Producers and consumers must talk to bring stability to global oil prices

Editorial

December 4, 2021

Will it be the first step toward stabilizing the crude oil market? It is important for oil-producing and oil-consuming countries to cooperate and deepen their dialogue.

At a ministerial level meeting, OPEC+, which consists of the members of the Organization of the Petroleum Exporting Countries plus Russia and other nonmember oil-producing nations, decided to go ahead with the currently planned increase in output for January. OPEC+ intends to keep the current plan to increase the monthly oil supply by 400,000 barrels per day.

Since U.S. President Joe Biden, who has been troubled by high gasoline prices, announced the release of oil from national reserves in coordination with Japan and other major oil-consuming countries, there had been speculation that OPEC+ would halt the output increase.

Given the situation, the OPEC+ nations agreed to continue with the rise, probably because they aim to avert any escalating confrontation with oil-consuming countries. It can be said to be a wise decision.

Prices for U.S. crude oil futures soared to $85 per barrel in October. But they plunged in late November due to cautious sentiment over the new omicron variant of the novel coronavirus, and have been hovering in the mid-$60 range since then.

However, it is difficult to predict oil prices going forward. In response to the OPEC+ decision to maintain its output rise, U.S. crude oil futures prices dropped, but they soon recovered. It is because the impact of the omicron variant on the global economy is uncertain.

At the latest meeting, OPEC+ also explained that it will adjust output as necessary by closely monitoring market developments. OPEC+ needs to prioritize striving for stable oil prices so that oil prices will not fluctuate violently.

Oil-consuming countries, too, must make some concessions. The U.S. release of oil from its reserves seems to be because in a car-oriented society high gasoline prices directly fuel public dissatisfaction. But now that crude oil prices have dropped slightly, is it necessary? The countries concerned need to reconsider the release for the sake of cooperation with oil-producing countries.

In the first place, an increased momentum toward decarbonization is behind the increases in crude oil prices. The amount of investment in global oil and gas fields in 2020 is said to be half what it was in 2015.

The brakes were also put on U.S. shale oil investments, and production has not been increased even though profitability must have turned around due to the increase in crude oil prices.

A shift from oil and other fossil fuels to renewable energy will take time. It is also important for the public and private sectors to maintain a certain level of investment in oil fields.

With the world aiming at decarbonization, oil-producing countries are concerned about whether demand will shrink. It is important for oil-consuming countries to start discussions with the producing countries about ways to realize stable oil prices, after closely examining long- and medium-term outlooks for demand.

It is also hoped that Japan and other oil-consuming countries will provide technological and financial support to oil-producing countries so that they can break away from economic structures that rely on oil.

— The original Japanese article appeared in The Yomiuri Shimbun on Dec. 4, 2021.