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Saudi-Led Oil Producers to Lower Output Further
A group of large oil producers led by Saudi Arabia said Sunday they would cut more than a million barrels of output a day starting next month, a surprise move that upset Washington and led to a jump in crude prices amid concerns about the global economy. The output cuts amount to about 3% of the world’s petroleum production taken off the market in seven months.
The production cut will hit an oil market that was widely seen as tightly balanced between supply and demand, meaning it could lead to a longer-term rise in prices. If higher prices last, they could stoke inflation and complicate decisions for central bankers, who are caught between trying to tame rising prices and propping up a teetering banking system.
According to people familiar with the decision, it was negotiated primarily between the Saudis and Russian to get ahead of a global slowdown and raise prices to fund Saudi Arabia’s ambitious domestic projects and replenish Russia’s reserves.
Oil prices had been trending downward since late last year on global recession fears [and] some in OPEC see oil demand taking a hit in a recession. The price moved beyond $85 a barrel after the announcement, before falling slightly.
“Given the preventive nature of OPEC decisions, there is clearly something OPEC knows about demand trends and inventories that we have yet to discover fully in overall supply and demand balances,” said [the] global head of energy strategy at JPMorgan Chase & Co.
An oil analyst at Denmark’s Saxo Bank said the decision to cut production again reflected concerns over the U.S. economy, where interest rates are widely expected to increase.
World Bank Warns of Lost Decade for Global Economy
The World Bank is warning of a “lost decade” ahead for global growth, as the war in Ukraine, the Covid-19 pandemic and high inflation compound existing structural challenges.
The Washington, D.C.-based international lender says that “it will take a herculean collective policy effort to restore growth in the next decade to the average of the previous one.” Three main factors are behind the reversal in economic progress: an aging workforce, weakening investment and slowing productivity.
“Across the world, a structural growth slowdown is under way: At current trends, the global potential growth rate—the maximum rate at which an economy can grow without igniting inflation—is expected to fall to a three-decade low over the remainder of the 2020s,” the World Bank said.
Potential growth was 3.5% in the decade from 2000 to 2010. It dropped to 2.6% a year on average from 2011 to 2021, and will shrink further to 2.2% a year from 2022 to 2030, the bank said. About half of the slowdown is attributable to demographic factors.
Weakness in growth could be even more pronounced if financial crises erupt in major economies and trigger a global recession, the World Bank report cautions.
Earlier this year, the World Bank sharply lowered its short-term growth forecast for the global economy, citing persistently high inflation that has elevated the risk for a worldwide recession. It expects global growth to slow to 1.7% in 2023.
The World Bank identifies a number of challenges conspiring to push down global growth: weak investment, slow productivity growth, restrictive trade measures such as tariffs and the continuing negative effects—such as learning losses from school closures—because of the pandemic.
Some view the World Bank’s projection for a lost decade as too pessimistic. Other organizations, such as the International Monetary Fund and the Peterson Institute for International Economics, a Washington-based think tank, expect global GDP growth to expand a more robust 2.9% in 2023.
Harvard University economist Karen Dynan said that aging populations in nearly every part of the world will be a drag on global growth, but she was more optimistic on raising productivity—output per worker.
© 2015 Mutual Fund Observer. All rights reserved.
© 2015 Mutual Fund Observer. All rights reserved. Powered by Vanilla
Comments
The G7 Sanctions on Russian oil have turned into a joke. First, the price-caps for Russian oil were imposed (Yellen's plan?) for non-G7 countries so that the G7 countries could also benefit from what non-G7 countries were doing anyway. This also calmed Europe a bit that has taken the brunt of the G7-ban - although a milder Winter there also helped. Second, G7 recently issued an exception on G7-ban to Japan because it needs oil badly - so 6 more exceptions to go?
See also World Economic Forum, Can Europe’s rush for renewables solve its energy crisis?, Feb 10, 2023.
https://www.weforum.org/agenda/2023/02/eu-renewables-energy-crisis/
Second, G7 recently issued an exception on G7-ban to Japan because it needs oil badly - so 6 more exceptions to go?
Does Japan really need oil badly? https://www.euractiv.com/section/energy/news/sakhalin-exception-the-russian-energy-japan-cant-quit/ https://www.wsj.com/articles/japan-breaks-with-u-s-allies-buys-russian-oil-at-prices-above-cap-1395accb
The 2nd and 5th richest economies never participated in Russian sanctions. Al Jazeera, How China and India’s appetite for oil and gas kept Russia afloat, February 24, 2023.
https://www.aljazeera.com/economy/2023/2/24/how-china-and-indias-appetite-for-oil-and-gas-kept-russia-afloat
India and China are not generally considered rich economies on a per capita basis, certainly nowhere close to GDP per capita levels of the G7.
No disagreement that China and India have been opportunistic but that's par for the course for most countries where national self interest ranks higher than support of Ukraine.
We were in bed with Osama when convenient and went to war against him when it was no longer convenient. If it suited US interests at this time, India would have been squeezed hard but it isn't being squeezed so...
Times change, alliances change -- shifting sands. As expressed brilliantly in the book 1984 there is always a war going on amongst all the major powers to the point that it becomes meaningless to keep track of who's at war with whom at any given point.
The NEW price-cap exception for Japan is recent, https://www.msn.com/en-gb/money/other/japan-breaks-with-western-allies-and-buys-russian-oil-above-dollar60-a-barrel-cap/ar-AA19qoFT
Here are global GDP/capita from the World Bank. Some of the countries at the top may be surprising, but China and India are FAR down in that list. https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?most_recent_value_desc=true
Check the dates. The Kyodo News piece is dated Nov 23, 2022. It says that the price cap would go into effect on Dec 5, 2022, and that the Sakhalin-2 exemption would last until Sept 30th. That must be Sept 30th of 2023, since it didn't start until Dec 2022.
The referenced WSJ piece is reporting Japanese oil imports from Russia in January and February of this year, under that Dec 5, 2022 - Sept 30, 2023 exemption. This was a Saturday piece in the WSJ, not picked up by most major news sources. No independent source. These facts indicate that the WSJ story is background material, not breaking news.
GDP as a whole is a meaningless number. GDP per capita is the meaningful number.
Is that Liechtenstein (World Bank 2020 data) or Ireland (Visual Capitalist, 2023), or some other 2nd richest economy importing Russian oil?
https://www.visualcapitalist.com/worlds-richest-countries-2023-gdp-per-capita/
When it comes to impact of sanctions, what matters is the absolute amount of the "leak", not whether the importer has a rich economy, either per capita or on an absolute basis. As the WSJ reported, "Russia exports millions of barrels of oil a day, making Japan’s purchases a minuscule share of total Russian output." At least if we're talking about Japan's imports.
But it makes for an eye-catching headline.