Some say the reason is the geopolitical tensions in West Asia and in other parts of the world, which raise concerns about the security of oil facilities. But Iraq is more secure now than it was two years or even a year ago. But still, oil prices started to spike up during the latter part of the first quarter of 2007.
If Iraq is safer now, as George W. Bush says, shouldn't oil prices be going down instead of up? On the other hand, Iran is just as confrontational toward the United States today as it was last year, and no major war has erupted since January to warrant a 100-per cent increase in oil prices.
If geopolitical tensions alone explain the oil price hikes, why didn't prices shoot up just as fast in 2006 when Israel bombed Lebanon for more than a week, and many oil-producing Arab countries threatened retaliation?
Is the increase, then, due to increasing demand and shrinking supply? That the demand for oil is going up is undeniable, but that begs the question: whether the magnitude of the demand for oil in the United States and in China and India, as well as in other East Asian tigers has increased 100 percent to warrant a meteoric rise in the prices of oil. And I don't think either that the world's oil supplies have been so drastically depleted to warrant the doubling of oil prices.
At the recent OPEC meeting, oil ministers of Kuwait and Saudi Arabia said oil supplies were adequate and they saw no need to increase output, as this could lead to an oversupply in the market. Accusing these oil producers of manipulating the prices is an all too easy explanation. If the accusation were true, wouldn't the United States, the United Kingdom and other European countries by now have led some political protests such as an embargo or a UN resolution?
Indeed, geopolitical uncertainties and demand-and-supply concerns are contributing to the rise of oil prices. However, the sharp increases in prices are being driven by factors inside the oil markets themselves.
In the spot market, or what commodity traders call the "wet market," where