October 7: Global oil supply is set to tighten, intensifying concerns over soaring inflation after the OPEC+ group of nations announced its largest supply cut since 2020 ahead of European Union embargoes on Russian energy, Reuters reported.
According to the news agency, the move has widened a diplomatic rift between the Saudi-backed bloc and Western nations, which worry higher energy prices will hurt the fragile global economy and hinder efforts to deprive Moscow of oil revenue following Russia's invasion of Ukraine.
Global crude futures , jumped this week, returning to three-week highs, after the Organization of the Petroleum Exporting Countries and their allies, including Russia, on Wednesday agreed to slash output by 2 million barrels per day just ahead of peak winter season.
This is likely to drive spot prices higher, particularly for Middle East oil, which meets about two-third of Asia's demand, industry participants said, adding to inflation concerns as governments from Japan to India fight rising costs of living while Europe is expected to burn more oil to replace Russian gas this winter."We are concerned about a resurgence in international oil prices, which have shown some signs of calming down since the second quarter," Reuters quoted a spokesperson at SK Energy, South Korea's largest refiner, as saying.
Another South Korean refining source said the supply cut could drive prices back to levels seen in the second quarter.
South Korea, Asia's fourth-largest economy and a manufacturing powerhouse, has seen costs skyrocket due to the surging commodity prices.
Brent hit $139.13 a barrel in March, the highest since 2008, after the Ukraine war sparked fears of Russian oil supply loss.
According to Reuters, Saudi Energy Minister Abdulaziz bin Salman said the real supply cut would be about 1 million to 1.1 million bpd, a response to rising global interest rates and a weakening world economy.
That move triggered a sharp response from Washington, which criticised the OPEC+ deal as shortsighted. The White House said President Joe Biden would continue to assess whether to release further strategic oil stocks to lower prices.
"Saudi, UAE (the United Arab Emirates) and Kuwait are likely to take up most of the burden of cuts," said Tilak Doshi, managing director of Doshi Consulting, who was previously with Saudi Aramco.
"It's a slap on Biden administration's face by OPEC+," he said, adding that ties between Russia and Saudi seem increasingly tight.
The OPEC+ cuts compound supply concerns as European Union sanctions on Russian crude and oil products take effect in December and February, respectively, prompting Morgan Stanley to raise oil price forecasts.