In Theory: This time no one can blame Opec for surge in oil prices

No observer in the world oil markets or in the energy research centres could have forecast a few months ago that the price of oil would reach $50 per barrel, which is the highest level since the first oil crisis in the mid-1970s.

What exactly is going on? Why this sharp rise in prices?

There are many comments and views put forward by researchers and analysts in the media, especially through the satellite TV stations and specialised bulletins. Most of the blame is laid upon the deterioration of conditions in Iraq and sabotage of the oil wells and pipelines, in addition to the rise in demand as a result of the increase in economic growth rates in the world as a whole.

In our opinion, such reasons are no longer convincing because Iraq's oil output, which ranges from two to three million barrels daily, does not exceed three to four per cent of the total global production, as the declining Iraqi output is made up for by the other Opec members, as in the case of the Second and Third Gulf Wars. It should be noted that Iraq's oil output at that time was estimated at 3.5 million barrels.

No surprise

As for the other reason related to the rise in global demand for oil, such a rise is not surprising and was repeatedly mentioned by the International Energy Agency more than a year ago.

Hence, it does not represent a surprise to the markets. Moreover, global output, especially in the Opec member-states, has risen by some five million barrels at the time when demand increased by three million barrels only, which means that there is a balance between supply and demand in the global markets.

There are other inherent reasons behind the astronomical rises in prices represented by the speculation and interests of the major oil companies and their influential representatives. Such companies have realised incredible profits that by far exceed the gains of the oil-producing countries that, in turn, benefited from such a price rise to remedy many of the economic and financial issues that have been pending for years.

Certainly, the speculators' wishes and interests of major oil companies are not sufficient on their own to raise prices, as speculative activities are part of the markets, especially the crude oil markets. Similarly, the interests of major oil companies have been there for about 150 years.

These two factors need strong justifications for the markets to be persuaded and psychologically influenced by such justifications. Here we come to the conditions in Iraq, the growth in demand especially in Asia and North America, the Venezuelan referendum and oil workers' strikes in more.

Therefore, rising prices will not continue for long in spite of the end of summer and preparation for winter when there is a higher demand for fuel, especially oil.

Vital issue

Amid these developments, there is another extremely important issue. Since the creation of Opec more than 40 years ago, the oil grouping has been accused of various things and has been blamed for the successive rises in oil prices.

Likewise, the Arab states, especially the Gulf oil producers, have been considered responsible for such increases and the Western media have kept on portraying the Arab as someone sitting on a barrel of oil with a wicked smile on his face and a wad of petrodollars in his hand.

This time no one has made any accusation against Opec nor has there been any criticism of the Arab countries because the oil taps in the Opec member states are turned on at full capacity.

So, that there is no longer any surplus or redundant production capacity. This applies to Saudi Arabia, which has the biggest production capacity in the world and has announced an increase in its maximum production, more than 10 million barrels daily.

Opec, whose members are mostly from the Arab states, is innocent this time because it has continually cooperated by reducing prices to safeguard its interests, which have probably been affected by the sudden spike in prices while also helping maintain the stability of the world economy and the oil importing developing nations.

An end to the oil price predicament that could have serious repercussions for the world economies as a whole calls for the cooperation of all parties. The global oil output is sufficient and even exceeds the total size of demand, which provides appropriate conditions for solving this difficult situation.

The writer is an UAE economic expert