Zee Beam News

11/16/ 2007 - MOSCOW - (RIA Novosti economic commentator Oleg Mityayev) - On November 17-18, Saudi Arabia will play host to the third summit in the 47 long-year history of the omnipotent oil cartel - the Organization of the Petroleum Exporting Countries (OPEC). On the eve of the summit, OPEC has been subjected to a massive attack led by oil consumers, who demand that it should immediately increase oil production. The price of oil may surpass the record of $100 per barrel any day, but it is already clear that the oil cartel is not going to make any concessions to oil buyers this weekend. Moreover, on November 14, OPEC bluntly rejected an appeal by the United States, a major oil consumer, to increase oil production this week. In response to this request by U.S. Energy Secretary Samuel Bodman, OPEC Secretary General Abdullah Badri said that "we don't see that we should add more oil...." He is absolutely right. Oil supplies fully meet the demand and the current soaring prices ($93-$95 per barrel) have been caused exclusively by speculative attitudes. Without a doubt, more oil in the market would help its consumers to stock reserves and ease speculation. But OPEC has a bitter experience of sudden drops in oil prices (the last one occurred in 1998), and does not want to rush decisions to increase oil production. Also, its opportunities in this sphere are quite limited. Now that prices have reached a record level, almost all oil-rich countries are producing as much oil as possible. This applies to Russia and other countries that are not part of OPEC. Only Saudi Arabia, the world's largest oil exporter, is in a position to step up its oil production but it does not see any point in this measure. Since November 1, OPEC, primarily the Saudis, has been putting an additional 0.5 million barrels a day on the market, but this has not reduced oil prices. The supply-and-demand balance alone cannot justify oil prices. Many experts believe that a fair price would be around $60 per barrel. Skyrocketing prices have been caused by a whole range of other factors, which have stirred up the objective economic trend toward increasing the costs of raw materials. These factors include geopolitical tensions, the decline of the dollar, the use of oil contracts for investment and profiteering and mishaps in the oil processing industry. Oil producing countries are ridden with political tensions. The situation on the oil market is clouded by the West's conflict with Iran over its nuclear program, which may develop into an armed conflict. In theory, the latter may put a halt to all oil supplies in the Gulf. After the U.S. invasion of Iraq in 2003, its oil industry has been unable to function normally because of continuous subversion at pipelines. Turkey deployed its 100,000-stong army on the northern border of Iraq and is ready to launch a military operation against Kurdish rebels on the country's territory. Riots are hindering oil exports from Nigeria. Furthermore, oil contracts are traditionally nominated in dollars, and a huge increase in prices should be attributed to a record drop of the U.S. currency in the fall ($1.47 for a euro). The weakening of the dollar coincided with the mortgage crisis in the United States and Western Europe, which is still fraught with the threat of collapse at the world stock exchange. Under these circumstances, the investors have found an escape - oil futures, but the profiteers have sharply raised their prices. On top of all that, there have been a number of accidents at oil processing facilities in the United States, which uses more gas than any other country. As a result, the commercial oil reserves have been depleted, which has further pushed prices up. After OPEC's adamant refusal to increase oil production, the consumers will have to hope for the cartel's mercy at a ministerial conference in Abu-Dhabi, United Arab Emirates, on December 5. This means that oil prices will remain extremely high. People in Russia have long realized that constantly rising oil prices are increasing their cost of living because of the growing flow of petrodollars.