Call to regulate oil futures trading

Middle-Eastern exporters and Asian consumers are calling for tighter regulation of crude futures trading.

Middle-Eastern oil exporters and Asian consumers are calling for tighter regulation of oil futures trading and more energy investment to forestall price spikes when demand recovers. The recommendations, released in an official communique yesterday at the close of an Asian Ministerial Energy Roundtable in Tokyo, echo those from two previous international oil producer-consumer summits held within the past year. They follow similar resolutions on tightening the regulation of financial markets and banking that emerged from a Group of 20 (G20) summit earlier this month. "We will take actions to avoid any excessive volatility in commodity futures, and Japan will look into what measures are appropriate," the Japanese trade minister, Toshihiro Nikai, said after co-chairing yesterday's energy meeting with the Qatari oil minister, Abdullah al Attiyah. The meeting's participants - comprising representatives of OPEC, the International Energy Agency and 21 oil-producing and consuming nations - called for improvements in the supervision and transparency of commodities markets, including limits on over-the-counter contracts to buyers who do not intend to use the underlying commodity. Mohammed al Hamli, the Minister of Energy, was among the signatories. Last year's surge in oil prices coincided with increased activity by banks and other investors from outside the energy industry. "Participants recognised that excessive fluctuations in oil prices are undesirable for both energy producers and consumers, and that financial markets have an impact on oil price formation," the communique said. OPEC has been especially vocal in blaming speculative trading in commodities derivatives, such as futures contracts, for driving up oil prices to nearly US$150 a barrel last July, and for the subsequent price crash. In October, the OPEC secretary general, Abdalla el Badri, said speculators had made a huge contribution to oil price volatility, creating an uncertain climate for investment in future crude oil production capacity. Volatility created "serious risks" of future price spikes as the global recession curbed investment in energy projects, the Saudi Arabian oil minister, Ali al Naimi, said on Saturday ahead of the meeting. "Price extremes have been unjustifiable and unsustainable," he said yesterday, according to the text of a speech seen by Bloomberg. "I have often cautioned that if prices remain too low for too long, they can carry the seeds of future price spikes and volatility." Saudi King Abdullah said last November that the world's largest oil producer viewed $75 as a "fair" price for oil. Lower investment "is of great concern, notably for energy sector projects adversely affected by oil price volatility and lower demand for oil, when long-range commitments of adequate and timely investment flows are needed to ensure future oil supplies," Mr al Naimi added yesterday. The group's final communique called for "adequate and continuous investment" to ensure that oil supply and demand were balanced in future. In a speech at the opening of the Tokyo meeting, Mr al Attiyah said falling state incomes in oil-producing countries were creating economic instability and disrupting needed investment. He called for more international co-operation to sustain energy development. "Isolated national actions are no longer likely to be the only or the most effective action." He also highlighted the important roles that Asian markets were likely to play in helping worldwide energy investment to rebound. With economies and energy demand growing faster in Asia than in any other region, "it is only natural to seek organising the Asian energy scene through increased transparency and co-operation in every field where our assets complement each over", he said. "For some time now, the centre of gravity of energy issues - and specifically that of oil and gas supply and demand - has been moving east towards the most populated region in the world." Many of the Middle-Eastern oil ministers attending yesterday's meeting were alert to the dangers posed by oil price volatility well before crude tumbled from last summer's record peak. In June, at a summit hosted in Jeddah by the Saudi government, they joined representatives of oil-consuming countries in expressing concern about the steep rise in crude prices, and in calling for more transparency in financial markets and better reporting of data related to oil supply. In December, participants at a follow-up meeting in London, held under very different market circumstances, raised concerns about the dramatic fall in oil prices to less than $35 a barrel wreaking havoc with industry investment plans. tcarlisle@the national.ae