Oil Prices at $139 Per Barrel Due to Speculations, Fraying US-Saudi Ties, and Israeli Threats to Attack Iran

Speculation is pushing up oil prices

www.chinaview.cn 2008-06-09 20:11:37

BEIJING, June 9 (Xinhua) --

Speculation in the world financial market has played an important role in skyrocketing oil prices, among other factors such as supply woes and a weak dollar, analysts said.

New York's main oil futures, light sweet crude for July delivery, jumped 10.75 dollars a barrel to close at a record 138.54 U.S. dollars per barrel on Friday.

In the day's trading, the benchmark contract crossed the 137, 138 and 139-dollar-per-barrel (dbp) thresholds for the first time and soared to an all-time high of 139.12 dbp.

The strong surge sharply reversed the nearly 14-dollar drop over the previous two weeks and caused fresh fears of dire consequences as a result of runaway fuel prices.

Speculation amid the weakening U.S. dollar and concession fears in the aftermath of the U.S. sub-prime mortgage crisis were clearly one of the vital players behind the skyrocketing oil prices, observers said.

Officials of the Organization of Petroleum Exporting Countries (OPEC), which pumps 40 percent of the world's oil, have repeatedly pointed to speculation as the main cause of rising oil prices.

OPEC Secretary-General Abdullah al-Badri said on May 23 the cartel could do nothing to curb the hike in oil prices as speculation and the weak U.S. dollar, rather than insufficient output, should be held responsible.

"When we see there is a shortage of supply, we will act," he said. But in the present situation, "even if we increase output tomorrow, the prices will not come down because of speculation and because of a weak dollar."

The fluctuation of crude oil prices is closely related to the global financial market, a Chinese official said on Saturday at the energy ministers' meeting among India, China, the United States, Japan and South Korea in Aomori, Japan.

Rising oil prices should be put into the context of the global financial market, which could be affected by a wide range of factors such as the change of exchange rates, geopolitics, political instability and natural disasters, said Zhang Guobao, vice chairman of China's National Development and Reform Commission.

"All these may be reasons for speculation, ... and from this way of thinking, an answer to the current record high oil price could be found," Zhang said.

Analysts said there are several causes for rising oil market speculation. The outbreak of the sub-prime mortgage crisis in the United States last summer and the resulting turbulence in the world financial market channeled huge capitals into the oil market.

Meanwhile, interest-rate rises in Europe and continued U.S. Federal Reserve rate cuts further weakened the dollar against the euro, which also enticed overseas buyers armed with stronger currencies to the oil futures market.

Faced with increased inflation pressure, many traders also buy commodities such as oil as a hedge when the dollar is falling.

Speculation not only pushed up oil prices, but also increased fluctuation on the world oil market.

It is estimated that speculators control 1 billion barrels of crude oil in future contracts involving a total of 100 billion U.S. dollars. They buy or sell oil futures based on market information, which increased the market uncertainty.

Such speculation could boost oil prices to one record high after another, or cause acute market turbulence as the price bubble finally bursts, analysts said.

While speculators may have benefited from the current round of price surges at the cost of common consumers' interests, uncontrollable rises in fuel prices will exert a negative impact on the global economy by causing sluggish consumption, increasing business costs and pushing up inflation, they added.

The problem has triggered wide concerns, and the U.S. Commodity Futures Trading Commission recently said it was six months into a probe of U.S. oil markets focused on possible price manipulation.

Report: New forces fraying U.S.-Saudi oil ties

www.chinaview.cn 2008-06-09 04:09:46

LOS ANGELES, June 8 (Xinhua) --

Surging prices, along with a weak dollar and an oil-thirsty Asia, have blunted America's leverage with Saudi Arabia, a key oil producer and helped sour the two nations' relationship, the Los Angeles Times said on Sunday.

Gone were the days when Saudi Arabia worked with its dominant customer, the United States, to keep world oil markets stable and advance common political goals, the newspaper claimed.

This could be demonstrated by the surging price of oil, which soared more than 10 U.S. dollars a barrel Friday to a record-high 138.54 dollars, the paper said.

"As gasoline prices have risen, the White House has unsuccessfully exhorted the Saudis to step up production, and Congress has threatened retaliation," said the paper. "But the situation now is a far cry from the days when the U.S. economy dominated the direction of the petroleum market."

"That gave us leverage," Greg Priddy, an oil analyst at the Eurasia Group, a New York-based risk assessment firm, was quoted as saying. "There's certainly a perception that the power equation has changed."

The weakening of the economic relationship comes when the vital U.S.-Saudi security relationship also has been fraying, the paper said.

In the 1980s, the U.S.-Saudi bond that kept oil prices low was credited with helping weaken the Soviet Union during the waning days of the Cold War. And it helped keep markets stable after Iraq's 1990 invasion of Kuwait.

But the Saudi government has been dismayed by the consequences of the war in Iraq and by what it sees as a weak Bush administration commitment to the Palestinians, the paper said.

The relationship is shaping up as a political issue for the fall campaign, certainly among congressional candidates and perhaps among presidential candidates, the paper said.

With a 20-million-barrel-per-day habit, the U.S. remains the world's largest oil customer, even though its daily consumption over the years has dropped from one-third of total daily production to one-fourth, according to the paper.

"But the U.S. can no longer guarantee on its own that producers will have the markets they need for their oil. Nor can the Saudis, alone, ramp up production in sufficient amounts to stabilize prices," said the paper.

Asian nations now use about 17 million barrels a day. That's up more than 20 percent since 2003, and booming growth is expected to continue.

