Oil prices have continued to rise thanks to these announcements made before the OPEC meeting that will be held in Iran. Members of the organization, who convened the other day (March 16), decided to increase production by 500,000 barrels per day to 27.5 million bpd beginning April 1; however, new records were set on the day this decision was made and oil prices stood at $56. Yesterday, oil prices surpassed $57. A production increase equal to 2 percent was not reassuring enough for the markets. There was anxiety that high oil prices would damage economic growth and shake oil importing economies. Then why are prices rising?
Oil prices rose last year as well and later the market settled for a while. The recent price surge generates added concern. Similar to what happened last year, the major reason for this increase is the rapid growth of the Far Eastern economies, especially that of China, and oil demand has increased in line with this. China meets 40 percent of its oil needs through imports and is the world's second largest oil consumer after the United States. It consumed approximately 10 times more than Turkey last year, that is, it imported 120 million tons of its 288 million-ton consumption requirement. The increase in its imports is 34.8 percent. This was around 31.3 percent in 2003.
This year, with an increase of 12 percent, China's oil consumption is expected to reach 320 million tons. According to predictions by the Chinese Strategic Center for Energy, China will have to meet 70 percent of its oil needs from outside by 2020. Besides, there is India. This country is also one of Asia's largest oil consumer after China and Japan, and meets 70 percent of its needs through imports.
It is certainly not only the imports of these two consumers which affect the prices. Besides the giant importers, such as Japan, that meet almost all their needs from outside, there are also several large and small importers. Their consumptions have also increased.
Petroleum exporting countries have failed to respond to this demand. Increases or decreases in OPEC production do not directly affect world oil prices anymore. Apart from the reluctance of some OPEC members, the latest decision also reveals the organization's desperation. There are other actors, which are not OPEC members, in the world oil market. The most significant one is Russia. A decrease has also been observed recently in Russia's oil production due to the effect of the Yukos affair. It is being predicted that production in Norwegian, Canadian oil fields as well as those of the US in the Gulf of Mexico, will also decrease.
Even though the winter season has ended, temperatures are still below normal seasonal levels both in the US and in a large part of Europe, and the decrease in US stocks also affects oil prices.
Moreover, the decline of the US dollar also facilitates oil price hikes. It is impossible to say that the occupation of Iraq and the current unstable and risky atmosphere in the Middle East do not reflect on the prices. In case prices remain at the current levels, new investments and the opening of new production areas are the expected developments; however, it appears as if it will take some time.
When we look at Turkey, it can be seen that there is an increase in demand, even though small, however, oil price hikes make the bill very high. Turkey, which used to purchase oil at an average of $26.9 in 2003, bought oil for $34.6 last year. Thus, the bill rose from $4.8 billion to $6.1 billion. Our only consolation is that with the Turkish lira (TL) gaining value, the bill has not reached dimensions that might affect inflation targets, nonetheless, we do not know whether or not this situation will continue in 2005. We hope the bill does not increase further; however, from the way things are going, it is impossible not to be affected by it. What is important is to reduce the level of dependence on imports, which has reached 90 percent, and forge ahead with new investments.
March 18, 2005
