BEIJING -- The international energy market witnessed dramatic ups and downs in oil prices during the past year. As the world's most significant natural resource, oil used price fluctuations to test people's nerves.
PRICE PUSHERS
Beginning in the second half of 2007, the international oil market went wild, with prices surging at an unprecedented rate. Oil prices easily broke the 80 and 90 U.S. dollars per barrel (dpb) thresholds on the New York Mercantile Exchange (NYMEX), and on the first trading day of 2008, hit the historical 100 dpb ceiling.
Prices carried on their roller-coaster journey in the first half of 2008, climbing across 110, 120, and 140 dpb on the NYMEX. On July 11, oil hit an all-time high of 147.27 dollars.
However, after mid-2008, prices collapsed. They fell to around 100 dollars a barrel in September and dropped below 50 dollars in November, declining by more than two-thirds since their mid-July peak.
Oil traded at just above 40 dollars a barrel on Dec. 18 after sinking to its lowest level in more than four years, despite the Organization of the Petroleum Exporting Countries (OPEC's) announcement of a record production cut of 2.2 million barrels a day, about 7 percent of its output quota.
According to the 2008 World Energy Outlook, a variety of factors have contributed to price increases since 2003, including strong demand growth, no increase in OPEC member production between 2005 and 2007, rising costs for exploration and development, and a weaker U.S. dollar.
Analysts also believe that speculation was behind the recent spike in oil prices. Boston University economist Robert Kaufman said an increase in demand and a decline in production changed the delicate balance in the oil market, arousing speculators' anticipation that prices would soon rise.
That anticipation caused speculators to pour money into the oil market for big profits. The large amounts of money pushed oil prices to record levels.
However, prices collapsed as the dollar appreciated against major currencies and the global economic crisis ravaged demand for energy. Market pessimism for weaker demand has seen the withdrawal of speculative funds from the oil market. Institutional investors have withdrawn billions of dollars from the oil market as prices collapsed and look unlikely to return until the recession hits bottom -- probably well into next year.
The exodus of funds probably helped hasten the collapse in oil prices, which have fallen by almost two thirds in just over four months.
LAUGHERS AND WEEPERS
The rise and fall of oil prices give different parties different feelings. The rapid increase in prices during the first half of the year imposed huge pressures on the world economy. The high prices weakened consumers' purchasing power, increased inflation, and worsened the trade deficits of oil-importing nations. Some experts think the price surge also helped exacerbate the international financial crisis in the latter half of the year.
For most people, maybe the only good news from the financial crisis was the slump in oil prices. The drop relieved spending pressures on nations, companies and consumers and gave central banks more room for interest-rate cuts in a bid to stimulate the economy without having to worry about inflation.
"In the very short term, because we are in a recession, we could all use a low oil price," said Mike Wittner, global head of oil research at French Bank Societe Generale. "It is like a tax break, putting money back into pockets for a short time."
However, OPEC, the world's largest oil-producing bloc, looks at the price ups and downs with mixed feelings.
To maintain a relatively high price accepted by both producing and consuming nations best suits OPEC's interests. Expensive oil weakens consumers' buying ability and increases importing nations' trade deficit, thus dampening consumption. That in turn leads to weaker demand and a drop in prices.
Low prices, on the other hand, squeeze investment in the oil industry, reducing future supplies. They discourage energy saving and destabilize countries dependent on oil exports, likely making oil in the future more expensive and even more volatile.
Turbulent oil prices also rattle the world political arena. An increase in prices not only promotes oil exporting nations' economic power, but also to some extent their political strength. A price drop, meanwhile, weakens their voice on the international stage.
PRICE PUSHERS
Beginning in the second half of 2007, the international oil market went wild, with prices surging at an unprecedented rate. Oil prices easily broke the 80 and 90 U.S. dollars per barrel (dpb) thresholds on the New York Mercantile Exchange (NYMEX), and on the first trading day of 2008, hit the historical 100 dpb ceiling.
Prices carried on their roller-coaster journey in the first half of 2008, climbing across 110, 120, and 140 dpb on the NYMEX. On July 11, oil hit an all-time high of 147.27 dollars.
However, after mid-2008, prices collapsed. They fell to around 100 dollars a barrel in September and dropped below 50 dollars in November, declining by more than two-thirds since their mid-July peak.
Oil traded at just above 40 dollars a barrel on Dec. 18 after sinking to its lowest level in more than four years, despite the Organization of the Petroleum Exporting Countries (OPEC's) announcement of a record production cut of 2.2 million barrels a day, about 7 percent of its output quota.
According to the 2008 World Energy Outlook, a variety of factors have contributed to price increases since 2003, including strong demand growth, no increase in OPEC member production between 2005 and 2007, rising costs for exploration and development, and a weaker U.S. dollar.
Analysts also believe that speculation was behind the recent spike in oil prices. Boston University economist Robert Kaufman said an increase in demand and a decline in production changed the delicate balance in the oil market, arousing speculators' anticipation that prices would soon rise.
That anticipation caused speculators to pour money into the oil market for big profits. The large amounts of money pushed oil prices to record levels.
However, prices collapsed as the dollar appreciated against major currencies and the global economic crisis ravaged demand for energy. Market pessimism for weaker demand has seen the withdrawal of speculative funds from the oil market. Institutional investors have withdrawn billions of dollars from the oil market as prices collapsed and look unlikely to return until the recession hits bottom -- probably well into next year.
The exodus of funds probably helped hasten the collapse in oil prices, which have fallen by almost two thirds in just over four months.
LAUGHERS AND WEEPERS
The rise and fall of oil prices give different parties different feelings. The rapid increase in prices during the first half of the year imposed huge pressures on the world economy. The high prices weakened consumers' purchasing power, increased inflation, and worsened the trade deficits of oil-importing nations. Some experts think the price surge also helped exacerbate the international financial crisis in the latter half of the year.
For most people, maybe the only good news from the financial crisis was the slump in oil prices. The drop relieved spending pressures on nations, companies and consumers and gave central banks more room for interest-rate cuts in a bid to stimulate the economy without having to worry about inflation.
"In the very short term, because we are in a recession, we could all use a low oil price," said Mike Wittner, global head of oil research at French Bank Societe Generale. "It is like a tax break, putting money back into pockets for a short time."
However, OPEC, the world's largest oil-producing bloc, looks at the price ups and downs with mixed feelings.
To maintain a relatively high price accepted by both producing and consuming nations best suits OPEC's interests. Expensive oil weakens consumers' buying ability and increases importing nations' trade deficit, thus dampening consumption. That in turn leads to weaker demand and a drop in prices.
Low prices, on the other hand, squeeze investment in the oil industry, reducing future supplies. They discourage energy saving and destabilize countries dependent on oil exports, likely making oil in the future more expensive and even more volatile.
Turbulent oil prices also rattle the world political arena. An increase in prices not only promotes oil exporting nations' economic power, but also to some extent their political strength. A price drop, meanwhile, weakens their voice on the international stage.
