Global oil inventories surged by 52.9 million bbl in January, pushing known stockpiles to nearly 7.8 billion bbl, the highest since September 2021, according to the International Energy Agency (IEA)’s March 2023 Oil Market Report. Preliminary indicators for February suggest further builds. Despite solid Asian demand growth, the market has been in surplus for three straight quarters.
Much of the supply overhang reflects ample Russian oil to rerouting to new destinations under the full force of European Union (EU) embargoes, according to IEA.
While Russian oil production remained near pre-war levels in February, its exports to world markets fell by more than 500,000 b/d to 7.5 million b/d. Shipments to the EU plunged by 760,000 b/d to just 580,000 b/d, compared with more than 4 million b/d at the start of 2022. Sailings to China and India also fell, while cargoes without a destination surged by 600,000 b/d to 800,000 b/d. Export revenues plunged another $2.7 billion to $11.6 billion, down 42% from a year ago.
“Willing buyers in Asia, namely India and, to a lesser extent, China, have snapped up discounted crude oil cargoes, but increasing volumes on the water suggest the share of Russian oil in their import mix may be getting too big for comfort,” IEA said.
Russia accounted for around 40% and 20% of Indian and Chinese crude imports, respectively, in February 2023. The two countries took in more than 70% of Russia’s crude exports in February. While Russian crude oil shipments are almost exclusively heading to Asia, a more diverse set of buyers for refined products backed out of the EU is emerging. In February, products shipments to Africa, Turkey, and the Middle East rose by 300,000 b/d, 240,000 b/d, and 175,000 b/d, respectively, while Latin America received roughly the same volumes as before the war.
“It remains to be seen if there will be sufficient appetite for Russian oil products now that the price cap is in place or if its production will start to fall under the weight of sanctions. Revenues are already dwindling…At least for [March], Moscow has signaled it will cut output by 500,000 b/d. Even so, world oil supply should comfortably exceed demand in the first half of the year. Building stocks today will ease tensions as the market swings into deficit during the second half of the year when China is expected to drive world oil demand to record levels. Global demand is set to surge by 3.2 million b/d from first-quarter 2023 to fourth-quarter 2023, taking average growth for the year to 2 million b/d. Matching that increase would be a challenge even if Russia were able to maintain production at pre-war levels,” IEA said.