The extent to which China recovers from its prolonged closure, according to the executive director of the International Energy Agency, is the biggest uncertainty facing global energy markets.

At the Munich Security Conference, Fatih Birol told CNBC that the oil markets are currently “balanced.” However, the largest crude oil importer and second-largest economy in the world is waiting for signs of impending demand before committing to any production.

“For me, the biggest answer to the energy markets in the next months to come is [from] China,” Birol said, noting a major drop-off in the country’s oil and gas demand during its pandemic lockdowns.

The energy agency predicted that global oil demand will increase in 2023, with China contributing significantly to the anticipated increase. This prediction was made in its most recent monthly Oil Market Report, which was published on Wednesday.

Over the course of 2023, oil deliveries are anticipated to increase by 1.1 million barrels per day to reach 7.2 million barrels per day, with total demand hitting a record 101.9 million barrels per day, according to the IEA.

Oil producers may need to increase their output if the recovery is particularly strong.

“China’s economy is rebounding now,” Birol noted. “How strong this advantage will be will decide the oil and gas market dynamics.”

He added, “If it’s a very strong rebound, there may be a need that oil producers will increase their production.”

The head of the IEA stated that OPEC+ nations as well as other significant oil-producing countries like the United States, Brazil, and Guyana were prepared to increase output to meet that demand, should it be required.

When asked if President Joe Biden’s Inflation Reduction Act (IRA), which includes a package of funding incentives for clean energy, could thwart increases in production in the United States, Birol responded that this was unlikely.

“I think it’s beyond the government’s policies. There is huge, huge money to be made,” he said, citing record profits posted by global oil and gas companies in the past year.

Birol proclaimed the IRA to be the “single most important climate action since the Paris agreement [of] 2015,” insisting that it was a crucial factor in accelerating the world’s transition to clean energy.

The head of the IEA claimed that the transition to clean energies was “supercharging” as a result of the global energy crisis brought on by Russia’s invasion of Ukraine.

He continued by predicting that other nations and regions would soon introduce comparable clean energy investment plans.

“I’m sure, sooner or later, Europe will come with a similar energy package,” he said.

“We are entering a new industrial age: the age of clean energy technology manufacturing,” he remarked, citing wind, solar and nuclear energy technologies. “Those will be the key words for the next years to come.”

(Adapted from CNBC.com)

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