Draconian lockdown measures introduced in China to combat outbreaks of Covid-19 mean global oil demand will not be as high as expected, the International Energy Agency has said, helping cushion the impact of the dwindling supply from Russia.
In its monthly report on world oil markets, the IEA said it expected Russia’s output to fall by 1.5m barrels per day (bpd) in April, with the decline accelerating to 3m bpd from May, as buyers either voluntarily boycott Kremlin-controlled supplies or hold back because of uncertainty over sanctions.
The projection indicates that as much as 3% of global supply could be lost by the middle of spring as a result, given Russia’s position as the world’s second-largest oil producer. But there was unlikely to be a “sharp deficit” in global oil markets, the IEA said, thanks to multiple factors mitigating the impact of lost Russian flows.
The most recent is the imposition of what it called “stringent” anti-Covid restrictions in China, where the one-party state has put all 26 million people in Shanghai into lockdown. Weaker-than-expected demand in countries of the OECD – a group of mostly developed nations – added to the decline, the Paris-based agency said.
As a result, the organisation lowered its global oil demand forecast by 260,000 bpd compared with last month’s prediction and now expects the world to need an average of 99.4m bpd in 2022.
The figure is still an increase of 1.9m bpd on 2021 because of the global economic rebound from that year, which was more heavily affected by Covid restrictions around the world.
That recovery, coupled with market turmoil caused by Russia’s invasion of Ukraine, had sent oil prices soaring to near record highs.
The resulting surge in fuel prices has been felt by motorists in countries including the US and UK, where petrol and diesel have reached a succession of all-time highs, contributing to a mounting cost of living crisis.
The IEA’s new lower forecast should now ease concerns about oil prices, particularly given an improved picture on oil output.
Global supply increased in March, up by 450,000 bpd to 99.1m bpd, helped in particular by a rise in output from countries that do not belong to the Opec cartel of oil-producing nations.
Opec countries, such as Saudi Arabia and Iran, have agreed to a 400,000 bpd increase, but did not go as far as big oil consumers such as the US and India had hoped.
IEA member countries have also agreed to a coordinated release of 120m barrels of emergency reserves to help depress the oil price, a move that the organisation said had brought the price of Brent crude down $10 to $104.
The price reached $114 during the early days of Russia’s invasion of Ukraine and analysts were predicting it could breach the all-time high of $147.50, hit in 2008.
However, the IEA releases have contributed to a long-term trend of dwindling reserves, with stocks down for 14 consecutive months.
Inventories in February were 740m barrels below levels at the end of 2020, with OECD countries accounting for 70% of the decline.