The market prices of crude oil keep falling. The global crude oil market first surged due to the Russian invasion of Ukraine in February 2022. The prices of crude oil from Middle East, North Sea, and the US jumped high to $110 per barrel, which was approximately 1.3 times higher than those at the beginning of 2022. However, they turned downward since the summer of 2022, and finally fell to $70 per barrel in March 2023, which was the same level as one at the beginning of the autumn of 2021. According to the announcement of future prospects by the International Energy Agency (IEA), “The balance between supply and demand will be tight in the second half of this year.” As they said, the future index of the US crude oil, “the West Texas Intermediate,” decreased for four consecutive weeks to be $70 per barrel on May 12.

Although one of the reasons why prices of the US crude oil plunged sharply was setting of the upper limit on debt ceiling, the direct cause of the market slump is the uncertain economic outlook all over the world. The consumer price index of China, the leading nation in the crude oil market and the country with high demand, increased by 0.1% YoY in April 2023, while the producer price index in China fell by 3.6% YoY. The former is the lowest level in two years and two months, and the latter is now the seventh consecutive month of decline. The confrontation between the US and China and delay in structural reforms have been slowing the economic recovery in China. On the other hand, the outlook for the US and European economies is also becoming highly uncertain including prolonged monetary squeeze in the wake of high inflation and the collapse of the US regional banks. There are also serious debt problems in developing countries that have expanded amid the COVID-19 pandemic.

Under such circumstances, the import price index in Japan in April 2023 also turned negative and decreased by 2.3% MoM and 2.9% YoY in yen. The major factor was the decline in coal oil, coal, and natural gas, which was the drop of 9% YoY in yen. However, the burden of the rise in costs imposed so far has been progressively passed on to the price of goods, and the corporate goods price index rose by 5.8% YoY in April 2023. Nevertheless, the growth rate has shrunk for four consecutive months since December 2022. The gross domestic product (GDP) in the period between January to March 2023, showing an increase of 1.6% (annual basis) from the previous quarter in real terms, also fell by 4.2% YoY in exports for the first time in six quarters. This reflects concerns of a global economic recession.

On May 16, the Japanese government has approved the requests to increase the household electricity rates submitted by the seven major power utilities. Electricity expenses for general households will be raised by 15.3% to 39.7% from June 1, 2023. Although the ranges of price hikes were reduced in consideration of a series of recent scandals in the electricity industry, including forming a cartel in electricity sales among four utilities and the current situation in the crude oil rates, the increase in living costs by the substantial regional oligopoly business operators will immediately squeeze household expenses. Policy support for consumer sentiment such as extension of “drastic easing measures” will be required. Electric power companies all commented that they are going to “work hard to improve corporate management,” but simultaneously with corporate management, I would like them to re-examine the overall power supply system, including the current structure of ten utilities, the fully distributed cost method, and how the power transmission and distribution networks should be.

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“Tight Supply for Electricity Demand; Self-Sustaining Decentralized Network Required to be Built Hurriedly”, This Week’s Focus, June 17, 2022

This Week’s Focus, May 19

Takashi Mizukoshi, the President