(MENAFN - Arab News) Ever since 2011, Brent oil has been trading at above 100 per barrel and, had it not been to Saudi Arabia's intervention to step up production, prices would have been much higher.
Like any other commodity, global price of oil has witnessed many changes in the last decade, but the level of prices in the last two years is unusually high by historical standards.
The price of the barrel was always below 40 before 2004.
Since then tight markets and fast growing Asian demand pushed prices up until reaching an all-time high of 143.6 per barrel on July 3 2008.
The global financial crisis brought about a strong correction in which prices fell more than 100.
Prices started to recover soon, in spite of the relatively weak global recovery.
Supply side tensions were the main reason behind these high prices.
The Arab Spring generated fears of supply disruptions in the Middle East and North African region.
The war in Libya and tensions in Egypt and Syria also contributed to put a floor to oil prices.
The introduction of stimulus packages have led to speculative oil demand bursts which sporadically drove oil prices higher.
Throughout this period, Saudi Arabia has played a central role in preventing prices from spiraling.
Saudi Arabia is the largest producer and exporter of total petroleum liquids in the world, and the only genuine swing producer in the market.
Its large spare capacity allows the country to adjust oil production rapidly hence affecting global prices.
To avoid the potentially devastating effect of high oil prices on global demand and to prevent the global economic recovery from derailing, the Kingdom has expanded production in crucial periods in which the world's economy risked choking, often against the will of other members from the organization of the petroleum exporting countries (OPEC) such as Venezuela and Iran.
For example, in 2010, oil demand was picking up as the global economy was recovering from the financial crisis, leading to inflationary pressures.
Oil price increases were then contained after Saudi Arabia raised its production levels by 13.3 percent in half-a-year, from 8.24 million barrels per day in January 2010 to 9.34 million in July.
Saudi Arabia was committed to keeping prices at the 70-80 per barrel range.
Also, in mid-2011, oil production suffered rising stress with the impact of the Arab Spring, especially in Libya.
Saudi Arabia increased its production by one million barrel per day in just three months in support to the international energy agency's (IEA) release of 60 million barrels of oil stocks.
At times, Saudi Arabia also intervened in the opposite direction, by cutting oil production levels when prices are too low.
Saudi Arabia's breakeven oil price, the price needed to keep the fiscal budget in balance, is around 80-85 per barrel according to the International Monetary Fund, which means that anything below those levels will generate a fiscal deficit.
Hence, Saudi Arabia has a strong incentive to keep prices above those levels, especially as labor and infrastructure fiscal spending have been on the rise.
Economic and financial
The world economy has still not fully recovered: the US is still reliant on quantitative easing programs, the euro zone is barely expanding and emerging Asian economies are still fragile and prone to capital outflows.
A sharp increase in oil prices can have a damaging effect on the delicate global demand recovery.
Looking forward, supply tensions are likely to remain in place.
Clashes in South Sudan, persistent supply shortages in Libya and Iran (who are producing less than a fifth and half of their full capacities respectively), potential instability in Iraq, and volatility in countries like Nigeria and Venezuela, are all contributing to a high oil price environment that could easily deteriorate.
Saudi Arabia will continue to play a leading role in maintaining the global stability in the short and medium term.
In the long term, Saudi Arabia's importance will be as equally important.
The expansion of shale gas technology in the US will certainly change the global oil map, transforming the US into an energy self-reliant economy.
But Saudi Arabia will see growing demand from Asian economies.
According to the IEA, emerging Asia is expected to make up half of the world's increases in oil demand between now and 2040.
So in the long run, expect Saudi Arabia, along with the rest of the GCC, to start looking eastward.