Energy: Radio caller says he’s ‘waiting to be cut off’
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The world has been pushed to the brink of recession following OPEC’s decision to cut oil production from next month, experts have warned Earlier this month, the Organization of the Petroleum Exporting Countries (OPEC) and their allies, including Russia agreed to slash output by two million barrels per day (bpd) just ahead of the peak winter season. The US accused the global oil group, led by Saudi Arabia, of joining hands with Russia to drive up oil prices. Following this announcement, the International Energy Agency (iEA) warned that the decrease in oil output could plunge the world into recession as higher crude oil prices will increase energy security risks worldwide.
In a monthly report, the IEA, which advises members including the US, UK and Germany on energy policy, warned that the planned cuts had already dented global oil demand.
They wrote: “The Opec+ bloc’s plan to sharply curtail oil supplies to the market has derailed the growth trajectory of oil supply through the remainder of this year and next, with the resulting higher price levels exacerbating market volatility and heightening energy security concerns.
“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.”
In a statement following OPEC’s announcement, the White House said that President Joe Biden was “disappointed by the short-sighted decision”, White House press secretary Karine Jean-Pierre saying: “It’s clear that Opec+ is aligning with Russia with today’s announcement.”
IEA’s warning comes after the IMF last week dropped its world economic growth outlook for 2023 to 2.7 percent, marking its lowest year-ahead growth predictions since 2001.
The IEA estimates that oil demand for the last three months of 2022 will now fall by 340,000 bpd compared to last year, with predictions demand growth for 2023 plummeting from 17 million bdp to just 470,000 bpd.
Professor Adam Pankratz, professor at the University of British Columbia’s Sauder School of Business, told Al Jazeera that OPEC’s move would push the price of oil up, turning it into a “scarce commodity”.
He said: “That starts creating larger problems in terms of environmental policy for Europe. Should you be drilling for your oil? I don’t know, and they probably won’t, at least initially. But that is a realistic thing to ask”.
The IEA added that even after the demand of oil falls, the “massive cut” in Opec+ oil supply would “sharply reduce” countries ability to replenish their stocks next year,
A spokesman for the RAC motoring group said the reduction announced Wednesday would “inevitably” lead to higher oil prices, forcing up the wholesale cost of fuel.
Simon Williams said: “The question is when, and to what extent, retailers choose to pass these increased costs on at their forecourts.” The cut announced by the OPEC and its allies marks the biggest reduction by the group since the height of the pandemic in 2020.
Saudi Arabia, which leads the bloc, has defended the cuts to output, arguing that they are needed to avoid a collapse in oil prices that would damage long-term supply.
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The bloc’s oil production could plummet further by the end of the year, as the European Union’s embargo on Russian crude oil comes into to effect from December 5.
Next year the IEA predicts that Russian oil production will fall to an average 9.5 million bpd, down from 10.9 million bpd in 2022, with the sanctions playing a role in the production cut.
They said: “We expect Russian oil output to ease gradually from next month and assume the decrease will deepen in December when the EU embargo on Russian crude oil takes effect.”
The agency warned that Moscow could slash its output further if they fulfil their threat to cut production if the West imposes a price cap on Russian oil exports.
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