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The global gas crisis is spreading to oil markets, says IEA

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By James Herron

(Bloomberg) –

Natural gas shortages in Europe and Asia are driving demand for oil, deepening what was already a sizable supply shortfall in crude markets, the International Energy Agency said.

Crude has risen above $ 80 a barrel, the highest level in three years, as traders anticipated record gas prices would spur consumption of other fuels, particularly for power generation. That is already happening and could add around 500,000 barrels per day to oil use on average over the next six months, the IEA said Thursday.

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“An acute shortage of supplies of natural gas, LNG and coal stemming from the global economic recovery has caused the prices of energy supplies to skyrocket and is causing a massive shift to petroleum products,” the IEA said. “Preliminary data for August already indicates that there is unusually high demand for fuel oil, crude and middle distillates for power plants in several countries, including China.”

The latest analysis by the agency, which advises industrialized countries on energy policy, shows how the acute shortage of natural gas is spreading to other markets and the economy in general. The crisis is deepening the current oil supply deficit, which could disrupt OPEC’s careful plan to gradually reactivate dormant production. It is affecting energy-intensive industries and threatens to slow GDP growth and increase inflation.

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Brent crude rose 0.9% to $ 83.95 a barrel at 9:21 am in London, taking the week’s gain to nearly 2%.

The IEA raised its demand growth estimate this year by 300,000 barrels per day to 5.5 million barrels per day, and raised it slightly by 2022 to 3.3 million barrels per day. The effect of the oil-for-gas switch will be felt primarily this quarter and next, the agency said.

The gas crisis is not entirely a net positive for oil consumption. The increase in IEA demand estimates was tempered by a weaker outlook for GDP primarily as a result of supply chain problems and rising energy costs.

“The rise in prices has spread throughout the global energy chain,” the IEA said. “Higher energy prices also add to inflationary pressures which, along with power outages, could lead to lower industrial activity and a slowdown in economic recovery.”

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The agency noted that the Organization of the Petroleum Exporting Countries and its allies stuck to their plan to increase production by 400,000 barrels per day “despite calls from major consuming countries for a more substantial increase.”

OPEC + showed no signs of deviating from its plan. Speaking at Russia’s Energy Week in Moscow, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman reiterated his commitment to a gradual and gradual revival of dormant supply. The crisis affecting other energy markets shows the good job the group has done in regulating oil, he said.

Global oil production will increase by about 2.7 million barrels per day from September through the end of the year as OPEC + continues to reduce its cuts and US production recovers from the damage caused by Hurricane Ida, the IEA said. Even with those additions, the market will run a supply shortfall of around 700,000 barrels per day for the rest of this year, before running into surplus again in early 2022, the IEA said.

© 2021 Bloomberg LP

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