IEA Says Gas Crisis Spilling Over Into Oil Markets
Shortages of natural gas in Europe and Asia are boosting demand for oil, deepening what was already a sizable supply deficit in crude markets, the International Energy Agency said.
Crude has surged above $80 a barrel, the highest in three years, as traders anticipated that record gas prices would stimulate consumption of other fuels, particularly for power generation. That’s already happening and could add about 500,000 barrels a day to oil use on average over the coming six months, the IEA said on Thursday.
“An acute shortage of natural gas, LNG and coal supplies stemming from the gathering global economic recovery has sparked a precipitous run-up in prices for energy supplies and is triggering a massive switch to oil products,” the IEA said. “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.”
The latest analysis from the agency, which advises industrialized countries on energy policy, shows how the acute shortage of natural gas is spilling over into other markets and the broader economy. The crisis is deepening the current oil-supply deficit, potentially disrupting OPEC’s careful plan to gradually revive idle production. It’s roiling energy-intensive industries and threatens to curb GDP growth and boost inflation.
Brent crude rose 0.9% to $83.95 a barrel as of 9:21 a.m. in London, bringing the increase for the week to almost 2%.
The IEA raised its estimate for demand growth this year by 300,000 barrels a day to 5.5 million barrels a day, and increased it slightly for 2022 to 3.3 million barrels a day. The effect of oil-gas switching will mostly be felt this quarter and next, the agency said.
The gas crisis isn’t entirely a net positive for oil consumption. The increase in the IEA’s demand estimates was tempered by a weaker outlook for GDP resulting mainly from supply-chain issues and rising energy costs.
“The surge in prices has swept through the entire global energy chain,” the IEA said. “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 agency noted that the Organization of Petroleum Exporting Countries and its allies stuck to their plan to boost production by 400,000 barrels a day “despite calls from major consuming countries for a more substantial increase.”
OPEC+ showed no signs of deviating from its plan. Speaking at Russian Energy Week in Moscow, Saudi Energy Minister Prince Abdulaziz bin Salman reiterated his commitment to a gradual and phased revival of idle supply. The crisis engulfing other energy markets shows what a good job the group has done in regulating oil, he said.
Global oil production will rise by about 2.7 million barrels a day from September to the end of the year as OPEC+ continues to unwind its cuts and U.S. output recovers from the damage caused by Hurricane Ida, the IEA said. Even with those additions, the market will be in a supply deficit of about 700,000 barrels a day for the rest of this year, before flipping back into surplus in early 2022, the IEA said.
What do you think? We’d love to hear from you, join the conversation on the
Rigzone Energy Network.
The Rigzone Energy Network is a new social experience created for you and all energy professionals to Speak Up about our industry, share knowledge, connect with peers and industry insiders and engage in a professional community that will empower your career in energy.
- UK Offshore Energy Calls for Labour Party Meet
- Aker BP's 1.07 Bboe North Sea Projects Get Parliament Nod
- Coal Getting Cheaper in China Despite Heat-Induced Demand Surge
- Two Main Forces Have Come Together to Pull Down Commodity Prices
- Distillate Crack Spreads Return to February 2022 Levels: EIA
- Mitsubishi Shipbuilding Eyes to Fuel Sea Transport with Ammonia
- Gas South Inks Plumbing Deal for Its Consumers
- Saudi Oil Cut Risks Leaving Bitter Taste for Budget
- Americas Exploration Heats Up
- Further OPEC+ Production Cuts Are Still on the Table
- Saudi to Cut Output by 1MM BPD in Solo OPEC+ Move
- Data Science is the Future of Oil and Gas
- India to Boost Renewables Capacity, Avoid New Coal Plants
- Kinder Morgan to Expand Gas Capacity at Texas Gulf Coast Facility
- USA Steel Major Taps ExxonMobil for Carbon Capture
- Aramco Holds Talks with Turkish Firms on $50B Planned Projects
- Saudis Remind Global Oil Market Who is King
- What Do Latest OPEC+ Moves Mean?
- Hourly Pay for Shale Workers Tops $43
- Which Generation Is Most in Demand in Oil, Gas Right Now?
- Who Is the Most Prolific Private Oil and Gas Producer in the USA?
- USA EIA Slashes 2023 and 2024 Brent Oil Price Forecasts
- BMI Reveals Latest Brent Oil Price Forecasts
- Is There a Danger That Oil and Gas Runs out of Financing?
- BMI Projects Gasoline Price Through to 2026
- What Will World Oil Demand Be in 2023?
- North America Rig Count Reduction Rumbles On
- What New Oil and Gas Jobs Will Exist in the Future?
- What Does a 2023 USA Recession Mean for Oil and Gas in the Country?