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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