As the European Union prepares to implement a ban on Russian seaborne crude in December, the market will have to prepare itself for a loss of 2.4 million bpd, according to the International Energy Agency (IEA).
The ban on Russian crude imports by sea will take 1.4 million bpd of oil off the market, along with 1 million bpd of petroleum products.
This is in line with the ban on Russian seaborne crude that goes into effect on December 5th, and the embargo on petroleum products, which goes into effect on February 5, 2023.
In addition, due to the pending EU ban on maritime services, the IEA expects forced reallocations from countries that are not on board with the G7’s own proposed price cap on Russian oil.
The G7 is reportedly considering sanctions on oil importers who refuse to comply with the group’s proposed price cap on Russian oil, which has prompted threats from Mosocw to withhold oil from the market.
Furthermore, by February next year, the IEA predicts that total Russian oil production will decline to 9.5 million bpd, which represents a 1.9 million bpd plunge year-on-year.
This comes after the IEA said in August that Western sanctions were not significantly impacting Russian oil output, as rerouting of crude to Asia had served as a stop-gap measure. The new Russian barrels will also have to find new buyers in Asia to mitigate any negative effects on Russian revenues.
The oil market remains highly volatile as it attempts to determine whether fears of declining demand–particularly coming out of China’s COVID lockdowns–or tight supply will rule fundamentals. The IEA highlighted decelerating growth in global oil demand in its latest monthly report, but also noted that due to significant gas-to-oil switching, total demand growth was actually only slightly lower.
In the meantime, heading into the ban, Europe continues to import large volumes of Russian crude, with Bloomberg recording 1 million bpd of imports in the week ending September 2. While that figure is higher than August, it is also lower than June.
By Charles Kennedy for Oilprice.com
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