Case for optimism about the global economic outlook

FOR decades, crude oil prices used to spike every time there was even a hint of political unrest, especially in the Middle East. Yet despite the Gaza flare-up and Red Sea disruptions, and amid the seemingly best efforts of Opec+ to move the needle by withdrawing another 900,000 barrels a day in December, crude oil prices have not gone back to US$119 a barrel, last seen at the onset of the Ukraine crisis.

In fact, for most of 2023, Opec+ (Organization of the Petroleum Exporting Countries and its allies) has steadily been reducing supply. In June, Saudi Arabia, the de-facto leader of the grouping and one of the top three largest oil producers in the world, volunteered to cut its own output by one million barrels per day (bpd). Russia chipped in and removed 300,000 bpd. The other members reduced output by another 900,000 bpd. In all, the grouping has cut output accounting for about 3 per cent of global demand over the year. The cartel accounts for about 40 per cent of global oil supply. The cuts did have an initial impact. The price rose to about US$100 per barrel last September. But it has since slipped back. Last Friday, benchmark Brent crude was trading at about US$77 per barrel. What gives?

Opec+ no longer controls the market. Producers outside the cartel have been happy to push up their production to meet market demand. Also, Iran has been exempted from the production quotas and Teheran has reportedly been pumping oil at its highest level in five years. Most importantly, America has again become the world’s top producer with an output of 13 million bpd. Brazil and Guyana are also pumping at record levels.