Cracks show as energy ministers debate oil surge
Energy officials from the world's top consumer nations sought ways to tame record prices on Saturday, a day after oil's biggest one-day surge ever, as the US Energy Secretary singled out cheap Asian fuel as part of the problem.
A two-day meeting of Group of Eight energy ministers plus officials from China, India and South Korea comes amid unprecedented volatility in the oil market and growing public discontent over their governments' failure to soften the blow, which is adding more pain to an already ailing world economy.
US Energy Secretary Sam Bodman on Saturday urged countries to scrap fuel price subsidies that inflate demand, a shot across the bow for China and India, whose fast-growing consumption and cheap prices have helped drive oil's explosive six-year rally.
"We know demand is increasing because a lot of nations are still subsidizing oil, which ought to stop," Bodman said, just before meeting with top officials from Japan, plus non-G8 South Korea, China and India, nations that consume half the world's oil.
India followed Taiwan, Indonesia and Sri Lanka in raising domestic fuel prices this week with only its second increase in two years, but analysts said the 10 per cent hike was unlikely to have an impact unless rates were allowed to rise faster.
China, the world's second-largest oil consumer, has raised pump rates only once since mid-2006 due to inflation worries, increasing them by 10 per cent in November, cushioning consumers from the near doubling in world prices since then.
The issue of tempering demand took on new urgency on Friday, as oil prices rocketed by more than $10 to a new high above $139 a barrel, taking this year's gains to 44 per cent.
But India's ambassador said it was not realistic to abandon controls that help protect its 1.1 billion people.
"We as a developing nation are not in a position to completely do away with ... subsidies," said Hemant Krishnan Singh, who is standing in for the oil minister at the meetings.
Oil's Friday jump doubled the previous record one-day rise, set just the day before, extending a rally that has seen prices rise sevenfold since 2001 as investors and speculators see producers struggling to keep pace with booming demand.
Japanese Trade Minister Akira Amari tried to rally the five nations to common purpose over "abnormal" oil prices.
"It is extremely important to deliver a joint message on the action that we are taking to ensure global energy security," he said.
Bodman warned the world to brace for worse to come.
"It's a shock, but if you look at the rate of oil production globally, it has been 85 million barrels a day for three years in a row," Bodman told.
He said that without an increase in production, it would be hard to mitigate the current price volatility as every 1 per cent rise in demand creates a 20 per cent rise in prices.
"It's very skewed, and it's going to add to volatility as it did yesterday and will presumably continue to do in the future," he said.
The five energy officials, meeting for the first time since an inaugural gathering in December 2006, will aim to press oil suppliers to show they have the resources to meet long-term demand, hoping that will temper price gains built partly on the belief that production may soon peak.
Members of the International Energy Agency (IEA), the energy adviser to 27 industrialised countries, will also urge China and India to join a framework to cooperate on managing strategic oil reserves and controlling demand in times of energy crises.
Record oil prices have triggered protests across Europe, pushed airlines into the red and forced five Asian countries to cut fuel subsidies, intensifying price pressures.
World leaders are fighting an inflation battle on two flanks, having met earlier this week to seek a solution to the surge in food commodity prices that threatens starvation for millions.
The meetings in Aomori will set the stage for the G8 leaders' summit, to be held on Japan's northernmost island of Hokkaido on July 7-9, where Tokyo is expected to press for a commitment to slash greenhouse gas emissions by 2050.
In a report on Friday, the IEA said world governments must quickly start a $45 trillion "energy technology revolution" to build dozens of nuclear power plants, thousands of wind turbines and billion-dollar carbon-capture plants that could drive up the cost of producing carbon 10-fold in order to halve emissions.