The week has been turbulent and volatile as far as crude prices are concerned. Prices have been registering new peaks. There have been talks of $50 a barrel and truly speaking, in the current scenario, that could become a reality. Former Saudi Oil Minister Sheikh Ahmed Zaki Yamani foresees a rerun of the mid-eighties oil price crash when a glut of OPEC oil halved the crude prices. And he has reasons to suspect a repeat of the crash. It is not tight supplies that are maintaining the current highs, many believe. It is the big money speculators to be blamed for the surging oil prices and hence Sheikh Yamani strongly predicts that the scare will not last long. He says that the high prices are basically “a fallout of the buying bonanza by hedge funds, who for the moment see the energy market as the best place to make fast return. The funds are injecting huge amount of money and the global economies are paying the price for it.”

Speculative funds that had temporarily pulled out of the market in the spring are believed to back in the arena. “They are taking advantage of the low trading volumes in August, when many traders on both sides of the Atlantic are on vacation, to push prices higher,” says another analysts Simon Wardell of World Markets Research Center.

Another factor contributing to the spiraling oil prices is the ongoing campaign to fill up strategic reserves in both the United States and China, the two largest consumers. China is set to nearly double its commercial oil products storage over the next two years.

It intends to boost storage by small private firms on the eastern seaboard to nearly 80 million barrels a day from the current 40 million barrels, by the end of 2006. State Oil giants have already been preoccupied with boosting storages to serve their own refining systems.

Despite this, Sheikh Yamani predicts, “Before the end of summer, we will see a lower price.” While others do agree with him, they disagree on the time period required to cool down the crude market. “We expect the oil price to go down over the winter in December, January or February. At the moment there is enough supply. But the oil prices remain high due to worries over tight supplies in the winter. The demand will start falling at the beginning of next year,” believes John Olaisen, an Oslo-based oil analyst.

“There is no additional supply. The Saudi oil minister has said Saudi Arabia can increase production but they cannot do it immediately,” the OPEC president said on Tuesday, last week. A day earlier, on Monday, another OPEC minister, Algerian Oil Minister Chekib Khelil said OPEC had done all it could to stop the oil price rally. “OPEC can do nothing,” he told reporters in Algiers.

Both these statements were enough to rattle the already jittery oil markets. Hence prices resumed their upward journey. Hence, the very next day in order to sooth the frayed nerves of the market, the OPEC president was required to clarify, almost reverse his earlier statement. In a statement issued in Vienna, he later said that the OPEC keeps a surplus of production of up to 1.5 million bpd and that could be used to instantly increase crude supplies.

Eyes are indeed focused on the behavior of the crude markets over the next few months!