Oil prices have soared nearly seven per cent on both major benchmarks, following warnings from the International Energy Agency (IEA) of supply shortages between the second and fourth quarter this year – with potentially three million barrels a day of Russian oil shut out of global markets.
The supply loss would be far greater than an expected drop in demand of one million barrels per day triggered by higher fuel prices, the IEA revealed in a report yesterday.
Brent Crude prices surged 7.24 per cent to $105.10 per barrel, while WTI Crude has spiked 6.69 per cent to $101.40 – with both benchmarks now trading above the $100 milestone again.
Commerzbank analyst Carsten Fritsch said: “The IEA predicts a significantly undersupplied oil market in the second quarter. The oil market should be virtually balanced in the second half of the year if OPEC+ (excluding Russia) steps up its oil production as planned. That is a marked change as compared with the previous forecast, which had envisaged an oversupplied market following an expansion of OPEC+ production.”
The expectations of a balanced market are also dependent on OPEC+ reaching its raised output targets, which is has consistently failed to meet since last Autumn – increasing the chance of shortages this year.
European think tank Bruegel has suggested that the continent will have to co-ordinate with Western allies to mitigate shortages this year.
It said: “Europe can manage without Russian oil supplies but significant coordination and logistical problems will have to be tackled. Europe and the US should forge a Trans-Atlantic Energy Pact to make direct and indirect (including fuel switching) spare capacities in the US available to help Europe deal with lost Russian volumes.”
So far, the European Union (EU) has not joined in with the UK and US in imposing energy sanctions on Russia – with the bloc reliant on the country for a third of its oil needs.
However, businesses are avoiding Russian oil – even when trading at an over $20 discount – amid reputational concerns and fears on unwittingly violating sanctions.
Russia and Ukraine have held negotiations over recent days with reports of a 15-point peace plan being drawn up between both nations – however, the conflict has intensified today with Russia bombing a theatre with over 1,000 people in Mariupol.
Meanwhile, US President Joe Biden has branded Russian President Vladimir Putin a “war criminal” – with the country currently being investigated by the ICC for potential war crimes.
While prices have risen, potential rallies have been weighed down by raised output from the US.
According to US Energy Information Administration, oil production climbed 4.3m barrels in the week to March 11 rising to 415.9m barrels.
Analysts had expected a fall of 1.4m barrels.