The Global Economy: From Capital Markets to the Price of Oil

The mortgage crisis was preceded by world panic that there might be a record hike in the price of oil. Although the level did not overshoot previously recorded numbers, the world economies worried they might not be able to shoulder the burden of such an increase. The Americans partly blamed OPEC for this negative impact because it refused to raise its oil production levels.

The price of oil, as supported by the facts, is not a result of the lack of supply or increase of demand. On the contrary, it results from the mechanism of achieving profits and losses that is regularly followed by oil companies and merchants, so that they control the market.
This mechanism often comes to light when there is a drop in the level of trade reserves or strategic reserves of oil and its derivatives. It also happens when the refineries fall short of refining the derivatives needed to answer all the world’s needs, particularly in the US, the biggest oil consumer. It is worth noting that low reserve levels in Japan and China, the second and third biggest consumers, do not have the same effect on the market as low US reserves do.

The facts show that demand outstripped supply in the first five years of this millennium, except for 2002. Other than that, supply has always outstripped demand. Average daily supply reached 80.14 million barrels and demand was 79.88 million barrels. Between 2001 and 2005, supply grew by 2.2% and demand by 1.95% annually. These figures shed suspicion over the reasons why oil prices have risen world-wide and their real state was concealed, with the goal of siphoning off oil reserves in order to float the “greed” of the US market with a weak dollar in the face of major currencies – thus affecting those regions using the Euro, the UK, developing countries (foremost among them China and India), as well as Japan. This hiked up the price of production.

So we can pinpoint the mortgage crisis and the oil price increase crisis via reasons that may be deliberate. The US is enjoying sound economic growth. The consecutive crises did not succeed in arresting its growth rate, except to a slight degree. It did not unbalance the economy, and was limited to specific economic sectors and subsidiary activities.

Dar Al Hayat