In its monthly report that came out last week, the International Energy Agency (IEA) announced that oil supplies were sufficient and that the primary cause for the current big hikes in prices are the result of attempts by industrial countries to build sufficient oil reserves along with meeting domestic consumer demand.
According to Daralhayat, the International Energy Agency represents oil-consuming industrial countries in international economic circles.
The IEA also indicated the growing calls to increase oil supply as the price of oil reached $125 per barrel. But do we really need more oil? The answer to this question according to the IEA lies in the fact that a closer look at the balance of supply, demand and future risks, shows that the reason behind the price hike is the increasing demand and not supply shortages.
Surplus Oil
The report also indicated up-to-date data and forecasts confirming a surplus in oil markets during the past two months. It expected this surplus to persist throughout the year in case OPEC decided to maintain the same level of production.
The IEA also added that demand rates in the US are dropping gradually and expected to continue, and the same with the patterns of high demand in China and the Middle East.
However, it also pointed out that consuming countries are calling up on OPEC to increase production to reduce prices. This is true, according to the IEA, since increasing production will raise the level of available reserves in consuming countries which in turn will lead to improving the performance of refineries and hence the prices of oil products. OPEC, however, asserts that supplies in the market are sufficient and that the current situation suits the increase in reserves.
The IEA concluded its discussion of the subject by confirming that the past 18 months have been dedicated to the discussion of the subject: are the oil reserves of consuming countries sufficient, and is the timing of the decision to raise the reserves appropriate? It is generally believed that the market can only express its need for sufficient reserves through price.
Hence, if supplies allocated for reserves run short, prices increase, and if a few consuming nations insist on a certain level of reserves, they would have to compete against consumer demand which in turn would raise prices.

Speculation
In addition to reserve levels, the IEA also added another factor influencing prices, namely the perceptions of traders in futures, that is, speculation.
The IEA monthly report came out prior to President George Bush’s visit to the Middle East this week. Despite his unusually busy schedule, especially during a presidential election season in the United States, President Bush did not forget to say, during his visit to Saudi Arabia, that oil supplies from Saudi Arabia and other OPEC member countries are insufficient, hence calling for an increase in production to reduce price levels.
Bush had made the same announcement in his last visit to Riyadh and Abu Dhabi, despite the clear report from the IEA.
The reason for repeating this issue is his lack of a persuading and practical argument to address prices that do not involve making difficult decisions that differ completely from the shabby slogans raised by the Republicans and Democrats during election seasons, mainly reducing foreign oil imports, especially Arab oil.
In this context, it is worth referring to what the IEA casually mentioned, namely the impact of speculations on the rapid price hikes.
The New York-based Integrated Oil Update bulletin indicated that crude oil futures dealings (speculation) at New York’s NYMEX and London’s ICE were up from about $9.5 billion per day five years ago to almost $86 billion barrels a day last year, then to $140 billion per day earlier this year.
Once again, these figure are a reminder of what OPEC ministers continue to say and confirms the credibility of their claims and arguments, namely that the record hikes in oil prices are not caused by supply shortages, and that a major factor behind these hikes is the element of speculation which does not take into consideration the demand and supply market fundamentals but rather responds more to rumors and future political and economic fears more than any other element.

Further Price Hike
Speculators and investors benefit from positive or negative price speculations, depending on the nature of their investments and bets, and market dealers increasingly respond to reports published by research departments at financial institutions such as the report recently published by Goldman Sachs which warned about the possibility of prices rising to the $150-$200 range within six months to two years.
Evidently, with the actual depreciation in the value of the US dollar, the decline in international stock markets, and the inflation wave, such a forecast further pushes speculators to invest their capital in oil markets which in turn pushes oil prices to new record levels.
These forecasts are now driving the market more than the market fundamentals and their effects. None of the politicians seems willing today to face this dilemma because it is directly related to the freedom of markets and globalization.

Representatives from at least two companies say the province’s wind-energy strategy has the potential to help guide New Brunswick, one of Canada’s three maritime provinces, toward self-sufficiency and make it “the center of attention“ as an electricity hub.
Officials from both Precision Wind and Suez Energy say the plan to more than double New Brunswick’s power supply with wind power would greatly benefit the province, Telegraphjournal.canadaeast reported.
In fact, says Precision’s Robert Leth, it could turn New Brunswick--like it did for Denmark--into a prosperous place.
“Denmark stumbled into wind energy 25 years ago,“ says Leth, Precision’s wind energy advisor for Canada. “They got involved with it and put up turbines...without any direction. It has evolved into the largest employer in the country. It went from being a small, have-not country“ to supplying one-half of the world’s wind-energy technology.“
Leth was responding to Energy Minister Jack Keir’s announcement at a conference Thursday that the province intends on creating enough wind energy by 2025 to power 4,500 megawatts, more than double the current output from traditional sources.
Leth, who calls his Denmark analogy a ’parallel’ to New Brunswick, says wind energy would change the province. He also says that, again, like Denmark, New Brunswick could focus the economic benefits of a wind energy industry back into communities within the province.
“Wind is great; community wind is fabulous...There are programs in Denmark where the benefit of wind energy goes back into the communities. The communities own and operate 75 to 80 per cent of the wind energy. They get the return on the investment.“
What this has meant for those communities, says Leth, is “free day care, free health care and zero unemployment.“
Don Bartlett, a Suez Energy regional vice president, echoes Leth’s statements.
“This is a very positive development,“ says Bartlett. “What comes from this are jobs, both from construction and on-going services...It has a huge influence of capital into the local communities.“
Keir’s talk of wind-energy benefits for taxpayers, the environment and new industry was echoed by others at the same conference Friday.
Kaare Sandholt, a partner with EA Energianalyze, an energy consultant firm, says it’s viable in the face of rising oil prices to make the switch from traditional oil, coal and natural gas-fired sources of energy.
And, says David Coon of the Conservation Council of New Brunswick, a wind-energy industry could turn the province into more of an environmental example as well.