Oil prices have reached a new high in 2023, surpassing $95 per barrel, due to supply cuts by Saudi Arabia and Russia. This rise in prices, which is approaching a 30% increase since June, has raised concerns about a possible global economic shortage caused by limited oil supplies.
The decision by Saudi Arabia and Russia to reduce oil supplies, despite rising prices, has caused tensions with developed economies. The International Energy Agency warned that this action is leading to a significant deficit in global oil markets. Higher oil prices pose a challenge to central banks’ ability to control inflation and could hamper economic growth due to rising fuel costs.
Riyadh and Moscow have decided to extend their voluntary oil supply cuts until the end of the year, signaling their control over the oil market. However, Prince Abdulaziz bin Salman, Saudi Arabia’s energy minister, dismissed accusations that his actions were intended to drive up prices. He criticized the International Energy Agency’s recent forecasts and said Saudi Arabia had to manage supply in case global growth slowed.
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, big oil producers are concerned about the emphasis on renewable energy sources and electric cars, seeing them as a long-term threat to their economic security.
While Western governments promote renewable energy, they still want to maintain moderate oil prices to support the overall economy. They also seek to prevent Russia from accumulating excessive oil revenues, given continuing tensions in Ukraine. The White House accused Saudi Arabia of siding with Russia after both countries initiated oil supply cuts within the OPEC+ alliance. However, the White House response has become more moderate as Saudi Arabia has continued to reduce production.
As oil prices rise and tensions persist, central banks face the challenge of balancing reduced supply with an uncertain economic outlook. The results of six central bank meetings this week, including those of the United States, the United Kingdom and Japan, are expected to have little impact on these concerns.
Sources:
– International Energy Agency
–Saudi Aramco
– PVM oil brokerage
