Widespread criticism accompanied the recent “OPEC Plus” decision to cut oil production, in a move that Saudi Arabia, which leads the “OPEC” alliance, saw as achieving economic balance and a “proactive step”, while experts believe that this may cause damage to the markets which will increase the risks of stagnation.
An economist specializing in oil and energy affairs, Amer Al-Shobaki, expected oil prices to rise sharply after the “OPEC Plus” group’s decision to reduce its oil production, while American economist James Henry was of the opinion that the decision would harm global growth. .
In statements to Al-Hurra website, Henry said that this move will be affected not only by the United States, which opposed this move, but also by many developing countries, especially that the general economic outlook in the world “is not good is not.”
And last Wednesday, the group of oil-exporting countries and their allies known as “OPEC Plus”, led by Saudi Arabia and Russia, announced a cut in oil production by two million barrels of oil per day, starting in November, with the aim of keeping black gold prices at high levels.
Saudi Energy Minister Prince Abdulaziz bin Salman responded by pointing to the “doubt” surrounding the global economy and the possibility of a recession, and the need to take proactive steps to maintain “market stability”.
The decision to cut production angered the United States, with US President Joe Biden expressing “disappointment with the short-sighted decision of OPEC Plus”, especially as the cuts are the biggest since the Covid-19 pandemic and analysts’ expectations surpassed
Given the law of supply and demand, says the Associated Press, “this can only mean one thing: higher prices for crude oil, diesel fuel, gasoline and heating oils made from oil.”
And after oil prices fell in recent weeks, following a steady rise during the summer months, the group is on track for its biggest weekly gains since March, according to the agency.
And U.S. benchmark crude rose 3.2% to $91.31 a barrel on Friday. Brent crude, the international benchmark, rose 2.8 percent to $97.09.
Oil prices have risen since Monday, two days before the group’s meeting, amid speculation that “OPEC Plus” will announce cuts, according to the Wall Street Journal.
In the short term, the balance tilts in the group’s favor because, according to the newspaper, the West “does not have effective countermeasures at its disposal”.
The United States is nearing the end of planned historic withdrawals from the Strategic Petroleum Reserve.
While the White House has left the door open for more such decisions, “more large withdrawals would be risky as stocks are depleted,” said Dan Pickering, chief investment officer at Pickering Energy. Tweet on Twitter.
In this situation, the potential for US inflation increases, according to Bloomberg’s John Others, after there was “a strong sense that general inflation has already peaked and that fuel costs will soon move from an annual rise to an annual decline .”
And Jorge Leon of Rystad Energy told the Associated Press that Brent crude will hit $100 a barrel by December, up from a previous forecast of $89, according to the Associated Press.
The economist, Amer Al-Shobaki, expects oil prices to rise again to 100 and 120 dollars per barrel by the end of this year, but we are still at the beginning of the markets affected by this reduction, because it will be next month happens
He said, “The blow was a double whammy for the markets. The cut is big and long-term. Two months to the end of this year, in addition to factors that will lead to higher prices, including greater demand for oil in the winter season, in addition to the ban on Russian oil in Europe in conjunction with the issue of price ceilings, and an increase in the movement of Travel, except for shocks that may occur, such as interruption due to disruptions or weather factors.
The Associated Press and the Wall Street Journal say part of the reduction of 2 million barrels per day is only on paper, because some of the “OPEC Plus” countries are unable to meet their already established quotas.
The agency expects actual reductions of only about 1.2 million barrels per day, while the Wall Street Journal Shin Kim, head of oil supply and production analysis at S&P Global Comedy Insights, a reduction of about 0.7-0.8 million barrels quote.
However, Leon expects it to have a “significant” impact on prices around the world. “Higher oil prices will inevitably add to the inflationary crisis facing global central banks, and higher oil prices will lead to more interest rate hike calculations to calm the economy,” he wrote in a note.
That would lead to higher gasoline prices around the world, according to the agency, and worsen the energy crisis in Europe, which is largely linked to Russian cuts in the supply of natural gas used for heating, electricity and in factories.
This fuels inflation in the sense that people will have less money to spend on other things such as food and rent.
Speaking to Al-Hurra, Henry notes that the decision “will have some impact on the global economy at the moment because it is already slowing due to the Fed’s actions, and the slowdown in growth in China , so that adds to the problem.”
He points out that the International Monetary Fund expected global growth of just 2.7 percent next year, a low number for an institution that tends to be optimistic.
“We are heading for a recession,” he says.
Al-Shobaki points out that oil prices will increase the problem of inflation, which “will be sustainable for several months,” noting that many oil inputs go into many industries and are an essential element in setting prices, which the efforts of central banks to lower prices frustrate.
And this will result in many countries “scrambling faster for recession”, indicating that this recession is expected to occur at the end of this year or the first quarter of next year.
Henry says that the Russians are “delighted by this decision because they are trying to keep oil prices high, and they are facing efforts to put a ceiling on oil prices, known as “price ceilings.”
Countries, including the United States, seek to set price ceilings for Russian oil to keep that oil flowing to the world market at low prices. However, Russia has threatened to stop deliveries to countries or companies that adhere to this limit.
This could lead to more Russian oil being taken off the market, the agency says, thereby raising prices.
Al-Shobaki explains that these oil price forecasts do not take into account Iran’s return to the oil market or the lifting of sanctions on Venezuelan oil.
Henry points out that a US agreement with Venezuela could significantly contribute to lowering oil prices, explaining: “The two countries could benefit from better relations, and help the entire region to unite their efforts on issues such as immigration and energy prices .”
And the Reuters news agency cited government officials and experts in Washington and the Gulf as saying the decision by the “OPEC Plus” group added pressure to already strained relations between the Biden White House and the Saudi royal family, which was once one of Washington’s ‘s strongest allies in the Middle East.
The decision prompted some US lawmakers to reconsider Washington’s alliance with the kingdom.
Prominent Senator Bernie Sanders called for the withdrawal of US forces from Saudi Arabia, saying: “If Saudi Arabia wants to cooperate with Russia to raise US gas prices, it could make Putin defend his monarchy.”
After his demand for the withdrawal of US forces.. a Saudi prince responds to Bernie Sanders
The debate over the OPEC Plus alliance to cut crude oil production has spilled over into social media between the Americans and the Saudis.
“We must withdraw all US forces from Saudi Arabia, stop selling them weapons and end the oil cartel that sets prices,” Sanders said.
Democratic Senator Chris Murphy tweeted: “I used to think that the whole point of selling arms to the Gulf states despite their human rights abuses, the senseless war in Yemen, against US interests in Libya and Sudan, etc. is that when a international crisis occurs, the Gulf will prefer America over Russia/China.”
I thought that the whole point of selling arms to the Gulf states despite their human rights abuses, senseless Yemen war, against US interests in Libya, Sudan etc, was that when an international crisis came, the Gulf could choose America over Russia/China. https://t.co/szkePOGtJK
— Chris Murphy (@ChrisMurphyCT) October 5, 2022
On Sunday, he called in an interview to reconsider the military alliance with the kingdom, saying on CNN’s “State of the Union” program: “We’re selling massive amounts of weapons to the Saudis… I think we should stop those sales reconsider. I think we should.” To lift the exemption, we gave OPEC Plus some of the responsibility for setting prices. I think we need to look at our real presence in the Middle East and Saudi Arabia.”
But former Secretary of State Mike Pompeo, for his part, considered in another interview on Sunday that the two countries should maintain a “deep and important security relationship”.
“They have been an important security partner, and they must continue to be,” Pompeo told “Fox News Sunday.” The Biden administration picked the wrong end of the stick.