The Middle East has always been plagued by crisis and controversy. The Iran nuclear issue has not been resolved; the British sailor incident had a dramatic ending; and US aircraft carriers are still cruising in the Gulf. The international community is very concerned about the "arrows that are fitted to the string", and is watching the sensitivity of oil prices in this sensitive place.

Since August 2006, international oil prices have begun to fall after reaching just under US$80 a barrel. From July 14 last year to January 18 this year, futures prices of US West Texas light crude oil dropped from $78.40 per barrel to $49.90 per barrel. Within just 6 months, prices fell by $28.50 per barrel, roughly 36.4%. After that, due to the volatile situation in the Middle East, speculators frequently pulled out to avoid risks, causing small-scale price rises.

Recently, rumours that the United States will launch an air strike against Iran have been spread widely, causing oil prices to soar again. On April 2, the New York futures price of light crude oil reached $65.94 per barrel. The UK Brent crude futures price rose to $68.74 per barrel. On April 5, the average crude oil price of OPEC rose to $63.97 per barrel, the highest since the beginning of the year. Although oil prices suddenly slumped on the 9th, the general rising tendency has not changed.

Affected by many factors, international oil prices are difficult to predict. In 2006, oil prices fluctuated between $60 and $80 per barrel, and the annual average price exceeded $66. In 2007, taking into account the possibility that the world's economic growth may slow, many organizations predict that the demand for oil will fall correspondingly. Both the World Bank and the International Monetary Fund have speculated that oil prices will fall to over $50 a barrel. However, the International Energy Agency says that oil prices will be stabilised at around $65 per barrel. Wall Street analysts have made a bold statement based on the theory of geopolitical risks, saying that oil prices in 2007 may exceed $100 a barrel.

Of course, neither a price rise nor a price crash is in the long-term interests of oil-producing and consuming countries. Everyone hopes that oil prices can be stabilized at a reasonable level. On the one hand, overly-high oil prices would encourage non-OPEC oil producers to step up oil production, which would lead to chaos in the oil market, and have a negative impact on the development of the world economy. On the other hand, it is unrealistic to return to the era of cheap oil. This is mainly because oil is a non-renewable source of energy. With global demand increasing rapidly, oil reserves are decreasing quickly. It is a difficult problem. In particular, oil-producing giant OPEC will not sit idly by if oil prices slump, having made so many petrodollars from higher oil prices. Reportedly, OPEC's bottom line crude oil export price is no less than $60 a barrel. If oil prices fall below this, OPEC will do everything possible to revive the market. In fact, it has twice taken action to reverse the sharp decline of oil prices by reducing daily production levels to 1.7 million barrels.

In any case, oil prices will be volatile while war, turmoil and fear prevail in the Middle East. The fragile balance between demand and supply in the world oil market means that any sign of trouble could cause serious turmoil. In the Gulf region, there are many variables. In particular, the tit-for-tat conflict between Iran and the United States makes the general situation unpredictable. If there is a conflict between the two countries, oil prices might run out of control, pushing oil prices to the highest point ever.

By People's Daily Online