Higher crude oil and fuel prices allowed Russian revenues to climb in May despite the country’s export volumes slipping due to heavy sanctions, revealed the International Energy Agency (IEA) in its latest monthly oil report.
The Paris-based agency outlined that Russian oil export revenues rose $1.7bn last month to nearly $20bn – powered by soaring crude prices.
The findings reflect the West’s difficulty in punishing the Kremlin for its invasion of Ukraine by limiting Russian imports, moves which have both exacerbated a supply crunch and driven further rallies on both major benchmarks.
Oil prices are still hovering around the $120 per barrel milestone on both major benchmarks, amid persistent concerns about tight supply worldwide.
The US, UK and the European Union (EU) have finalised plans to ban imports of Russian oil, while also imposing escalating sanctions on the country’s financial institutions and central bank in since conflict erupted in Ukraine in February.
Despite the bans, the EU remained the main destination for Russian exports last month, making up 43 per cent of Russian flows followed by just over a quarter to China.
This follows a report from the Centre for Research on Energy and Clean Air (CREA) earlier this week, which revealed the trading bloc has bought 61 per cent of Russian energy supplies on the market since the invasion.
As the West begins to ease off buys, Russia’s allies are swooping in with Chinese imports of Russian oil and fuel rose by nearly a quarter of a million barrels per day in May, topping two million barrels on a daily basis for the first time ever.
Meanwhile, India has taken Germany’s place as the number two destination for Russian shipments in recent months – with one of the world’s largest consumers noting a discount opportunity to meet its energy needs.
Oil demand to hit record levels next year
On a global basis, the IEA expects oil demand will rise more than two per cent to a record high of 101.6 million barrels per day next year – exceeding pre-pandemic levels.
It forecast that demand would rise 2.2m bpd, or 2.2 per cent, in 2023 compared to 2022 and would exceed pre-pandemic levels.
However, it expected demand growth to slow over time, with inflationary pressure and the revival of lockdowns in Asia set to ease rising consumption levels.
It said: “After seven consecutive quarters of hefty inventory draws, slowing demand growth and a rise in world oil supply through the end of the year should help world oil markets rebalance.”
The IEA’s latest dossier follows yesterday’s OPEC report which revealed one potential headwind to prices – capacity issues and supply problems.
OPEC’s output fell by 176,000 bpd to 28.51 million barrels per day due to losses in Libya, Nigeria and other countries.
Callum Macpherson, head of commodities at Investec, forecast the possibility of demand destruction entering the oil market amid sustained price rises.
He told City A.M.: “Given the kind of oil prices we would see next year (over and above current levels) if the IEA’s forecasts prove true, there must be some question marks over affordability. Oil is not getting more expensive in isolation – everything is getting more expensive and interest rates are rising too. At some price level demand has to reduce. Perhaps another way to look at the IEA’s forecasts is to ask what oil price needs to reach to prevent demand growing by 2.2 mb/d next year?”