OPEC+ needs to create stable crude oil supply to support global growth

High crude oil prices continue to be a reason for inflation worldwide. Oil-producing countries need to make efforts to create a stable supply of crude oil to contribute to sustainable growth in the global economy.

At a ministerial-level meeting, OPEC+, which consists of the members of the Organization of the Petroleum Exporting Countries plus nonmembers such as Russia, has decided to continue the currently planned increase in crude oil output for February as well. The group said that from February it would increase its output by 400,000 barrels per day compared to that of January.

Although the omicron variant of the novel coronavirus has been rapidly spreading, OPEC+ decided the impact on demand for crude oil would be minimal and temporary.

In November last year, U.S. President Joe Biden, concerned about high fuel prices, announced a policy to release oil from the national reserve in cooperation with countries such as Japan. There had been speculation that oil-producing countries, during a meeting of OPEC+ in December last year, would halt their output increase to counter this.

It is welcoming that the oil output increase has been maintained this time, as in the previous meeting, and the intensification of conflict between OPEC+ and major oil-consuming countries has been avoided.

Since late December last year, however, benchmark U.S. crude oil futures have been hovering around the mid-$70 level per barrel, and the prices closed at about $77 on Jan. 4 — 60% higher than a year ago — after the decision by OPEC+ this time to continue the output increase.

In addition to natural gas prices, which are linked to crude oil prices, prices of natural resources such as coal have also risen, driving up commodity prices worldwide. If inflation continues to accelerate at this rate, it could lead to a slowdown of the global economy that has been on a recovery track.

If this happens, it will largely work negatively for oil-producing countries as well. OPEC+ needs to consider further output increases according to price trends.

The move to promote decarbonization is one of the major factors behind the rise in resource prices. The amount of investment in oil and gas fields around the world last year reportedly fell to around half from seven years ago, due to a growing tendency to avoid financing and investment in oil and gas that produce larger amounts of greenhouse gases.

As a result, even though demand for oil and gas recovers, their production does not increase.

As there is a shortage of fuel, electricity shortfalls have occurred in many places. This is because power generation with renewable energy, which is being swiftly promoted by many countries, depends on weather conditions.

Each government should be aware of the need for a certain level of investment in fossil fuels such as oil and gas for the time being.

There are moves to reevaluate nuclear power generation, which does not produce greenhouse gases and has a stable output. The European Commission, the executive body of the European Union, intends to position nuclear power as an energy source that can help its decarbonization.

The United States is speeding up the development of small reactors, which are believed to be highly safe.

In Japan, on the other hand, the restart of nuclear reactors is not progressing. It is essential for the government to support the restart of nuclear reactors and the building of new reactors, while clearly showing that nuclear power is an important source of electricity for achieving decarbonization.

— The original Japanese article appeared in The Yomiuri Shimbun on Jan. 6, 2022.