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India wants oil price band: Chidambaram

India asked oil producing nations not to remain a “passive spectator of speculation” and to cool down prices.

business Updated: Jun 23, 2008 03:08 IST

Smarting under oil-inspired runaway inflation, India on Sunday asked oil producing nations not to remain a “passive spectator of speculation” and called for adopting a “price band mechanism” to cool down prices.

“Questions have been raised about the fundamentals of the oil industry. There is a need for the oil industry to reassert its leadership in price formation and not remain a passive spectator of specution and paper trading in oil.

“The global hydrocarbon community must address this situation through appropriate supply side responses and calm the oil markets,” Finance Minister P Chidambaram said addressing the Energy Ministers meeting here.

Chidambaram, accompanying petroleum minister as part of the Indian delgation to the summit, said the only way forward for both the producers and consumers is to find a common ground.

“We have a proposal that will instill mutual confidence. We propse that we adopt a price band mechanism. Consuming countries must guarantee that oil prices will not fall below an agreed level and producing countries must guarantee that oil prices will not rise above a guaranteed level,” he said.

In the band between these two levels, the minister said, let the prices be determined by market forces. “This is only way to shelter the world from volatility and unpredictability in oil prices.”

Cautioning the oil producers that they would also be sufferer in case the global economy slows down or slips into recession due to high oil prices, he said the current level of prices was in the interest of neither the producers or consuming countries.

Wondering as to how oil prices have doubled from $70 a barrel from August 2007, Chidambaram said, “There is ample evidence that large financial institutions, pension funds, hedge funds etc have channelised billions of dollars — nay, trillion of dollars — into commodity investments and commodity derivatives.”

It is the common knowledge that these financial transactions are unregulated and highly opaque, the Finance Minister, who accompanied Petroleum Minister Murli Deora to the meeting, said, adding the demand for oil generated by these funds is purely speculative.