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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Has The OPEC+ Cut Made A Global Recession Inevitable?

  • The IEA believes that the OPEC+ decision to cut its oil production target in November may be the tipping point for a global recession.
  • The agency argues that the cut will lead to higher prices and more volatility, intensifying energy security concerns.
  • OPEC+ hopes higher prices will incentivize new production, but supply chain issues and U.S. shale discipline mean that new supply is far from certain.

The OPEC+ group’s decision to cut oil supply as of November increases energy security risks worldwide and could lead to higher oil prices that could be the tipping point for a global recession, the International Energy Agency (IEA) said on Thursday, describing the OPEC+ production cut as one of the multiplying “disruptive market forces”.

Last week, OPEC+ announced the biggest cut to its target production level since 2020. Despite the headline cut of 2 million bpd, the actual reduction from current OPEC+ oil production would be half that figure, at around 1 million bpd-1.1 million bpd. That’s because many producers haven’t been able to produce to their quotas for months.

Nevertheless, the OPEC+ cut will curtail global oil supply and could send oil prices higher, the IEA said in its closely-watched Oil Market Report published on Thursday.  

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“Disruptive market forces are multiplying as the world struggles to navigate the worst global energy crisis in history. 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,” the agency said.

“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,” the IEA added.

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As a result of stronger economic headwinds, the IEA cut its oil demand growth forecast by 60,000 bpd for this year, and now expects global oil demand to grow by 1.9 million bpd in 2022, compared to expectations of 3.2 million bpd growth before Russia’s invasion of Ukraine. The agency slashed demand growth estimates for 2023 by a massive 470,000 bpd compared to the September report, and now sees demand rising by 1.7 million bpd next year.

“The still relatively robust headline figure masks a sharp slowdown underway, with demand now forecast to contract by 340 kb/d y-o-y in 4Q22, despite increased gas-to-oil switching in power generation and industry,” the IEA said.  

The agency also expressed doubts that the current high prices would incentivize an investment and supply response from non-OPEC producers, considering that U.S. shale keeps discipline and faces supply-chain issues and cost inflation.

“This casts doubt on suggestions that higher prices will necessarily balance the market through additional supply,” the agency noted.

By Tsvetana Paraskova for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on October 13 2022 said:
    The International Energy Agency (IEA) is absolutely wrong. The OPEC+ cut hasn’t made a global recession inevitable because oil prices have gone down after the initial shock. Moreover, the cut looks far bigger than it actually is. The reason is that it merely offsets underproduction by OPEC+ over a period of four months. As a result, the cut boils down to less than 500,000 barrels a day (b/d). This is a drop in the ocean for global oil demand.

    The global energy crisis has started in January 2021 as a result of a most bullish global oil market since 2014, a robust oil demand in the aftermath of the pandemic and a shrinking global spare production capacity. These fundamentals have been contributing to the rising energy prices. Then came the Ukraine conflict and Western sanctions against Russian oil exports and capping the price of crude Russian oil to push prices to a staggering levels thus feeding into inflation and making recession inevitable.

    The OPEC+ cut was intended to prevent continued volatility of oil prices, balance the global oil market and also ensure a Brent crude price of $100 a barrel needed to balance the budgets of its members.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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