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A global energy crunch is expected to boost oil demand by 500,000 barrels a day and could stoke inflation and slow the world’s recovery from the COVID-19 pandemic, the International Energy Agency said on Thursday.

Oil and natural gas prices have soared to multiyear highs recently, sending power prices surging to record levels as widespread energy shortages hit Asia and Europe.

“Record coal and gas prices as well as rolling blackouts are prompting the power sector and energy-intensive industries to turn to oil to keep the lights on and operations humming,” the IEA said in its monthly oil report.

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“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.”

As a result, global oil demand next year is now projected to recover to prepandemic levels, the Paris-based agency said.

It made upward revisions to its demand forecasts for this year by 170,000 b/d, or a total addition of 5.5 million for the year, and by 210,000 b/d in 2022, or a total addition of 3.3 million.

An upsurge in demand in the past quarter led to the biggest draw on oil products stocks in eight years, it said, while storage levels in OECD countries were at their lowest since early 2015.

“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, Japan and Pakistan in Asia, Germany and France in Europe and Brazil,” the IEA said.

Meanwhile, the IEA estimated producer group OPEC+ is set to pump 700,000 b/d below the estimated demand for its crude in the fourth quarter of this year, meaning demand will outpace supply at least until the end of 2021.

Spare production capacity from the group is set to shrink rapidly, it warned, from nine million b/d in the first quarter of this year to only four million b/d in the second quarter of 2022.

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That output capacity is concentrated in a small handful of Middle East states, it said, and its decline underscores the need to increase investment to meet future demand.

“A surge in spending on clean energy transitions provides the way forward, but this needs to happen quickly or global energy markets will face a bumpy road ahead,” the report said.

Releasing its flagship annual energy outlook ahead of a key climate conference in Britain next month, the IEA said on Wednesday the economic recovery from the pandemic was “unsustainable” and revolved too much on fossil fuels.

Investment in renewable energy needs to triple by the end of the decade if the world hopes to effectively fight climate change, it said on Wednesday.

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