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World oil prices rising

World oil prices are gradually rising. Brent Crude, which is sourced from the North Sea and on whose basis the price of Russian Urals Crude is formed, is ready to exceed what could be termed as the psychological milestone of 100 dollars per barrel. What are the reasons for this? Is this caused by the rising demand or by a speculative factor? There’s an opinion that speculators are exactly the ones who model price formation.   

"Formally, we can acknowledge that this is true, especially, if we take into account that non implemented Futures account for 95 per cent of oil," the Head of the National Energy Security Foundation Konstantin Simonov says.

And still, there’re things which do not allow oil to figure as a cheap commodity in a long-term perspective. Meaning world oil demand growth and population growth. The new industrial countries - such as China and India - which are the main catalysts of the growing demand for fuels, are strengthening today. A certain stabilization of the demand for fuels in Europe and the development of the alternative power production do not have a great impact on the global arrangement of forces.

"The Organization of Petroleum Exporting Countries (OPEC) supervises world oil extraction. The oil cartel sets quotas on oil extraction and thus, determines prices on oil. However, this is not an ideal mechanism, since many OPEC member-states violate their commitments," Konstantin Simonov says. 

When the OPEC cartel says that it is going to reduce extraction, everybody knows that this will not actually happen. You know, Saudi Arabia alone can neither be sufficiently helpful for the oil cartel in this nor be answerable for all countries. Russia is the world’s biggest oil producer. It ranks second on that list, competing with Saudi Arabia. However, Russia has never resorted to artificial limitations on petroleum production in order to influence the market. Of course, Russia, which is the biggest oil producer, is a significant player on the oil market. Changes, caused by the Russian oil supplies affect, mainly, the local markets. For example, the appearance of the new ESPO-brand crude on the markets in Asia and the USA. Even Saudi Arabia became nervous after the appearance of the Russian oil on the Asian markets.        

The Russian expert believes that optimal prices on oil will undoubtedly become a reality in the world, and Russia doesn’t need to limit oil extraction at all. The well-known Russian economist Leonid Grigoryev shares this opinion.

We are interested in stable and predictable, not in high, oil prices. The Russian Finance Minister Alexei Kudrin “packs” the budget on 70 dollars per barrel for this year. This is a reasonable forecast, which seems to be on the lower border of the price movement corridor.   

And as regards the fluctuations in the dollar exchange, which influence the price level, this is not the key factor, experts say. Should any problems emerge with the dollar, it will be possible to resort to accounts in other foreign currencies. There will be a great demand for oil all the same. It is rising in price not because the dollar keeps dropping.

By Nehay Oleg

The Voice of Russia, January 25, 2011


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