Oil producers urged to boost output
AOMORI, Japan (AP) - June 7, 2008 The five nations - the United States, China, Japan, India and
South Korea - differed, however, on how urgently oil subsidies
should be phased out, with Washington backing bold movement while
India and China warned of political and economic instability.
Cabinet ministers from the five countries, which account for
more than half the world's consumption of energy, agreed that the
sharp surge in oil prices was a menace to the world economy, and
that more petroleum should be produced to meet rising demand.
"It's not good for producing nations to see the U.S. struggling
economically. They depend on us to be a significant engine in world
economic activity," U.S. Energy Secretary Samuel Bodman said.
The current president of the Organization of Petroleum Exporting
Countries, Chakib Khelil, has said that the cartel will make no new
decision on production levels until its Sept. 9 meeting in Vienna.
Oil prices made their biggest single-day surge on Friday,
soaring $11 to $138.54 on the New York Mercantile Exchange, an 8
percent increase. That followed a $5.50 increase the day before,
taking oil futures more than 13 percent higher in just two days.
World oil production has stalled at about 85 million barrels a
day since 2005, while global economic growth - boosted by
spectacular surges in China and India - has pushed demand to
unprecedented levels.
Analysts also have cited the decline of the U.S. dollar, fears
about the long-term supply of oil and aggressive speculation as
factors in rising prices.
The five consumer countries, meeting before an energy conference
of the Group of Eight industrialized nations and Russia on Sunday,
argued that the unprecedented prices were against the interests of
both producers and consumers, and imposed a "heavy burden" on
developing countries.
The ministers also vowed to diversify their sources of energy,
invest in alternative and renewable fuels, ramp up cooperation in
strategic oil stocks in case of a supply shortage, and improve the
quality of data on production and inventories available to markets.
The group diverged somewhat over oil subsidies. The
International Energy Agency has estimated that oil subsidies in
China, India and the Middle East totaled about $55 billion in 2007.
The United States, which has its own energy subsidies, urged
countries such as China to lower its oil supports, which enable
domestic consumers to enjoy cheaper gasoline. Subsidies shield
consumers from higher prices, meaning consumption does not decline
despite rising expenses.
But China and India, while signing onto a statement recognizing
the need to eventually phase out such subsidies, argued that
removing such supports quickly could trigger political and economic
instability.
"We are taking very precise and delicate measures so we will
not destabilize the government," said Zhang Guibao, China's
delegate. "If we face such problems in a country such as China,
with a large population ... there would be adverse impacts felt
throughout the world."
India is already facing such effects. The government on
Wednesday hiked gasoline and diesel prices, triggering protests by
angry consumers who blocked rail tracks and roads and shut down
businesses.
There were also differences of opinion over the cause of the
wild rise in oil prices. Bodman argued the surge was largely a
simple problem of supply and demand.
"We're in a difficult position where we have a lid on
production and we have increasing demand in the world," he told a
small group of reporters before the meeting, dismissing the idea
that speculation was fueling price increases.
China, however, insisted that rising demand largely fueled by
its own dramatic economic growth was not the sole factor driving
prices. Zhang said hedge funds and "hot money" were flooding into
the energy sector, distorting the market.
Underlying the meeting was growing concern about the effect of
rising prices on the economy. The U.S., for instance, reported on
Friday its unemployment rate rose to 5.5 percent in May, a monthly
rise of half a percentage point, the biggest in 22 years.
Bodman conceded that even quick action would not pull down
prices immediately.
"There are relatively few things we can do short term," he
said. "This has been a long time in coming ... this is going to
take a long time to accomplish."