The dynamics and geopolitical landscapes have changed significantly from previous instances to generalise observations IMO.
That’s historically been the case. For the first time the past few years demand outstrips supply (red highlight), while projected demand is expected to hit levels in 2019 (green highlight)
Disagree. The EU’s announcement on oil sanctions is in direct opposition to currying Russian political favor. If anything, announcing it early is a favor to Russia as helps mitigate some of the shocks. This announcement is probably unprecedented in recent history and is a huge blow for Russian energy exports.
With China expected to come back online and that might take up some of the Russian oil, but it will not hit it’s pre-pandemic manufacturing/production levels. Key contributing factors are the depressed CN R/E market and high global CPI & PPI levels that will drive down demand for CN exports. The CCP is desperately trying to issue bonds to shore up investment capital to stimulate the economy to prevent the situation in the news article below from ongoing:
Why would OPEC pump more oil? If anything Biden’s pissing off Saudi and the UAE with his dovish approach to Iran. Obama pissed them off first by unilaterally easing sanctions on IR, despite the UAE halting lucrative IR business to comply with sanctions. When was the last time the UAE and Saudi refused to pick up a call from an American president?
Plus the Arab countries don’t rely as much on the US alone for trade anymore. The US may not be able to strong arm the Arab nations to push for production like they did in years past. They have more diversified sources of revenue, and in the case of the UAE more diversified industries. The UAE for e.g. has been approaching a number of countries for Free Trade Agreements and even signed one with Israel a few days back. This is another unprecedented turn of events in the Arabian peninsula.
And It’s not that they can’t increase capacity (1.8M bpd for SA & AE combined):
But why would they if they are meeting their targets? It’s the non-Arab countries that aren’t meeting their OPEC quotas atm.
It’s not only the uncertainty of supply. No matter how much oil is produced there’s got to be a way to refine it. The effect of the pandemic wiped out a significant chunk of refining capacity. The Russian war didn’t deprive the world of ~1Mbpd in Russian crude supplies. It disrupted ~1M in refining throughput. This is even more significant. This, I believe, is also an unprecedented series of events.
In 2021, refinery throughputs recovered by 3 mb/d, after a fall of 7.2 mb/d in 2020, well behind demand growth. In 2022, the growth will accelerate to 3.8 mb/d. Despite tight product markets and relatively strong margins, we see limited upside potential for 2022. The global refining system lost 2.8 mb/d of capacity in 2020-21, mostly from the fleet of operating refineries in the US, Europe and Asia, rather than from the roster of long-term mothballed/underutilised assets. The bulk of new capacity projected for 2022 will not materialise until the second half of the year. Kuwait’s mega-refinery Al-Zour, which accounts for half of 2022 net additions, may take longer than expected to reach commercial operations, due to its size (615 kb/d). Nominal refinery margins look very healthy, but higher natural gas costs and, in Europe, emission allowance prices are a substantial drag on real earnings for refiners.
TDLR: Demand is expected to hit ~100M bpd but refining throughput is expected to be at ~82M bpd. Rest of demand will have to be met with inventories.
True. there’s significant money being moved into fixed income assets already. The NFP numbers today only confirmed the impending rate hike. The money’s already starting to move from equities to bonds.
Data tables and italicized fonts from the IEA oil market report for FEB (more recent ones are paid):