Oil prices: Speculation and international politics at play

However, when early last week, oil prices recorded almost $100 at the international market, for December delivery, the Golman Sachs oil expert was vindicated even as other analysts who doubted him were quick in citing possible factors responsible for the sudden price rise.

Among others, analysts across the world have cited various reasons for the continuous rise in the price of crude oil in recent times. Some say the rise is not unconnected to the conventional forces of demand and supply in the market. According to this school of thought, the increasing demand over supply is brought about by surge in the population of both Indian and China, and to a great extent, the United States of America.

Others believe the problem lies more with the high level of speculations about a possible cut in supply in no distant time, especially in a country like Nigeria, Iran and Iraq due to the circumstances surrounding their production potentials, whereas another group has blamed the rising trend purely on international political power play by big oil experts with their political opponents - the importing nations. A fourth school of thought has continued others view that the continued slide in the value of the United States dollar in relation to other major currencies directly contributed to the oil price escalation.

U.S Fed Chairman, Ben Bernanke’s comments was to further increase expectations of another cut in U.S. interest rates. The Federal Reserve Chairman has highlighted the twin threats of slower growth and inflation in his comments. On Friday, November 9, U.S. crude rose 80 cents to $96.26 a barrel by 1519 GMT, off early-session highs of $96.48.

The London Brent crude climbed 66 cents to $93.45. Again keen watchers of the situation in the Middle East, especially, say war-torn Iraq has been largely responsible.

Given all these possibilities above, many, particularly the United States had predicted that OPEC in its summit in Riyadh penultimate week would decide for production increase to further boost the world crude supply and consequently, influence a reduction in price. The United States of America thereafter last week made a strong appeal to the oil cartel to increase its daily production output so as to check the rising price of the black gold.

However, contrary to this global expectation that the Organisation of Petroleum Exporting Countries (OPEC) may increase its total output amid rising crude oil prices last week, leaders of the cartel ruled out such a move. Rising from a summit in Riyadh, Saudi Arabia, the body declared that there was no need to increase oil production at the moment.

OPEC rejected a U.S appeal to immediately boost output to tackle falling inventory levels and high crude prices. The leaders in a unanimous decision said there was no good reason for oil to reach US$100, as it almost did last week. OPEC blamed refinery bottlenecks, geopolitical issues and the weak U.S dollar for oil’s ascent from below $70 a barrel in mid-August. Earlier on Tuesday, forty-eight hours to the Riyadh Summit, Saudi Oil Minister, Ali Naimi had told the Financial Times in an interview that OPEC won’t announce a production increase at its summit in Riyadh.

In his words, "OPEC ministers are not going to meet to discuss supply and prices and the heads of states definitely are not going to discuss it". The minister said he was personally "concerned" about the global economy but dismissed worries about "the adequacy of energy supplies." "There are very pessimistic views, that we do not share, about supply, adequacy of supply, and there are also pessimists who keep saying that we are going to run out of fossil in future especially oil," he stressed.

"These pessimists about the adequacy of supply and adequacy of reserves in the future, I think they are doing a lot of damage to the stability on the market". These expressions were clearly reflected on the decision of OPEC in Riyadh not to dance to the tune of the United States and other oil consumers.

Meanwhile, from the understanding of recent happenings at the international crude oil market, it is crystal clear that the situation has been fuelled largely by factors that could be more appropriately described as speculative international politics. The political power play could be viewed from two opposing perspectives: The oil producing and exporting countries’ front and the oil producing and importing nations.

The oil producing and exporting countries that actively participate in the oil politics are bonafide members of OPEC, represented by countries like: Iran, and Venezuela while the United States and to some extent, the United Kingdom stand in for the other front. For the OPEC members, especially Iran and Venezuela, the large increase in oil income this fiscal year alone, a situation described as a five fold jump since 1998, is helping them wax stronger and stronger by the day at the international scene.

"A particular note is taken of Iran and Venezuela, two staunch defenders of their political sovereignty and sworn opponents of the United States and by extension, the United Kingdom. Without doubt, OPEC members are increasingly becoming powerful.

While Iran is stubbornly continuing with her controversial nuclear power acquisition amid stiff opposition from the western powers notably the U.S and Britain, Venezuela is increasingly becoming popular and dominating in among the Latin America countries."

In the South America sub region, the remarkable $100 a barrel is allowing Venezuela to be launching and commissioning more development projects. The country symbolised by President Hugo Chave has for some time now been engaged in providing subsidized fuel to Londoners, providing some oil relief to Cuba – another avowed political enemy to the U.S. and going ahead to purchasing distressed sovereign debt from Argentina.

By way of gaining more popularity and acceptability from within and outside his country, the Venezuela’s President has gone extra mile to constructing social projects at home – a strategy that has earned him increased popularity from his countrymen

As for the stubborn Iranian President, Mahmoud Ahmadi-Nejad, the increase in the crude price has been a blessing as the boom has helped him check the excesses of President Bush and his United States who has been championing international isolation of Iran for refusing to halt her nuclear ambition.

The boom to a large extent has enabled the western trained president to really withstand the harsh impacts of the United Nations and U.S sanctions. This is where the use of speculative politics comes into play.

For example if either Iran or Venezuela feels it may have been over stressed and oppressed by the Western Powers, it could deceitfully cause a false alarm over imminent threat to current production level and at the same time exercise their influence in OPEC to refuse any boost in production quotas and defy any international appeal. By this singular action, the price of crude oil in the inter international market would rise.

On its own end of manipulating the oil scene politically over the years, the United States has relied much on her ever-domineering political hegemony over the rest of the world. The U.S has often exercised this political domineering to influence the price as well as the output of oil by creating and sustaining good bilateral relations with leading OPEC countries such as Saudi Arabia, United Arab Emirate and Kuwait among a few other Arab countries in friendly ties with the United States. By this relationship, the U.S has to a reasonable been able to influence, indirectly, the price of oil at the world market.

However the influence f the U.S over OPEC through the so-called friendly nations has been dwindling over the past few months. This is clearly why Saudi could, even ahead of the OPEC summit in Riyadh be bold to dare the U.S and refused any form of increase in production quotas so as to in the appeal made by the U.S. " to immediately boost output to tackle falling inventory levels and high crude prices". This dare reflected OPEC decision in Riyadh.

Meanwhile, playing international politics with the price of oil is almost as old as the existence of OPEC itself.

For example, on October 6, 1973, Syria and Egypt launched military attack on Israel in a conflict historians referred to as Yom Kippur War. As a way of using its cartel power as a political tool, OPEC declared an oil embargo on countries such as the United States that had been supporting Israel. Soon after, there were gasoline and refined petroleum products shortages in the U.S and elsewhere.

With the latest development, it is expected that the price of one barrel of oil, which at Wednesday 14th November 2007 traded at US$94, will rise up to about US$105. Only time, surely, shall tell the next direction especially as the search for alternative sources of energy is on top gear now mostly by the oil consuming nations