It is unusual to ask about the peak of oil prices at present following last week's hikes when the biggest one-day increase was recorded on Thursday in concurrence with the depreciation of the dollar value and rising expectations that the European Central Bank may raise interest rates next month. Oil recorded an increase of six dollars in one jump following two consecutive days of price declines that resulted from concerns regarding the impact of declining demand on future price levels.

What then justifies asking the question about the price peak with all these market fluctuations? The reason lies in the mergence of significant market indicators that could have a negative impact on prices in the foreseeable future.

The first indicator is the inability of a few OPEC member states to find buyers for all their crude oil production. Previous experiences indicate that prices start to drop when supplies exceed demand, especially with a situation similar to the one prevailing today.

Additionally, Iran shipped some of its oils in rented oil tankers with no buyers for these oils. Iran's failure to sell some of its production is attributed to the fact that it is heavy or of medium quality or perhaps to the fact hat it does not export its oils to the US (the world's largest oil consuming market) as a result of Washington's ban on Iranian oil imports. The same problem, however, is witnessed with Algeria. Algerian Energy Minister Shakib Khalil announced that the national oil company Sonatrak is unable to sell all of its production despite the fact that Algeria produces low sulfur light oil which is highly demanded, not to mention that Algerian oil is exported to the US market.

The second indicator is the declining demand for oil in many third world countries, especially as several Asian countries ended their subsidization of local fuel prices once oil crossed the $120 per barrel mark, as it became impossible to bear the cost of subsidization in their budgets at such high price levels. A study by Credit Suisse Bank estimates fuel subsidies paid by Asian countries at $70 billion dollars. It is known that certain Asian countries do not subsidize local fuel prices such as Singapore, Thailand and Philippines which means that the prices of fuel in those countries go up or down with the fluctuation of international prices.

Despite the fact that a few Asian countries have resorted to ending fuel subsidies, they have to do so with care and caution for fear of political reactions and turbulences that may be stirred by the phenomenon of rising prices. This is not to mention the impact of inflation on various social strata. In Indonesia for example where fuel subsidies constitute about 3% of GDP, subsidies were reduced by 30%. Despite this reduction, fuel prices in Indonesia are still lower than its international counterparts. In china, the world's second largest fuel consuming nation, the government is expected to reduce subsidies after the Olympics at the end of summer but not before that to avoid affecting the celebrations that accompany the games.

In addition to these two indicators, there are other influential factors with an upward impact on oil prices. For example, there is the declining dollar and the fact that the Federal Reserve has adopted a policy of cutting interest rates to help the American economy surpass its current crisis. This policy has a negative impact on the dollar value which at the same time leads to rising oil prices. As long as this remains the direction in Washington, we will continue to run in a vicious cycle of rising oil prices.

The depreciating dollar intensifies speculation levels because it further pushes speculators to escape dollar markets as they fear the future devaluation of the dollar and its effect on inflation. Hence, they resort to commodities markets, including oil.

Accordingly, the future direction of oil prices remains foggy with the existence of contradicting factors. The answer to the proposed question is: when will market fundamentals start playing their traditional role in such cases? This is indeed what the global oil industry is currently waiting for.

Total's president, Kristoff Di Marjury anticipated the level of oil prices to stay high for many reasons such as the growing demand in third world countries and the limited current production capacity He expected prices to drop to $80. these are mere speculations, but they come from one of the most prominent experts of the international oil industry. The question is: will this price be realized, and if so, when? And how long can such a price be sustained?

*Energy Expert