The international energy agency issued a warning that the world economy is moving into a recession due to the drastic reduction in oil output by OPEC+ members.
The OPEC+ oil-producing nations have shocked the entire community, particularly the United States, by announcing a 2 million barrel per day fall in output. Since the commencement of the pandemic, this will be the organization’s biggest production decline.
“With unrelenting inflationary pressures and interest rate hikes taking their toll, higher oil prices may prove the tipping point for a global economy already on the brink of recession,” said the IEA.
The IEA slowed the increase of its forecast for oil consumption by 20% starting in 2023 as a result of the OPEC+ accord. The agency also anticipates declining growth prospects, particularly for important institutions.
The International Monetary Fund anticipates that by 2023, the general public will clearly feel the consequences of the recession. Thus, they lowered their projections for GDP growth from 3.2% to 2.7%.
Saudi Arabia and other oil exporting nations’ production cuts will result in a large reduction in the amount of oil available globally, which will keep prices high until there is a significant uptick in oil output.
“The massive cut in OPEC+ oil supply increases energy security risks worldwide,” said the IEA.
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The US reacts differently
The Saudi Arabian and other OPEC+ members’ announced cutbacks have alarmed the whole world. Moreover, as the US midterm elections close, gas prices will weaken the sway of Democrats, who have been mooring on the promise of relieving inflationary pressures on the country’s citizens.
Due to this, no country is more upset than the US, which condemned the move as “shortsighted.”
“OPEC is trying to shock and awe with a big production cut number that is going to get people’s attention. And they’re trying to support prices to keep them from falling further,” said Yasser Elguidi from Energy Aspects.
“I am in the process; when the House and Senate come back, there’s going to be some consequences for what they’ve done with Russia,” said president Biden in an interview.
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A hike in price
Oil prices would undoubtedly increase as a result of the reduction, according to the IEA. It is predicted that OPEC will cut daily output by 2 million barrels. The IEA predicts it will only drop to 1 million barrels per day, though, because Russia might not agree with the organization’s choice.
Therefore, barrels will eventually cost $100 on average as a result of countries not fulfilling their output targets and the current OPEC production cutbacks. Furthermore, if the situation worsens, this rate can rise.
Additionally, the IEA notes that this development will encourage non-OPEC oil-producing nations to maximize their operations and produce more than their daily average. However, the country’s rising inflation as well as its limited capacity for investment and financial assistance, are the main issues.
Photo Credit: IEA