The price of oil has hit new records amid rising political tension in the region, reports Sherine Nasr The value of crude oil fell slightly below $88 a barrel starting Monday, which was a retreat after a week of rapidly spiralling increases causing prices to shoot above $90 a barrel last week. Since late August, oil prices have witnessed a 28 per cent increase which, according to most market analysts, is widely unjustified. "These crude oil price hikes can continue for months to come," predicted Hussein Abdallah, an energy expert who accused speculation as the main culprit behind the latest increase. "Technically, there are no structural changes in the oil market to support these hikes," Abdallah continued. "Uncertainty, particularly in light of escalating geopolitical tension in the region, has a major role to play. Also, decreasing refinery output has resulted in a parched market." Indeed, there is consensus among oil experts that prices are not rising as a result of a drop in crude supply on the market. Minister of Petroleum and Mineral Resources Sameh Fahmi stated earlier this week that prices can easily exceed $100/barrel if a major oil field or refinery encountered technical problems. Fahmi called for full cooperation between oil producing and consuming countries in order to ensure a stable market. "The huge escalation in crude prices will automatically raise the price of other petroleum products and petrochemicals," argued the minister. "This is a mixed blessing for different nations." He explained that rich oil countries such as Qatar and Iran are certain to benefit from the situation, but the situation will have a negative impact on oil-poor yet heavy consumers such as China and India. "Economic development in most developing countries will slow down as a result of skyrocketing oil prices," Fahmi said. Meanwhile, Egypt is closely monitoring international oil prices and high crude prices may eventually turn into more profits for Egypt, according to Fahmi. "Egypt's oil exports are expected to increase by $2 billion to reach a total of $14 billion in 2007," he predicted. "The surplus will mostly be directed to cover the expenses of other subsidised petroleum products sold on the local market," he added. Subsidies in the energy sector are expected to reach LE50 billion this year, compared to LE43 billion in 2006. "This leap in the bill of subsidised petroleum products is mainly due to the jump in the international price of gas oil and LPG imported from abroad or purchased from foreign companies operating in Egypt," added Fahmi. Notably, crude prices escalated as the Turkish cabinet asked parliament for permission to launch a military attack against Kurdish rebels in northern Iraq, an incident which prompted huge crude buying as dealers feared a sudden disruption of oil supply from the region. It is worth noting that extensive Iraqi oil exports were channelled through Turkey in the past four years. Turkey's overtures for war coincide with a rise in demand on oil, as the US and several European countries stock up for the winter season. Meanwhile, Iran is continuing to its nuclear programme and hence jeapordising stability in the Middle East even further. With crude reserves estimated at 130 billion barrels and a wealth of 26 billion cubic metres of natural gas, Iran is the second largest oil producing country. This fact makes it easy to conclude that action against Iran is certain to destabilise the market further. Furthermore, energy experts believe that other factors contribute to soaring prices, including the modest performance of the US dollar against the euro; the uncertainty of the situation in the West Bank and Israel; in addition to a number of recent US Department of Energy reports which underline a decline in petroleum reserves. Hence, experts are still unsure whether oil prices have already reached another plateau or if this is a temporary situation driven by a multitude of factors. The price of standard crude oil of NYMEX stood under $25/barrel from September 2003, until August 2005 when it suddenly rose above $60/barrel. It later hovered between $50 to $60/barrel for most of 2006. The first price hike was witnessed in May 2007 when crude hit the $70/barrel. A second price hike started in October when crude was traded at $80/ barrel, before jumping to an all time high of $90.07 early last week. For its part, the Organisation for Petroleum Exporting Countries (OPEC) has been carefully monitoring the situation. According to Abdallah Salem El-Badri, secretary-general of OPEC, the organisation has observed with concern the recent escalation in oil prices. In a statement published early last week on OPEC's official website El-Badri noted that the market is very well supplied and fundamentals are not supporting the current high prices. "There has been no interruption in crude supplies and OECD commercial inventories remain at comfortable levels," the official stated. "The rising oil prices are largely being driven by market speculators." He further underlined many of the above factors as the reason behind an aggravated market situation. OPEC is the source of over one-third of the world's oil, and members agreed in September to raise output by 500,000 b/d. The decision is effective starting 1 November. "OPEC will continue to monitor the global oil market and will respond to any supply disruption so as to ensure the market remains well supplied during the winter months," it said in the online statement. Nevertheless, a senior Iranian oil official was quoted as saying that extra OPEC oil is unlikely to bring prices down, simply because the latest price hikes were not due to a crude crunch.s
