The flow of Russian volumes into the global market has definitely broken, as shown by oil prices which have stayed above $100 a barrel, but just how much is uncertain, it is estimated from 1 to 4 million barrels a day (mmb/d). Western buyers still “self-sanction” and will take no Russian volumes at whatever price, while opportunistic buyers in Asia seize the wide discounts available.

Higher prices and lower GDP growth will have a negative demand impact but our estimates indicate that it will not completely offset lost supply. That leaves US producers, OPEC or Iran as the only other potential for a near-term supply response, and each is either unable or unwilling to provide it. We expect the tight market and high prices, as such, to continue in the short run.

Key takeaways

So the market certainly appears tighter given that we reduced our supply forecasts for 2022 and 2023 by roughly 2.3 mmb/d and 0.8 mmb/d, but demand only by 0.7 mmb/d and 0.6 mmb/d respectively.

However, we could see an overcorrection, assuming that these Iran volumes return in 2023, with a surplus in 2024-25. And if a deal is reached sooner, the oversupply could arrive even earlier.

Looking ahead

In 2024, US growth and the full restoration of OPEC production and recovering Iranian volumes will tip the world’s markets into oversupply, pressuring prices lower. Eighteen months is a long time in the oil markets, though, and a US recession (unlikely, in our view), failure to reach a deal with Iran or the unknown unknown could rapidly alter this picture.