Higher oil prices could tip the world economy into a recession: IEA

Western governments are furious after OPEC+ decided last week to slash oil production by the largest amount since the start of the pandemic, and the cartel's actions may tip the global economy over the edge, the International Energy Agency has warned, media reports said.

"With unrelenting inflationary pressures and interest rate hikes taking their toll, higher oil prices may prove the tipping point for a global economy already on the brink of recession," the Paris-based agency said Thursday in its monthly oil market report, CNN reported.

The IEA slashed its forecast for world oil demand growth next year by more than 20 per cent, citing further downgrades to global growth expectations from major institutions.

The International Monetary Fund said this week that for many people, 2023 will "feel like a recession", as it cut its GDP growth forecast to 2.7 per cent from an earlier prediction of 3.2 per cent.

Despite much weaker growth in demand, the supply cuts by Saudi Arabia and other major oil producers are expected to sharply reduce global oil stocks and keep prices elevated.

"The massive cut in OPEC+ oil supply increases energy security risks worldwide," the IEA said, CNN reported.

The decision by the cartel to slash oil production by 2 million barrels a day, equivalent to about 2 per cent of global oil demand, has placed Saudi Arabia on a collision course with the White House, which has accused the kingdom of aligning with OPEC+ member Russia.

The early days of the pandemic drove Brent crude as low as $20 a barrel   while US oil prices briefly turned negative leading to a spate of bankruptcies across the oil and gas industry.

"This casts doubt on suggestions that higher prices will necessarily balance the market through additional supply," the IEA added.

Supply growth is set to "slow markedly" in 2023, although still reach a record of 100.6 million barrels a day. World oil demand is forecast to average 101.3 million barrels a day next year, it said.