Weaker-than-expected demand along with steady output rises from OPEC+ and the US should offset lost Russian supplies to help "bring the market back to balance," the International Energy Agency said in its monthly oil market report April 13.
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However, the Paris-based agency warned that oil prices -- back around $100/b after spiking toward $140/b in March -- are "troubling" and are a "serious threat" to global economic stability, highlighting the importance of the 120 million barrel stock release coordinated from IEA member countries to act as a crucial buffer amid the Russia-Ukraine conflict.
The IEA also lowered its 2022 global oil demand outlook by 260,000 b/d and sees demand growth of just 1.9 million b/d due to China lockdowns amid surging COVID-19 cases along with broader weakness across OECD countries. It noted "significant downside risks to the economic outlook remain" as the Ukraine war sends shockwaves through commodity flows, prices, inflation and currencies.
The demand weakness is highlighted by China showing no signs of buying increased Russian volumes despite many other Asian buyers doing so and as traditional buyers turn their back, the oil market report said.
Russian oil supply has fallen around 700,000 b/d on average so far in April versus March, the IEA said, adding it sees the losses rising to 1.5 million b/d this month as refiners extend run cuts, more buyers avoid barrels and Russian storage fills up. The agency notes Russian shut-ins will accelerate to around 3 million b/d from May as international sanctions and a customer-driven embargo come into full force.
But the IEA believes there is enough oil to prevent a sharp supply deficit emerging.
"Lower demand expectations and steady output increases from Middle East OPEC+ members along with the US and other countries outside the OPEC+ alliance should bring the market back to balance," it said.
OPEC+ is expected gradually to increase output by 1.9 million b/d, assuming it fully unwinds OPEC+ cuts in line with existing policy, the IEA added, with the Middle East members making up most of the increase. That comes despite the producer group's long-running battle with capacity constraints and technical issues. The IEA noted this caused the supply gap to widen compared with official output targets during March to 1.5 million b/d -- the widest since May 2020.
Meanwhile, non-OPEC+ producers are expected to pump 2 million b/d more, with the US leading the gains, according to the agency.
Iran remains the wildcard. While nuclear talks hang in the balance, the IEA notes Iran could be a source of substantial supplies if sanctions are lifted. The agency expects production to ramp up by more than 1 million b/d within six months to reach full capacity of 3.8 million b/d, but adds any return to the market from a deal would not be immediate.
'Mired in uncertainty'
The IEA forecasts global refinery throughputs to increase by 4.4 million b/d from April to August due to new capacity and normal seasonal gains. "This would allow product inventories to see the first build in two years, offering some respite to the tight market," it said. Overall, 2022 runs are forecast to gain 3 million b/d year-on-year, but will remain below 2017 levels, it added.
Meanwhile, global oil inventories may have decreased for 14 consecutive months, but preliminary data show a build in OECD industry stocks of 8.8 million barrels for March, according to the IEA. OECD total industry stocks fell by 42.2 million barrels to 2,611 million barrels in February, nearly double the seasonal trend and with oil product stocks leading the decline.
"The outlook is mired in uncertainty and OECD industry stocks in February continued to draw at a steep pace to stand 320 million barrels below their five-year average," the IEA said, pointing to the latest stock release to provide a crucial cushion to oil markets.
S&P Global Commodity Insights analysis projects global oil stocks to build in the second quarter, level off in the third quarter and rise again into October given the injection of strategic petroleum reserves. The US plans additional releases to that coordinated with the IEA giving an extra downside pressure on the oil market.