Royal Dutch Shell Plc  .com Rotating Header Image

Warning that oil summit could push price up logo

Warning that oil summit could push price up

  • The Guardian, 
  • Friday June 20, 2008

An unprecedented meeting of oil producers and users in Saudi Arabia this weekend, aimed at ending the rise in petrol prices, could propel the cost of energy higher, Gordon Brown was warned last night.

As the prime minister prepares to fly to the summit in Jeddah, a leading energy academic said the chances of finding a suitable solution to rocketing prices was limited because the Opec cartel of producers, western oil companies and ministers in consuming countries have conflicting views on what has caused this year’s 40% rise in crude.

Failure to find an eye-catching initiative for what Brown has called “the biggest problem facing the world” could make the situation worse, said Dr Bassam Fattouh at the Oxford Institute for Energy Studies.

“All parties are starting from very divergent views on what has led to this level of prices, with Saudi blaming speculators, Opec blaming shortages in refining capacity and our own prime minister blaming [supply shortages from] Opec,” he said. “In such circumstances it is hard to agree on how to bring oil prices down.”

He fears the summit might have raised unrealistic expectations among global oil traders. “It could backfire if the market expects something to happen and it does not. Rather than falling, prices could overreact and go up further,”

The meeting, which will be attended by Tony Hayward, chief executive of BP, and Jeroen van der Veer of Shell, was called by Saudi Arabia after oil hit $140 per barrel.

Oil fell $4 a barrel yesterday after China said it would lift domestic fuel prices by about 18%. China has always subsidised such prices, but has run into international criticism as its soaring demand has been partly behind the global surge in oil prices. An independent oil trader said yesterday that if Saudi Arabia got it wrong at the weekend, crude could hit $150.

The world’s biggest oil exporter, Saudi, is earning billions in extra revenue but its leaders are worried the long-term impact of high prices will be to cause conflict with western countries that militarily and politically support the House of Saud.

The kingdom’s rulers are also fearful that high prices will lead to lower demand as users switch to other fuels, especially at a time when the west is worried about carbon emissions and global warming.

A letter from the powerful minister of petroleum in Saudi Arabia, Ali Al-Naimi, to western leaders, said. “It is the kingdom’s aspiration that this unprecedented meeting will contribute to greater stability within the world’s petroleum markets.”

Saudi has agreed to increase output by 500,000 barrels a day but industry watchers say this counts as nothing unless the oil is priced at a discount to today’s sky-high levels, which Saudi has opposed.

Other oil industry officials, who asked not to be named, said the fact Saudi was calling the meeting was of symbolic value, suggesting producers as well as consumers agreed it was time that everything possible was done to reduce energy costs.

But industry officials also recognise Saudi is fearful that pushing more crude onto the market could lead to a plunge in its value. It was badly burnt when oil fell to $10 per barrel in the late 1990s in similar circumstances. The Saudi economy – and political stability – remains tied heavily to crude revenue.

The Saudis could also help the oil market, say some industry watchers, by promising more transparent statistics on production and reserves. There has been endless speculation that Saudi and others do not have as much oil below ground as they claim, leading to the “peak oil” theory – that stocks are running out.

Opec nations are split over whether they need to act, with members such as Venezuela and Iran arguing the west is exaggerating the problems and failing to act against financial speculators and a plunging dollar, which all agree are adding to the problems, if not creating them.

BP’s Hayward said last week there was plenty of oil, but argued there was a supply problem caused by tax and other restraints in producing countries. Van der Veer has said peak oil is close and that it is time to start producing it from new sources such as tar sands and gas-to-liquids. and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

0 Comments on “Warning that oil summit could push price up”

Leave a Comment

%d bloggers like this: