Nodding donkeys, also known as oil pumping jacks, operate in an oilfield near Almetyevsk, Tatarstan, Russia, March 11, 2020. ANDREY RUDAKOV BLOOMBERG SINGAPORE - Global oil supply is set to tighten, intensifying concerns over soaring inflation after the OPEC group of nations announced its largest supply cut since 2020.
Global crude futures went up this week, returning to three week highs after the Organization of the Petroleum Exporting Countries and their allies agreed on Wednesday to reduce output by 2 million barrels per day, ahead of peak winter season.
This will likely drive spot prices higher, particularly for Middle East oil, which meets about two-thirds of Asia's demand, industry participants said, adding to inflation concerns as governments from Japan to India fight rising costs of living, while Europe is expected to burn more oil to replace Russian gas this winter.
A spokesman for SK Energy, South Korea's largest refiner, told Reuters that they were concerned about a resurgence in international oil prices, which have shown signs of calming down since the second quarter.
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Another South Korean refining source said the supply cut could lead to prices falling back to levels seen in the second quarter.
South Korea, Asia's fourth largest economy and manufacturing powerhouse, has seen costs go up due to the surging commodity prices.
In March, Brent hit US $139.13 a barrel, the highest since 2008, after the Ukraine conflict sparked fears of Russian oil supply loss.
Saudi Energy Minister Abdulaziz bin Salman said the real supply cut would be between 1 million and 1.1 million barrels per day, a response to rising interest rates and a weaker world economy.
Washington criticized the OPEC deal as shortsighted after it was triggered by that move. President Joe Biden would continue to assess whether or not to release more strategic oil stocks to lower prices, according to the White House.
The burden of cuts is likely to be taken up by Saudi, UAE, the United Arab Emirates and Kuwait, said Tilak Doshi, managing director of Doshi Consulting, who was previously with Saudi Aramco.
RBC Capital analysts said the follow-on sales would likely be more incremental as the US reserves release will accelerate ahead of the US midterm elections in November.
The bank said that we are unlikely to see another blockbuster release in the near term.
Morgan Stanley raised oil price forecasts because of the OPEC cuts compound supply concerns as European Union sanctions on Russian crude and oil products take effect in December and February. According to Shunichi Kito, president of the Petroleum Association of Japan PAJ, "We hope that OPEC will play a central role in balancing supply and demand in the run-up to the winter demand season. Some of the emerging markets have been especially vulnerable to price shocks due to recent global supply snags.
Sri Lanka is struggling with its worst economic crisis since independence in 1948, with a plunge in its currency, runaway inflation and an acute dollar shortage to pay for essential imports of food, fuel and medicine.
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Ranil Wickremesinghe warned that Sri Lanka would have to pay even more for fuel as rich countries stock up for their own needs.
He told the parliament on Thursday that this is not just an issue that we have to address, but that it is also a concern for several other South Asian countries.