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Davos: Oil prices may rise further, warns IEA chief

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Oil prices could rise further if demand in China picks up, IEA warned. Photo: Getty
Oil prices could rise further if demand in China picks up, IEA warned. Photo: Getty

Oil prices could climb further, increasing the threat to the global economy, the head of the International Energy Agency (IEA) has warned.

Speaking at Davos on Monday, Fatih Birol discussed the current challenges facing global oil markets.

In an interview with Bloomberg, Birol, who described oil prices as being "very high", said Europe still buys substantial amounts of oil from Moscow, despite working on a Russia crude import ban.

"We may see prices even going higher, being much more volatile and becoming a major risk for recession for the global economy," he said.

Brent crude (BZ=F) rose 1.5% to $114.20 a barrel. US light crude (CL=F) was 1.3% higher to $111.71 at the time of writing.

It comes as demand concerns in the world's biggest importer China weigh on the market.

Chinese crude demand has weakened in recent months as the country imposed a number of stringent coronavirus lockdowns in an effort to stem the spread of COVID-19.

However, Birol warned oil prices could rise further if demand in China picks up.

"I very much hope that the increase coming from [the] US, Brazil and Canada this year, [will] be accompanied by the increase coming from the key producers in Middle East and elsewhere," Birol told CNBC.

"Otherwise, we have only one hope that we don’t have big trouble in the oil markets in summer, which is hoping..that the Chinese demand remains very weak."

Read more: Russia oil revenue up 50% despite sanctions, IEA says

The Organisation of Petroleum Exporting Countries and allies (OPEC+) has been incrementally releasing supply into markets, with top producers Saudi Arabia and the UAE holding off on tapping full capacity.

It comes after the Paris-based agency said earlier this month that Russia's oil revenue increased 50% despite energy embargoes, earning the Kremlin $20bn per month in the first four months of 2022.

Meanwhile, recent IEA analysis suggests global oil and gas sector income will jump to $4trn in 2022, more than twice its five-year average.

Birol also warned the energy crisis fuelled by Russia's war in Ukraine must not lead to a deeper dependence on fossil fuels.

He added the right investments, especially in renewable energy and nuclear power, would ensure the world doesn't need to choose between energy shortages and accelerated climate change due to fossil fuel emissions.

"We need fossil fuels in the short term, but let's not lock in our future by using the current situation as an excuse to justify some of the investments being done, time-wise it doesn't work and morally in my view it doesn't work as well," Birol said.

The IEA last year cautioned investors not to fund new oil, gas and coal supply projects if the world wants to reach net zero emissions by mid-century.

Watch: Why are gas prices rising?

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