Boost oil output to head off worldwide inflation

Soaring crude oil prices have become a major risk factor for the global economy. Oil-producing countries need to cooperate in stabilizing prices and contribute to efforts to curb worldwide inflation.

At a ministerial-level meeting on June 2, OPEC+, which consists of the members of the Organization of the Petroleum Exporting Countries plus nonmembers such as Russia, decided on an additional production increase, raising production by 648,000 barrels per day in July and August, up from its previous monthly increase of 432,000 bpd.

This decision is welcome. Due to sanctions against Russia over its invasion of Ukraine, Russian-produced crude oil exports have decreased, causing crude oil prices to rise.

But that is not sufficient to put an end to soaring crude oil prices. Russia’s oil production in April was reportedly 1.3 million bpd below its production target. The scale of the additional production increase is much smaller than this.

With the view that the impact on the supply-demand balance will be small, the crude oil futures price did not drop after the OPEC+ decision and closed on June 2 at a high level of around $116.

In China, crude oil demand is likely to increase as economic activities are expected to normalize after the lockdown was lifted in Shanghai. The agreement among European Union member states to ban imports of Russian-produced crude oil by sea will also be a factor in boosting future market prices.

In order to curb crude oil prices, it is essential for oilproducing countries to expand production further. OPEC+ plans to hold its next meeting on June 30. It will be important for consumer countries to strongly urge Saudi Arabia and the United Arab Emirates, which have surplus capacity, to increase production.

Soaring crude oil prices have led to worldwide inflation. In the United States and Europe, consumer prices rose by more than 8 percent from a year earlier and have remained at this historic high level. If high inflation continues, it could cause the global economy to slow down. The damage will extend to oil-producing countries themselves.

Oil-producing countries also should share a sense of urgency over the acceleration of inflation and should make efforts to support the global economy through additional production.