The energy crisis that has pushed the prices of fossil fuels to highs not seen in years is threatening the global recovery from the coronavirus pandemic, the International Energy Agency has warned.
"Provisional August data already indicates that there is some unseasonably high demand for fuel oil, crude and middle distillates for power plants across a number of countries, including China, Japan and Pakistan in Asia, Germany and France in Europe and Brazil," the IEA said, as quoted by Reuters.
The agency explained that this higher demand was the result of high gas and coal prices that have prompted many power utilities and companies from energy-intensive sectors to switch to oil, adding to upward price pressures and prompting the IEA to revise its oil demand outlook for this year and next.
The IEA now sees oil demand growing by 5.5 million bpd this year and by another 3.3 million bpd next year. Supply, meanwhile, is likely to remain tight if OPEC+ continues to be disciplined about its output recovery. According to the IEA, the gap between supply and demand this quarter will be a negative 700,000 bpd.
What's worse, perhaps, is that the agency also predicted that OPEC+'s spare production capacity was set to decline considerably, from about 9 million bpd in the first quarter of the year to just 4 million bpd in the second quarter of next year as the group ratchets up its production.
All this is adding to already considerable inflationary pressures across the globe.
"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 IEA said.
The warning comes a day after the IEA's chief, Fatih Birol, told the Financial Times the agency expected oil demand to peak soon after 2025. Natural gas demand, according to Birol, is also about to reach its peak around that time.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More
Comments
I would think the exact opposite be true as the USA withdrawals conventional from "international entanglements" for the time being outside of whatever it is going on in Europe (Putin's Russia versus The World.)
"That's how economics works. A price shock dramatically lowers demand."
The USA exports nominal amounts of oil but truly stupendous amounts of refined product plus natural gas but who in fact can afford any of that at the moment is quite the mystery.
"Asian contagion" has devastated the global growth narrative leaving only the USA as the marginal buyer of goods globally at the moment.
Using Treasury yields as a proxy for economic growth the US economy is at best doing 2% a year. When combined with inflation which is very much material in the USA and clearly the USA is mired in a massive recession going into the midterm elections next Year, 2022. It's not possible for the USA to export its way out of this disaster even if the USA was Japan, Germany,the EU, China etc.
Basically I agree with the US Federal Reserve big time that "inflation in the USA is transitory."
There are pockets of very powerful economic growth in the USA such as Austin or Denver but that's about it.
Long US Treasuries
Strong buy
These policies have adversely affected the production of oil and gas and investments without affecting global oil demand causing a widening deficit between supplies and demand and rocketing gas prices. This will weaken the global economy by shifting a considerable part of funds earmarked for investments to pay instead for soaring fuel prices.
Still, oil and gas are here to stay well into the future or until the last barrel of oil and the last particle of natural gas have been extracted.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London