Mideast Situation Touches Raw Nerve of Global Oil Price: Analysis

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Last updated at: (Beijing Time) Friday, April 05, 2002

Mideast Situation Touches Raw Nerve of Global Oil Price: Analysis

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Beijing raises oil prices

The oil price on international markets has been surging recently, and China has also raised its prices for gasoline and diesel oil from April 4. The trend of oil price has again leapt into public concern.

China's price hike is decided by its pricing mechanism for refined oil. The domestic oil price is linked with that on Asian, European and North American markets, according to State Development Planning Commission regulations. When international oil price floats beyond a certain range, China would accordingly adjust its own price, that is the case of the latest price raising.

Experts hold that the new round of international price soaring is mainly attributed to the following factors. The first is the production cut by OPEC. The second is recovering US economy, which brings new hope to world economy. World oil demand is expected to rise and then pull up the oil price. The third is escalated Israel-- Palestine conflicts, especially the threats from Iran and Iraq to reduce oil exports, which have caused panic among some oil dealers. The fourth is possible speculations.

The oil price trend for the near future chiefly hinges on to which direction the Israel-Palestine conflicts will lead. The price is difficult to predict due to confusing mideast situation, and it may pose high before the tension eased. But, from a long-term view, the price would not soar too high, and may drop back after a period of surging. This is because:

First, the oil price, though affected by many factors, is finally decided by demand-supply relations. Now the world oil is in a state of over production and supply, under which the price couldn't go too high.

Second, it is quite impossible that the oil supply from mideast region be cut off, except occurrence of unexpected accidents of larger scale. Although Iran and Iraq are threatening reduction of export, the OPEC has said it wouldn't respond to the suggestion of using oil as a "weapon" and high officials of Saudi Arabia, the world biggest oil producer, also called Arabian countries not to choose cutting oil supply as a way of supporting Palestine's fight against Israel.

Third, it still needs time for world economy to recover and the growth of oil demand will remain slow in a short term.

Fourth, after experiencing a few times of global oil crisis, developed countries have been adjusting economic structure and build up their own oil reserves to reduce their independence on oil consumption. Besides, the stable growth of production capacity of oil producers out of OPEC has, in a certain degree, weakened the power of OPEC on international markets and the "oil weapon" possibly adopted by Arabian countries.

Fifth, the oil price, if perched high too long, would check global demand, which is not in tune with long-term interests of OPEC and other oil producers.

This time's violent fluctuation showed again oil, as a kind of "strategic commodity", affects a country's economic and political security. In recent years China has been depending more and more on imported oil, which has taken up one third of all processed volume. Oil has on international markets become a special commodity controlled by big capital with a nature of speculation and monopoly. With its violent price fluctuation it will pose threat on China's oil security therefore must be given high attention, oil expert warns.

By PD Online Staff Li Heng

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