OPEC+ cuts reignite inflation and recession concerns - Indian oil minister

Indian Petroleum and Natural Gas Minister Hardeep Singh Puri has expressed concerns about the ongoing crude oil output cuts announced by the OPEC+ group of oil producers.

PHOTO: An oil pump jack against the OPEC flag. Getty Images

The minister highlighted that these production cuts might worsen the persistant inflation while speaking to DD News, a television news channel from India’s public broadcaster Prasar Bharati.

He further said that inflationary pressures from the pandemic could push the global economy into a state of recession. High oil prices could be another potential contributor, he added.

“As it is due to the pandemic, a lot of additional liquidity went into the markets,” Puri commented. “So, you already have inflationary pressures. You already have such inflation that if you have high oil prices in addition to that, it will move to the ‘Big R'”, he said, referring to a potential recession.

The Organisation of Petroleum Exporting Countries and its allies, commonly known as OPEC+, said earlier this month it will extend oil production cuts into 2024 to stabilise falling oil prices in the market. The group’s de facto leader Saudi Arabia pledged to cut oil production by 1 million b/d from July, bringing the country’s total oil production down to 9 million b/d.

The oil producer group has cut production by a total of 3.66 million b/d since last year, including voluntary cuts of about 1.66 million b/d from May this year.

Oil prices reacted to Saudi Arabia's announced cut, albeit only momentarily. The front-month ICE Brent contract rose to $77/bbl in the day after the announcement. The Indian oil minister, Puri, said crude prices were not affected much by this news, potentially due to a lower-than-expected recovery in demand in some large economies, as well as more oil supplies from countries such as the US, Brazil and Guyana.

The minister went on to argue that a significant decline in crude prices could deter investment in major consumer countries like India. Following Saudi Arabia’s commitment to an additional 1 million b/d output cut from July, all producers in the region other than Qatar have already raised their selling prices for July. This could lead some of India’s crude import prices to go further up.

By Aparupa Mazumder 

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