Oil prices reached a new high in 2023, surpassing $95 a barrel, due to supply cuts by Saudi Arabia and Russia. This surge in prices, nearing a 30% increase since June, has raised concerns about a potential global economic shortfall caused by the limited oil supply.
The decision by Saudi Arabia and Russia to decrease oil supplies, despite rising prices, has sparked tensions with developed economies. The International Energy Agency warned that this move is leading to a significant deficit in world oil markets. The higher oil prices pose a challenge to central banks’ ability to control inflation and could impede economic growth due to increased fuel costs.
Riyadh and Moscow have decided to extend their voluntary oil supply cuts until the end of the year, indicating their control over the oil market. However, Prince Abdulaziz bin Salman, Saudi Arabia’s energy minister, dismissed accusations that their actions were intended to raise prices. He criticized the International Energy Agency’s recent forecasts and stated that Saudi Arabia had to manage supply in case global growth slows down.
This clash between western powers and Saudi Arabia highlights a growing divergence in oil policies. Saudi Arabia is prioritizing its financial interests over traditional allies. Additionally, large oil producers are concerned about the emphasis on renewable energy sources and electric cars, as they view these as long-term threats to their economic security.
While western governments are promoting renewable energy, they still want to maintain moderate oil prices to support the broader economy. They also aim to prevent Russia from accumulating excessive oil revenues, given the ongoing tensions in Ukraine. The White House accused Saudi Arabia of aligning with Russia after both countries initiated oil supply cuts within the Opec+ alliance. However, the White House’s response has become more restrained as Saudi Arabia has continued to reduce production.
As oil prices rise and tensions persist, central banks are facing the challenge of balancing reduced supply with an uncertain economic outlook. The outcome of six central bank meetings this week, including those in the US, UK, and Japan, is expected to have little impact on these concerns.
– International Energy Agency
– Saudi Aramco
– PVM oil brokerage