The World Could See A Record-Breaking Oil Supply Shock

Buyers’ reluctance to purchase Russian oil

The global oil market could lose 3 million barrels per day (bpd) of supply from Russia starting in April, as sanctions on banks and buyers’ reluctance to purchase Russian oil could result in the biggest oil supply crisis in decades, the International Energy Agency (IEA) said in its Oil Market Report for this month.

Since Russia invaded Ukraine at the end of February, the United States has banned imports of Russian energy while the UK is working to phase out its Russian supply by the end of the year. Even though Europe has not sanctioned Russian oil and gas, a growing number of European buyers are joining the wave of condemnation of Russia’s war and pledge not to buy its oil. As of last week, as much as 66 percent of Russian seaborne spot cargoes were struggling to find a buyer, according to estimates from J.P. Morgan Global Research.

China Could Cause The Next Massive Crash In Oil Prices

Slower economic growth and a huge debt bubble pose a tremendous risk to oil markets

Given the extreme disconnect between China’s huge economy-driven oil and gas needs and its minimal level of domestic oil and gas reserves, the country’s influence over oil prices has long been profound. As a result of this imbalance, China almost alone created the 2000-2014 commodities ‘supercycle’, characterized by consistently rising price trends for all commodities that are used in a booming manufacturing and infrastructure environment.

This was a product largely of the 8 percent-plus annual GDP growth recorded by China over that period, with many spikes well above 10 percent and only a relatively short move down in economic growth at the onset of the Great Financial Crisis.

Aside from huge quantities of imported oil and gas, this massive economic growth was fuelled by enormous debt piled up but then hidden away in various financial mechanisms that China believed it could simply pay off eventually through its rapid economic growth. Developments in the last week or so hint that both of these bubbles may be set to burst, taking the big bid in oil out of the market.