Weak dollar not sole reason for high oil prices
www.chinaview.cn 2008-04-18 00:59:55   Print

A worker counts Indian currency at a petrol pump in the northeastern Indian city of Siliguri in this file photo taken on Feb. 5, 2008. Crude oil for May delivery on Wednesday closed at nearly 115 dollars a barrel, the third straight day of records, on supply concerns on the New York Mercantile Exchange.

A worker counts Indian currency at a petrol pump in the northeastern Indian city of Siliguri in this file photo taken on Feb. 5, 2008. Crude oil for May delivery on Wednesday closed at nearly 115 dollars a barrel, the third straight day of records, on supply concerns on the New York Mercantile Exchange. (Xinhua/Reuters Photo)
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    VIENNA, April 17 (Xinhua) -- OPEC's average daily oil prices have set records 16 times since the beginning of this year and soared to 106.65 U.S. dollars per barrel (dpb) Wednesday, the Vienna-based cartel said Thursday.

    Oil prices have surged higher since 2007 and regularly hit new peaks, so that price breaking is no longer news but a "routine" matter.

    International oil market analysts attribute the high prices mainly to the large amount of speculation in the commodity market, inspired by the weak dollar.

    "The U.S. dollar's weakness against major currencies inspired increased investment in the commodities market, particularly for crude oil, pushing prices to record levels," OPEC (Organization of Petroleum Exporting Countries) said in its monthly report published Tuesday.

    In March, the U.S. dollar continued to fall sharply versus major currencies, including the euro, the Japanese yen, the Pound sterling and the Swiss franc, said the report.

    The current exchange rate between the euro and the U.S. dollar has surpassed 1.59 and is approaching 1.60. Some analysts even predict a possible future exchange rate of 1.65.

    Experts, therefore, point out that only when expectations about the U.S. dollar's depreciation completely break down can international oil prices truly step on a downward track.

    However, some experts say other aspects besides the weak dollar are also responsible for pushing oil prices up dramatically and they would continue to wield an influence on international oil price trends.     

    INSUFFICIENT SUPPLY, STRONG DEMAND

    The balance of international crude oil supply and demand remains tight.

    According to OPEC's latest monthly report, demands from the Organization for Economic Cooperation and Development (OECD) countries will slightly decline, while demands from non-OECD nations, including some in Asia, the Middle East and Latin America, will stay strong, leading to a growth of global demand for crude oil.

    OPEC expects an additional daily average output growth of 1.2 million barrels or a daily average oil output of 87 million barrels in 2008.

    The OPEC output quota this year will be less than 32 million bpd and non-OPEC output would be about 50.3 million bpd, the report added.

    Although OPEC's actual production will be higher than the quota, analysts are still pessimistic about the demand-supply imbalance in the international market.     

    OPEC UNWILLING TO INCREASE OUTPUT

    OPEC tends to limit production to maintain current prices.

    Its proven oil reserves comprise nearly 80 percent of the global total, with its crude oil output accounting for about 40 percent of the world. It therefore plays a decisive role in stabilizing supply and demand on the international market.

    However, confronted with rising oil prices, OPEC has thrice declined to increase output since last December. It also insists that the economic recession in the United States will influence global economic growth and result in a decline of world demand for crude oil.

    Meanwhile, the warming weather in the northern hemisphere and the well-supplied oil market, among other factors, are proof that there is no need for an output increase, OPEC has repeatedly said.

    OPEC's expectations about "reasonable oil prices," as well as statements of some member countries that the prices have not significantly deviated from the reasonable level, are making analysts more skeptical about the cartel's readiness to curb the current high prices with an output increase.

    Frank Schallenberger, an oil analyst from the German bank Landesbank Baden-Wuerttemberg, said: "As long as OPEC's output growth is insufficient to offset the demand from Asia, oil prices will continue to rise."     

    UNSTABLE GEOPOLITICAL REGION

    The reliability of the international crude oil supply is poor. Complicated geopolitical reasons, which acted as a booster for surging oil prices in 2007, will continue to have a negative effect on oil supply this year.

    Five years have passed since the U.S.-led invasion of Iraq, but the situation there remains volatile.

    The conflict between Turkey and Iraq shows no sign of being resolved, and the future of the Iran nuclear issue is still uncertain.

    All these factors have added too many variables to the Middle East, an important region for crude oil production.

    Moreover, several other important oil producing and oil transporting junctions are also located in the unstable geopolitical region, increasing uncertainty regarding oil supply in the international market.

    These factors have played an important role in driving up prices.

    Further, the U.S. Federal Reserve plans to cut interest rates several times this year, which will lead to a further weakening of the U.S. dollar.

    In view of this, although the global economic slowdown and the warming weather are expected to drag down oil prices, investors will push up prices in the face of inflation. As a result, international oil prices are likely to continue to maintain an upward tendency.

Editor: Mu Xuequan
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