Soaring oil prices pose significant threat to global economic recovery

If oil prices continue to soar, it will hinder the recovery of the global economy, which has been depressed by the pandemic. Oil-producing countries and consuming countries must engage in dialogue to stabilize the market.

OPEC+, which consists of the members of the Organization of the Petroleum Exporting Countries plus Russia and other nonmember oil-producing nations, decided not to increase production at a ministerial-level meeting on Thursday. The United States, Japan and other countries hit by rising oil prices had requested the increase, but were rebuffed.

Although the U.S. crude oil futures market, which sets the benchmark for prices, has not risen significantly so far, demand will increase in the Northern Hemisphere as it enters the winter months when more fuel is used for heating and other purposes.

Any further price rises would pose a major threat to the global economy. OPEC+ is scheduled to hold its next meeting on Dec. 2. Oil-producing countries are urged to make appropriate decisions.

OPEC+ began one of the largest coordinated production cuts in history in May 2020, when oil prices plummeted due to the outbreak of the novel coronavirus.

Since then, production has been increased in stages, with the supply currently being raised each month by an additional 400,000 barrels per day. But production has yet to return to the level before the cut.

Oil-producing countries are believed to be wary of another global surge in infections that could lead to oversupply.

However, demand has increased as the economy recovers, and the price of crude oil, which was around $50 per barrel at the beginning of this year, hit the $85 level at one point in late October. Recently, it has been hovering around $80.

This is pushing up prices around the world, and in the United States, the year-on-year inflation of consumer prices has exceeded 5% due to higher prices for items such as gasoline and chemical products. The rate also exceeded 4% in the eurozone, including Germany and France.

There are concerns that if inflation accelerates, it will cause a downturn in the global economy. If that happens, demand will decline, and oil-producing countries, as the suppliers, should be aware that they will not be able to avoid bearing the impact as well.

The decarbonization trend also has the effect of causing oil prices to rise. Global investment in oil and natural gas field development is said to have halved in 2020 from 2015 levels. This is because countries are shifting to renewable energy sources.

As oil prices soar, shale oil in the United States is expected to become more profitable and output increased, but it has apparently hit a ceiling. This is believed to be one reason why OPEC+ is taking such a bullish stance.

How can nations stabilize oil prices while making the transition to decarbonization? Countries are urged not only to hasten the expansion of renewable energy, but also to administer policies with consideration for a stable supply of energy.

— The original Japanese article appeared in The Yomiuri Shimbun on Nov. 9, 2021.