INTERNATIONAL oil prices soared in 2006, reaching an all-time high of US$78,36 per barrel in August impacting negatively on non-oil-producing countries such as Zimbabwe.Fuel prices in Zimbabwe were very volatile this year with fuel dealers charging prices well above the Government-stipulated pricesFor the greater part of the year the country was caught in a fuel price spiral caused by shortages of foreign currency and rising international oil prices.
The rise in international oil prices came mainly on the back of political tensions in the Middle East as well as worries that members of the Organisation of Petroleum Exporting Countries would be unable to increase output in the event of supply disruption from other major producers. Opec accounts for about 40 percent of the world's crude oil supplies, and currently production is at around 28 million barrels per day.
In the past, the steep rise in oil prices occurred mostly in the wake of disruptions to oil supplies, such as the first and second oil crises, the Gulf war, Iraqi war and terrorism concerns, etc.
The rise in oil prices has had an adverse impact on the world economy, particularly on non-oil-producing countries, as this translates into a corresponding rise in oil prices on the local market, and hence general rise in prices.
Furthermore, the trends in the international oil situation and oil prices are major factors that have a significant influence on world economic growth.
In Zimbabwe, fuel prices have risen from around $280 per litre six months ago to around $2 700 although the gazetted price remains at $335 per litre.
The volatility of the exchange rate on the parallel market has also led to speculative pricing, causing unwarranted price hikes.
In these difficult times, it is imperative for the authorities to be innovative and introduce measures that rid the fuel sector of the retrogressive arbitrage and rent seeking activities to establish some form of control.
In trying to mitigate the effects of oil prices, Zimbabwe has taken an aggressive campaign to look for substitutes in the form of biodiesel and coal bed methane.
In an effort to prevent any weakening of prices in 2007 Opec has unanimously agreed to cut output by a combined 500 000 barrels (2 percent) per day, with the move delayed until February 1 when the northern hemisphere winter season comes to an end.
This move was, however, against the warnings from the International Energy Agency, the oil consumers' club, that the previous cut of 1,2 million barrels agreed in October but not fully implemented was already leaving the market tight.
By postponing the further reduction until the peak demand period has passed, Opec was also responding to most importer nations' concerns that an immediate cut would drive prices higher.
Meanwhile, US government data released last week showed that crude oil stocks in the world's largest consuming economy had fallen by 4,3 million barrels as imports declined, while a monthly report from the IEA, an advisor to 26 industrialised countries, re-vealed that industrialised countries' crude oil stocks had declined by 40 million barrels in October.
These data in turn stand as evidence that the November 1 2006 production cut implemented by the oil cartel was impacting negatively on the economy, and that the approved February 1 2007 cut was going to exert further pressure.
However, some critics continue to question the organisation's ability to work as a whole, as they made reference to the similar failed December 2004 game plan.
The price of oil has fluctuated widely over the past 50 years and the first "oil shock" occurred when Opec members, acting partly in response to the United States' support for Israel in the 1973 Yom Kippur war, agreed to control oil supplies and raised prices by more than 400 percentOil prices stabilised in the late 1970s at around US$25 per barrel, before rising to a new peak of around US$39 per barrel following the outbreak of war between Iraq and Iran in 1981,which severely disrupted supplies.
The peak, however, was short-lived and prices gradually declined in real terms over the next 20 years, with the exception of a brief upturn associated with the 1991 Gulf War.
By 1999, oil prices fell as low as $13 per barrel, equivalent in real terms to the price prevailing before 1973 due to improvements in supply. Prices began to firm from 2000, initially responding to cutbacks in Opec output and strong global demand, particularly from the United States and China