Fog of War Has Oil Agencies Split on Impact of Russian Invasion
Bloomberg News
,(Bloomberg) -- Looking at the latest forecasts from the three leading oil agencies, you’d be forgiven for thinking they lived in different worlds.
Monthly outlooks from OPEC, the International Energy Agency and the U.S. Energy Information Administration paint starkly different pictures of the impact of Russia’s war in Ukraine. Reading OPEC’s report, you’d be hard-pressed to know it happened. The word “invasion” doesn’t appear at all in the 90-page document, “war” just once. Their favored description is “Ukraine crisis.”
The group’s unwillingness to address the scale of the disruption that could result from Russia’s aggression may stem from the years of work that OPEC put in to cultivate relations with Moscow, persuading Russia to take part in production cuts within the wider OPEC+ group. But it leaves its oil market forecast looking off the pace.While OPEC’s analysts recognized that the effects of the war, if sustained, would have a negative impact on economic activity in 2022, they actually made a small upward revision to their global oil demand forecast for the year compared with February’s forecast.
The EIA did not significantly cut its global oil demand forecast either, though it notes in its report that the consumption estimates are based on economic forecasts that were completed before the invasion took place and that the outlook will “depend on how economic activity and travel respond to recent and any potential future events and sanctions.”
The IEA, in stark contrast, sees a large and almost immediate impact on global oil demand from a combination of sanctions and high oil prices and their effect on broader inflation. It slashed its forecast of demand in 2022 by 950,000 barrels a day, with the biggest influence being felt in the second and third quarters of the year. The Paris-based agency sees higher prices cutting demand by 400,000 barrels a day, with the remainder coming from reduced economic activity.
It cut its forecast of Russian oil demand this year by 435,000 barrels a day, due to a sharp drop in GDP combined with disruptions to aviation, which have seen most international flights from the country cancelled. Outlooks for several other major oil consumers were cut by about 1%.
There are stark differences in the outlooks on the supply side, too.
Once again, OPEC incorporated no impact from the invasion into its forecast. That’s in stark contrast to the IEA, which cut its global oil supply outlook for the rest of 2022 by 2.8 million barrels a day. It sees Russian production falling by as much as 3 million barrels a day from April, “as a fall in domestic demand combines with a widening customer-driven voluntary embargo while sanctions drive away still more buyers.”
With the exception of one or two Russian refineries cutting back on crude deliveries, there is little immediate sign of the big decline in production forecast by the IEA, despite widespread self-sanctioning of Russia’s oil exports by major oil companies and refiners. Cargoes continue to be loaded at Russia’s export terminals, at least for now.
The war that Russia is waging in Ukraine may not disrupt oil supply; steep discounts and a tight market may be enough to keep Russian barrels flowing, even if they have to be shipped further to find willing buyers. And the uncertainties are, as all three agencies note, huge. But crude prices above $100 a barrel, soaring inflation and curtailed economic activity in Russia surely will have an impact on demand, something that all the agencies will have to reflect in later assessments.
©2022 Bloomberg L.P.
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