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The Times: Opec and commodity traders to mull oil price

March 15, 2008

Carl Mortished, World Business Editor

A closed meeting of big oil companies, Opec and leading commodity exchanges will discuss the upwards spiral of the crude oil price amid mounting concern that the recent surge is not reflecting the slowdown in the global economy.

The International Energy Agency (IEA), which will convene the discussion in Paris on Monday, said that it would debate “the complex process of price formation”. Oil market experts from big oil companies, including ExxonMobil, Shell, Total and StatoilHydro, are expected to attend the meeting, alongside representatives from the crude oil futures markets and pricing agencies. The IEA said that the meeting would include refiners and oil-trading institutions.

The continuing surge in the crude price, which reached $111 a barrel on Thursday, is confounding market analysts, who point to signals that energy demand is weakening in the developed economies. Worries about the US economy caused the US light sweet crude contract to lose ground yesterday, falling by a dollar, but further erosion in the American currency is keeping oil on the boil.

The upward spike in crude coincides with the collapse in the value of the dollar, which fell to record lows again yesterday against the euro and the yen. Oil analysts suggest that the world’s most widely traded commodity is a useful hedge against the fall in the US currency. Commodities such as oil and gold have also become refuges for investors taking flight from equities and bonds.

Recent efforts by central banks to prop up the financial markets with a massive funds infusion could be contributing to the flow of money into commodities, such as oil, Jorge Montepeque, director of pricing and assessment for Platts, the oil pricing agency, said.

“The central bankers are trying to float their way out of trouble,” he said. “Nobody is buying equities or real estate, so any extra liquidity goes into commodities.”

This week the US Department of Energy reported an unexpected surge in petrol and crude oil stocks, but evidence of higher inventories failed to quell the price escalation.

Jeff Currie, a Goldman Sachs analyst, said that the world had been catching up for the period of low investment in oil infrastructure during the 1990s and the dot-com boom. He said: “By 2000 the market had exhausted all the remaining spare production capacity that was mostly from investment in the 1970s.”

However, the new bout of spending on oil infrastructure has coincided with a return to oil nationalism and rising taxes, preventing investment in the cheapest resource to generate the most efficient supply response, Goldman Sachs said. As a result, oil companies have been forced to pursue more expensive oil, such as Canadian oil sands, putting upward pressure on prices and its also non-profit sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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