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Excessive increases in the price of crude oil could slow the pace of global economic recovery. Oil-producing countries should work together to stabilize prices.
On Monday, talks among OPEC Plus, which comprises members of the Organization of the Petroleum Exporting Countries as well as nonmembers such as Russia, broke down and failed to reach an agreement on increasing production from August.
In response to this, views have emerged that the situation of supply and demand for crude oil would become strained, and the price of crude oil futures in the United States temporarily rose to nearly $77 per barrel, the highest in about six years and eight months. There are signs of further turbulence. Vigilance is needed.
In May last year, OPEC Plus cut output by 9.7 million barrels per day, or 10% of global oil production, due to a sharp drop in demand for crude oil caused by the novel coronavirus pandemic.
Since then, the group has gradually raised output due to a comeback in demand. The focus has been on how much supply will be expanded from August.
Saudi Arabia, the largest oil producer in the Middle East, and other countries were considering a plan to gradually adjust the current output cut of 5.8 million barrels per day to 3.8 million barrels per day by December, and postpone the end of cuts from April 2022 to the end of 2022.
Most of the OPEC Plus participants agreed to the proposal by Saudi Arabia and others, but the United Arab Emirates, which wants to increase its revenue by increasing production, opposed the extension of the output cut period. The UAE is also reportedly claiming that its allocated production has been set too low compared to its output capacity.
OPEC Plus decisions must be unanimous in general, and no agreement was reached. The countries involved need to resume talks as soon as possible.
If the confrontation in OPEC Plus is prolonged, it could destabilize crude oil prices and lead to unrest in the financial markets. It is important for the oil-producing countries to come closer to each other and avoid disruption.
In addition to crude oil prices, those of iron ore, copper and other resources have soared internationally, pushing up corporate costs. If this leads to the stagnation of the global economy, which is still recovering from the pandemic, it will have a significant negative impact on oil-producing countries as well.
The global trend toward decarbonization to reduce greenhouse gas emissions is gaining momentum. If the price of crude oil continues to rise, the trend of using fuels other than oil may possibly spread in oil-consuming countries, which may accelerate the decline in demand for crude oil.
In Japan, the average gasoline price is now in the upper ¥150 range per liter, the highest level in about two years and eight months. Higher fuel prices will put pressure on household budgets and increase costs for the logistics sector, the fisheries industry and other fields.
The government must pay close attention to the impact of high fuel prices on small and medium-sized companies and implement supportive measures as necessary.
— The original Japanese article appeared in The Yomiuri Shimbun on July 10, 2021.
