To check the unending rise in crude oil prices, the United States has asked countries to �reduce untargeted subsidies� in a �reasonable and timely way�.
But the one-day summit of oil producers and consumers held in Jeddah, Saudi Arabia, yesterday, did not reach any concrete agreement that could offer immediate hope of a let-up in the burgeoning oil prices.
The US Secretary of Energy, Mr. Samuel W. Bodman, at the opening session, insisted that the sustained rise in prices owed to insufficient supply, contrary to the position of summit host Saudi Arabia that speculation was the major drive.
Bodman said since 2003, �global demand, fed by worldwide economic growth, has increased sufficiently� while production has remained �flat�.
He advocated that all nations must change the way energy is used, move towards a diverse and sustainable set of energy resources, invest more in refining capacity and �curtail the artificial manipulation of prices� to promote more realistic energy consumption.
In his opinion, subsidies encourage more consumption and have to be reduced for efficient use of energy.
�Now, let�s be practical,� he said. �I�m not arguing for eliminating subsidies tomorrow� nor do I expect that is feasible or particularly wise. But I do believe that countries that employ this mechanism have a responsibility to take steps to reduce its use in a reasonable and timely way. And I believe this could have a meaningful impact on prices.�
The position of the United States echoes earlier suggestions by G8 that fuel subsidies should be cut because they were encouraging consumption, putting pressure on pricing and contributing to the rise in prices.
China, Indonesia, India, Malaysia and Taiwan have all recently increased fuel prices to stem shortages, but the Nigerian government has so far resisted the pressure, promising that fuel pricing issues would be reviewed next January.
At yesterday�s summit, British Prime Minister Gordon Brown called for a “new deal” on energy, suggesting that nations must reduce dependence on oil by investing in nuclear and renewables.
“I want the oil-producing countries also to diversify out of oil and I want us to get a more balanced energy market,” he said.
Brown said the world was living through �the third big oil shock in 30 years�, arguing that �this is probably the most difficult one. Oil prices have trebled in every country of the world. People who use oil are feeling the pinch, and it is hitting people’s standards of living very heavily�.
Although Saudi Arabia insisted that supply was not the problem with the pricing, it nevertheless promised to increase output by more than 200,000 barrels per day if it would help the situation.
The Saudi Minister of Petroleum and Mineral Resources, Ali I. Al-Naimi, noted: �A year ago prices were in the range of $65 a barrel; now, they are almost double that. What has happened during this relatively short period of time? Between second quarter of 2007 and the second quarter of 2008, global demand rose by an estimated 800,000 to 1.2 million barrels per day, but at the same time global oil supplies rose between 1.4 million and 1.6 million barrels per day � substantially more than the increase in demand.�
�Accordingly, days of forward cover increased from roughly 52 to 54 days during the last 12 months, and inventory levels are currently well within normal range. And yet we have this enormous run-up in prices� Clearly something other than supply-demand fundamentals is at work here and a simplistic focus on supply expansion is therefore unlikely to tame the current price behaviour,� he added.
Yesterday�s summit resolved that increase in investment was needed for global stability.
It also called for transparency and regulation of financial markets; enhancement of the quality, completeness and timeliness of oil data submitted through the monthly Joint Oil Data Initiative (JODI); and promotion of energy efficiency among producers and consumers.
A working group is expected to be convened to follow up on the resolutions and a progress report meeting will be held in London later in the year at the instance of the British government.
Crude oil prices have risen from less than $10 a barrel in 1998 to nearly $140 this year, causing inflation and sending signals of a devastating downturn for the global economy.
While some analysts have blamed oil producers for the rise as a result of insufficient supply to the market, speculators have also been blamed.
The reluctance of the Organisation of Petroleum Exporting Countries (OPEC) to increase supply � partly because of limited capacity and possibly because of a mistimed increase in 1997 which led to a massive crash in oil price � has come under criticism from the industrial countries.
Already, Saudi Arabia has promised to increase supply by 200,000 barrels daily from next month � barely a month after adding 300,000 barrels per day.
The new increase will raise Saudi Arabia�s daily output to 9.7 million barrels, but the addition of 200,000 next month has already been neutralised by shut-ins of 270,000 bpd in Nigeria following militant attacks on 150,000-bpd Bonga oilfield and 120,000-bpd Escravos oilfield, operated by Royal Dutch Shell and Chevron respectively.
OPEC President Chakib Khelil, speaking in his capacity as Algeria�s oil minister, maintained yesterday that the price of oil was “disconnected from fundamentals” of supply and demand.
He described the call as “illogical and irrational”.
Qatar’s Energy Minister Abdullah Al-Attiya also said the world was not facing an oil supply crisis, but his Kuwaiti counterpart Mohammed al-Olaim was quoted as saying �OPEC members will not hesitate” to increase output if the market requires it.
Jun232008