11 April 2014, News Wires – Russia’s oil demand is forecast to drop this year on fallout from the Ukraine crisis that is set to hit economic growth, according to the International Energy Agency (IEA).
At the same time, the country is set to suffer from a slight oil output decline this year due to depletion of its mature fields, with the IEA revising its 2014 forecast for non-Opec production downwards by 250,000 barrels per day to 1.5 million bpd largely due to lower projections from Russia and Kazakhstan, where the Kashagan field is expected to remain offline until year-end.
Forecasts for Russia’s economic growth have been cut by both the World Bank and International Monetary Fund in the wake of its controversial annexation of the Crimea peninsula from Ukraine that has triggered sanctions by the West, mainly in the form of freezing foreign bank accounts of high-ranking Russian individuals.
As a result, the IEA has cut its projection for Russian oil demand this year by 55,000 barrels per day to 3.5 million bpd, leading to a slightly reduced forecast for global demand growth to 1.3 million bpd, in its latest monthly market report.
This is based on a World Bank forecast that envisages Russia’s economic growth being halved this year to 1.1%, based on a “low-risk” scenario that assumes no further escalation of military action over Ukraine.
Such a situation will lead to weaker manufacturing activity and less household income, dampening demand for fuel.
However, the Bank also outlines a “high-risk” scenario in which “an intensification of political tension could lead to heightened uncertainties around economic sanctions which would further depress confidence and investment activities”.
This would result in a 1.8% reduction in Russia’s economic growth as it would suffer “a more severe shock to economic and investment activities”, the Bank stated.
Given such a scenario, the IEA said it would cut is forecast for Russian oil demand by a further 150,000 bpd to 3.3 million bpd.