US Energy Secretary Samuel Bodman said on Saturday that insufficient oil production, not financial speculation, was driving soaring crude prices.
Bodman’s comments on the eve of an energy summit in the Saudi port city of Jeddah set the stage for a showdown between the US and conference host Saudi Arabia, which has largely blamed speculation in the oil markets for record prices.
The US and many other Western nations have put increasing pressure on Saudi Arabia, the world’s top oil exporter, to increase production. Saudi officials have been hesitant to do so, arguing that soaring prices have not been caused by a shortage of supply.
Bodman disputed that assertion on Saturday, saying oil production has not kept pace with growing demand, especially from developing countries like China and India.
“Market fundamentals show us that production has not kept pace with growing demand for oil, resulting in increasing prices and increasingly volatile prices,” Bodman told reporters.
“There is no evidence that we can find that speculators are driving futures prices” for oil, he said.
He said commodities markets had experienced a huge influx of money from financial investors in recent years, but they have been following the market upward rather than driving the increase in the price of oil.
Saudi Arabia called the unusual meeting in Jeddah between oil producing and consuming nations to show that it was not deaf to international cries that high oil prices have caused social and economic turmoil.
Bodman said every 1 percent increase in the demand for oil requires a 20 percent rise in price to balance the market.
Rising demand in the developing world has coincided with historically low levels of spare oil production capacity, which fell below 2 million barrels per day among OPEC countries last month for the first time since 2006, the International Energy Agency said.
Bodman said the responsibility for reducing oil prices did not simply fall on the shoulders of producers, saying consuming countries must increase energy efficiency and invest in alternative fuels.
But he saved his strongest words for oil producers like Saudi Arabia, who he said must step up long-term investment in production.
“The incentive [for investing] is simply reasonable prices so that we’re not faced with having to drop everything and race to Jeddah for a meeting that was called on a week’s notice,” Bodman said.
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