Energy market shock in Russia could plunge world into recession: Vitol CEO

“Markets will struggle to absorb the potential loss of 2m barrels a day from Russia”

“Markets will struggle to absorb the potential loss of 2m barrels a day from Russia”

The energy market shock following Russia’s invasion of Ukraine could plunge the world into an economic recession, especially if the war drags on, Vitol’s chief executive said on Tuesday.

Even before Russia launched its invasion on February 24, energy markets were running low on spare capacity and will struggle to absorb the potential loss of about 2 million barrels per day (bpd) of oil from Russia, which has Saudi Arabia as the world’s largest oil exporter competes .

“The longer the war goes on, the greater the likelihood of an economic recession,” Vitol CEO Russell Hardy said at the FT Commodities Global Summit.

He said customers had told Vitol they did not want Russian crude and the trading company had stopped spot buying Russian oil, although it retained existing longer-term contracts.

“Many people across Europe want to boycott Russian rivers… How that affects oil loss is still relatively unknown,” Mr. Hardy said.

“We believe 2-3 million bpd of Russian oil could be lost, but much depends on Asia’s response.”

Any replacement oil will likely be months away. Iran could increase exports by 1 million barrels a day assuming a nuclear deal is signed, but the Organization of the Petroleum Exporting Countries (OPEC) and its allies are unlikely to ramp up production faster, he said.

“They’ve been pretty clear so far that they’re going to continue their OPEC+ deal,” Hardy said, adding that African countries in particular have less oil left than before the pandemic.

“Are we expecting an increase of 1-2 million bpd? Yes, but probably not for the next few months,” he said.

Futures markets, particularly for natural gas, have become more prone to volatility as tight credit lines force market participants to reduce positions.

“The gas markets are even more worrying than the oil markets. It’s important that regulators have the tools in their pockets in case there is a mess in the gas market,” Hardy said, pointing to extreme jumps in benchmark European wholesale gas futures.

He said diesel supplies are also of particular concern as half of Europe’s imports come from Russia, with rationing possible.

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