On July 11, world oil prices established an absolute record of $147 per barrel. But by Aug. 1, one barrel already fetched 16 percent less, or $123.5. Many analysts believe the recent trend of ever increasing prices is reversing, and oil will get cheaper.

In the beginning and middle of the summer, many analysts were predicting oil prices as high as $150 to $200 per barrel. Gazprom CEO Alexei Miller was particularly outspoken. He said that next year a barrel of oil would cost $250 and believed that 1,000 cu m of gas would sell for $1,000.

But all these "oil gurus" somehow missed the point: Prices were so high because speculators played the market and artificially inflated the price bubble. Sooner or later it had to shrink, and that is what we are seeing now. OPEC, the oil cartel that controls 40 percent of the world's supplies, was wise enough to understand that windfall prices in the long run would slow down the global economy, cut demand for oil and boomerang against them. The United States, the world's largest consumer of oil, began using less gasoline this summer. To counter this, Saudi Arabia, the cartel's key member, increased daily output in June-July by 0.5 million barrel to 9.7 million barrels.

Analysts are now revising their forecasts downward. Many agree that oil will be just under $100 by the end of the year.

Russian government forecasts give further cause for optimism. The latest from the Economic Development Ministry, issued on July 28, plausibly argues that Urals oil will cost $112 per barrel on average in 2008, $95 in 2009, $90 in 2010, and $88 in 2011.

On the one hand, this means an end to the bonanza earnings Russia has been enjoying for the past few years (currently Russia earns $1 billion from oil daily), and the country will have to slightly cut its expenditures.

But on the other hand, as the influx of petro dollars slows down, so will inflationary pressures. The ruble will also stop strengthening, giving Russian producers much needed breathing space. In this context the authorities may take the opportunity to wean the Russian economy off its dependency on hydrocarbons, for example by fostering innovation.

Thus the end of the oil boom may benefit not only importing countries, but also oil-producing Russia.

July brought another welcome piece of news for Russia, this time concerning its hydrocarbon resources. A survey by the U.S. Geological Service, published in July, says that the arctic could contain 90 billion barrels of unexplored oil and 47 trillion cu m of natural gas. Most of the arctic oil reserves, which the survey says are equal to three times the current annual global production, are located in Alaska. But most of the gas resources occur in Russia's arctic, namely the Kara and Barents Seas. And these deposits are comparable to all Russia's confirmed natural gas reserves taken together. The American geologists conclude such resources will further increase Russia's dominance of the gas market.

However, as long as Russia has enough unused reserves in easier-to-reach places, it is unlikely that the Russian arctic will be developed anytime soon.

(Oleg Mityaev is an economic commentator for the RIA Novosti news agency. This article is reprinted by permission of RIA Novosti. The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.)

(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

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