Oil prices have been skyrocketing with geopolitical tensions on the rise. Countries have come together to combat the hikes in oil prices due to high global demand. China’s lockdown aids this movement as the halt in production across its industrial sector slows down the country’s demand for oil, according to the International Energy Agency.
China is a major importer of oil and metal to support its industrial sector. With the rise in Covid-19 cases, China has entered into a tight lockdown to combat the pandemic from spreading.
With the country under lockdown, the industrial sector is at a halt resulting in lower demand for oil during times of distress due to the havoc caused by the ban on Russian oil according to the IEA.
The IEA said in its monthly report on world oil markets that Russia’s output would fall by 1.5m barrels per day (BPD) in April, increasing to 3m BPD in May, as consumers either voluntarily stop buying Russian supplies or scale back due to uncertainty over sanctions.
Given Russia’s position as the world’s second-largest oil producer, the prediction suggests that up to 3% of global supply might be lost by the middle of spring.
The IEA said there was unlikely to be a “sharp deficit” in global oil markets because of several variables that offset the impact of lost Russian supplies.
The most recent example is China’s installation of “stringent” anti-Covid regulations, in which China has placed all 26m residents in Shanghai under house arrest.
Weaker-than-expected demand in OECD countries which is a collection of primarily developed countries has contributed to the drop in global demand for oil, according to the IEA.
As a result, the organisation reduced its global oil demand forecast by 260,000 BPD from last month’s estimate, predicting that the global market will require an average of 99.4m BPD in 2022.
Due to the general global economic upswing from 2021, which was more heavily impacted by Covid limitations around the world, the number is still up 1.9m BPD from 2021.
Oil prices have soared to near-record highs as a result of this recovery, as well as market uncertainty induced by Russia’s invasion of Ukraine.
The consequent increase in fuel prices has been felt by motorists in nations such as the United States and the United Kingdom, where gasoline and diesel prices have reached new all-time highs, resulting in a growing cost-of-living crisis.
The IEA’s revised lower prediction should allay fears about oil prices, especially now that the outlook for oil output has improved.
In March, global supply grew by 450,000 BPD to 99.1m BPD, aided by an increase in output from countries outside of the Opec cartel of oil-producing nations.
Opec members Saudi Arabia and Iran committed to a 400,000 BPD increase, although not to the extent that big oil consumers like the United States and India had wanted.
Member countries of the IEA have also consented to a coordinated release of 120m barrels of emergency reserves to assist the cut in oil prices, with the price of Brent crude falling by $10 to $104.
During the early days of Russia’s invasion of Ukraine, the price almost reached $120, and analysts predicted it would soon surpass the all-time high of $147.50, set in 2008.
The IEA reports, on the other hand, have contributed to a long-term pattern of declining reserves, with inventory falling for 14 months in a row.
In February, inventories were 740m barrels lower than they were at the end of 2020, with OECD countries accounting for 70% of the reduction.
The oil price dropped 0.6% to $108 a barrel on Thursday as demand eases with China’s lockdown and supply increases with support from nations with oil.