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While the oil prices have eased over the last few days, down to around $123 a barrel over concerns about weaker demands from US economy, the president of Organisation of Petroleum Exporting Countries (Opec), Chakib Khelil, had attributed the escalating, then decreasing, oil prices to political factors and strategic concerns in the Middle East.
He said in media statements that "the price of oil could drop to between $70 and $80 a barrel if the dollar strengthens and concerns over Iran are reduced".
Khelil is in fact reiterating what oil producers have argued so far: price hikes are not triggered by the shortage of supply. They are rather politically motivated and speculation driven. They are more linked to prolonged unsettled issue of Iran's nuclear saga, which has been souring the already deteriorating situation in the Middle East.
"It is the Iranian nuclear policy and the West's criticism and demands that had driven oil prices to its highest levels," says Dr. Ali Darweesh, an energy analyst from Babylon Media. He said that the next crucial factor is whether further sanctions are going to be imposed by the UN Security Council on Iran, and whether Iran's nuclear facilities will be attacked by Israel or the United States.
Confirmation
Opec confirmed that its production was 32.7 million barrels per day (bpd) for June and it will increase it by 200,000 bpd to 32.9 million bpd in July. The oil prices reached their peaks on July 11 to more than $147 per barrel.
When oil prices stormed through the psychological price barrier of $100 per barrel at the beginning of this year, the oil industry, analysts and consumers joined forces to blame a shortage of crude supply in the market. It was the obvious culprit at a time when the world's economy had been suffering from the throes of near recession and volatile indicators towards the possibility of crash in various fields, including property and banking sectors.
Generally, the analysts had not taken seriously, in their consideration of economic and political factors, reasons such as continuing growth of non-western economies and their continued demand for oil supplies to fire their industries and the worries about a possible damaging war or a military attack against Iran. The Iraqi factor and the continued US occupation of this oil-producing country, which sits on the second largest proven reserves of oil, had also been discounted. Those worries have been minimised for political convenience.
That notion led to mounting political and business pressures on the oil producing countries to increase their output. Those countries had argued that the escalating oil prices were not triggered by lack of supply but rather by speculations and weakening value of the dollar as well as bad economic results in the US and Europe whose downturn had pulled down other economies' performance.
Pressures
Those pressures were exerted mainly by the United States and Europe whose economies had seen rising inflation rates and collapse of some of their mortgage and property market leaders, including UK's Northern Rock which could not be saved despite the injection of billions of dollars by the Bank of England.
The urgency of the situation forced Saudi Arabia to host an Energy Summit in Jeddah in June where leaders from producing and consuming countries met to discuss ways of easing the crude prices and inject some vitality into the world economy. Saudi Arabia promised to increase its oil production by more than 250,000 bpd in July. Still that fails to stabilise or improve the oil market prices.
The respite came only after progress has been reported in the talks between Iran and the European Union's Javier Solana in Geneva. The talks, which were attended by US Undersecretary of State Nicholas Burns, were viewed as a change in US policy from confrontation to dialogue with Iran. US Secretary of State Condoleezza Rice's comments, that her country does not have "permanent enemies" and is prepared to upgrade contacts with Iran, had clamped down on future speculation.
The general argument is that the price retreat can be sustained if Iran and the US reach an understanding before the US presidential elections in November and the beginning of winter in the western world.
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