Oil prices on the world market continued to skyrocket throughout 2007. Experts now forecast that they could keep increasing because the factors that have pushed them up have not disappeared or changed.

The surge in prices was extreme especially during the second half of last year. On November 21, 2007, the New York market set a record when the price of a barrel of oil hit $99.29, very close to the psychological benchmark of $100 per barrel. Although afterwards the price decreased slightly, it remained at more than $95 per barrel in December. Then in early January 2008, oil surpassed $100 per barrel.

Ehsan Ul-Haq, chief analyst at Vienna-based energy broker PVM Oil Associates, said the major factors that have pushed up oil prices include price speculation, the weak U.S. dollar, the tense geopolitical situation and reduced oil output from non-OPEC producers, which was lower than expected. All these causes will not change completely within a short time, he says.

First, speculation still exists in global oil trading markets. With prices climbing in recent years, more investors have entered global oil markets and sought profits through speculation. These speculative traders are now an important group that influences global oil prices. At present, the U.S. economy faces a greater risk of an economic slump, and the main stock exchanges, including the New York Stock Exchange, could be severely affected. Investment in crude oil futures, therefore, has become a more secure investment choice under such circumstances.

The U.S. dollar's devaluation has further stimulated investments in crude oil futures. On the one hand, investors purchase crude oil futures out of consideration for their value guarantee against the backdrop of dollar devaluation and high oil prices. On the other hand, the U.S. dollar's devaluation is making crude oil futures, which are priced in dollars, much cheaper for investors whose holdings are not denominated in dollars. This, too, has triggered more investor demand for crude oil futures.

Second, the geopolitical situation has played an important role in driving up world oil prices. During the second half of 2007, a series of events pushed oil price to new highs. For example, both the nuclear issue in Iran and the Turkish army's attacks on Kurdish Workers Party militants who inhabited parts of north Iraq prompted world oil price increases. Analysts worry that if the Middle East remains unstable, crude oil production and transport in the region possibly would be affected. As a result, supplies to world crude oil markets might be threatened.

Although the growth rate of global economy may drop this year, the world economy will still grow. Therefore, international demand for crude oil will not decrease much. According to the latest OPEC statistics, the average daily demand for crude oil throughout the world in 2007 was 85.74 million barrels, an increase of 1.42 percent from that in 2006. The cartel also predicts that this figure will be 87.06 million barrels in 2008, an increase of 1.54 percent over 2007. The information division of the U.S. Department of Energy has forecast that the daily global demand for crude oil would reach 87.2 million barrels, while the price per barrel would be $85.

Many experts believe that the balance between supply and demand has been very fragile in recent years, and that the oil supply has basically not been enough. This has been why the price of oil has climbed and experienced large-scale fluctuations. However, if speculative investors maintain their profit-making motives, or if the OPEC finally decides to raise crude oil output, there is also possibility that the price of oil will fall slightly.

(The author is a Xinhua News Agency correspondent based in Vienna)