High oil prices that will be pushed up further by the Organization of Petroluem Exporting Countries’ (OPEC) and Russia’s significant supply cuts could push the slowing global economy into a recession, according to the International Energy Agency (IEA).
OPEC and its Russia-led allies, which are collectively known as OPEC+, voted to slash crude oil production on Oct. 5 by 2 million barrels per day. The cuts will lower supply and hike already high oil prices, which could put even further pressure on global economies struggling to fight soaring inflation and poor economic growth, according to an IEA report released Thursday.
“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 report reads.
The international Brent crude oil benchmark has already hit five-year highs in 2022 and began rising again in anticipation of the OPEC+ decision. U.S. shale producers that have previously been able to ramp up production in response to low supply will likely be unable to ramp up production due to high operating costs that have been exacerbated by inflation, according to the IEA.
U.S. producers warned in September that they would be unable to produce more oil to alleviate the global energy crisis, according to the Financial Times. Furthermore, the West’s proposed price cap on Russian oil could further weaken global supplies as Russia has threatened to withhold fuel from countries that impose a price cap, the agency noted.
The agency also predicted that demand for oil will decline in the long term due to high prices and declining economic growth.
“The massive cut in OPEC+ oil supply increases energy security risks worldwide,” the report states. “Even taking into account lower demand expectations, it will sharply reduce a much needed build in oil stocks through the rest of this year and into the first half of 2023.”
The IEA did not immediately respond to the Daily Caller News Foundation’s request for comment.
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