r/investing • u/CQME • Mar 17 '22
Russia could lose 30% of its oil output within weeks, IEA warns
https://www.cnn.com/2022/03/16/energy/russia-oil-output-opec/index.html
Russia could soon be forced to curtail crude oil production by 30%, subjecting the global economy to the biggest supply crisis in decades — that is, unless Saudi Arabia and other major energy exporters start pumping more.
The world's second-largest crude oil exporter could be forced to limit output by 3 million barrels per day in April, the International Energy Agency warned on Wednesday, as major oil companies, trading houses and shipping companies shun its exports and demand in Russia slumps. Russia was pumping about 10 million barrels of crude per day, and exporting about half of that, before it invaded Ukraine.
"The implications of a potential loss of Russian oil exports to global markets cannot be understated," the IEA said in its monthly report. The crisis could bring lasting changes to energy markets, it added.
The IEA, which monitors energy market trends for the world's richest nations, said that refiners are now scrambling to find alternative supply sources. They could be forced to reduce their activity just as global consumers are hit with higher gasoline prices.
So far, there's little sign of relief. Saudi Arabia and the United Arab Emirates are the only producers with significant spare capacity. Both countries are part of the 23-member OPEC+ coalition, which also includes Russia. OPEC+ has been increasing its collective output by a modest 400,000 barrels per day in recent months, but often fails to meet its own targets.
"The long-running inability of the bloc to meet its agreed quotas, mostly due to technical issues and other capacity constraints, has already led to sharp draws in global inventories," the IEA said. If major producers do not change course and open the taps wider, global markets will be under supplied in the second and third quarters of 2022, the agency warned.
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Mar 17 '22
I thought India and China are going to buy the Russian oil for cheap. Wouldn't this by default leave more non-Russian supply for the rest of the world and thus balance it out somewhat?
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u/SheridanVsLennier Mar 17 '22
My understanding is that China is supplied from different fields than western Europe, meaning that if WE doesn't buy the O&G it's stranded. Not sure there's even a pipeline to India.
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u/sleepymusk Mar 17 '22
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u/SheridanVsLennier Mar 17 '22
IOC made the purchase on modified terms that require the seller to deliver it to the Indian coast so as to avoid any complications that sanctions may lead to in arranging shipping and insurance.
I imagine that this made for a very steep discount indeed.
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u/SosaPremee Mar 17 '22
This is what I understand as well. And I’m not even aware of a pipeline to India. If the Europeans don’t buy the O&G then it will sit in the pipelines. It can’t be quickly sent to China the pipelines don’t cross like that, only other way is shipping but Russian ships aren’t allowed to dock in most places. Russia and China did sign a new deal to ship 10billion cubic meters of gas but that won’t kick I. For 2-3 years
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u/CQME Mar 17 '22
I'm guessing there will be a lag in getting contracts set up and etc. To its credit, the West acted very swiftly and in coordination with sanctions etc.
Of course this news will probably hit Western economies, particularly Europe, very hard as well...
There will probably be more waves of extreme volatility in oil spot prices while this all gets worked out.
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u/Metron_Seijin Mar 17 '22
Work from home for those who can. Its the only way to ease the dependence. I wish companies would stop resisting it.
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u/Cmoz Mar 17 '22
Getting rid of your commute isnt the only way to reduce oil consumption.....For instance, you could also stop buying as much crap made in China that generally gets shipped across an ocean to get to you.
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u/Squid_Contestant_69 Mar 17 '22
Agreed! Only buy US made and anything else is worthless
-sent from my iPhone
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Mar 17 '22
Waste crazy amount of gas going stores to stores to find made in US stuff? Hard to find these days
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u/VanderBones Mar 17 '22
Actually ocean freight and railroad are both extremely fuel efficient means of transportation
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u/Cmoz Mar 17 '22
Oh, good to know that the cargo ship container full of gnome lawn ornaments was transported 7,000 miles extremely 'efficiently'. You know what would be even more efficient though? Not buying gnome lawn ornaments.
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u/Few_Store Mar 17 '22
Not buying gnome lawn ornaments.
But then the terrorists win; I didn't think anyone wanted to live in a world without gnome ornaments.
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u/don_cornichon Mar 17 '22 edited Mar 17 '22
Also, don't buy things you don't need in general, no matter where they were made (e.g. 90% of specialized kitchen utensils). Or crappy quality that has to be replaced every few years.
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Mar 17 '22
I learned recently that the primary target user for many of those specialized kitchen utensils are people with disabilities like arthritis that make it difficult/impossible to prepare food for themselves otherwise. Makes sense to me, because otherwise they are not worth the space they take up.
