According to the International Energy Agency, the global energy crisis has reignited oil demand, posing a threat to the world's climate ambitions and the global economic recovery from COVID-19. The global energy watchdog said the shortage of gas and coal across the most significant 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 soon next year. As widespread energy shortages grip Asia and Europe, oil and natural gas prices have recently climbed to multi-year highs, sending electricity prices soaring to new highs.
The Paris-based agency said this would significantly increase costs for energy-hungry industries, which, along with power outages, may lead to lower industrial activity and a slowdown in the world's economic recovery from the pandemic. 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. According to the IEA, increased energy prices have exacerbated inflationary pressures, which, combined with power outages, could result in decreased industrial output and a slowed economic recovery.
The International Energy Agency (IEA) noted in its monthly oil report that record coal and gas prices, and rolling blackouts, are forcing the power industry and energy-intensive industries to rely on oil to keep the lights on and operations running. Higher energy prices contribute to inflationary pressures, which, combined with power outages, could result in reduced industrial activity and a slowed economic recovery.
As a result, the Paris-based agency added that global oil demand is projected to recover to pre-pandemic levels next year. It raised its demand predictions for this year and 2022 by 170,000 barrels per day and 210,000 barrels per day, respectively. Oil prices are now expected to follow the steady rise of global gas prices as demand for crude increases. The recent surge in oil demand, which is 500,000 barrels a day higher than usual, has caused market prices to climb by more than a quarter in the last eight weeks, compounding the impact of record high gas and coal prices. The price of Brent crude has reached almost USD 85 (£62) a barrel, its highest in the last three years.
According to the report, a rise in demand in the last quarter resulted in the largest draw on oil products stocks in eight years, with storage levels in OECD countries at their lowest since early 2015. Meanwhile, the International Energy Agency estimates that OPEC+ will pump 700,000 bpd less crude than expected demand in the fourth quarter of this year, implying that demand will surpass supply at least until the end of 2021. Goldman Sachs, a leading oil trader, has raised its oil price forecasts to USD 90 a barrel for this year.
The group's spare production capacity is expected to drop fast, from 9 million barrels per day in the first quarter of this year to only 4 million barrels per day in the second quarter of 2022. According to the report, this output capacity is concentrated in a small number of Middle Eastern countries, and its decrease highlights the need for more investment to satisfy future demand.
On Wednesday, the IEA's executive director, Fatih Birol, said that 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 rise slightly above pre-Covid levels to 99.6m a day, according to its latest market report. The world is witnessing an unsustainable recovery from the pandemic. The governments now should come together and give a political message to the world that they 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 "inaccurate and misleading". He said that in a clean energy world, the shocks coming from the doubling of oil and gas prices would be felt much less by consumers. A boost in expenditure on clean energy transitions, according to the report, is the way forward, but it must happen soon, or global energy markets would face a rough road ahead.
The International Energy Agency (IEA) stated on Wednesday, ahead a crucial climate summit in Britain next month, that the economic recovery from the pandemic was "unsustainable" and relied too heavily on fossil fuels. If the world is to effectively combat climate change, renewable energy investment must triple by the end of the decade.