OPEC+ Cuts Intensify the ‘Siege’ on Oil Consumers, IEA Warns

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OPEC+ production cuts are likely to drive up oil prices and inflict more pain on consumers already squeezed by high inflation, the International Energy Agency said. Global oil markets — already on track for a supply deficit before Saudi Arabia and its partners unveiled the surprise curbs — will tighten more than previously expected, forcing hefty inventory withdrawals of about 2 million barrels a day on average in the second half of the year, according to the agency.“Oil market balances were already set to tilt into a substantial deficit,” the Paris-based IEA said in its monthly report on Friday. “The latest cuts risk exacerbating those strains” and “consumers currently under siege from inflation will suffer even more from higher prices.”

Price Rebound | Oil recouped its losses for the year after the surprise OPEC+ cuts

Saudi Arabia and its OPEC+ partners shocked crude traders and sent prices rallying when they agreed to fresh output curbs of more than 1 million barrels a day on April 2. Brent futures are trading near $86 a barrel, shoring up revenues for the Organization of Petroleum Exporting Countries while reviving inflationary pressures for the world economy.

Russia, a key OPEC+ member, has simultaneously announced supply cutbacks in retaliation for sanctions over the war in Ukraine, though the IEA now expects that Russian output will fall far less than it originally anticipated.

Moscow has consistently defied IEA predictions that its output would collapse, and the agency — which a few months ago expected Russian supplies to plunge by 1.6 million barrels a day this quarter — now anticipates a drop of just 530,000 a day this year, or about 5%. In March, the country’s oil exports hit the highest level in three years, the IEA said.

Robust Demand

OPEC described its supply curbs as a “precautionary measure” to counter economic uncertainty, and a deterrent to speculators making unwarranted wagers against the market. Brimming inventory levels, which in January reached the highest since summer 2021, may have also triggered the move, the IEA said.

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Yet the decision sits uneasily with the outlook for global oil demand, which the IEA forecasts will climb by a healthy 2 million barrels a day this year amid a post-pandemic recovery in China to reach a record 101.9 million barrels a day on average.

OPEC itself retained robust forecasts for world fuel consumption this year in its report on Thursday, and signaled that the market faces a supply shortfall similar to that foreseen by the IEA.

The organization’s move was criticized as ill-advised by the administration of President Joe Biden, which has had a rocky relationship with America’s long-term allies in Riyadh. IEA Executive Director Fatih Birol called the decision a “bad surprise” for the global economy.

Still, OPEC+ attracted even stronger disapproval for a previous supply cutback in October, a decision that came to appear prescient in subsequent months as the global economic outlook