KSA: The International Energy Agency has warned that a reduction in oil supplies from the Organization of the Petroleum Exporting Countries (OPEC) could worsen the current global energy crisis by raising oil prices at a time of already high inflation and sluggish economic growth.
The Paris-based agency warned last week that cutting the group's production targets by two million barrels per day, which drew harsh criticism from the United States and its allies, would further strengthen the oil market in a time of extreme vulnerability, with few additional sources . Supplies are available to compensate for this.
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The IEA lowered its oil-demand forecasts, saying the effect of the cuts would be to exacerbate a combination of higher oil prices and slower global growth, both of which would weaken long-term oil demand.
The IEA said in its monthly market report that "relentless inflationary pressures and interest rate hikes are taking their toll, and high oil prices could prove to be a turning point for a global economy already on the brink of recession."
The IEA lowered its forecast for oil demand to increase by 470,000 barrels per day in 2023 to 1.7 million barrels per day. Additionally, it cut the projected daily growth in oil demand for 2022 from 60,000 barrels to 1.9 million barrels.
According to the IEA, growth in oil demand has been declining steadily throughout the year and is expected to decline by 340,000 barrels per day in the fourth quarter. According to OPEC, higher oil prices are needed to encourage new investment in oil production; However, the IEA claimed that due to the lack of supply among oil producers, additional supplies would be scarce.
Most Western countries are deliberately moving away from fossil fuels, but US shale oil producers are delaying investment because of the high cost. Spare parts shortage is a problem for its members of OPEC.
The IEA said the cuts reversed the trend of a steady recovery in oil supply following the COVID-19 pandemic, and higher price levels resulting in increased market volatility and increased concerns about energy security.
According to the IEA report, supply cuts create losses for both oil producers and consumers as consumers of oil pay higher prices in the short term while oil producers may experience weaker demand as a result.
The cuts come even before the European Union imposed sanctions on Russian oil and the wealthy group of seven countries plans to limit oil prices, both analysts fear could worsen the world's energy supply.
Russia has announced that it will reduce production and cut supplies to countries that use the price cap mechanism. The IEA warned that the window of opportunity for EU countries to find alternative energy sources to offset the high levels of oil currently imported from Russia was closing.
According to the IEA, Russia's daily oil exports to the European Union fell by 390,000 barrels in September to 2.6 million barrels. The EU has just two months to go before finding an alternative for the 1.3 million barrels per day of Russian oil that would be lost due to a ban on imports from Russia, it warned.
According to OPEC, the reduction in its output is aimed at stabilizing oil markets and countering slowing growth in oil demand. In its report on Wednesday, the group sharply cut oil demand and global economic growth projections.
The IEA now forecasts total daily oil demand of 99.6 million barrels for 2022 and 101.3 million barrels for 2023.
The agency has lowered its forecast for world oil supply from 200,000 barrels per day to 99.9 million barrels per day for 2022 and to 100.6 million barrels per day from 1.2 million barrels per day for the coming year.