Energy crisis reignites demand for oil, threatening climate targets, says IEA

International Energy Agency warns shortage of gas and coal could trigger oil market rebound

Last modified on Thu 14 Oct 2021 10.32 EDT

The worldwide energy crisis has reignited demand for oil, posing a threat to the world’s climate ambitions and the global economic recovery from Covid-19, according to the International Energy Agency.

The global energy watchdog said the shortage of gas and coal across the major economies, which has caused energy markets to rocket, could trigger a faster-than-expected rebound in the oil market and drive demand to above pre-pandemic levels as soon as next year.

The Paris-based agency said this would greatly increase costs for energy-hungry industries which, along with power outages, could lead to lower industrial activity and a slowdown in the world’s economic recovery from the pandemic.

“Record coal and gas prices as well as rolling blackouts are prompting the power sector and energy-intensive industries to turn to oil to keep the lights on and operations humming,” the IEA said.

In China, the producer price index (PPI), which reflects the prices factories charge wholesalers for their products, rose by 10.7% in September compared with the same month last year. China’s “factory gate inflation” stands at a 26-year-high after a months-long global commodity price rally.

The world’s second largest economy has been dealt a double blow by soaring commodity prices and rolling blackouts across at least 20 of its 31 provinces. Last month, there was a surprise slowdown in the Chinese economy amid curbs on electricity use, and rising prices for commodities and parts that led to a slump in output.

The IEA said rising energy prices had added “inflationary pressures that, along with power outages, could lead to lower industrial activity and a slowdown in the economic recovery”.

The recent rise in oil demand, which is 500,000 barrels a day higher than normal, has caused market prices to climb by more than quarter in the last eight weeks, compounding the impact of record high gas and coal prices. The price of Brent crude has reached almost $85 (£62) a barrel, its highest in the last three years.

Energy prices are likely to continue to rise, according to the IEA. It has predicted oil demand would outstrip supply by 700,000 barrels a day over the rest of the year, suggesting higher market prices in the weeks ahead. Goldman Sachs, a major oil trader, has raised its oil price forecasts to $90 a barrel for this year.

On Wednesday, the IEA’s executive director, Fatih Birol, said a sharp rise in oil and coal demand could spell the second-largest increase in CO2 emissions in history because governments had not seized the opportunity for a “green recovery” from the pandemic.

The agency now expects global oil demand to climb by 5.5m barrels a day this year and by 3.3m a day in 2022, when it is forecast to climb slightly above pre-Covid levels to 99.6m a day, according to its latest market report.

“We are witnessing an unsustainable recovery from the pandemic,” Birol said, and called on governments to “come together and give a political message to the world that we are determined to have a clean energy future”.

Birol also dismissed recent claims that the energy price crisis had been partly caused by efforts to make the transition as “inaccurate and misleading”. In a clean energy world “the shocks coming from doubling of oil and gas prices will be felt much less by consumers”, he said.

Source: Read Full Article

click fraud detection