Oxford Energy proposes 3 responses to possible Russian energy supply cut

Oil&Gas Materials 9 March 2022 11:40 (UTC +04:00)
Oxford Energy proposes 3 responses to possible Russian energy supply cut

BAKU, Azerbaijan, March 9

By Leman Zeynalova – Trend:

In the short term, potential responses to ease the price pressure amid possible Russian energy supply cut are likely to come from the supply side, Trend reports with reference to Oxford Institute of Energy Studies (OIES).

“One of the key dynamics shaping the oil market for 2022 is the potential increase in Iran’s production if sanctions on the country are lifted. In our baseline case, Iran’s production increases from 2.5 mb/d to 3.5 mb/d in H2 2022 and reaches a maximum capacity of 3.6 mb/d (compared to the headline level of 3.8 mb/d). Such an increase will moderate price increases by $1.7/b in 2022 and $4.8/b in 2023 relative to the Russian disruption scenario, notwithstanding the impact of sentiment and prices of the full return of a key OPEC producer to the market and the immediate release of crude and condensates in storage,” reads a report from OIES.

Oxford Energy notes that another potential supply response could come from OPEC+.

“But so far, there is no indication that OPEC+ will alter its current plan, especially since the Russia-Ukraine crisis has not yet resulted in any physical supply disruptions and until recently OPEC was still expecting surpluses to build in 2022. Any deviation from OPEC+’s current supply roadmap would also be seen as a gamechanger, as its decisions being influenced by non-technical factors and geopolitical outcomes (an untidy outcome given Russia’s long-term importance to OPEC),” reads the report.

OIES analysts believe that another potential supply response is a release of stocks from the Strategic Petroleum Reserve (SPR).

“On March 1, 2022, IEA announced an international coordinated release of 60 mbbls of crude oil from emergency stock to moderate prices and ease any potential shortfalls as a result of the Russia-Ukraine crisis. Although this is equivalent to 2 mb/d over 30 days, oil prices rose by nearly 4 per cent in the day despite the announcement and settled at $104.97/b from $101.01/b the day before. Although the release if it occurs would send a signal that consuming countries are taking actions to prevent price from spiking, we expect the actual impact on prices to be minimal and shortlived,” said Oxford Energy.


Follow the author on Twitter: @Lyaman_Zeyn