Oil inventories in developed nations have sunk to the lowest since 2004, leaving global markets vulnerable as sanctions on Russian exports take effect, according to the International Energy Agency.
Supplies of diesel fuel, used in trucks, are “exceptionally tight” and prices may need to climb further in order to rein in demand, the Paris-based agency said in its monthly report.
Stocks of distillates, which include diesel, are at the lowest in several decades. Supplies of the fuel, already strained refinery closures and the post-Covid rebound in demand, have been pressured further by disruption to Russian shipments.
“Increased refinery capacity will eventually help ease diesel tensions,” the IEA said. “However, until then, if prices go too high, further demand destruction may be inevitable for the market imbalances to clear.”
Oil inventories may be depleted further with the onset next month of European Union measures intended to punish Russia over its invasion of Ukraine, the IEA warned.
Russian output is on track to slump a further 15% early next year, the agency forecasts. Still, output has so far remained relatively robust near 11 million barrels a day in defiance of IEA predictions, and exports even rose in October.
Supplies from Russia’s counterparts in the OPEC+ alliance are also due to fall after the group announced hefty production cuts on Oct. 5, which take effect this month and next.
The coalition’s decision drew fierce criticism from US President Joe Biden, who accused group leader Saudi Arabia of endangering global growth and abetting the Kremlin’s war in Ukraine. IEA Executive Director Fatih Birol said last week that OPEC+ should “re-think” its actions.
Roughly half of the 2 million barrel-a-day cut pledged by the Organization of Petroleum Exporting Countries and its allies will be implemented, as most members are already pumping below their output targets, according to the IEA. Saudi Arabia and neighboring United Arab Emirates will make the biggest reductions.
Saudi Energy Minister Prince Abdulaziz bin Salman has defended the cutbacks, saying last week at the COP27 climate talks in Egypt that they were needed to offset extreme economic uncertainties. OPEC’s own monthly report, published on Monday, also back up that rationale by making a substantial to cut to its demand forecasts.