Crude oil prices extended their slide after the International Monetary Fund reported an update to its global economic projections for this year, which deepened fears of recession.
In the latest edition of its World Economic Outlook, the IMF said that global economic growth will slow from 6 percent in 2021 to 3.2 percent this year, while inflation rises from 4.7 percent to 8.8 percent this year.
As a result, "Risks to the outlook remain unusually large and to the downside. Monetary policy could miscalculate the right stance to reduce inflation. Policy paths in the largest economies could continue to diverge, leading to further US dollar appreciation and cross-border tensions. More energy and food price shocks might cause inflation to persist for longer," the Fund said.
Central banks' approach to handling inflation appears to be of particular concern to the International Monetary Fund, with the report suggesting that the "soft landing" promoted so actively by Fed chairman Jerome Powell and other senior officials might not, in fact, materialize.
The threat of a recession in the world's wealthiest economies is a very real one, according to the Fund, with emerging nations suffering a debt crisis as a result of these economic developments.
No wonder, then, that oil prices slid fast after the publication of the report, after getting buoyed by the decision of OPEC+ to reduce the supply of oil by about 1 million bpd, formally by 2 million bpd.
At the time of writing Brent crude was trading at $93.82 per barrel, after topping $97 per barrel earlier this week. West Texas Intermediate was changing hands for $88.77 per barrel, after trading above $90 per barrel following OPEC+'s decision.
That said, as OPEC officials have warned, the supply of oil remains constrained. Inflation and dollar appreciation would no doubt cause demand destruction but with its decision to cut production OPEC+ effectively put a floor under oil so it's unlikely we'll see a crash similar to the one we witnessed in the first year of the pandemic.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More
Comments
In normal circumstances, a global recession does cause a shrinkage of the global economy accompanied by demand destruction. But this time there will indeed be a shrinkage of the global economy but no demand destruction because there is nothing for recession to destroy.
This is so because the global oil market is very tight, global oil demand continues to be robust with a fast-shrinking global oil spare production capacity including OPEC+’s.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert