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 (IEA).
The global energy watchdog warned that the shortage of gas and coal across the world’s major economies, which has caused energy markets to rocket, could trigger a faster than expected oil market rebound and drive demand to above pre-pandemic levels as soon as next year.
The Paris-based agency warned this would hike 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 Covid-19 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 China’s 31 provinces. The country entered a shock economic slowdown last month amid curbs on electricity use and rising prices for commodities and parts which led to a slump in output.
The IEA said that 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, up by half a million barrels a day compared with normal times, 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 across global markets. The price of Brent crude has reached almost $85 a barrel, the highest price in the last three years.
Energy prices are likely to continue to rise, according to the IEA. It has predicted that oil demand would outstrip supply into the market by 700,000 barrels of oil 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.
Earlier this week the IEA’s executive director, Fatih Birol, warned that a sharp rise in oil and coal demand could spell the second-largest increase in CO2 emissions in history because government’s 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 3.3 MB/D in 2022 when it is forecast to climb slightly above pre-Covid levels to 99.6m barrels of oil a day, according to its latest market report.
“We are witnessing an unsustainable recovery from the pandemic,” he 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 branded recent claims that the energy price crisis had been partly caused by efforts to make the transition as “inaccurate and misleading”. He said that in a clean energy world “the shocks coming from doubling of oil and gas prices will be felt much less by consumers.”