China lockdowns to cut global oil demand: IEA

The impact of sanctions and buyer aversion on Russian oil will take full effect from May onwards, the International Energy Agency said on Wednesday as it trimmed the forecast for global oil demand this year after China reimposed lockdowns to contain the spread of a resurgent coronavirus.

With the weaker demand outlook and the massive release of emergency oil reserves by IEA members, the agency now sees global markets in balance for much of the year.

The IEA said there is unlikely to be a “sharp deficit” in global oil markets, 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 26 million people in Shanghai have been put 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

“We’re seeing now that economic forecasters are continuing to downgrade their outlook for the world economy, and obviously this will have an impact on oil demand,” Toril Bosoni, head of the IEA’s markets and industry division, said in a Bloomberg Television interview. “The market does look more balanced.”

The agency, which advises most major economies, lowered projections for world fuel consumption this year by 260,000 barrels a day, with a particularly steep reduction of 925,000 a day for China in April. Still, global demand remains on track to increase this year.

Eyes on Q2 supply

Global demand is now expected to be balanced with supply in the second quarter at 98.3 million barrels per day (bpd), the agency added, with the potential to calm soaring energy price inflation. It had previously expected market balance to be next achieved in the fourth quarter.

“For now, we assume (April) losses will grow to an average 1.5 million bpd for the month as Russian refiners throttle back further and buyers shy away,” the Paris-based body said in its monthly report on world oil markets.

“From May onwards, close to 3.0 million bpd could be offline as the full impact of a widening customer-driven voluntary embargo on Moscow comes into effect.”

Reduction in oil demand

IEA’s forecast came as Opec lowered its 2022 global oil demand forecast by 480,000 b/d on Tuesday, citing weaker economic growth along with the outbreak of the omicron variant in China, and indicated the market was in surplus in the first quarter of 2022.

Opec now expects global oil demand to average 100.5 million bpd in 2022, for year-on-year growth of 3.67 million bp/d, the organisation said in its closely watched oil market report. That’s down from a growth of 4.15 million bpd projected last month for 2022 and an increase of 5.7 million bpd for global oil demand in 2021.

Combined production from Opec+ countries was 1.5 million bpd below target in March in the widest undershot since the producer group introduced cuts in May 2020, the agency said, adding that it expects the shortfalls to increase.

The United States and other members of the 31-member IEA committed in recent weeks to a combined release of 240 million barrels of oil from emergency storage. Since the announcement, crude prices have fallen by nearly $9 to about $105 a barrel.

Oil prices rose by more than two per cent on Wednesday after Moscow said that peace talks with Ukraine had hit a dead end, fuelling supply worries, while weak economic data from China and Japan kept a lid on gains.

Brent crude rose by $2.26, or 2.2 per cent, to $106.90 a barrel by 1126GMT while US West Texas Intermediate (WTI) crude futures gained $2.02, or 2.0 per cent, to $102.62. Both benchmarks had surged by more than 6.0 per cent on Tuesday.

“The downside for oil prices is limited,” said Oanda senior market analyst Jeffrey Halley, citing the Russian comments on peace talks and US President Joe Biden accusing Russia of genocide. These “are reinforcing that the Ukraine-Russia situation will not be de-escalating any time soon.”

Russian President Vladimir Putin on Tuesday blamed Ukraine for derailing peace talks and said Moscow would not let up on what it calls a “special operation” to disarm its neighbour.

— issacjohn@khaleejtimes.com