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IEA: Global energy crunch is risk to COVID recovery

·3-min read
A worker at an oil field owned by Bashneft, Bashkortostan, Russia, January 28, 2015.      REUTERS/Sergei Karpukhin/File Photo
Oil and natural gas prices have rocketed to record highs in recent months, sending power prices surging as energy shortages take root in Europe and Asia. Photo: Reuters/Sergei Karpukhin

The ongoing energy crisis threatens the global economic recovery from the coronavirus pandemic, and could stoke inflation, the International Energy Agency (IEA) has warned.

In its latest monthly report on Thursday, the group said global oil demand is expected to rise by half a million barrels per day (bpd), with demand recovering to pre-COVID levels next year.

It comes as oil and natural gas prices have rocketed to record highs in recent months, sending power prices surging as energy shortages take root in Europe and Asia.

“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,” it said.

“Higher energy prices are also adding to inflationary pressures that, along with power outages, could lead to lower industrial activity and a slowdown in the economic recovery.”

The Paris-based agency added that a shortage of natural gas, LNG, and coal have all driven up demand for oil, driving US crude to a seven-year peak and Brent crude (BZ=F) to its three-year high.

Read more: Oil hits highest since October 2018 and pound reaches two-week high

It estimated that the Organisation of the Petroleum Exporting Countries (OPEC) will pump 700,000 barrels per day (bpd) below the estimated demand for its crude oil in the fourth quarter of the year. This will mean that demand will outpace supply at least until the end of 2021.

Spare production capacity is set to reduce rapidly, it warned, from nine million bpd in the first quarter of this year to only four million in the second quarter of next year.

It added: “For now, a reduction in the number of new COVID cases and rising mobility are lending support to oil demand. Global gasoline demand is currently running 2% below pre-COVID levels compared with a deficit of more than 10% at the start of the year.”

On Wednesday, the group warned that countries must intensify their investments in clean energy, or miss carbon reduction targets.

Watch: IEA Warns World Isn’t Investing Enough for Future Energy Needs

Separately, OPEC said on Wednesday that it has cut its world oil demand growth forecast for this year.

It now expects oil demand to grow by 5.82 million barrels per day (bpd), down from its initial 5.96 million forecast.

It said the increased risk of COVID-19 cases, primarily fuelled by the Delta variant, was clouding oil demand prospects going into the final quarter of the year.

OPEC highlighted that demand in the third quarter of the year was resilient due to rising mobility and travelling activities, particularly in the Organisation for Economic Co-operation and Development (OECD), it said.

However, its revisions were driven by both the OECD and non-OECD countries, as “the recovery in various fuels is expected to be stronger than anticipated, and further supported by a steady economic outlook in all regions”.

It maintained a growth forecast of 4.2 million bpd for next year.

Watch: Energy crisis: Chancellor appears to rule out helping businesses with gas prices

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