The upcoming European Union (EU) embargo on Russian crude oil and petroleum products will increase tension in the market, the International Energy Agency (IEA) warned today.

In its monthly oil market report, the IEA notes that this embargo, which will come into effect on December 5 for oil imports and on February 5 for derivatives, will add "further pressure" on markets, especially in the diesel market, which is "exceptionally tight."

It adds that the G7 proposal to impose a price ceiling on Russian oil purchases "may ease tensions, but a myriad of uncertainties and logistical challenges remain."

In addition, Russia's situation as a producer and exporter will be tested with the EU embargoes, which forecast Russia's production to fall below 10 million barrels per day by 2023, since what the EU stops importing cannot be offset by increased purchases from China, India or Turkey.

Globally, the IEA report paints a picture overshadowed by the political fallout from Russia's invasion of Ukraine, but also by the slowdown in the world economy, although production cuts by OPEC and its allies (OPEC+) have prevented a drop in prices.

World oil demand growth will slow to 1.6 million barrels per day in 2023 from 2.1 million this year due to the global economic slowdown, high oil prices and the appreciation of the dollar, the document warns.

Global production will increase slightly by 740,000 barrels per day next year to a total of 100.7 million.

The agency agrees with the market trend with OPEC, which on Monday announced that it expects global demand of 101.82 million barrels per day.

The IEA also notes that as the northern winter approaches, markets are showing a balance between economic slowdown and supply shortages due to production cuts by OPEC and its allies (OPEC+) coming into effect.

In October, production rose slightly to 101.7 million barrels per day, but a drop of one million barrels is expected for the rest of the year due to these cuts, according to the report.

The report also notes that crude oil and oil product stocks in OECD countries are "at their lowest levels since 2004.

The IEA devotes a special chapter to diesel supply problems, especially in Europe and the United States, due to various factors, such as falling imports from Russia or strikes at several French refineries.

As a result, diesel prices "rose to record levels in October," and are being a factor in the rise in inflation, he adds.

The IEA recalls that international diesel markets already had a shortage of product before Russia invaded Ukraine, due to the closure of refining capacities during the pandemic that had not yet fully recovered.

This deficit has been exacerbated by the reduction in imports from Russia, which will be greater with the European embargo.

However, the agency predicts that between the fourth quarter of this year and the end of 2023, new diesel distillate capacity totaling 2.7 million barrels per day should come on stream, which will "ease tensions."

Meanwhile, he predicts that there will be "fierce competition" for Russian diesel, with EU countries fighting to get the US, India and the Persian Gulf states to sell the fuel to them rather than to other traditional customers.

However, he warns that if diesel prices rise too high, there will be an inevitable reduction in demand and a rebalancing of the market. (Lusa)