Unless Saudi Arabia and other big energy producers start pumping more, Russia may soon be compelled to cut crude oil output by 30%, putting the world economy amid the worst supply crisis in decades.
On Wednesday, the International Energy Agency (IEA) said that Russia, the world’s second-largest crude oil producer, may be forced to cut output by 3 million barrels per day in April as major oil firms, trading houses, and transportation companies shun its shipments and demand in Russia slumps. Before the invasion of Ukraine, Russia was pumping around 10 million barrels of petroleum per day and exporting about half of that.
In its monthly report, the IEA warned, “The implications of a potential loss of Russian oil exports to global markets cannot be understated.” It went on to say that the crisis might result in long-term disruptions in the energy markets and on a global scale.
Imports of Russian oil have been restricted in Canada, the U.S., the U.K., and Australia, hurting around 13% of Russia’s exports. However, major oil firms and global banks have stopped interacting with Moscow since the invasion, forcing Russia to sell its petroleum at a significant discount. Major Western oil corporations have departed joint ventures and partnerships in Russia, and new projects have been suspended. On Tuesday, the European Union placed a ban on international investment in Russia’s energy sector.
According to the IEA, refiners are trying to find alternate supply sources, an agency that analyzes energy market dynamics for the world’s wealthiest nations. They may be compelled to scale back their operations just as global consumers face increased gasoline prices.
So far, there hasn’t been any alleviation. The only manufacturers with considerable spare capacity are Saudi Arabia and the United Arab Emirates. Both nations are members of the OPEC consortium of 23 countries, including Russia. In recent months, OPEC (Organization of the Petroleum Exporting Countries) has increased its combined output by 400,000 barrels per day, but it frequently fails to fulfill its objectives.
Last week, the UAE’s ambassador to the US stated that his government supported more pumping, but other officials have subsequently stated that the UAE is committed to the OPEC deal. According to the IEA, neither the UAE nor Saudi Arabia has indicated a “willingness to tap into their reserves.” The IEA went on to say, “The long-running inability of the bloc to meet its agreed quotas, mostly due to technical issues and other capacity constraints, has already led to sharp draws in global inventories.” According to the agency, global markets would be undersupplied in the second and third quarters of 2022 if big producers do not shift direction and widen the taps.
The West is attempting to persuade Saudi Arabia and the UAE to rethink their minds. Boris Johnson, the British Prime Minister, was in the Gulf on Wednesday to meet with the presidents of both nations to explore ways to increase diplomatic and economic pressure on Russia.
How does this impact the global energy marketplace? Following Russia’s invasion, global energy markets have been exceedingly turbulent. Brent crude jumped above $139 per barrel just over a week ago. Analysts predicted that prices might hit $185, then $200 as traders shied away from Russian oil, driving up inflation and burdening the global economy. Since then, however, there has been a sharp turnaround. Brent crude prices, the global benchmark, are down nearly 30% from their high. After losing another 6.5% on Tuesday, they fell below $100 per barrel for the first time this month. The crisis may significantly impact global energy markets, which would inevitably lead to another factor in increases at the gas pump.
