LONDON: The world’s largest oil producers and consumers called for more cooperation yesterday on measures to increase stability in oil prices and guarantee the investment necessary for future supplies.
Opening a meeting of ministers from 27 key oil producing and consuming countries here, British Prime Minister Gordon Brown warned that a failure to tackle volatility in oil prices could cost the global economy trillions of dollars.
“Wild fluctuations in market prices harm nations all round the world,” he said. “They damage consumers and producers alike.”
Meanwhile, oil prices fell further yesterday. US light crude for January delivery fell 77 cents to $35.45 a barrel in late trading. It earlier fell to $33.44, its lowest since April 2004.
The more active February contract, however, was up 73 cents to $42.40, with cuts in the Organization of the Petroleum Exporting Countries’ (OPEC) production expected to take hold in that month. London Brent crude gained 79 cents to $44.15.
Oil prices have fallen more than $100 from their peak above $147 in July as a global economic downturn cuts into consumption of fuel, and looked set for one of their biggest weekly declines for years.
Oil prices had fallen to four-year lows this week despite the OPEC agreement on Wednesday to slash global output, leading to fears that producing countries will have less money to invest in output for the future. That in turn would likely cause a price spike down the line, perpetuating the volatility in prices.
The London meeting was called to follow up June’s gathering of oil ministers in Saudi Arabia when prices were at record highs above $140 per barrel and talks centered on how to increase supply to keep up with demand. Crude has since tumbled to around $40.
OPEC President Chekib Khelil, also attending the meeting along with the head of the International Energy Agency (IEA), said that $75 a barrel should in the long run “be a fixed price that shouldn’t be allowed to fall below.”
Iraqi Oil Minister Hussain Al-Sharistani said that $70-75 would be a level that encourages producers to invest.
“Anything below would cause shortage in the medium term, but given the bleak outlook economically, I don’t think it will go above that until at least 2010,” he said.
Minister of Petroleum and Mineral Resources Ali Al-Naimi has previously said that $75 a barrel was a “fair and reasonable” price.
Brown said the wild variation in crude prices was the “most pressing challenge” facing the international community and called for improved regulation of oil markets to stabilize prices as well as greater investment in clean energy technology. “The risk now is that investment in oil and other energy sources will once again stagnate, supply capacity will begin to tighten just as demand responds to improving economic conditions,” he added.
Such failure to invest could cost the world economy an estimated $1.3 trillion a year by 2030, Brown warned.
Al-Naimi agreed that the high volatility was the biggest issue facing the oil market. “The world’s present financial climate is clearly one that inhibits innovation,” he said.
“Oil prices must be maintained at a level that encourages investment, especially in alternative energy sources.”
Cambridge Energy Research Associates chairman Daniel Yergin said low prices and financial restraints will hinder new investment in the medium term.
“Consequently, as the economy picks up, spare capacity will start to erode and the oil market could begin to tighten again ... by 2013 taking the world into a new cycle,” Yergin said.
IEA executive director Nobuo Tanaka said that improving transparency would help. “The more data we have on the market — including who is trading and how much — the better the market will move and the less volatility there will be,” he said.
Brown said that the “visionary internationalism” highlighted in the response to the global banking crisis in recent months should now be applied to energy challenges.
OPEC attempted to boost prices this week by slashing a record 2.2 million barrels from its daily production as of Jan. 1.
But oil prices tumbled despite the announcement, a clear indication of the growing belief that the world is heading for a long and painful recession in which energy use will continue to erode.
Asked about the future level of oil prices, OPEC Secretary-General Abdullah El-Badri said yesterday: “The market needs time to absorb the recent cut.” Bahraini Oil Minister Abdul Hussain Ali Mirza said that some countries at yesterday’s meeting had suggested that a price in a $70-$100 range would be good.
“I believe we will be back above $70 by the third quarter of 2009,” he said between talks. “That price is good, less than $70 is not viable to invest enough to increase production capacity.”