Summit divided on cause of record prices

The world's top energy policy makers meet in Jeddah on Sunday for emergency talks on halting oil's unrelenting rally, but divided views over the cause of recent gains emerged early.

Saudi Arabia will try to coax its few OPEC peers who have spare production capacity to join the kingdom in pumping more barrels, although some in the cartel have been openly sceptical that raising output will rein in prices they believe are driven more by speculation than market fundamentals.

While acknowledging the divide, officials said the meeting itself showed the growing will for a global effort to tackle oil's rise, which has triggered protests from Brussels to Bangkok over record fuel costs that threaten the world's economy.

"I really believe strongly that there is a political will of oil producers and consumers to lower the price and stabilise it, otherwise they would not have come," a Saudi oil source said late on Saturday. "There is no justification for this price."

Riyadh summoned both producers and consumers, plus chief executives from big oil firms, to the meeting after an unprecedented day of trading on June 6, when oil prices surged by $11 a barrel to a new peak, the largest ever one-day rise.

The price has doubled in a year to almost $140 a barrel, despite recent efforts to slow the ascent. Light, sweet US crude oil futures closed at $134.62 on Friday.

Saudi Arabia, the world's biggest oil exporter, said in recent days it would raise output to 9.7 million barrels per day (bpd) in July, its highest rate in decades.

Major oil consumers in Asia, including the world's number-two user China, have recently raised cheap domestic fuel prices that analysts say had aided rapid demand growth, while US regulators are seeking more oversight of futures market speculators.

Saudi Arabia's King Abdullah will open the meeting with a televised speech at around 1:40 pm (1040 GMT), followed by brief addresses from China's Vice President Xi Jinping and British Prime Minister Gordon Brown, the highest-level attendees.

The official two-hour closed-door meeting is due to wrap up with a final communique at around 4:30 pm (1330 GMT).

Brown is set to call for a global "new deal" to address the latest oil shock and end opposing interests of producers and consumers, proposing that big consumers open their markets to investment in alternative energy sources by producer nations.

"In this way we move from the old conflict of interest between producers and consumers to building what the world needs," he will say according to an advance copy of his speech.

But there appeared limited hope for any substantive action to emerge from the brief meeting.

"You've got a joint communique that has got to withstand the scrutiny of producers and consumers," a source who had seen a copy of the draft told newswire Reuters. "It is a good common statement of concern. It probably won't meet anybody's expectations or needs."

A Gulf OPEC official told Reuters on Saturday that the meeting would discuss a proposal for an output boost from other OPEC members who can bring on extra production quickly, namely United Arab Emirates and Kuwait.

Another OPEC delegate said it was not yet clear whether they would join in any output rise.

Kuwait Oil Minister Mohammad Al-Olaim said his country would "not hesitate" to boost output if it saw the need, but a day earlier he said it was too early to talk of an increase.

Saudi Arabia, which has a policy of keeping a cushion of spare capacity, may also consider increasing its capacity beyond an existing goal of 12.5 million bpd by the end of next year, the source said, a move that would combat fears the holder of the world's biggest reserves may be reaching its peak.

While consumer nations have said an OPEC output rise would help to calm runaway markets, OPEC countries have repeatedly blamed factors including speculation, a weak dollar and political instability.

"Governments have a role in organising [oil] markets and structuring them in a way that prevents speculators behaving in a manner that has led oil prices to reach their current levels," Deputy Saudi Oil Minister Prince Abdulaziz bin Salman was quoted as saying by the Saudi-owned daily Asharq Al-Awsat on Saturday.

Investment funds have pumped billions of dollars into oil and other commodities as they seek to diversify holdings and flee poorly performing asset classes.

US Energy Secretary Sam Bodman on Saturday welcomed any action that would add supply to the market, but added that the focus on speculation could be misplaced.

"There's no evidence we can find that speculators are driving futures prices," he said on Saturday.

US regulators, under political pressure from lawmakers, have recently stepped up oversight of futures markets in an apparent effort to temper the influx of speculative funds.

"While 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," he said.

Libya's top oil official Shokri Ghanem said the market had more than enough crude.

"You can't get any decision on important matters in the energy market in a meeting of three hours," he said. (Reuters)

READERS' COMMENTS

MORE FROM ARABIANBUSINESS.COM