As the Russian invasion of Ukraine drags into its second month, there is just as little clarity in the oil markets as there was a month ago.

The flow of Russian volumes to the global market has clearly been disrupted, evidenced by oil prices remaining over $100 a barrel, but exactly how much is uncertain with estimates ranging from 1 to 4 million barrels a day (mmb/d). Western buyers continue to "self-sanction," avoiding Russian volumes at all costs, while opportunistic buyers in Asia capitalise on the wide discounts.

A negative demand impact will result from higher prices and lower GDP growth, but our estimates suggest it won't fully offset lost supply. That leaves US producers, OPEC, or Iran as the only potential for a near-term supply response, but each is unable or unwilling. As such, we expect a tight market and high prices, to persist in the short run.

Oil prices

Key takeaways

  • The market looks tighter than it did after we lowered our supply forecasts for 2022 and 2023 by about 2.3 mmb/d and 0.8 mmb/d, but demand by only 0.7 mmb/d and 0.6 mmb/d, respectively.
  • An overcorrection is possible, though, as we assume these Iran volumes come back in 2023, with a glut in 2024-25. And if a deal is done more quickly, the oversupply could arrive even sooner.

Looking ahead

By 2024, we see US growth, the full resumption of OPEC production, and the return of Iran volumes tipping global markets into oversupply and undercutting prices. Eighteen months is a long time in the oil markets, however, and a US recession (unlikely in our view) or failure to reach a deal with Iran or the unknown unknown could quickly change this outlook.