Kuwaiti oil field. The Kingdom’s economy is wholly dependent on oil, which gives them a keen interest in the functioning of oil markets. (image: bbc.co.uk)

As reported by the Middle East North Africa Financial Network on Wednesday, Kuwait’s Oil Undersecretary for Economic Affairs believes that speculation has played a “great role” in driving oil prices higher in recent months. Nawal Al-Fzei said that speculators were the reason that oil prices crossed above the $80 per barrel mark recently.

Right now, according to Al-Fzei, oil prices are balanced above $75 per barrel, being held there by the interplay of forces:

Pushing prices higher—

• Metrics showing improving economies in industrial nations, including the U.S., which should lead to higher consumption (though see below for contrary evidence)

• Continued growth in Chinese and Indian consumption

• Anticipation of a cold winter in the northern hemisphere

Pushing prices lower—

• Offsetting evidence that the industrial world has not yet turned the corner on recession (sustained lower oil consumption; high unemployment; predictions that the U.S. economy may decline from the third to the fourth quarter)

• Geopolitical unrest in the Middle East, especially in Nigeria and relating to Iran’s nuclear program

• Increased oil reserves in major consumer states, such as the U.S.; while not at the early ’09 level of 65 days of oil in inventory, the current inventory of around 60 days is still a week or more over the typical stockpile level of 52-53 days inventory

OPEC is set to meet in Angola in December, at which time they will—based on their reading of political and economic conditions—decide between maintaining a production cap (since demand is still weak, even with some signs of a recovery) and increasing production (to stop oil prices from continuing to rise).