Energy Agency: OPEC Plus cuts may push the world into a cycle of recession

The International Energy Agency said - today, Thursday - that the decision taken by the “OPEC Plus” alliance last week to reduce oil production led to a rise in prices, and may push the global economy into a recession.

The Paris-based agency indicated that "the continued deterioration of the economy and the rise in prices caused by the OPEC Plus plan to reduce supplies are slowing down global demand for oil."

Its membership includes the United States and other major consumer countries.

"In light of the repercussions of continuing inflationary pressures and raising interest rates, the rise in oil prices may represent the turning point for a global economy that is already on the brink of recession," it says in its monthly report on oil.

And the Energy Agency suggested that the actual size of the supply cut would be about one million barrels per day, and not two million, as announced by the “OPEC Plus” alliance, which includes OPEC countries and allies from outside, including Russia.

Expectations

The IEA lowered its forecast for global oil demand next year by 470,000 barrels per day, and attributed this to a "more powerful economic slowdown" due to high inflation in several industrialized countries and a sharp increase in interest rates.

For its part, the Organization of the Petroleum Exporting Countries (OPEC) yesterday lowered its forecast for the growth of global demand for oil for 2022 for the fourth time since last April, and also reduced next year’s figures, citing slowing economies, the return of measures to contain the Corona virus in China, and high inflation.

And OPEC said - in a monthly report - that demand for oil will rise by 2.64 million barrels per day, or 2.7 percent, in 2022, down 460,000 barrels per day from previous expectations.

Expectations of lower demand give additional context to the move by OPEC and its allies last week, or the group known as “OPEC Plus”, to make the largest production cut since 2020 to support the market.

"The global economy has entered a period of heightened uncertainty and challenges, amid persistently high levels of inflation, monetary policy tightening by major central banks, high sovereign debt levels in many regions, as well as persistent supply problems," OPEC added in the report.

This organization expects that demand for oil will rise by 2.34 million barrels per day next year, which is 360,000 barrels less than previous expectations.