On 2nd January, the first trading day in 2008, the light, sweet crude oil future price for February delivery hit 100 US dollars a barrel in electronic trading on the New York Mercantile Exchange (NYMEX) on concern of light supply and weak dollars. It thus set off grave reaction of the international community with a relatively great psychological impact globally. Overall, its impact is, however, symbolic rather than substantial.
First of all, this did not overstep the people's anticipation, though many industrial insiders did not want to see the very fact that oil briefly hit the psychologically important 100 dollars per barrel mark. Back over one year ago, Gold Sachs (NYMEX) had once upped its crude price estimate of more than 100 dollars a barrel. At the time when crude price exceeded 80 and 90 dollars a barrel in the latter half of 2007, forecasts of a couple of analytical agencies then took it as only a matter of time for crude price to top 100 dollars a barrel. To date, some analysts are even bold enough to estimate that crude prices would possibly reached 130 dollars per barrel mark late in the year.
Second, the current soaring price is an “inevitable” outcome resultant from an overall impact of varied factors along with a new round of oil price rise.
A. As oil prices get up, people are not seeing an ebb in demand since there has been a second periodic circle for growing prices of resources since the late 1990s, which has been cited as a second post-war, golden period of the world economy fueling demand for oil and also a re-bounce from years of low oil prices decades ago.
B. In recent year, sharp fluctuations of oil prices on the global oil market have been drastically affected by contradictions between the supply and demand, which, among others, were spurred by a low surplus oil production capacity, shrinking reserves, the devaluation of US dollar, intense geopolitics as well as some unexpected incidents.
C. In the wake of development and improvement of futures markets, oil products have become an increasing, apparent attribute of finances, and the inflow and exit of huge amounts of hot, speculative funds have had produced a tremendously impact on the rise and fall of oil prices.
Third, the supply-demand contradiction continues to back up high oil prices, and some related factors have given rise to regular marked fluctuations. There are, among other uncertain factors, U.S. sub-prime loan which has impacted the global economy and particularly that of emerging markets, along with the flowing direction of hot funds and unexpected incidents, such as a possible US military action against Iran.
Fourth, to compare with the past, the impact of oil price increases on the world economy has been alleviated to some extent on the whole, but pressure on inflation facing the global economic growth has been obviously on a steady rise. So in a sense, the current oil price hike can be said to be a product or by-product of the fast world economic growth, and its impact is indeed complex. While seeing its negative impact, its positive impact cannot be overlooked, its impetus to spur the growth of global economy has prompted the economic development of petroleum exporting countries, and brought about new ideas or concepts about energy conservation and technological innovation. Overall, the impact of oil price hike on economic growth has eased, whereas its impact on inflation risen noticeably.
Finally, although the impact of current oil prices rise on the overall Chinese economy is relatively limited, its pressure on the government macro-economic control has aggravated than ever before. Its indirect impact, nevertheless, has been turned increasingly great and so it is especially arduous and difficult for China to exercise its macro-economical control.
As part of an endeavor to alleviate the impact inflicted by soaring oil prices under such circumstance, China has to accelerate its oil market-oriented reforming measures while going all out to raise fuel efficiency and develop new energies. Ample experience so far attained from the international community has indicated eloquently that the reform-related measures represent a most viable and efficacious way for the country to cope with punches wrought by galloping oil prices.
By Zhao Hongtu, an associate researcher of world economics at the prestigious China Institutes of Contemporary International Relations in Beijing, and translated by People's Daily Online
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