By Will Horner
Summer heatwaves in Europe and scarce supplies of pricey natural gas are boosting demand for oil as power stations look for alternative fuels to meet the surging demand for electricity, the International Energy Agency said.
Unprecedented temperatures across the continent have put an unexpected strain on the region’s power grids, lifting demand for electricity to power fans and air-conditioning units in what is typically a quiet period for energy demand.
High prices and limited supplies of natural gas–after Russia curtailed its energy exports to the region–are further pushing power plants and heavy industries to look to oil as an alternative fuel source, the Paris-based agency said in its monthly report Thursday.
The additional oil demand comes just as tightness in the oil market and soaring prices, which have helped fan the flames of inflation, had been showing signs of easing.
The IEA said the trend would help drive additional oil-demand growth totaling 380,000 barrels a day this year. It raised its 2022 oil-demand growth forecasts by that amount to 2.1 million barrels a day.
The agency also raised its forecasts for total oil demand in 2022 and 2023 by 500,000 barrels a day apiece, to 99.7 million barrels a day and 101.8 million barrels a day, respectively.
“A looming natural gas crunch in Europe is already incentivising substantial gas-to-oil demand substitution,” the IEA said, adding that oil futures markets were signaling that the situation could persist until at least the end of next year.
The additional demand counters expectations that flagging global economic growth was reducing the global appetite for oil. Those expectations, coupled with signs that oil production was steadily creeping higher, have seen oil prices fall sharply from their recent highs.
Brent crude, the international oil-price benchmark, has fallen almost 10% in the last three months to around $97 a barrel, its lowest level since Russia’s invasion of Ukraine in February, which sent oil prices soaring.
Those declines were making oil a comparatively cheap fuel source compared to natural gas, prices of which have surged in Europe as Russia has steadily reduced supplies through the Nord Stream pipeline that links Russian gas fields with Germany.
European benchmark natural gas prices have risen almost 120% in the last three months to 215 euros ($221.44) a megawatt hour, their highest level since February.
Write to Will Horner at [email protected]
