How can the rise in crude oil prices be halted to sustain the growth of the world economy? The responsibility of oil-producing countries is heavy in this regard.
The Organization of the Petroleum Exporting Countries, together with non-OPEC oil-producing nations such as Russia, have agreed to raise daily output by 1 million barrels compared with the current level, effective July 1.
A shared cut in oil production that started in 2017 was meant to be 1.8 million barrels a day, but production actually was decreased by 2.8 million barrels a day. This is because output was cut sharply in such countries as Venezuela, where the political situation has been volatile.
Given the rapid increase of crude oil prices due to such factors as anxiety about a supply shortage, OPEC and other oil-producing countries have decided to restore the scale of the production cut to the initial amount of 1.8 million barrels a day.
It is laudable that the oil-producing countries have agreed to accept a production increase, which could lead to crude oil price reductions, while giving priority to price stabilization.
High crude oil prices are essentially favorable for the oil-producing nations. But as gasoline price increases prompt the spread of electric vehicles, there is a risk that too great an increase in prices reduces oil demand in the long run.
Behind the latest output increase accord, there seemed to be a sense of crisis that high crude oil prices could accelerate the tendency for businesses and consumers to shy away from purchasing oil products.
It is believed that there was also anxiety that if the oil-producing countries continued drastic production cuts, their market share might be grabbed by U.S. shale oil.
Excessive crude oil price increases would push up worldwide prices of fuel and other oil-related products, thereby boosting production costs and stagnating consumption and investment.
Mutual surveillance key
In Japan, gasoline prices have hovered at high levels. Leading airline companies plan to shortly raise fuel surcharges imposed on top of their fares.
It is hoped that the agreement on output increases will lead to crude oil prices being lowered.
A matter of concern is that the latest accord does not set production increase targets by country and it is thus extremely uncertain how the agreement will be carried out.
Iran and other countries opposed production increases, citing the subsequent revenue decline. To persuade them to accept the agreement on production increases, the countries in favor of raising output might have made concessions. So the accord almost certainly leaves much to be desired.
Immediately after the conclusion of the agreement, crude oil market prices, which were expected to decline on expectations of production increase, contrarily surged at one point. Whether the accord will actually be put into practice, markets seem to view it with skepticism.
The oil-producing countries, including OPEC member nations, need to enhance the workability of a production increase by strengthening their mutual surveillance system. They are called on to make sincere efforts to comply with the agreement.
Japan and other oil consuming countries, for their part, should ask for implementation of the agreed crude oil production increase at such occasions as meetings of the Group of 20 major economies.
Transforming the economies of oil-producing countries into ones which are hard to be influenced by price fluctuations would also help stabilize crude oil markets. Such initiatives as industrial diversification and invigoration of investment are called for in this regard.
(From The Yomiuri Shimbun, June 27, 2018)
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