ON August 12, the international crude prices crossed the $66 a barrel mark for the first time. Earlier on August 10, light sweet crude, for delivery in September, settled at $64.43 in New York after briefly touching $65 a barrel, while Brent North Sea Crude in London had moved up to $63.46 a barrel.

The upsurge in prices was attributed to refinery fears and geopolitical concerns such as threat of terrorist attacks in Saudi Arabia and the possible impact of Iran’s switch on of its Uranium conversion plant.

As a matter of fact, the international crude prices had repeatedly crossed the $60 a barrel mark during the last few weeks.

On June 27, the crude prices went up to $60.54 a barrel in New York reportedly due to fear that domestic supply in US of oil and gasoline was on decline. However, the price went below $60 a barrel after release of the US government data showing that domestic supplies of oil, gasoline and distillate fuel had actually risen during the previous week.

Subsequently, storms in the Gulf of Mexico hit the oil markets on July 6, disrupting oil production and refinery operation. As a result, oil for August delivery moved up to $61.28 a barrel on the New York Mercantile Exchange. The next day, the London bomb blasts pushed the crude prices further up to $62.10 a barrel.

In the following few weeks, the oil market remained volatile due to fear of hurricanes, refinery worries, deadlock in talks with North Korea and concern about policies to be followed by the new Iranian Government.At the end of the first week of August, the crude prices jumped to a record $64 a barrel in New York, coinciding with the news about the death of King Fahd of Saudi Arabia. Light Sweet Crude went up to $63.94 a barrel in New York, while the Brent North Sea Crude climbed to $62.70 a barrel in London.

During the year so far, international oil prices are estimated to be about 40 to 50 percent higher, on an average, as compared to the prices prevailing during the last year. This percentage may go up if higher crude prices persist or if the crude prices increase further.

According to some oil market analysts, international oil prices appeared to be on the path, at present, to hit the $70 a barrel mark within the next few weeks.

What could be the main reasons for the unprecedented rise in the international crude prices? In the first instance, it appears that the escalation of war against terrorism had triggered the upward trend by adversely affecting the security environment in the leading oil producing region.

The suicide bombings in Iraq and terrorist attacks in Saudi Arabia had led to serious concern about regular and smooth supply of crude oil in the international market and sent the oil prices soaring. Before the Iraq war, the international crude prices stood at less than $40 a barrel. However, after the Iraq war, the prices have been rising continuously and the continuation of war makes it worse.

Secondly, the demand-supply gap has also been responsible for increase in the world prices of crude oil. While crude prices have gone up from less than $40 a barrel to more than $60 a barrel during the last couple of years, the global economic growth has continued to remain strong. The US GDP grew at the rate of 3.8 per cent in the first quarter and 3.4 percent in the second quarter of 2005. GDP growth in China and India is still quite robust, at 8-9 percent and 6-7 percent respectively.

Even Europe grows at 1.5 – 2 percent, while Japan also has a positive growth rate, although it may be about one percent only. As against the above, supply of crude oil has moved up rather slowly.

According to press reports, a reserve of 4-5 million barrels, on a daily basis, used to be available a few years ago, which has now been reduced to 1.5 million barrels daily. Therefore, in the event of a surge in demand for crude oil, supply can be increased only to a limited extent.

Last but not the least, speculation has also played an important part in pushing up the international crude prices. In a market characterized by security concerns and supply constraints, the speculators always have an opportunity to manipulate the prices in their favour. This opportunity has definitely been availed, to a certain extent, in taking the oil prices to the present level. According to some oil market analysts, the share of speculation in the current oil price of over $60 a barrel is up to $15.

The analysts are divided in their opinion, so far as future price outlook is concerned. Some of the analysts expect the higher prices to persist, because the demand for crude oil is growing at a fast pace in rapidly developing economies like China and India while the developed countries, particularly the US, are doing little to keep their demand in control. The analysts are of the view that the global demand for crude oil is presently moving well ahead of supplies. If supply can not keep pace with demand, prices are bound to increase.

However, there are other analysts who expect the crude prices to come down within the next couple of years, as they see ample worldwide supplies in the coming years. Exxon Mobil Corp is, also, reported to be in the bear camp and it fully agrees with the aforesaid analysts.

According to press reports, a Saudi oil executive had recently made a presentation in Washington, showing that more than 800,000 barrels a day of new production was expected to come on stream within the next two years, while an additional quantity of 1.3 million barrels a day was expected to be available by 2009.

In addition to the above, an oil expert Daniel Yergin and his staff at Cambridge Energy Associates are reported to have recently finalized an updated field-by-field study of world oil supplies, which shows that a surplus of as much as 7.5 million barrels a day might be available within the next few years.

The bulk of the additional supply is expected to come from deepwater fields of Western Africa and the US Gulf coast, the Caspian Sea basin of Central Asia, Russia, Canada’s oil sands and Saudi Arabia.

The aforesaid study, however, assumes or pre-supposes a tension-free environment and active global co-operation to develop the oil-fields create additional refining capacity to take care of current shortages and ensure installation of new oil pipelines to ease the supplies further.

Obviously, all this can not be accomplished in the presence of bomb blasts, terrorist attacks on a daily basis and war going on in parts of the world. An era characterized by peace and harmony is, therefore, crucial to the building of additional crude supplies and stabilization of crude prices.