In what can be considered a warning shot to the Western economies, the announcement within the last hour of production cuts by numerous members of OPEC+ until the end of 2023 can only mean that inflation is about to rear its ugly head higher once again.
The announcement this morning was heralded to provide “market stability” for the oil producers as this story from Al-Arabiya highlights:
Saudi Arabia and other OPEC+ oil producers on Sunday announced voluntary cuts to their production, with Riyadh saying it would cut output by 500,000 barrels per day (bpd) from May until the end of 2023, state media reported.
Russia’s deputy prime minister also said Moscow would extend a voluntary cut of 500,000 bpd until the end of 2023. The United Arab Emirates, Kuwait, Iraq, Oman and Algeria said they would voluntarily cut output over the same time period.
While there are those who will dismiss this as a ploy, remember that China and many other Asian nations have already locked in long term production deals with Russia and the Middle East members of OPEC+ so as to avoid Western price fluctuations due to currency distortions.
This probably will mean higher gasoline and aviation fuel prices heading into the summer travel period but there is something much worse lurking in the background. This could easily result in another three to six month surge of inflation at every level putting even more pressure on the already cash strapped American consumer.
If the United States demonstrates an inability or unwillingness to make up for the OPEC+ shortfall, look for oil prices to march well north of $90 per barrel by the end of April.