Amid speculations that the OPEC countries are considering slashing production by more than one million barrels a day to revive declining prices of crude oil in their proposed meeting on Wednesday this week, crude oil prices surged to nearing 82 dollar per barrel. This probable reduction would be the biggest cut since the Covid pandemic hit the world in 2020.
Final decision is awaited
In the meantime, OPEC delegates have said that a final decision regarding reduction in production, would be made when ministers of the concerned countries meet in Vienna to deliberate on all aspects. The possible cut in the crude oil production, has sent shock waves across the globe as majority of the countries including India, are already facing serious inflationary pressures.
Rising interest rates
It is expected that a large cut of this magnitude may invite flak from the US and other big crude consuming countries. It is also worth-mentioning that energy driven inflation has already forced the central banks of different countries to raise interest rates. In India also, the Reserve Bank of India has raised the repo rates on several occasions ever since the inflationary pressures started building up for over a quarter.
Energy demands grew after Covid lockdowns
The energy demands across the globe started picking up after Covid impacts got reduced and business and economic activities grew. Earlier, during Covid lockdowns, the crude oil prices tumbled. Now many energy analysts say- it’s just a matter of time when the oil returns to around 100 dollar per barrel.
Concerns about global economy
The meeting of the OPEC countries, will take place on October 5 against the backdrop of falling oil prices, prompting top OPEC+ producer to say the group could cut production. The fall in crude prices has mainly been spurred by the fears and concerns about the global economy.
Pressure on Saudi Arabia
In the meantime, the United States has continuously been putting pressure on Saudi Arabia to continue pumping more crude oil to meet the rising needs and to help oil prices soften further. This pressure is also meant to reduce the revenue sources for Russia to punish it for its aggressive posture towards Ukraine. Though, the interesting side of these developments is that Saudi Arabi has not condemned Russia’s action in Ukraine, majorly inspired by its difficult relations with the US.
Gas & electricity prices reaching record levels
In Europe, Gas and electricity prices also reached record levels in 2021 and again hit all-time highs in 2022 with electricity retail prices having increased by almost 50% year-on-year from July 2021. Similarly, global energy prices increased by more than 26% in the early months of 2022 with Asian Development Bank (ADB) Principal Energy Specialist Kelly Hewitt saying- electricity bills may further rise by 27% by 2025, if energy supply mix of different countries remains unchanged.
Russia also cutting its gas export to Europe
Russia has just announced that its natural gas exports to the European Union are expected to decline by 50 bcm, which is one-third of last year’s total volumes, which is also worrisome for Europe. America is wrestling with the worst energy crisis in nearly five decades as its fossil fuel plants are closing faster than green alternatives can replace them.
Implications for developing countries
This steep rise in energy prices has serious implications for especially developing and poor countries. The issue looks more worrying as some experts suggest that the world energy crisis is just starting and may get worse with a few saying potentially much worse. Clearly, this widespread energy crisis is hurting households, businesses and a number of economies alike across the globe. The International Energy Agency terms it the most extreme energy crisis the world has ever witnessed and may have serious implications for the global economy recovering for Covid pandemic.
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