The United States must shoulder some blame for sky-high oil prices. The world’s biggest user has made no effort to wean itself off cheap petrol and its foreign policy has made matters worse. Other factors are:
Iraq
Violence and instability in Iraq are seen as symbolic of a wider battle between the West and militant Islam. Oil traders fear supply disruption, as Iraq is an important provider of crude. The country produced 2,5-million barrels of oil a day under Saddam Hussein, but has failed to reach two million barrels a day this year because of pipeline attacks. Deposing Saddam brought its own uncertainty, but the failure of the US to impose its will there militarily has made matters worse. The White House has lost much of its ability to influence the global oil markets through pressure on Organisation of the Petroleum Exporting Countries allies such as Saudi Arabia.
Saudi Arabia
The turbulence in neighbouring Iraq and involvement of Saudi nationals in the 9/11 attacks on the US has put increasing pressure on the ruling monarchy in Saudi Arabia. A series of terrorist attacks amid threats to unseat the House of Saud — a key Washington ally — has led to fears that the 10-million barrels a day production from the world’s biggest exporter could suddenly be removed. The Saudis insist such fears are unwarranted. They point out that key facilities are heavily protected and their political power remains undiminished. But deep unease about the country remains.
Speculators
The biggest new influence on stability is the role of hedge funds and other “non-commercial” players in oil futures bourses such as London’s International Petroleum Exchange and the New York Mercantile Exchange (Nymex).
Crude prices used to be pushed up and down by the physical requirements of buyers and sellers such as major oil companies. Last year about 60 000 trades of oil futures a day were undertaken by non-commercial players on Nymex. In the first six months of this year, the number had rocketed to 200 000. Speculators bet billions on future oil prices and thrive on volatility. Their growing presence seems to encourage wilder price gyrations.
Yukos
The political wrestling match between Russian President Vladimir Putin and the jailed oligarch Mikhail Khordokovsky threatens bankruptcy of the country’s biggest oil company, Yukos. It produces 1,6-million barrels a day and faces tax demands apparently driven by a Kremlin desire to demonstrate its power over the commercial world. Traders fear vital production could be knocked out and investment by major Western companies threatened. Russia is the second-biggest crude exporter, but was also seen by Washington as an exciting new source of energy.
The majors
Western oil companies have not been searching for new oil and gas reserves. Spending on production has also been falling despite historically high global crude prices. Cynics say firms are withholding spending to keep supply limited and prices up. ExxonMobil spent $1,2-billion on exploration last year, its lowest for five years, while ChevronTexaco spent $1-billion, almost half of what it spent in 1998.
Yet ExxonMobil is sitting on $20-billion while rivals such as BP and Shell have made record profits but are giving money to investors through share buybacks and major dividend payouts.
Venezuela
The country has a critical role to play in the oil markets because it produces three million barrels of crude and two-thirds of this finds its way to the US. The state-owned oil company PDVSA is also the biggest single refiner and distributor of oil in the US.
But Venezuela has seen strikes and protests against government disruption of crude output in the past. Venezuelan President Hugo Chavez consolidated his domestic political position by winning the recent referendum. This should reduce domestic tension, but tension with the US might not be reduced unless John Kerry snatches the presidency in November. Western companies have been wary about investing in Venezuelan oil projects under a president who appears to admire Cuba’s Fidel Castro.
China
The biggest driver of new oil demand, China has been sucking in record imports to feed its commercial and social revolution. Demand rose by more than 11% in 2003 and increased by a further 20% in the first half of this year as the Chinese modernise their infrastructure. This, plus higher-than- expected demand in the US, has taken everyone by surprise. — Â