Business | Opinion
Analysts attempt to unravel mystery of rising oil prices
The rise in oil prices is a puzzling issue for observers, which is evident in their largely varying and sometimes contradicting analyses.
- By Dr Mohammad Al Asoomi, Special to Gulf News
- Published: 00:17 March 27, 2008
The rise in oil prices is a puzzling issue for observers, which is evident in their largely varying and sometimes contradicting analyses.
The Organisation of Petroleum Exporting Countries (Opec) does not see any reason for oil prices to exceed $110 per barrel, while the US is pressurising oil-producing countries to increase production at a time when there is a balance between supply and demand in global markets.
There are many mysteries facing oil observers and experts. The latest of these analyses came from the World Monetary Fund and attributed the rise in oil prices to hectic speculations in global markets.
This is the third oil price hike in four decades. The first one took place in mid 1970's, when the price rose from $2 per barrel to more than $5 before shortly jumping to $11.
The main reason behind this rise was the cut of oil supplies by Gulf countries as a result of the Arab-Israeli war in 1973.
The second hike had clear logical causes, and resulted from the 1979 Iranian Revolution and the start of the Iraqi-Iranian war in 1980, which threatened to cut oil supplies from the Gulf region, dramatically bringing the oil barrel price to $34.
The consecutive rising prices brought the oil barrel price to an all time high since the beginning of its production about a century ago. Analysts and observers examined these prices according to their own perspectives and their political and theoretical backgrounds.
First, there are some who follow the conspiracy theory when they explain the rise in oil prices. They attributed the rise to US Vice-President Dick Cheney, who chairs leading American oil companies, which benefited from the increasing prices more than other companies.
However, controlling prices to this extent by one side is very doubtful.
Second, some attribute the rising oil prices to speculations in global markets, which is more realistic and evident in the huge variation in prices during short spans of time.
Third, some refer the rise to increasing demand in Asia, especially in China and India, which are achieving unprecedented growth rates that cause an increase in demand for oil.
This point of view has logical sides, but is not enough to justify the sky-high price of $110 per oil barrel, especially that supply and demand are balanced and there is no shortage in oil supplies in global markets.
Fourth, some experts believe that the rush to buy oil has something to do with reserves in producing countries, and subsequently the life expectancy of oil and its depletion. According to British estimates, oil reserves are much less than announced, with a life expectancy of 40 years.
Therefore, developed countries are seeking to fill their oil tanks with as much as possible, because the expected imbalance between supply and demand in the next few years will push the price of oil to $200 per barrel, which will lead to achieving astronomic profits.
Record profits achieved by companies and speculators will not matter in case these low estimates of reserves are proved true. The readiness of producers for the age of oil depletion is the point. Some of them have made progress in diversifying their sources of income, while others are still trying to do so.
Most reserve estimates come from global oil companies. However, knowledge of the size of reserves has become an important strategic issue for oil producing companies.
They must know how much time they have to find alternative sources of energy and income.
National companies in producing countries, which gained vast expertise in the past two decades, are the only ones who can tell the exact size of oil reserves in their countries.
The writer is a UAE economic expert.
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