Crude Oil, When to Worry More About 'Supply' Than Demand

by Hwang Junho

Published 23 Apr.2022 09:22(KST)

Oil drilling equipment=Asia Economy DB

[Asia Economy Reporter Junho Hwang] As the global economic growth forecast has been revised downward, concerns about a decrease in raw material demand due to high inflation have increased. However, some argue that it is wiser to prepare for the supply shortages that may arise in the future rather than focusing on demand. Soohyun Kim, a researcher at Daishin Securities, pointed out on the 23rd, "Currently, the raw material market is more likely to be exposed to concerns about supply shortages rather than worries about demand slowdown."

Concerns about a slowdown in raw material demand were raised after the International Monetary Fund (IMF) lowered the global economic growth forecast by 0.8% on the 19th. Following this announcement, concerns about demand slowdown raised in the April energy outlook reports by the U.S. Energy Information Administration (EIA), the International Energy Agency (IEA), and the Organization of the Petroleum Exporting Countries (OPEC) gained traction, causing the U.S. S&P GSCI Commodity Index to fall 3.4% in one day. Among these, the S&P GSCI Energy Sector recorded a -5.0% drop.

In the case of crude oil, a representative raw material, the prolonged Russia-Ukraine war has begun to seriously affect Russia's oil supply disruptions. Market information company OilX, combining data from NASA satellites estimating gas flaring (the combustion of excess gas released during oil extraction at oil fields), trade data, and Russian government data, announced that Russia's oil production has decreased by about 10% compared to the level before the war. Russia's average oil production from April 1 to 15 was 10.2 million b/d, and oil production in April dropped to as low as 9.76 million b/d. Oil production in February, before the Russia-Ukraine war impact was reflected, was 11.1 million b/d, and in March, it was 11.0 million b/d. According to oil analysis company Vortexa, Russia's crude oil and petroleum product loading from the 1st to the 20th of this month decreased by 20% compared to the same period last year.

Concerns about supply shortages are also rising for other raw materials such as copper. Major mining companies' copper mine production continues to underperform. Anglo American and Antofagasta from the UK reported that copper mine production in the first quarter of this year decreased by 13% and 22%, respectively, compared to the same period last year, marking the lowest level in 11 years.

Researcher Kim stated, "In the crude oil market, the U.S. driving season will begin next month, and overseas travel demand is also expected to increase. If summer demand rises, the crude oil supply shortage situation is expected to worsen."