U.S light crude prices rose last week to range between 58 and 60 dollars a barrel for the first time in six months. Meanwhile, futures trading suggests a potential rise to 70 dollars a barrel in the foreseeable future. Remarkably, prices are soaring, while the global economic crisis continues unabated, albeit it seems to have reached an “inflection point.” In this respect, the G10 Central Bank Governors said in their last week's statement that “the global economy is at an inflection point.” The statement, however, warned from further recession and contraction, despite the signs of recovery here and there. In parallel, the IEA said in its oil monthly report, “New bullish macroeconomic sentiment has not yet produced signs of oil demand recovery and oil market fundamentals remain weak.” The IEA could not determine whether prices would continue their rally, as such development basically depends on the recovery of the global economy. Demand for oil has also fallen this year by about 2.6 million barrels a day or 3% below 2008. OPEC's monthly analysis was also consistent with the IEA's reserved conclusions. The report mentioned, “The market adopted hope over the economic recovery amid prosperous indicators. Equity market fluctuations, while the US dollar weakened, inevitably prompted an influx of investment into the energy futures.” The report added, “This improvement came despite the continued deterioration in oil demand.” Why are oil prices soaring and why does the global economic crisis continue unabated even if the economy has reached this “inflection point?” Dr. Ramzi Salman, Advisor to Qatar's Minister of Energy and Industry and chairman of the Iraqi State Oil Marketing Organization (SOMO) between 1972 and 1991, recently gave a lecture in Doha in which he said: “When the ailing global economy recovers, there will be a rapid increase in demand for oil and natural gas in particular, and other energy sources in general, especially because of the extraordinary growth expected in Asia and in developing countries – a contingency that the oil industry is well aware of and is working hard to prepare for.” Dr. Salman added, “The past year has witnessed the most violent fluctuations in the prices of oil and some industrial goods as well as other raw materials. This is despite allegations that this was due to increased demand for the production of those goods. But now that many irregularities and abuses in the world of finance and trade have been revealed, people are convinced that the real reason behind the price fluctuations and surges is wild speculations, irresponsible behaviour, poor oversight and lack of sound management.” In studies published by specialized international organizations, the following conclusions have been made: energy consumption will increase by 45 percent by 2030 in comparison to current rates. 87 percent of all required energy input will be produced outside the Western industrial nations, while 75 percent of this increase in energy consumption will come from the transportation sector. In other words, transportation fuel, i.e. gasoline and diesel, will account for most of the increase in energy consumption. This outlook seems positive for the future of the economy of the Middle East that holds huge oil and gas reserves. However, the experiences we underwent in the last couple of months, added to the past few decades, show, if anything, that the cash flow coming from oil profits may not be enough in times of distress in the absence of a sound economy and lucrative investments. *Mr. Khadduri is an energy expert
