By Scott Kanowsky
Investing.com — A deep output cut by OPEC and its allies, including Russia, threatens to derail the growth of global supply next year and push the worldwide economy closer to a broad downturn, according to a new report from the International Energy Agency.
The IEA – a key energy policy advisor for OECD countries – said the oil group’s plan to slash production by 2M barrels a day will lead to higher prices and, in turn, increased market volatility. The reduction in supply will also place added pressure on the ability of countries to get their hands on key oil flows, the report argued.
“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 wrote in its report on Thursday.
World oil demand growth is now forecast to come in at 1.7M barrels per day in 2023, down by 470K barrels a day from the IEA’s previous estimate.
In 2022, global demand for oil has also dropped to 1.9M barrels per day from the level of 3.2M barrels a day expected before Russia invaded Ukraine in February. Although this figure may still seem relatively robust, the IEA warned, a sharp slowdown is now “underway,” with demand anticipated to contract by 340K barrels per day in the fourth quarter compared to the same period last year.
Meanwhile, OECD commercial oil inventories remained a “steep” 243M barrels per day below the five-year average in August, despite the release of 32.8M barrels a day in government stocks.