Many believe the Saudis have grown more interested in conserving their supplies for later generations, and confident that if U.S. consumption drops, the economies of Asian countries will take up the slack, the paper noted.

Editor: Mu Xuequan

Crude prices rocket 10 dollars to all time high

www.chinaview.cn 2008-06-07 07:59:29

NEW YORK, June 6 (Xinhua) --

Crude prices rocketed more than 10 U.S. dollars in a day on Friday, approaching 140 dollars a barrel on tension in Middle East, weak dollar and Morgan Stanley's forecast.

Light, sweet crude for July delivery rose 10.75 dollars to 138.54 dollars a barrel on the New York Mercantile Exchange after hitting 139.12 dollars, a new record high earlier.

Friday's surge was the biggest single-day price increase in the history of the New York Mercantile Exchange crude contract.

"Everyone was holding their collective breaths today as they witnessed this super spike in oil," said Wall Street Strategies' senior research analyst Conley Turner.

　　TENSION IN MIDDLE EAST

"Crude prices catapulted to an all time new record surpassing 139 dollars per barrel much to the consternation of all market participants," Turner told Xinhua.

"There were several factors driving this trade. First and foremost were comments made out of Israel by its Prime Minister Ehud Olmert that the 60-year-old nation will attack Iran if it does not abandon its nuclear program," he explained.

The implication of such an act caused traders and investors to bid up the commodity as that would certainly lead to supply constraints in an overly supply sensitive world.

Iran, the second-biggest producer in the Organization of Petroleum Exporting Countries, has been accused of trying to develop nuclear weapons under the cover of a civilian nuclear program. However, the country has denied those charges and insisted that its nuclear program is for peaceful purposes only.

The Pentagon indicated despite the rhetoric, nothing new has changed on the ground and there would be no reason for Israel to engage in such an act at this time.

"Israel is very concerned about their future and their safety," while the United States "is trying to solve Iran's nuclear issue through diplomacy," said the White House Friday.

WEAK DOLLAR AND MORGAN STANLEY'S FORECAST

Crude prices were also boosted by weak dollar, which continued its downward spiral after the European Central Bank President Jean-Claude Trichet commented Thursday that bank could raise interest rates in the near future.

The dollar fell against the euro further Friday after a higher-than-expected unemployment data in the United States.

A Labor Department report showing the U.S. unemployment rate jumped half a percentage point to 5.5 percent last month, the biggest monthly increase since 1986, dragged the dollar even lower.

"The price of oil has an inverse relationship with the dollar investors oil and other commodities as a hedge against inflation when the dollar is declining," Turner pointed out.

The third leg supporting Friday's rise in oil prices had to do with the comments made by a major brokerage firm that strong demand out of Asia can drive the price of oil as much as 150 dollars by July 4th.

Middle East oil exports are stable but Asia is taking an unprecedented share, said Morgan Stanley in its latest report, adding U.S. inventories have dropped by 35 million barrels since March.

Last month, Goldman Sachs predicted oil prices could tip 200 dollars a barrel within the next two years.

"We are really in bubble territory and betting the ranch on when the bubble will pop could be a great, if you have two ranches," said the analyst.

"The path of least resistance is up right now and that 150 dollars per barrel prediction by July 4 could well be a self fulfilling prophecy," he added.

Energy ministers call for measures to stabilize oil market

www.chinaview.cn 2008-06-07 20:01:30

AOMORI, Japan, June 7 (Xinhua) --

Energy ministers from Japan, the United States, China, India and South Korea agreed Saturday to adopt comprehensive measures to deal with the current rocketing crude oil prices.

The measures include improving investment environment, strengthening energy saving efforts, expanding oil stockpile for emergency use and developing alternative energy forms, according to participating officials at a joint press conference following their one-day meeting.

Zhang Guobao, vice chairman of China's National Development and Reform Commission, said in his speech in an afternoon session on energy security that to safeguard the global oil market and resolve the issue of surging and fluctuating oil prices, major countries have to boost investment into oil exploitation, preserve world political stability and minimize geopolitical impacts on oil markets.

Zhang accentuated the necessity to analyze the relationship between oil prices and the global financial market. He urged for improving the institution of the international energy market and checking speculation by flowing capital.

China has adopted an active attitude toward adjusting and optimizing the industrial structure, and has been pushing forward the energy efficiency in an all-around manner by eliminating outdated productivity, Zhang said, adding that the proportion of atomic energy, wind power, solar energy and biofuel energy has significantly increased in China during the past several years.

At the joint press conference, Japanese Economy, Trade and Industry Minister Akira Amari said the current "abnormally high" oil price damages interests of both the producing and the consuming nations.

Amari also said representatives from the five participating countries agreed on the necessity to stop subsidies to processed oil products step by step.

U.S. Energy Secretary Samuel Bodman said the rise of crude oil price, which doubled in the past 18 months, was an accumulated consequence since the international community had not paid enough attention to the market in the past 30 years. He pointed out that although little could be done to change the market trend in the short term, the improvement of energy efficiency could help mitigate the impact of high oil prices on economies.

International Energy Agency Executive Director Nobuo Tanaka, who was invited to attend the meeting, stressed the need to keep the transparency of the oil market, calling for more reliable data and information for the construction of a more healthy and well-balanced market.

The five-party energy ministers meeting, initiated by China, was the second of its kind following the first one in Beijing in December 2006.

China, Japan, South Korea, the United States and India take up about 50 percent of world energy consumption and about 67 percent of world oil consumption.

The meeting was one day prior to the Group of Eight Energy Ministers Meeting and the G8 plus China, South Korea and India energy ministers meeting.

Editor: Amber Yao

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