IEA sees no immediate return to previous status quo

By Carly Fields
 

The International Energy Agency's latest report Oil 2023: Analysis and Forecast to 2028 reveals that world oil trade is experiencing an “unprecedented sea change” due to international embargoes on Russian energy exports. These shifts are unlikely to revert to the previous status quo for the foreseeable future, according to the report.

With approximately 2.5 million barrels per day (mb/d) of Russian crude being backed out of Europe and G7 countries, and an additional 2 mb/d of products seeking new markets, global oil trade flows have been significantly disrupted.

According to the report, the implementation of embargoes on Russian crude and oil products by the European Union (EU) and G7 nations, coupled with the price cap that enabled EU maritime services to redirect Russian oil to third countries, facilitated the rerouting of oil flows and minimised production losses in the global market. As a result, European refiners successfully sought alternative crude oil suppliers, with the US and the Middle East becoming key sources. Furthermore, higher North Sea volumes remained within the region.

Product trade flows also witnessed a dramatic shift in response to the G7 and EU embargoes on Russian oils, which came into effect in 2022 and early 2023. 

Previously, Russia held significant import shares of naphtha, gasoil, fuel oil in Europe, as well as feedstocks in the US. However, import replacements in these markets have emerged from further afield, including North America, the Middle East, and Asia. Russian volumes, in turn, have been redirected to Türkiye, East of Suez, Latin America, and Africa. This redirection of volumes led to a significant tightening of available tanker capacity and a subsequent boost in freight rates.

Trade flow expansion

Looking ahead, the report suggests that trade flows in both crude oil and products will expand over the medium term. The Atlantic Basin, excluding Russia, is projected to experience a surplus of crude oil and condensate, increasing by 4.3 mb/d to 4.5 mb/d. This surge is attributed to rising production in the US, Brazil, and Guyana, alongside a contraction in demand for transport fuels.

Meanwhile, Asia's demand for crude oil is expected to outpace increased supplies from the Middle East. The report forecasts that Asia's crude and condensate import requirements will rise by 4.8 mb/d to 28 mb/d in 2028. To meet this demand, the surplus in the Atlantic Basin will play a critical role.

Despite the loss of Russian supply, the rest of the Atlantic Basin is anticipated to shift from a rough balance in 2022 to a surplus of approximately 4.5 mb/d in 2028. This change reflects the ongoing increase in crude and condensate output, coupled with declining refinery runs. Consequently, the share of Atlantic Basin buyers in net world crude exports is expected to decrease to approximately 25% over the forecast period, with greater concentration shifting to regions East of Suez. 

Notably, by 2028, China is projected to account for one-third of total traded crude volumes, while India will hold a 17% share. 

This transformation, accelerated by the pandemic, will necessitate significant infrastructure and service expansions to accommodate these evolving flows.

The report also highlights significant adjustments in global product trade flows and predicts a growing surplus in the Atlantic Basin. These changes, coupled with declining needs in the region and increasing demand East of Suez, are reshaping the dynamics of the oil market.

One notable trend emphasised in the report is the concentration of demand growth East of Suez, particularly in China, which holds a substantial surplus of refinery and petrochemical capacity. This growth in China's capacity will drive the attraction of Atlantic Basin crude barrels and petrochemical feedstocks. Furthermore, the report suggests that Chinese exports will contribute to the east-west flows of middle distillates, putting pressure on Asian product prices while undermining Asian refinery margins.

 

Oil surplus

The forecast indicates that the Atlantic Basin, excluding Russia, is moving toward a net crude oil surplus that is expected to grow over the 2022-2028 period. Steady demand growth in Asia, combined with new refinery capacity, is driving the Asian crude deficit, while Middle East producer countries are not anticipated to significantly increase crude exports. As a result, the surplus of Atlantic Basin crude export volumes to regions East of Suez will have profound implications for crude shipping, similar to the impact of the swing in Russian crude exports from west to east.

The report further reveals that the Atlantic Basin's crude and condensate surplus, excluding Russia, is projected to increase by 4.3 million barrels per day (mb/d) from 2022 to 2028

However, this overall shift masks substantial intra-regional differences in crude flows. On the western side of the Atlantic Basin, the combined Americas (North and South) are expected to witness a rise in their crude and condensate surplus by 4.6 mb/d to reach 7.7 mb/d over the forecast period. In contrast, the eastern flank of the basin, excluding Russia, will see its deficit increase by approximately 300 thousand barrels per day (kb/d) to 3.2 mb/d. This deficit is primarily driven by declining African and North Sea crude production, which outpace the impact of falling European refinery activity and rising production in Central Asia. Additionally, Russia's surplus is projected to narrow slightly by 300 kb/d to 5 mb/d.

The report also indicates a substantial increase in North American net crude and condensate exports, rising from 700 kb/d in 2022 to 3.7 mb/d in 2028. This growth is attributed to increased crude oil and condensate production in the United States, combined with the impact of slowing refinery runs. These factors help reduce the deficit in the US market by approximately 3 mb/d to 1 mb/d during the 2022-2028 period.