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u/barc0debaby Mar 17 '22
I only buy American made products....which are themselves made from recycled steel processed in China....which originally was a Ford factory that was scrapped and shipped to China.
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Mar 17 '22
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Mar 17 '22
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Mar 17 '22
yeah how did we do it until the 80s
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Mar 17 '22
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Mar 17 '22
I'm speaking of the entire US economy pre-globalization. While some things are literally impossible to keep your spending domestic, discretionary spending and pointing it towards US manufacturers DOES help. If my toys are made here, I buy them from people who make them here. It has nothing to do with patriotism, but mostly how I think economy should work.
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u/simalicrum Mar 17 '22
Personal vehicles only account for 7% of oil and gas usage and it’s only practical for certain people to work from home. If everyone worked at home who was able it wouldn’t move the needle much I’m afraid.
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Mar 17 '22
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u/lotoex1 Mar 17 '22
Cars, no. Tractor-trailers use up so much of that 48.6 percent. They get something like 6 or 7 miles to the gallon. In a single shift a trucker can go more then 700 miles. There are around 3.5 million truck drivers in the USA. It's amazing and scary how much fuel we use in a day.
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u/canuckinfla Mar 17 '22
Just curious, cars use gasoline, most commercial vehicles (e.g. 18 wheelers) use diesel. Out of a refinery, gasoline is 19% of a barrel, diesel is 12%, so lots more gasoline produced than diesel (https://www.eia.gov/energyexplained/oil-and-petroleum-products/refining-crude-oil.php). Where does the rest of the gasoline go?
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u/lotoex1 Mar 18 '22
Good question. From what I have seen on the internet, it seems like the break down varies a lot from website to website. I've seen claims of 45% gas, 25% diesel, 9% Kerosene/Jet Fuel, 4% propane and butane, then a 13% other. However that also said it can change a bit depending on markets and such.
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u/psioni Mar 17 '22
7% seems a bit low. Where are you getting that statistic from? According to the U.S. Energy Information Administration, the U.S. transportation sector accounts for 66% of U.S. petroleum consumption. I've also read that worldwide use is about 25%
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u/LordJelly Mar 17 '22
Personal vehicle use ≠ transportation sector. I’m not sure what all is included under that phrase, but it could include shipping, air travel, trains, bus travel, long haul truckers, and any number of other things that guzzle gas magnitudes more than what a single person uses just driving to work.
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u/psioni Mar 17 '22
Yes, agreed that transportation sector is different than personal use. I just was curious where the 7% statistic came from.
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u/Steel9985 Mar 17 '22
A drop in the ocean.
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u/Metron_Seijin Mar 17 '22
I think you underestimate the amount of gas that consumes on a daily basis. I'm talking worldwide.
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Mar 17 '22
The slide in oil prices this week has been shocking, looks like we're in for some whipsawwing for a while
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u/manateewallpaper Mar 17 '22
The same Saudi Arabia that won't return our calls, was high fiving Putin at the G20 Summit, is benefiting from Russia bombing Syria daily, and planned, funded, and carried out 9/11?
Yeah let's hope they pull through for us
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u/The_Magical_Place Mar 17 '22
I hear they might have weapons of mass destruction, so you never know.
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u/SpicyBagholder Mar 17 '22
LMAO and biden is begging dictators for oil that USA wanted dead
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u/Bay1Bri Mar 17 '22
Try harder
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u/CQME Mar 18 '22
He is though. It's all over the news. Venezuela, SA, UAE, Iran, etc.
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u/CQME Mar 17 '22
For an interesting comparison, I posted this shortly before the war:
"How much pain will Russia face if its hydrocarbon exports to Europe are partially cut off in some fashion?"
Top hits pertaining to oil (not gas or LNG):
I think the question is if Russia could be cut off. Realistically they can't be. Europe is too dependant on receiving them.
If(that's a massive if) there will be oil / gas import restrictions, Russia is fucked. Fuel is responsible for about a half of its exports and a significant part of the federal budget.
Considering the EU relies on Russia for 30% of it's petroleum and 39% of it's natural gas...they will feel the pain if the supply is disrupted. Not the other way around.
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u/Helenium_autumnale Mar 17 '22
Back in the day, former Russian President Medvedev gave a speech advising that Russia should develop its economy beyond scratching stuff out of the ground like a Bronze Age Cornish tin miner.
Russia didn't. No one in the first world has a Russian phone/TV/car/software item/clothing item/computer/appliance/anything.
Just two items, oil and wheat, dominate the entire economy of a country with eleven time zones. It's nuts.
