China’s oil demand must remain weak or we will have a difficult summer: IEA

Speaking to CNBC on Monday, the chief executive of the International Energy Agency spoke about the complexities of the energy transition and the competitive challenges that will need to be balanced in the coming years.

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The chief executive of the International Energy Agency spoke on Monday about the current challenges facing global oil markets, highlighting the significant influence that Chinese demand could have in the coming months.

In an interview with CNBC at the World Economic Forum in Davos, Switzerland, Fatih Birol painted a stark picture of the current situation, describing oil prices as “very high.”

“They are risky for economic recovery around the world, but especially in importing countries in the emerging world,” he said. “It’s a huge risk, coupled with food prices that are very, very high, and I think it could very well trigger us, the world… step by step into a recession.”

With rising geopolitical tensions following the Russian invasion of Ukraine and continued supply concerns casting a shadow over oil markets, the price of Brent crude is currently hovering around $113 a barrel.

Looking ahead, Birol went on to outline some of the challenges that the markets may face in the coming months.

“I very much hope that the increase from [the] United States, from Brazil, Canada this year, [will] will be accompanied by the increase coming from major producers in the Middle East and elsewhere,” he said.

“Otherwise we only have one hope that we don’t have any big problems in the oil markets in the summer, which is to hope… Chinese demand remains very weak.”

China’s oil demand has weakened in recent months as the country imposed a series of strict lockdowns in a bid to curb the spread of Covid-19.

If China goes back to business as usual in oil consumption and demand, “then we’re going to have a very difficult summer all over the world,” Birol said.

During his CNBC interview, Birol was also asked about the “huge” profits that many hydrocarbon-based companies as well as exploration companies make, and what should be done with them.

His response illustrated the complexities of the global energy transition and the competitive challenges that will need to be balanced in the coming years.

In the last five years, on average, [the] the oil and gas industry earned revenue [of] about 1.5 trillion dollars,” he said.

“And this year, it will go from $1.5 trillion to $4 trillion, more than double the revenue of oil and gas companies.”

It wasn’t just companies making money, he added, mentioning countries like Saudi Arabia, Iraq, Iran, Russia, Angola and Nigeria.

“Of course, in my opinion, the money should go to replace Russian oil and gas, in terms of traditional assets,” Birol said.

“But I’m very hopeful that the money will also go to clean energy, clean and safe energy technologies, ranging from solar, wind, carbon capture and storage, hydrogen.”

“We’re [responding to] … this immediate crisis,” Birol said. “But our response must not lock down our energy infrastructure in a terrible world that is much, much warmer than today and with many problems: extreme weather events, etc.”

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