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Why Does World Oil Price Soar Up?
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The crude oil price is too high, the high period is too long! When will oil price go down? This is the question asked by many oil consumers when they saw the oil price increase by leaps and bounces to US$64.26 per barrel in New York market and US$63.51 in London on Friday. People's smile was just half way after the price fell to US$60 two weeks ago.

Since the beginning of this century, especially since the US launched Afghanistan and Iraq wars, oil prices have always been increasing. After the war, people thought the oil price should have been lower. But the fact is that it has increased from US$31per barrel in 2003 toUS$41 in 2004 and then US$56 in 2005. Particularly, from the end of August last year to this January, the price was almost more than US$70 per barrel.

Why does oil price only increase but not decrease?

Analysts sum up four major reasons for it. And the NO.1 reason is the geopolitical influence.

Although the two wars the US launched came to an end, the troubles have never stopped. Until now, al-Qaeda still make trouble from time to time in Afghanistan. The situation in Iraq is even worse, American troops, more than one hundred thousand, cannot withdraw, while the civil wars took place constantly. Meanwhile, the US started to shift its attention to Iran on the latter's nuclear issue. Terrorist attacks and threats also happened in Saudi Arabia and Nigeria. These all contribute to the crude oil price hike.

Secondly, the strong world economy promotes the growing world demand for crude oil. Over the past years, although the US has involved in wars, its economy is quite good; the economies of emerging industrial countries including China and India also develop rapidly; Japan and European countries such as Germany, Britain and France also see economic revival. The oil demand of a country, whether developed or develop, is bound to grow as long as its economy develops fast.

Thirdly, the price protection system of major oil producers is not conducive to a quick fall of oil price. When crude oil price goes up, oil producers definitely make more profit. No matter what happens, they don't want to see the oil price go down too fast. Whenever there are signs of ups and downs, the OPEC countries will try to adjust its price protection system to keep it steady and get an ideal price range because neither too high nor too low will be good.

Finally, oil dealers and speculators cook up the price. Due to the unstable international situation, many oil companies have earned huge profit from oil business. Last year, Exxon-Mobil, Shell and Total earned a net profit of US$36 billion, US$23 and US$14.3 respectively. Exxon-Mobil renewed its world record of annual profit and the latter two broke their domestic records. It's estimated that 70 percent of the oil price hike was caused by speculation.

The cost of crude oil is estimated at just US$15 per barrel. With the same amount of profit, then the price should be between US$30 and US$34. But the oil price has been lingering above US$60 per barrel. The unduly high oil price is not good for big oil users, nor for world economy and even oil producers themselves, because if the oil price is too high, sooner or later, it would possibly plummet at any time. Now we are entering the second quarter of the year, which is supposed to be an off-season with falling prices. However, analysts point out that as long as the geopolitical factor remains there, it is hard to expect oil price to return to a reasonable level. In this case, major oil users and common consumers would have to face such a fact.

(People's Daily March 28, 2006)

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