Speculators under fire on eve of Jeddah oil meet

ABS-CBN News

Posted at Jun 22 2008 04:00 AM | Updated as of Jun 22 2008 12:00 PM

Agence France-Presse

JEDDAH - Key oil powers and consumer nations argued on Saturday about whether speculators were to blame for soaring crude prices, on the eve of a crucial meeting on the global energy crisis.

Host Saudi Arabia called the high-profile Jeddah Energy Meeting after crude prices more than doubled over the past twelve months to nearly hit 140 dollars this week, stoking inflation and hurting the global economy.

Some countries want index funds and other major investors named in a conference document, but US Energy Secretary Samuel Bodman insisted there is no sign that "speculators" had pushed oil futures to record heights.

A summit working paper obtained by AFP calls for action to "improve the transparency and regulation of financial markets through measures to capture more data on index fund activity and to examine cross exchange inter-actions in the crude market."

A senior international energy official involved in the summit called the document "highly controversial" because of the attack on markets.

However, US Energy Secretary Bodman told a press briefing ahead of Sunday's summit: "There is no evidence that we can find that speculators are driving futures prices.

"It is clear that financial markets have seen unprecedented movement of capital into commodities in recent years. Our view is that this capital is following the market upward, it is not leading that movement."

The Organization of Petroleum Exporting Countries (OPEC), whose 13 nations pump 40 percent of the world's oil, has argued that speculation and the weak dollar are behind the soaring cost of crude.

But Bodman said: "Fundamentally tight market conditions in our view are the major driver of the dramatic price increases that we have seen over the last five years, and particularly in recent months."

However, a Saudi who wished to remain anonymous blamed the near-term rise in prices on "speculators" and futures markets.

OPEC producers have consistently argued that speculation and the weak dollar were largely responsible record-breaking prices, while Western consuming nations, led by the United States, contend that more output is needed.

Ahead of the Jeddah gathering, the key focus was on whether the final statement should criticise index funds and other investors -- which have pumped billions of dollars into oil futures.

The Saudis were expected to announce a further 200,000 barrel a day production increase at the summit, and Bodman said any production increase announced in Jeddah would be "welcome."

Saudi Arabia said on Saturday it was ready to pump more crude if the market required in a bid to stabilize volatile prices.

"We will meet demand. If demand requires more crude, we shall sell it," Deputy Oil Minister Prince Abdulaziz bin Salman told a news conference.

"The kingdom's (production) policy is based on supply and demand. If there is more demand, it is natural to offer more crude," Prince Abdulaziz said.

But he added that he did not know if other OPEC members could join Saudi Arabia in raising output.

The working document, meanwhile, says index funds and other investors have "unrealistic assessments" of the future value of oil.

The senior official added that the attack may be toned down in the final document because of opposition from the United States and other major industrial powers.

German Economy Minister Michael Glos has called for a quick increase in oil supplies.

"We need more oil in the world market quickly in order to stop the spiraling prices at the gas pumps" which have passed a "limit" which consumers cannot bear, the minister wrote in an article to appear in the Sunday newspaper Bild am Sonntag.

"Transparency in the international oil markets must be improved. It is the only way to get out of this speculative morass," he wrote.

Increased production is opposed by many oil producing powers who want to preserve their income.

British Prime Minister Gordon Brown, who will be the only major Western leader at the summit, has insisted he would not simply urge increased supply but urge producer countries to invest more in renewable energy.