Natural gas shortages in Europe and Asia are driving up demand for oil, worsening an already significant supply deficit in crude markets, according to the International Energy Agency (IEA).

Crude has risen beyond $80 per barrel as traders expected record gas prices to boost demand for other fuels, particularly for power generation. The IEA stated that this is already happening and that over the next six months, oil usage might increase by around 500,000 bpd on average.

"An acute shortage of natural gas, LNG, and coal supply resulting from the global economic recovery has prompted a rise in energy costs and is driving a major shift to oil products," the IEA said. The crisis is worsening the current oil-supply gap, potentially jeopardising OPEC's plan to gradually revive idle production.

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The IEA increased its forecast for demand growth this year by 300,000 bpd to 5.5 million bpd, and slightly increased its forecast for 2022 to 3.3 million bpd. Their increase in demand estimates was offset by a weaker GDP forecast, owing primarily to supply-chain issues and rising energy costs.

The IEA stated, "higher energy prices are contributing to inflationary pressures which, combined with power outages, could result in reduced industrial activity and a slowed economic recovery."

Despite appeals from key consuming countries for a more substantial rise, OPEC and its allies maintained their plan to increase output by 400,000 bpd.

According to the IEA, global oil production will rise by around 2.7 million bpd from September through the end of the year as OPEC+ continues to unravel its cuts and US output rebounds from Hurricane Ida damage. The market will be in a supply shortfall of roughly 700,000 bpd for the rest of this year, before returning to surplus in early 2022.