Oil price: will rising energy prices slow down the global economic growth again?

Rising oil prices in August

The price of oil has been on the rise for two successive months, a development can partially attributed to the production cuts of over 1.5 million bpd by two leading players in the OPEC+, Russia and Saudi Arabia.

Perhaps buoyed by the apparent succss of pushing oil prices up, the Saudis are now saying that they may extend the production cuts to September - and even beyond that. 

In short, as far as the world's biggest exporter of the crude oil is concerned, nothing is off the table, according to the Saudi oil minister, Prince Abdulaziz bin Salman, the half-brother of the Crown Prince. 

It goes without saying that the production cuts result in less sales - and less revenue. The revenues earned by Saudi Arabia from oil have been on decline in recent months. The Kingdom, however, appears to be determined to sticking to the existing course of action on the basis of 'come-what may'.

Russians, meanwhile, agree with the Saudis on production cuts. They may extend the production cuts too. India, a main buyer of Russian Ural, however, does not seem to cutting down on Russian oil despite a sharp rise in crude oil from Russia. In fact, it has gone up by $12 a barrel in recent weeks. 

India turned to Russia when the West imposed punitive sanctions against Russia after its invasion of Ukraine in the hope of dealing a major blow to Russian economy. The intended impact is debatable, though, especially as India keeps buying Russian oil.

India's inclinaton towards Russian oil, however, has resulted in falling sales of crude oil from two major oil producers in the Middle East - Iraq and Saudi Arabia.

In order not to make things worse, Saudi Arabia is said be maintaining the oil supply for Asia unchanged. 

The US crude stocks, meanwhile, have risen sharply during the last week, dampening the positive, bullish sentingment to some extent. In addition, conflicting forecasts about economic growth have left both investors and analyst in flux. The latest economic forecast for the UK, for instance, that shows a growth, despite the same being the exact opposite a few weeks back, is a case in point.

Whaever the numbers, indicators and charts, rising oil prices are not going to be a catalyst for the economic growth. On the contrary, it is going to damage the fragile post-Covid-19 recovery globally. 

In this context, oil producers have a responsibility to help the global economy recovery process rather than taking measures to hinder it for short-term revenue gains, because inflation is a universal 'monster' that can bite all - both producers and consumers.

Since the rest of the members of the OPEC+ are not keen on indulging in production cuts, the cartel will not be able to form a united front for the same purpose: they have been more realistic, as the concerns over the feeble Chinese economic recovery and its effect on the demand cannot be ignored. morever, the US rig count does not indicate a jump to reflect a heightened demand. 

The major players in the group, Russia and Saudi Arabia, do not posses the same leverage that they used to have anymore to impose their iron will on the weaker members.