IEA warns that OPEC might cause a global economic downturn

• The IEA slashed its forecast for world oil demand growth next year by more than 20%.
• Citing further downgrades to global growth expectations from major institutions.
• Saudi Arabia and the White House are at odds over the cartel’s plan to cut oil production by 2 million barrels per day, or around 2% of world oil consumption.
• The White House has accused Saudi Arabia of siding with OPEC+ member Russia.
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 After OPEC+ voted last week to cut oil output by the most since the start of the epidemic, Western countries are incensed. They have just cause to be angry: The International Energy Agency has warned that the cartel’s actions could push the world economy over the brink.

The Paris-based agency warned Thursday in its monthly oil market report that “unrelenting inflationary pressures and interest rate hikes are taking their toll, and increased oil prices may prove the tipping point for a global economy already on the verge of recession.

“The IEA slashed its forecast for world oil demand growth next year by more than 20%, citing further downgrades to global growth expectations from major institutions. The International Monetary Fund said this week that for many people 2023 will “feel like a recession,” as it cut its GDP growth forecast to 2.7% from an earlier prediction of 3.2%.

The supply cuts by Saudi Arabia and other significant oil suppliers are anticipated to drastically reduce global oil stockpiles and maintain high prices despite the significantly weaker rise in demand.

“The massive cut in OPEC+ oil supply increases energy security risks worldwide,” the IEA said.

Saudi Arabia and the White House are at odds over the cartel’s plan to cut oil production by 2 million barrels per day, or around 2% of world oil consumption. The White House has accused Saudi Arabia of siding with OPEC+ member Russia.

This week, US President Joe Biden told reporter Jake Tapper that Washington must “rethink” its relationship with Riyadh in light of the cut, which might result in an increase in gas prices in the US before the midterm elections.

The drop, according to Saudi Arabia’s State Minister for Foreign Affairs Adel al-Jubeir, was made to help stabilize the markets. One of Saudi Arabia’s senior ambassadors, al-Jubeir, told the source, Becky Anderson, on Wednesday, “We’re trying to make sure we don’t have wild swings in pricing.

The IEA estimates that the actual production reduction will be closer to 1 million barrels per day given that the majority of OPEC+ members, including Russia, aren’t hitting their pre-established output goals.

Even still, the move to reduce supplies caused Brent crude oil to rise and once more approach $100 per barrel. On Thursday, the global benchmark was trading slightly below $93 and was up almost 11% from its most recent low.

Higher oil prices typically spur non-OPEC producers to react, especially US shale producers. However, the IEA claims that they have yet to declare significant investments in production and have been dealing with supply chain interruptions and cost inflation.

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