The International Energy Agency (IEA) on Wednesday said nearly 3 million barrels per day (bpd) of Russian oil production could be shut in from April due to large-scale sanctions on Russia and the self-sanctioning of buyers.
Russia is the world's largest oil exporter, shipping 8 million bpd of crude and refined oil products to customers across the globe.
Although unprecedented sanctions imposed on Russia so far exclude energy trade, for the most part, the IEA said major oil companies, trading houses, shipping firms and banks have backed away from doing business with the country.
The agency warned that a shut-in of 3 million bpd of Russian oil supply is expected starting from April, however, 'losses could increase should restrictions or public condemnation escalate.'
Russian oil continues to flow for the time being due to term contracts and trade agreed before Moscow sent its troops into Ukraine, the agency stressed, adding that 'new business has all but dried up.'
'Urals crude is being offered at record discounts, with limited uptake so far. Some Asian oil importers have shown interest in the much cheaper barrels, but are for the most part sticking to traditional suppliers in the Middle East, Latin America and Africa for the bulk of their purchases,' it said.
-Options to increase supply
The IEA said refiners, particularly in Europe, are scrambling to source alternative supplies and risk having to reduce activity just as very tight oil product markets hit consumers.
Considering the scant signs of increased supplies from the Middle East, or of a significant reallocation of trade flows, the agency said no additional supply is expected from the OPEC+ group in April, as it prefers to stick with a modest, scheduled output rise of 400,000 bpd.
Saudi Arabia and the United Arab Emirates (UAE) are the only producers with substantial spare capacity, however, they have shown no willingness so far to tap into their reserves.
Another alternative that has moved up on the international agenda is additional supplies from Iran, but the agency says any barrels from the country could be months off.
The IEA underlined that if an agreement is reached in the nuclear talks with Iran, exports could ramp up by around 1 million bpd over six months.
Instead, the agency anticipates that growth will come from the US, Canada, Brazil and Guyana outside of the OPEC+ alliance, although it said any near-term upside potential is limited.
It proposed the use of oil stocks to balance the market in the coming months, in the absence of a faster ramp-up in production.
The IEA member countries pledged 62.7 million barrels of crude oil in a bid to supply the tight market. However, the agency also warned that oil inventories were already depleting rapidly even before the conflict in Ukraine.
'At the end of January, OECD inventories were 335 mb (million barrels) below their five-year average and at an eight-year low,' it said.
By Sibel Morrow
Anadolu Agency
energy@aa.com.tr