Global energy crisis could increase demand for oil by 500,000 barrels per day

The global energy crisis threatens the global economic recovery, the International Energy Agency said on Thursday, with record natural gas prices expected to increase demand for oil by half a million barrels per day,

Global natural gas shortages are increasing demand for oil and putting even more pressure on tight oil supplies, the IEA said in its Monthly Oil Report. This, in turn, is helping fuel rising inflation and slowing the global recovery from the Covid-19 pandemic.

“Record-breaking coal and gas prices along with blackouts are prompting the power sector and energy-intensive industries to turn to oil to keep lights on and operations buzzing,” the based agency said. in Paris.

“Rising energy prices are also adding to inflationary pressures which, together with the power outages, could lead to lower industrial activity and slower economic recovery.”

Oil prices have surpassed $ 80 a barrel – the highest level in three years – as traders forecast an increase in demand for alternative fuels as gas prices continue to rise.

The IEA has said that a reduction in the number of new Covid-19 cases and increasing mobility is helping to boost demand for oil, with global fuel demand now 2% below pre-Covid levels, up from a deficit of more than 10% at the start of 2021.

Global oil demand is now expected to return to pre-pandemic levels next year, the IEA said, as it revised upward its demand forecast for this year and 2022, increasing them by 170,000 respectively. b / d and 210,000 b / d.

Prices rose about 1% on Thursday after the IEA leveled against its demand forecast.

Brent crude futures rose 1.1% to $ 84.05 a barrel at 10:10 am London time after falling 0.3% on Wednesday.

Separately, Sir Jim Ratcliffe, the founder of UK manufacturing company Ineos, said on Thursday Britain could run out of gas this winter as the UK’s lack of gas storage left the country vulnerable to soaring gasoline. prices with a long winter potentially causing demand to exceed supply.

“This is a strategic issue for energy supply in the UK, you need storage and we have 10 days. Ten days of storage is really a little pathetic for a nation as large as the UK, on ​​the continent they have 40 or 50 days of storage, ”said Mr Ratcliffe.

Mr Ratcliffe said a prolonged cold snap this winter could “shut down the industry” in the UK, fearing that business and consumer demand would outstrip supply.

“I think it’s pretty hard to predict how long this kind of a current situation is going to last, but… you would assume it would probably last… all winter, because obviously our demand for gas increases in winter,” a- he declared.

“Four years ago when we had the ‘Beast from the East’ we were a day or two out of gasoline in the UK. If we had run out of gas it would have been a disaster for … the oldest of the people who could not have had heating in the house, [and] for the industry, which should have closed.

Britain has around nine terawatt hours of gas reserves in storage, compared to 168 in Italy and 151 in Germany, according to Gas Infrastructure Europe, which means its capacity is equivalent to around 2% of its annual demand, up from 25% to 37%. in the four largest storage holders in Europe.

Manufacturers, such as chemicals and steel makers, have already said they could be forced to shut down factories for periods this winter if energy demand remains high.

The gas storage issues come after benchmark gas prices peaked at £ 4.07 per therm earlier this month, around 10 times higher than a year ago. However, prices then fell after Russian President Vladimir Putin said his country, Europe’s largest gas supplier, was ready to help ease the crisis.

With energy price caps in the UK preventing companies from passing on high gas costs to consumers, a dozen UK suppliers have gone bankrupt since early August amid high wholesale gas prices.

Meanwhile, the IEA’s upward revisions, caused by the change in fuel, “are tempered by weaker GDP prospects” as well as higher oil prices.

Global GDP growth was cut to 5.9% in 2021 by the International Monetary Fund earlier this week, while its projection for 2022 was unchanged at 4.9%, as supply chain disruption and the developing energy crisis have clouded the economic outlook.

“Growth has slowed in Europe and most of Asia, and appears weaker than expected in the United States,” the IEA said.

“Now, shortages of coal, natural gas and electricity are disrupting economic activity in China, India and elsewhere. Expensive natural gas not only impacts power generation, but also other sectors, such as ammonia production, fertilizer plants, refining and manufacturing operations.

Rising demand in the last quarter resulted in the largest drawdown on inventories of petroleum products in eight years, the IEA said, while storage levels in OECD countries were at their lowest since early 2015.

Global gas markets are expected to remain tighter for longer, even beyond the volatile winter ahead, Bank of America Securities analysts said Thursday.

“The continued surge in gas prices continues to make headlines around the world: spot LNG prices in Asia recently hit record highs> $ 200 / boe – dragging European and US prices in their wake as strong Asian demand has further globalized the once regional gas markets.

“We believe the trend is exacerbated by synchronized increases in the EU’s thermal coal and carbon prices – limiting the elasticity of supply while price caps limit the elasticity of demand.

“We believe that delays in developing LNG around the world are likely to remain structurally tighter in global gas markets until 2025.”

Update: October 14, 2021, 3:07 p.m.

Steve R. Hansen

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