Oil prices again climbed over US$100 per barrel at the New York Mercantile Exchange on Tuesday (Wednesday morning in Asia), setting a new trading record.
The sharp price jump resulted from a flow of speculative funds into the market, based on such factors as moves by the Organisation of Petroleum Exporting Countries. This signals further worries for the world economy, which has been seriously hit by the US subprime mortgage fiasco.
Governments, corporations and consumers in developed nations must therefore accelerate their efforts toward developing alternative energy sources as well as making greater efforts to save energy. Sustained efforts in these directions would ensure nations are better placed to deal with high oil prices, even if the price of crude stays around the 100-dollar level.
Oil hit the $100 mark on Jan 2 for the first time in history. After that, prices hovered around $90 for a while, but a trend toward higher prices seems to be intensifying again.
One of the factors that drove the oil price up this time was that market participants became sensitive to speculation that OPEC might decide to reduce oil output at its March meeting. Also, the announcement by Venezuela's state oil company, Petroleos de Venezuela SA, that it would stop selling oil to Exxon Mobile Corp, a major US oil firm, is believed to have played a role in the price hike.
The price of oil used to hover around the 10-dollar to 20-dollar mark about a decade ago. However, oil prices shifted upward after hitting rock-bottom around the time of the Sept 11, 2001, terrorist attacks on the United States. The primary reason for the price hikes since that time has been rising concern about securing crude oil amid increasing tensions in the Middle East.
In addition, skyrocketing demand for oil in developing and emerging nations, led by China and India with their remarkable economic growth, has further pushed up oil prices.
Also, speculative funds have shifted from financial markets to oil and other underlying asset markets including futures, further accelerating price increases.
Under these circumstances, many observers forecast that oil prices will not return to levels lower than the $40-$50 bracket from now on, although prices will rise and fall.
If so, there must be a renewed focus on exploiting new oil fields. For example, Brazil has developed a new technology that allows it to drill deep-sea oil fields, enabling it to join the group of oil-producing nations. Also, Russia is moving ahead with oil field exploitation in East Siberia, a region paid scant attention in the past.
It also is vital to develop alternative energy sources to oil, such as nuclear and solar power, and fuel cells.
As for saving energy, there is room for energy efficiency improvements in developing nations' industrial sectors.
Taking the two oil crises in the 1970s as a lesson, Japan has committed itself to introducing measures aimed at cutting its dependence on oil. As a result, the nation's use of oil as its primary energy source has been reduced to less than 50 per cent from about 80 per cent before the oil crises.
Due to recent appreciation of the yen, the import price of crude oil on a yen basis has stayed at a level that has not caused the level of damage to the nation caused by oil price hikes in the past.
When oil costs $100 per barrel, it is certainly a burden for Japan, but it does not cause problems the nation cannot overcome.
The most effective way to tackle high oil prices is to calmly proceed with further measures to minimise our dependency on oil. ANN
