BAKU, Azerbaijan, March 9
By Leman Zeynalova – Trend:
The negative impact on oil demand is the principal driver of the price retreat following the peak impact of the supply disruptions from Russia, Trend reports with reference to Oxford Institute of Energy Studies (OIES).
“Although the US and the EU sanctions were designed not to impact energy trade flows and energy-[related payments, the announcement that some Russian banks will be banned from the SWIFT system prompted some financial institutions to self-sanction, refusing to finance Russia-related transactions, including opening letters of credit or clearing payments. This ‘self-sanctioning’ is already having an impact on oil supplies. At its peak impact, such a scenario could result in a disruption between 3 mb/d to 4 mb/d of Russian crude oil production from current levels of 11 mb/d (including condensate).
Oxford Energy analysts note that assuming a gradual disruption of 3.2 mb/d in March and April which accounts for 70 percent of total Russia crude oil exports, in the current market context a supply shock of such a magnitude would add nearly $25/b to the Brent price, lifting the monthly price to $122/b by April before retreating towards $106/b year-end to average $110/b for 2022 as a whole.
“Under the extreme case in which Russian crude exports are fully seized (output disruption is assumed at 4.2 mb/d), prices are projected to rise further towards $130/b and hold above $120/b well into Q3 2022, to average $116/b for the year. Under both scenarios, the Brent price in 2023 is sustained above $100/b and it is projected to range between $102/b and $114/b on annual average. Given the potential impact of such high prices on the global economy, the US and its allies would want to avoid such scenarios, though Russia in retaliation to current sanctions may also decide to restrict energy supplies,” reads a report released by OIES.
In fact, the Institute’s forecast scenarios show that the negative impact on oil demand is the principal driver of the price retreat in both cases following the peak impact of the supply disruptions.
“However, even if physical supplies are not impacted, the oil price still contains a speculative premium, which is often reflected in the desire to hold stocks in an environment of increased uncertainty and low stock buffers. This is estimated that it can reach as high as $12/b implying that if the current tensions continue, the upward pressure on oil price could be maintained and Brent could be sustained above $100/b depending on the duration of the crisis, even if market fundamentals ease as oil demand and oil supply responses to higher oil prices accelerate,” reads the report.
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