Oil execs refute claims speculators driving price

SUPPLIES BLAMED: The heads of Shell, BP and Repsol has said record prices are the result of a dearth of new supplies. (Getty Images)

The heads of some of the world's biggest oil companies countered on Monday OPEC claims that speculators were driving high oil prices, blaming instead a dearth of new supplies.

The chief executives of Royal Dutch Shell, BP and Spain's Repsol told the oil industry's biggest gathering in three years that restrictions on where they can invest and high taxes meant they could not help boost supplies as much as they might.

BP's CEO Tony Hayward said the argument that financial investors buying oil futures were behind a four-year rally that pushed oil prices to new records above $143 a barrel on Monday was a "myth".

He said the problem was a failure of supply growth to match demand growth. "Supply is not responding adequately to rising demand," he told thousands of delegates at the World Petroleum Congress.

Repsol CEO Antonio Brufau agreed. "The fundamentals in the industry are the significant reasons for having these prices," he said.

Shell Chief Executive Jeroen van der Veer said there was enough supply to meet current demand but that the market was tight and that many users were justifiably worried that future supplies will not meet demand.

Insofar as financial investors were involved in the market, they were only following such supply fears.

"We don't think that the financial markets are leading the speculation, probably they follow what other people fear as long term fundamentals," Van der Veer said. "I do not think that you can blame speculation for the oil price".

Van der Veer said while the world's third-largest oil company by market value did use energy derivatives it did not speculate on the oil price and that its net trading position was balanced.

Oil companies often hedge production but do not usually bet on the direction of the oil market, with the possible exception of BP which is considered the most agressive trader among the majors.

Analysts at Goldman Sachs have dismissed the speculative bubble argument. "We find the concerns that commodity markets are in the midst of a speculative bubble unwarranted," the investment bank said in a research note published on Sunday.

US light crude was up $1.64 at $141.85 a barrel by 1459 GMT, after a record high of $143.67 a barrel, supported by concerns over tensions between Israel and Iran over Tehran's nuclear programme.

Hayward said politics rather than geology was the reason behind anaemic supply growth. "The problems are above ground not below it," he said.

Brufau noted that 90 percent of the world's oil reserves were in countries, such as Saudi Arabia and Kuwait, which restricted investment by international oil companies.

Despite falling spare global oil production capacity, OPEC argues that supplies are ample and that they are investing enough to ensure consumers will have the oil they need in future.

However, analysts say while the oil majors tend to boost their investments when oil prices rise, in the hope of lifting output and profits, state-run or national oil companies (NOCs) often do not respond to market signals.

NOC investments are driven by other priorities such as their governments' short-term cash needs, maximising long-term returns and possibly management of the oil price.

High taxes have also limited investment, the executives said. As oil prices rose in recent years, producing countries from Russia to Venezuela have boosted oil taxes sharply.

Hayward said taxes were now "dangerously high". (Reuters)

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