A new dark cloud has been added to the global economic crisis. On October 5, 2022, OPEC Plus, which includes OPEC member countries and non-member oil producing countries such as Russia, decided to reduce crude oil production by 2 million barrels per day from November.
The drop in production is the biggest since 2020, when the new corona raged. It threatens to trigger a revival in oil prices after a recent downturn in countries experiencing the highest inflation in decades.
It could also be a tailwind for Russia, which is subject to Western sanctions. What will happen to the world economy? If you read the economist’s analysis…
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US President Biden reacts inconsistently to cutting crude oil production domestically, asking for more production abroad (from the official White House website)
The decision to cut production is a headache for oil producing countries as well.
According to reports, US President Biden was furious with OPEC+’s decision to cut production. US President Joe Biden, who has been struggling with rising gasoline prices in the country, visited Saudi Arabia in July this year as part of his trip to the Middle East. There is a history of meeting Saudi Crown Prince Mohammed (current Prime Minister), who has continued to criticize him for ordering the murder of dissident journalists, and asking for an increase in crude oil production.
“We’re exploring what alternatives are available, but we haven’t decided yet,” President Biden told reporters on October 6. Asked by reporters if he regretted visiting Saudi Arabia, he said, “I don’t the purpose of the visit was related to oil, but about the Middle East and Israel.” , is regrettable.
A new crisis in the global economy (image is an image)
How do economists see this situation?
In the Yahoo!
“With the global economic slowdown becoming clearer, OPEC is expected to cut production in line with the economy in order to support prices. The economy of the Gulf countries has been booming recently, and that trend is expected to continue for now.”
In the same column, Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute, also said,
“Ultimately, if crude oil prices do not fall, the time for inflation rate stabilization in Europe and the United States will be delayed, so the central banks in Europe and the United States will have no choose but strengthen financial tightening. , and the possibility that the European and American economies will go into recession will increase.
If that happens, there will be more downward pressure on crude oil prices, and as a result, from a long-term perspective, production cuts in oil-producing countries could further strangle their own throats.”
He pointed out that it would have a negative impact on oil-consuming and oil-producing countries.
Europe’s energy crisis is worsening as winter approaches
Will oil prices rise again?
In the same column, Mr. Ken Koyama, Senior Managing Director and Principal Researcher, Institute of Energy Economics, Japan,
“For the United States and other countries that consume a lot of oil, there was concern that crude oil prices would rise due to the drastic reduction in production, and this concern appears to have been conveyed to the countries oil production as a key message. to support crude oil prices and secure oil revenues.”
and analysis. He then explained the impact on the world economy.
“This will stop the decline in crude oil prices which has continued for almost three months since July. The extent of the reversal will depend on the balance between the slowdown and the reduction in oil demand caused by the global economic slowdown.
However, it can be said that the sudden increase in production cuts from the level of 1 million B/D initially expected by market participants shows the seriousness and seriousness of oil producing countries. Concerns about supply and demand for gas and electricity in Europe due to problems with gas supply from Russia in the run-up to winter have increased the need to pay attention to the direction of the oil market as well. Combined with the depreciation of the Yen, if crude oil prices rise on a dollar basis, the increase in energy costs will accelerate.”
Why not reduce crude oil production in the United States and demand more production abroad?
Gasoline prices are a national concern in the United States
On the other hand, the Biden administration has promoted regulations on domestic oil and gas development under the slogans of “decarbonization” and “promotion of renewable energy” as climate change countermeasures. As a result, major domestic oil companies are forced to cut production. Then came the Ukraine crisis, which revealed a mixed response to energy by asking OPEC+ to increase crude oil production.
The contradiction was highlighted in the Nihon Keizai Shimbun’s “Thinking” section of the article titled “OPEC+ agrees to cut production by 2 million barrels; Europe and US will inevitably retaliate” (October 5). This is Tomio Shida, a reporter from the company’s editorial committee.
“There is also another ‘production cut’. The US Energy Information Administration (EIA) announced yesterday that the latest US crude oil production was 12 million barrels per day (weekly), an increase of 700,000 barrels from with the same period However, it appears to have leveled off from 12.2 million barrels in early August and is trending down slightly.”
point out. After that,
“Initially, the increase in production was slow due to pressure from shareholders who emphasize decarbonisation and profit, but the drop in price this summer has stopped the ‘gradual increase in production’. There is a slackening of supply and demand. barrels in the spring of 2020 were far away just before the corona crisis became serious. “
It explains the complex and strange economic situation in the United States, where domestic crude oil production is being reduced and foreign oil production is being demanded to be increased.
In the mid-term elections in November, while the Republican Party is on the offensive in criticizing the “decarbonization” policy of the Biden administration, environmental protection groups and others who have supported the Democratic Party are calling for “free from fossil fuels .” there in For President Biden, who is caught in a dilemma, the “OPEC +” oil production cuts are becoming a double-edged sword.
(Kazuo Fukuda)
