This month’s OPEC Plus decision to cut crude output — for the second time since US President Joe Biden flew to Saudi Arabia last summer seeking a boost — may be just the start, says Ziad Daoud and Courtney McBride report.
The April 02 announcement lifted oil prices by about US$5 a barrel and crude on Wednesday went on to hit the highest closing price this year. It was already clear last week that recession risks were bigger than they otherwise would have been — because consumers spending more on energy will have less cash left for other stuff — and inflation would be higher.
But even more significant is what the OPEC Plus move says about the likely path of oil prices over the coming years. The bigger takeaway is that Saudi Arabia is breaking away from Washington’s orbit.
Saudi Arabia sets oil production levels in coordination with Russia. And there’s a newly tight relationship with the other giant US strategic rival — China. That was on display when Beijing brokered a deal to ease tensions with the Saudis’ regional rival, Iran, with the US out of the loop.
In other words, Western influence over the oil cartel is at its lowest point in decades. Most analysts now anticipate that crude prices will average above US$80 a barrel over the coming years — well above the US$58 seen over the 2015-21 period.
For the global economy writ large, lower oil supply and higher prices is bad news. The major exporters are the big winners, of course. For importers, like most European countries, more expensive energy is a double blow — dragging on growth even as inflation rises.
The US falls somewhere in between. As a major producer, it benefits when prices rise. But those gains — unlike the pain of higher pump prices — aren’t widely shared.
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