9 June 2022 - 17:49
  • News Code: 457943
Gray Shadow of Energy Security

TEHRAN (Shana) -- The energy market has seen many fluctuations over recent months. The latest lockdowns in China are causing significant demand destruction and adding downward pressure on oil prices, reduction of gas storage in Europe and finally the tension between Russia and Ukraine complicated part of energy marketpuzzle, such a wonderful life!

Over recent weeks, western countries have made many attempts to sanction Russia's energy sector andthe US administration has banned the oil imports from Russia to the United States, while the United Kingdom has prevented Russian oil tankers from entering British ports but in reality, both actionswere just symbolic and had not impact on export flow of Russia. The European Union has also imposed sanctions on Russia that have not been targeted, at least not directly and at Russia's energy export system; however, the channel of banking sanctions and insurance of the Russian financial system has had a negative impact on the country's energy exports. In this situation, oil companies are trying to find alternatives to Russian oil.

In 2021, Russia’scrude oil export stood at 4.5 million barrels per day of and its petroleum products exports stood at 2.7 million barrels per day, of which Europe alone last year had 4 million barrels per day of crude oil and petroleum products imports. 40% of European diesel fuel is supplied from Russia. Therefore, replacing such a volume of crude oil and petroleum products seems to be impossible, at least in the short term. So western countries are faced with the option of how in the long term keep up the pressure on Russia.

MoreUS Therapy

The IEA defines energy security as the uninterrupted availability of energy sources at an affordable price. Energy security studies have expanded from their classic beginnings following the 1970s oil crises to encompass various energy sectors and increasingly diverse issues. This viewpoint contributes to the re-examination of the meaning of energy security that has accompanied this expansion.

According to interesting academic researchentitled “The impact of international sanctions on energy security”, they concluded that international sanctions do significantly and negatively influence the energy security of target countries in some cases. Specifically, unilateral sanctions, U.S. sanctions, economic sanctions, and the intensity of sanctions have a significantly negative impact on energy security.

Unilateral sanctions would jeopardize energy security, and the consequences would be the high cost of energy and raw materials, and ultimately the high inflationary effects that are unfortunately imposed on ordinary people.

The contradiction in the behavior of western governments, especially the United States and Europe, in the center of the energy crisis and the start of the tension on the Europe has become more apparent. The US administration, which came to power with the motto of avoiding fossil fuels consumption, has taken steps in less than a year, such as repeatedly asking OPEC Plus producers to increase oil production faster, negotiating with shale oil companies to increase production, releasing huge amounts of oil from strategic petroleum reserves (SPR), and so on.

Regarding the tension between Russia and Ukraine, it should be noted that, like any war in this conflict, the losers would be more than the winners. Weakening Russia's national system is on the West's agenda, and so is sanctions against the Russian central bank considered in this regard.

General Concerns

April reports published by three international oil market institutions show that global demand in 2022 will be lower than previously expected, due to the Russia–Ukraine tension, quarantine in China and a drop in the global economy's growth estimate. In this way, the U.S. Energy Information Administration (EIA) has revised down its estimate by 0.8 mb/d, believing that daily demand will average 99.8 mb/dthis year.

OPEC also cut nearly half a million barrels from its previous forecast to keep its estimate of global demand above 100 mb/d. This comes after the International Energy Agency (IEA) last month saw Russia-Ukraine tension sharply reduce demand estimates, and in its new report it has kept dropping by 0.26mb/d to average 99.4 mb/d.

All these three institutions have reduced their assessment of demand this year in their most recent monthly report, though they have not performed the same in reduced volumes. The International Energy Agency (IEA), the U.S. Energy Information Administration (EIA) and the Organization of the Petroleum Exporting Countries (OPEC) updated their estimates of the 2022 oil balance. Accordingly, these institutions are in quarantine due to factors such as the new wave of COVID-19 cases that have brought parts of China into quarantine,and rising retail prices, partly due to fears of supply disruptions from buyers and traders boycotting Russian oil, lowered their estimate of demand.

Having a glance at oil demand forMarch and April, we see the agency lowering its estimate by a total of 1.2 mb/d, bringing it below 100 mb/d. The U.S. Energy Information Administration did not apply any reductions in demand estimates in its report last month as the economic data used by the agency were finalized prior to the Russian invasion. On the contrary, OPEC analysts continue to see the diminishing impact of geopolitical tension or COVID-19 on demand, as relatively small.

In the past two months, they have lowered their forecast of global demand by a total of just 0.3 mb/d. The current wave of coronavirus pandemics, which have gained strength in parts of China, could reduce the country's demand by 0.6 mb/d during the second quarter of 2022, according to the agency. The U.S. Energy Information Administration, on the other hand, sees the decline at just 0.13 mb/d.

Thereis more agreement on the impact of economic sanctions against Russia, especially when we look at the forecasts for the past two months. The EIA and OPEC both appeared to be trying to get themselves to the agency's forecast last month.

It seems OPEC analysts have been more cautious than the other two oil bodies, lowering their outlook for Russian demand by just 0.15 mb/d, or 4 %. However, the two other bodies have applied reduction reforms of about 0.4 mb/d, or 10 %, in their estimates.But the big difference is in the views of the three bodies about Russian production from the current month onwards. Although OPEC has revised down its estimate of Russian supply since March, it believes it will rise slightly above 11 million barrels per day in the following year. However, this estimate is 0.53 mb/d lower than the previous estimate.On the other hand, the EIA and IEA see a much larger impact on Russian oil production, even though there is still no comprehensive sanction against the purchase of oil or refined products. The culmination of disputes between the institutions in the third quarter of the year is seen, with the Russian Oil Production Agency estimating 8.7 mb/d and OPEC estimating it at 11.2 mb/d, i.e., 2.5 mb/d of disagreement. The EIA figure is also at a level between the two.

By Afshin Javan

Iran's National Representative to OPEC

Courtesy of Iran Petroleum

News Code 457943

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