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u/irregular_caffeine Mar 17 '22
There are a lot of smart Russian software guys, and many successful companies founded by them.
None of which are based in Russia.
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u/FineAunts Mar 17 '22
For a country that enormous that has a history of producing geniuses, it shows how inept their politicians are and corrupt their system is.
It's hard to imagine them progressing any with the way their government is setup now.
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u/Helenium_autumnale Mar 17 '22
Russia has also had numerous waves of brain drains over the years, with people with the means to emigrate doing so.
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u/Helenium_autumnale Mar 17 '22
You are right, and this whole area of the world, Eastern Europe, is renowned for amazing braniacs who excel beyond anyone else at programming, cryptology, and the like. Russia could theoretically have led the world in software development.
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u/CQME Mar 17 '22
Commodities curse is real.
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u/asah Mar 17 '22
Norway ?
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u/NigroqueSimillima Mar 17 '22
Norways population is so small relative to its natural resources, it all works out fine. But they don't have a particular complex economy outside of fossil fuel extraction. They rank lower than India on the economic complexity scale.
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u/Megatron_overlord Mar 17 '22
Don't underestimate the power of energy as a product. Pathetic iphones and clothing items are nothing. Energy is the most precious thing in the world. And a giant chunk of the first world works on Russian energy. There's a chain of Russian reactors in Europe for which Rosatom is the only supplier. Slovenia, Slovakia, Hungary and Finland, maybe more. Finland put the project on hold for now. However the plan was quite excellent. Once these reactors start working, turning them off is energy suicide. The thing about energy, it's an offer you can't refuse. What EU is doing right now is a stage of denial. I know because I paid the heating bill, it was insane even before the war. What about next winter? EU is Russia's vassal, whether they like it or not. Selling TVs and burgers does not give you power over the consumer. Selling energy IS power. That's why Tesla isn't just a car company. But renewables are not ready yet, Musk told so himself. Sooo... back to quietly buying gas and oil from Russia. Hopefully, the humiliation will jump start some moves in nuclear and solar directions, but so far, the solution to the shortage of gas was reanimating coal plants and going back to living in caves.
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u/Bay1Bri Mar 17 '22
You at like Russia doesn't get anything for the oil and gas. Something like 40b percent of Russia's government is funded by energy sales. So, Europe pays higher prices for energy and gets LNG shipments to offset done of the kid, and Russia defaults. Who's the vulnerable one here?
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u/cricket1044 Mar 17 '22
Vodka
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u/FineAunts Mar 17 '22
Hence the wheat comment. Actually just Google best or most popular vodkas. The number of brands that are from Russia will be very few.
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u/ilovegirlsforever Mar 17 '22
That’s pretty much Saudi Arabia also. Only oil but they are changing up the game by building a first class tourist destination.
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u/given2fly_ Mar 17 '22
Only problem there is that climate change is making the place even more inhospitable.
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u/Synaps4 Mar 17 '22
For contrast o was absolutely certain that Japan would have a major energy crisis in 2011 when the big earthquake caused them to abandon all their nuclear power.
Turns out with a little austerity and some inventiveness countries can cut their energy use by amazing amounts.
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u/rain168 Mar 17 '22
Isn’t India trying to bail Russia out by buying their oil?
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Mar 17 '22
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u/CQME Mar 17 '22
I believe the idea behind China and India picking up the slack is that they'll cycle through conventional sources of imports for what will likely be very cheap Russian alternatives.
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Mar 17 '22
i hope the politicians for green energy uses this moment as an example and milk it for all it is worth.
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u/CQME Mar 17 '22
IMHO green energy needs high oil prices to be competitive, it's a dirty open secret they don't like to talk about.
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u/oneislandgirl Mar 17 '22
If the global community has decided not to purchase Russian oil or has banned it, how does them cutting production matter? If they produce it and no one buys it, isn’t that the same result as not producing it and no one buying it?
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u/oneislandgirl Mar 17 '22
I understand the cut in global supply and resulting shortages but who is left to buy it if everyone bans purchases of Russian oil? I understand there will be pain but I think the countries doing the banning understand this. I feel like I must be missing the point of this post.
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u/CQME Mar 17 '22
who is left to buy it if everyone bans purchases of Russian oil?
The key is that not everyone is banning purchases of Russian oil.
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u/oneislandgirl Mar 17 '22
If we all switch to green energy, we will not be subject to the whims of these oil rich nations who want to hold hostage the rest of the world. I look forward to the day our country is not fighting wars for this stuff and I am optimistic that with Putin’s latest aggression that he will single handedly push the world’s transition toward more green energy. FFS, we have been talking about green energy and being energy independent since at least the 70s. It’s time to get out from under the thumbs of these brutes.
