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Oil Prices Soar as Supply Crunch Looms

IEA warns of potential gap between oil supply and demand by 2024

by Motoni Olodun

Oil prices rose on Saturday as the global market faced a looming supply crunch amid rising demand and falling production. The International Energy Agency (IEA) warned that the world’s oil producers may struggle to meet demand in the coming years unless they increase their investment and output.

Brent crude, the international benchmark, climbed 0.7% to $79.18 a barrel, while West Texas Intermediate (WTI), the US marker, gained 0.9% to $74.25 a barrel. Both benchmarks were on track for their fifth consecutive week of gains, reaching their highest levels since late 2018.

The IEA said in its latest report that the global oil market was tightening as demand recovered from the pandemic-induced slump, and supply remained constrained by the OPEC+ alliance’s output cuts and other factors. The agency forecast that oil demand would grow by 5.4 million barrels per day (bpd) in 2023 and by another 3.1 million bpd in 2024, reaching pre-crisis levels of around 100 million bpd.

However, the IEA also warned that oil supply may not be able to keep up with demand unless producers ramp up their investment and production. The agency estimated that global oil supply would grow by only 1.6 million bpd in 2023 and 1.3 million bpd in 2024, leaving a potential gap of 1.5 million bpd by the end of 2024.

The IEA said that the OPEC+ group, consisting of the Organization of the Petroleum Exporting Countries (OPEC) and its allies led by Russia, had a key role in balancing the market. The group agreed in July to gradually increase its output by 2 million bpd between August and December after cutting it by a record 10 million bpd last year.

However, the IEA noted that some OPEC+ members, such as Iran, Venezuela, and Libya, faced political and economic challenges that limited their production capacity. The agency also said that non-OPEC+ producers, such as the US, Canada, and Brazil, needed to boost their investment and output to meet growing demand.

The IEA’s report echoed the views of other analysts and industry executives, who have also warned of a looming supply crunch in the oil market. The chief executive of BP, Bernard Looney, said earlier this month that the world was “not investing enough” in oil and gas projects to meet future demand. He said BP expected oil demand to grow by around 10% over the next decade, driven by emerging markets and sectors such as aviation and petrochemicals.

The rising oil prices have also raised concerns about inflation and its impact on the global economic recovery. On Wednesday, the US Federal Reserve expected inflation to remain elevated in the near term but moderate over time. The Fed also signaled that it might start tapering its bond-buying program later this year as the US economy showed signs of improvement.

The high oil prices have also increased the pressure on governments to accelerate their transition to cleaner energy sources as part of their efforts to combat climate change. The UN Climate Change Conference (COP26) is scheduled to take place in Glasgow in November, where world leaders are expected to announce new commitments and actions to reduce greenhouse gas emissions.

The IEA said the global energy crisis highlighted the need for a “grand coalition” of governments, companies, and consumers to work together to ensure a secure and sustainable energy future. The agency said it would present a comprehensive roadmap for achieving net-zero emissions by 2050 at COP26, requiring a “radical transformation” of the global energy system.

The IEA’s report also offered some hope for the oil market, as it said that there was still room for producers to increase their output and investment without jeopardizing their climate goals. The agency said that even under its most ambitious net-zero scenario, oil demand would still be around 24 million bpd in 2050, requiring some production and supply.

Source: Reuters

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