JEDDAH: The world will be closely watching the oil price summit set for tomorrow in Jeddah. Saudi Arabia is the world’s only “swing producer,” meaning that it maintains excess capacity so that shocks in the oil market can be softened by an increase in Saudi production.
However, there is no clear agreement on the cause of the rising prices, with some blaming a global shortage of refining capacity and others pointing to excessive speculation in the futures market while others contend it is just a consequence of the increase in Asian demand, which could also be called globalization. The one thing upon which most pundits agree is that the price spike is jeopardizing global prosperity, from farmers’ fields to the runways at international airports. “All parties are starting from very divergent views on what has led to this level of prices, with Saudi Arabia blaming speculators, OPEC blaming shortages in refining capacity and our own prime minister blaming (supply shortages from) OPEC,” Dr. Bassam Fattouh of the Oxford Institute for Energy Studies told Terry Macalister of The Guardian. “In such circumstances it is hard to agree on how to bring oil prices down.”
Another factor is the sagging US dollar. Steve Hargreaves of CNNMoney.com expects producers to press the US government to impose greater controls on oil trading and take steps to strengthen the dollar. He also noted that refiners worldwide have cut back in light of record prices, which has led to a drop in crude inventories — further pushing up the price of oil.
“What goes around comes around, as they say. For most of the last decade, commodity prices have fallen, manufactured goods from China and Asia have become cheaper while the strength of sterling has reduced import costs even further,” Adrian Hamilton wrote in The Independent. “Now we have the opposite, with oil and food leading the charge back up the prices escalator, sterling falling and manufactured imports growing more expensive as inflation hits even the Chinese and Indian economies.” Reservations about the summit remains in the international media. “Don’t bank on anything being any cheaper at the pump day after tomorrow when the event is over,” said Andrew Walker, BBC News economics correspondent.
What most seem to agree upon is that Saudi Arabia is the most likely broker for some resolution based on its short-term swing capacity and longer-term production increase as projects for several new fields are completed. Clearly, if there is an answer to this complex puzzle, the Jeddah summit is at least the first step in finding it, and people around the world are hoping that answer is found.
