Meristem warns oil cuts by Saudi Arabia, Russia pose global inflation risk – Meristem, a prominent Nigerian asset management, stockbroking, and financial advisory firm, has cautioned that Saudi Arabia and Russia’s reduced crude oil production, which is anticipated to increase oil prices, could exacerbate global inflation.
This warning was imparted in the latest “Macroeconomic Update: Inflation Expectation” report from Meristem, which was shared with BusinessDay.
It stated, “In the future, we anticipate that the voluntary extension of oil production cuts by Saudi Arabia and Russia will lead to further increases in oil prices, posing a significant upside risk to global inflation.”
“The two nations announced their intention to extend their oil supply cuts (1.00 mbpd for Saudi Arabia and 0.3 mbpd for Russia) through the remainder of 2023, causing Brent crude prices to surge to USD90.49/bbl on September 7—the highest level since November 2022.”
This month, the price of crude oil has increased by more than 2 percent. Brent crude, which was $85.24 per barrel on August 30, 2023, has risen to $90.50 per barrel at present. According to data from the oilprice.com website, the price of West Texas Intermediate (WTI) increased from $81.63 per barrel on August 30, 2023 to $89.13 per barrel.
This decision to extend the oil production cuts was made by these two main oil producers on Tuesday, September 5. Despite appeals from the U.S. and their Western allies to avoid these production cuts, they maintain their stance.
“The Saudis foreshadowed this outcome last month with their lengthier, more in-depth statement, but many market participants were still caught off guard by today’s move. In a recent interview with Reuters, RBC Capital Markets analyst Helima Croft stated, referring to Saudi Energy Minister Prince Abdulaziz bin Salman, “This once again demonstrates that Prince Abdulaziz remains firmly in whatever-it-takes mode.”
According to a statement from the state news agency SPA, citing an energy ministry official, Saudi Arabia plans to extend its 1 million barrels per day (bpd) oil output reduction until December 2023.
Similarly, Russia will extend its voluntary oil export reduction of 300,000 barrels per day until the end of the year, as announced by Deputy Prime Minister Alexander Novak.
According to SPA and Novak, both nations intend to evaluate these cuts monthly, with the option to deepen them or modify output levels based on market conditions.
In the meantime, Meristem observed that sustained strict monetary policies in major economies and weakening economic growth indicators could help curtail inflation.
The report stated, “However, given that monetary policy remains restrictive and economic growth indicators largely indicate slower output growth, we anticipate that the resulting decline in consumer spending will help to some extent to tame inflation.”
