Energy officials from five top consumer nations urged producers to step up investment yesterday, a day after crude’s biggest surge ever, but they offered no new ideas on how to deal with record prices and remained divided on fuel subsidies.
Japan, the US, China, India and South Korea — who together guzzle nearly half the world’s oil — said that they had agreed on the need for greater transparency in energy markets and more investment by consumers and producers both, while stopping short of calling on OPEC to pump more crude today.
But a call from the US for an end to heavy price subsidies that protect many Asian drivers from soaring costs fell on deaf ears, as China and India said they could only raise domestic rates gradually in view of their fragile economies.
The full group of G8 energy ministers are meeting today amid unprecedented volatility in the oil market and growing public discontent over governments’ failure to soften the blow, which worsened with Friday’s more than US$10 surge to a record US$139.
US Energy Secretary Sam Bodman pointed part of the blame at cheap fuel in Asia, where fast-growing economies and low prices had 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.
But India’s ambassador later commented that it was unrealistic 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.
India followed Taiwan, Indonesia and Sri Lanka in raising domestic fuel prices in the past week with only its second increase in two years, but analysts said the 10 percent 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, increasing them by 10 percent in November, and analysts see few signs of action soon, with policymakers focused on taming inflation.
“We still have some weak industries such as agriculture, the taxi industry and the public transportation sector,” Chinese state energy chief Zhang Guobao (張國寶) said.
China has said it aims to allow resource prices to rise, but is now even more loath to do so as it fights inflation at a near 12-year high.
China spends about US$25 billion a year to subsidize such things as oil products, natural gas, electricity and gas, while India spends approximately US$20 billion a year, a Japanese trade official said, citing International Energy Agency (IEA) figures.
Japanese Energy Minister Akira Amari, the chair of the meeting, said that rising oil prices were “a major risk factor” for the world economy.
Meeting with South Korean Knowledge Economy Minister Lee Youn-Ho, Amari said he believed crude oil prices were “abnormally high.”
“We want to issue a message on this to the world,” Amari said.
Lee added: “I don’t think the oil prices are at normal levels either. It is fairly questionable whether the world economy will be able to develop further at this level of crude oil prices.”
Bodman warned the world to brace for worse to come, conceding there were no immediate answers.
“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” while demand is rising, Bodman told a news conference. “There are few things we can do short term.”
He also said that increased regulation was not the answer to bringing prices down, despite mounting pressure from US lawmakers to step up oversight of energy markets in the hopes of deterring the flood of new investors and speculators that some blame for inflating food and fuel prices.
The US, Japan and South Korea — all IEA members — also urged China and India to work more closely with the agency as they develop their strategic oil reserves, which Western nations fear they may use to try to influence prices.
Also see: OIL: Oil prices make biggest-ever leap
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