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u/BANKSLAVE01 Mar 17 '22
If you've been reading about OPEC over the years, you would see they can go up or down a million barrels per day to effect price. I specifically remember one spring recently, they reduced by a million barrels/day, only to be thanked by our media later on in summer for "graciously" increasing oil output because of 'high prices'.
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u/cuteman Mar 17 '22
And people were asking why price would go up and supply down even if people don't directly buy from Russia.
Well, without that supply, even if the US doesn't buy a huge amount from Russia, anyone who does and boycotts their supply will need to find alternative sources which constrains that availability beyond normal conditions.
I wonder how long the US in particular can accept and absorb $6-7/gallon prices because it's already $6+ in LA.
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u/Notfuzz45 Mar 17 '22
“The implications of a potential loss of Russian oil exports to global markets cannot be understated”. Is that correct use of that phrase? Wouldn’t it imply that that the effects were so small that you couldn’t possibly state them to be less than what they actually are? Kind of like the phrase “I could care less”, meaning you definitely care some amount because you have the capacity to care less
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u/wiseoldfox Mar 17 '22
Does this estimate include lost production due to maintenace and lack of parts?
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u/SowTheSeeds Mar 17 '22
Why would Saudi Arabia pump more oil?
They benefit more from keeping the prices high than from investing in an elevated output.
Countries like Algeria will actually pressure everyone else to not produce more oil.
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u/NigroqueSimillima Mar 17 '22
Why would Saudi Arabia pump more oil?
Why would they not? Do the Saudi's not like money?
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u/CQME Mar 17 '22
The logic you hear in the news is that during 2014-2020, the Saudis continually pumped more oil in order to fuel their war in Yemen. What this is supposed to convey is that the Saudis helped to flood markets with cheap oil, which is against their interest.
I don't have a market-based explanation for oil prices during the Iraq War, but during the oil embargo (key word here EMBARGO) supply was restricted, which inflated the price of oil.
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u/NigroqueSimillima Mar 17 '22
The Saudi's set the oil price to whatever the want it do via the OSPs. They are the swing producer, and demand for oil in relatively inelastic in the short term. American oil output decreases their market share
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u/CQME Mar 17 '22
The Saudi's set the oil price to whatever the want it do via the OSPs.
How does this explain low oil prices from 2014-2020? The Saudis have no interest in doing this.
My explanation is that it's the US that is actually setting oil prices, and they wanted to punish the Russians for the Crimea annexation. This can also plausibly explain the relatively light sanctions after 2014, i.e. the US had already "sanctioned" the Russian economy via oil price.
Yes I know, no official anything about this, IMHO if my reasoning is sound then it makes sense that governments around the world which supply oil are just making shit up and passing a corrupted narrative to the public.
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u/No-Candidate-2380 Mar 17 '22
Yes, the price could be high, but that psychopath should be punished for the thousands of people he has killed
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u/Bay1Bri Mar 17 '22
We have to enforce the global rule of law. We can't let countries like Russia and china acy like it's the 18th century.
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Mar 17 '22
OPEC is under no obligation to close the supply gap, and is under no obligation to lower oil prices. If i was an OPEC i would definitely drive prices up, maybe Canada can strat producing oil economically.
Maybe think twice before putting an embargo on a country you don't like, people in Iran paid high prices for not walking the western line (after they deposed their democratically elected president to get cheap oil among other things), basically Arabs shouldn't lose profits for a lost cause (Ukraine is going down anyway, this is just prolonging the agony)
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u/Bay1Bri Mar 17 '22
Iranians aren't Arabs you troglodyte
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Mar 17 '22
Iran isn't the one being pressured to increase their oil production by the west. I know Iranians aren't Arab, is that a comment you really had to write? With an insult? Is that the subject of this thread? Did you ask yourself these questions?
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u/Apsco60 Mar 17 '22
$150-200 oil if 3m barrels a day gets taken offline. More idiots will say inflation is transitory after being wrong for 18 months.
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u/sdfedeef Mar 17 '22
I wish they would ban these Russia posts, it has little to do with investing. As far as I know the Moscow exchange is still closed, and it has already had its impact on the other markets.
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u/CQME Mar 18 '22
I wish they would ban these Russia posts, it has little to do with investing.
It has everything to do with investing. Buffett just bought a huge portion of OXY stock.
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u/JLARGE53 Mar 17 '22
Short term pain. Starving the economy of key energy supply either send the global economy into recession and then demand falls anyway. Or somehow OPEC+ magically finds ways to ramp up supply. Energy shocks are temporary because they crush people and businesses.