Daniel Yergin, who won the Pulitzer prize in 1992 with a book on the history of oil business, said in his testimony on Wednesday's Congress hearing, "Financial markets are today playing an increasingly important role in price formation -- responding to, accentuating, and exaggerating supply and demand, geopolitics, and other trends." He believed that the market is relentlessly bidding up oil prices in response to deep-seated fears that the growth in demand will keep outpacing the growth in oil supplies in coming years. "There is a shortage psychology in the financial markets and that is reflected in the price of oil," he said in an interview.
On the same day, Guy F. Caruso, Administrator of the U.S. Energy Department Energy Information Administration (EIA), told a briefing that the imbalance between supply and demand is what has caused the oil prices to rise.
Based on EIA report, the global demand for energy in 2030 will increase by 50 percent compared with the level in 2005. Demand from non-OECD countries has especially soared since 2005, while OPEC output has not matched up. Caruso's view coincided U.S. Energy Secretary Samuel Bodman, who reiterated on the meeting between oil production countries and consumption countries held in Jeddah, Saudi Arabia, on June 22 that oil supply shortages instead of speculators are driving up prices.
Based on most estimates, the global safety cushion -- the amount of readily available oil that could be pumped in a moment of crisis-- is now less than two million barrels a day, a big slump from five million barrels a day in 2002. And nearly all of the safety cushion is in one country, Saudi Arabia, which makes the world even more vulnerable to political or other shocks.
Militant attacks and strikes have forced Africa's largest oil exporter Nigeria to produce one million barrels below its capacity. Potential of output increase is restrained in non-OPEC countries like Mexico and Russia due to lack of investment and outdated equipment.
The Paris-based International Energy Agency, funded by consuming nations, in April again cut its 2008 non-OPEC supply outlook for the year, this time by 85,000 barrels a day to 50.5 million barrels a day.
Before Wednesday's Congress hearing on oil, 40th of its kind this year, the New York Senator Charles Schumer, chairman of the U.S. Congress Joint Economic Committee, told the press, "everyone would like to believe that there is a silver bullet - like a bubble or speculation - that can solve our oil problem." But, there is no easy answer to high oil prices, he said.
(Xinhua News Agency June 29, 2008)
