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Home >> Opinion
UPDATED: 09:03, May 26, 2004
Who's to blame for oil price hike?
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Oil price in the international market has been rising these days with that of the crude oil bouncing up to US$ 41.5 per barrel after a short downturn, only lower than the new high record of US$ 41.55 on May 17. When analyzing the reasons behind the jump, some Western media attributed to China as one factor, asserting that it was the robust demand in China that pushed the price up. However, it is not true.

With the sustained and stable economic development China's needs of oil is on a constant increase. In the meantime, the United States, the world's biggest oil consumer, has never stopped increasing its strategic oil reserve. However, the global demand and supply of crude oil still remains on a balance. Although Organization of the Petroleum Exporting Countries (OPEC) cut the production by 415, 000 barrels per day, the world's petroleum maintained 81.50 million barrels in April, one million more than needed. In terms of the world's reserve, there's not much difference from that of last year. The US strategic reserve even reached record high. Not long ago, Edward Galante, senior vice president of Exxon Mobil Corporation said, global refinery network has enough oil, and adequate oil and gas supply. OPEC is still able to control the market by regulating the production. The fact itself tells that the market is not out of control. From present global oil production, the increasing demand can be met in a predictable future. OPEC still has a potential to further increase the production of five million barrels per day, let alone other non-OPEC member countries, which also have the potentials.

The round of oil price rise has many such reasons as the depreciation of US dollar, which has market effect. When Euro recessed, the oil price once fell to 38 Euro per barrel, or less than US$ 30 and now it is US$ 40, but less than 34 Euro. Obeid bin Saif al-Nasiri, Minister of Petroleum and Mineral Resources of the United Arab Emirates held that the current oil price hike to US$ 40-41 per barrel, if inflation and depreciation of the US dollar are taken into consideration, would fall to just around US$ 25 per barrel.

Second, the turbulent situation in the Middle East, worries that terrorists may attack oil-collecting and oil-transporting equipment constantly increase. Wall Street Journal analyzed, those worries lead to a "terrorist risk premium" of US$ 5-10 per barrel.

Besides, other factors such as the consumption peak in summer; some OPEC members saying no need to increase the production for the generally balance between demand and supply; for the moment the US government not to consider press down the oil price with its oil for strategic reserve�� Apart from all these, speculation by some speculators exerted the biggest influence on orienting the oil price.

The Wall Street speculators started to buy in great amount oil and gas futures from September 2003. In the oil futures market, the proportion of speculative for-profit hedge fund has exceeded 20 percent. Meanwhile, oil price rise brought up the gas price which, vice versa, drew up the oil price as encouraged by speculators, thus making the bubble bigger and bigger.

In fact, one would not feel hard to explain the problem just by making clear who is benefiting from price hike. Aside from the hedge fund, the oil refining and processing companies are also the biggest gainers from the oil price hike this time. As the US expert estimated, when the price is around US$ 40 per barrel, processing companies can earn US$ 7.26 out of each barrel.

"China factor" did effect some psychological influence upon the market, but speculation did even more. According to the US expert's analysis, even though China's oil demand witnessed an increase by 8-10 percent annually since 2003 to 2004 as compared to the 6.5-percent increase from 1992 to 2002. But, just as many economists analyzed, the oil demand increased very slightly or even decreased due to the slow economic recovery in Europe, Russia, Japan and Latin American countries. Therefore, from the international market, China's oil demand increase is a factor to offset it. Some Westerners deliberately connecting the recent oil price hike with China's long-term oil strategy is either for urging speculation or with some ulterior motives.

By People's Daily Online

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