In an unusual conference of oil producers and consumers held at Jeddah on 22nd June’08, courtesy King Abdullah of Saudi Arabia, India arrayed with the countries that challenge the US diagnosis as to the cause of sudden spate in crude prices. “We respectfully reject the suggestion that rising demand is the cause of spiraling oil prices,” Finance Minister P.Chidambaram told the meeting, held at red sea coastal city.
Rejecting the wide spread view in the West that ‘demand push’ by developing economic giants like India and China were causing the phenomenal rise in oil prices, Chidambaram added, “the causes of the current pandemonium in prices lies elsewhere, in the unregulated over-the-counter markets and future trading in oil.”
In the opinion of Chidambaram, it is the large financial institutions, pension funds and hedge funds, mostly based in US that are pumping money in the oil market as they flee poorly performing asset classes. Petroleum secretary M.S.Srinivasan told PTI at Jeddah that speculation alone was responsible for a rise of $60 a barrel and that if future trading in oil is stopped, the crude price would tumble.
King Abdullah, however, urged the delegates to uncover the ‘truth’ behind price rise and cited himself three reasons for spurt: speculation, increased consumption by developing economies and additional taxes in some consuming countries. The King has already vowed to increase production up to 500000 barrels a day in the coming months to sober the prices but warned that a supply increase alone would not be enough to calm down the markets.
In the end, the bone of contention – the cause of price spurt doubling the prices in a year- remained unresolved without which effective remedial measure is hard to come up.