost half of early December – before falling back to $85 by
the global growth in oil demand (850,000 bpd) the close of trading.
in 2023, and will outstrip India. For Russia the price of Brent is critical for the
If the recovery turns out to be stronger than budget. The introduction of the crude embargo
the forecast, "the cushion of stocks in storage will has already seen Russian budget revenues tum-
disappear very quickly," said the head of the IEA, ble in December to end the year with a 2.3% of
Fatih Birol, in the latter’s latest oil bulletin. GDP deficit, almost all of which was due to a col-
Russia remains the “dark horse” in this year’s lapse in Urals oil prices in December. For 2023,
oil outlook, as it is not clear how it will respond to the government is now forecasting that the defi-
the new sanctions due in February. In December, cit will widen from around 2% to 3% as a result
production decreased slightly to 11.2mn bpd, of the changes in oil and gas revenues expected
but the consequences of the embargo on petro- this year.
leum products, which are much more widely dis- Currently it’s not unclear how the price of
tributed in Europe, will be much more severe, Urals will be affected by the new sanctions after
the IEA says. Currently the agency is forecasting February 5, but it is obvious that Russia cannot
a decline in production of 1.6mn bpd in the first replace Europe with new customers for all oil
quarter and of 1.3mn bpd to 9.7mn bpd on aver- products it currently exports there. Russia will
age for the whole year compared to 2022, The have to reduce both refining and oil production
Bell reports. as a result. Domestic experts consider $40 per
Russian President Vladimir Putin has already barrel as the level that will cause severe problems
lost the winter energy battle with the West for the budget and in December-January, Rus-
thanks to record imports of LNG and an unu- sian oil already approached this level. However,
sually warm winter. Birol believes that Russia Russia’s budget revenues may be rescued by the
will also lose the wider energy war with the West inflection in demand in the second half of the
starting with defeats in the coming quarters in year, which could push oil prices up sharply. ™

Week 04 25•January•2023 www. NEWSBASE .com P7