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Demand causing oil crisis, insists Brown

Demand causing oil crisis, insists Brown

Gordon Brown clashed with leading oil-producing nations yesterday, insisting that surging demand from the developing world rather than speculative pressures was driving up oil prices and creating an oil crisis to match those of the 1970s.

Brown had flown to Jeddah to attend a one-day oil summit of producers and consumers convened by Saudi Arabia, saying it was the duty of world leaders to address the biggest crisis facing the world.

In his speech, Brown offered a long-term deal whereby the oil-consuming nations would diversify energy supplies, moving into nuclear and renewables, and the oil-producing countries would increase production, as well as recycle some of their huge profits into western renewable technologies. Brown has stated that oil producers have earned $3tn in extra profits from the latest oil shock. He also revealed Britain will host a follow-up summit in London, to build the shared analysis of what he described as the biggest problem of the world. The meeting will probably be held in October.

Brown told the conference that in the short term there was a clear need for extra oil production. “All of us need credible future commitments on increased oil supply because, even with the further action we propose to tackle climate change, demand for oil will continue to be strong over the medium term,” he said.

He claimed the new deal between nations he is suggesting could bring an end to “the zero sum game between producers and consumers” from which no one would benefit. He insists the world has to address not just short-term under-production of oil, but the long-term boom in demand likely to come from China and India, a surge that requires the west to look for new sources of secure energy.

But Brown’s analysis of the causes of record oil costs was at odds with the Opec president, Chakib Khelil, who reiterated his view opposing increased production, saying “the price is disconnected from fundamentals” of supply and demand.

“We believe that the market is in equilibrium. The price is disconnected from fundamentals. It is not a problem of supply.”

The Indian finance minister, Palaniappan Chidambaram, agreed, saying producers and consumers should “wrest control” of trading by agreeing to restrict prices.

“Surely demand and supply cannot explain what has happened over the last 12 months,” he said. “Oil prices were $70 a barrel in August 2007 and how is it that they’ve doubled when there has been no dramatic change in demand?”

But in the increasingly divisive debate on the cause of the quadrupling of oil prices since 2000, Brown has support from the US and at least some Opec members, notably Saudi Arabia. The world’s largest oil producer realises there is an urgent diplomatic, if not economic, case to increase supply and has announced two big increases in oil production in the past two months, taking its production to the current 9.45m barrels a day.

World production is currently just over 80m barrels a day, and it is estimated there is just over 3m spare capacity at present.

Brown told reporters in Jeddah that over the next few years China will see car ownership grow from 37m to 100m, a further 100 airports will be constructed and 1,000 cities built.

He added: “Anyone looking at it knows there is more demand than supply, and it is the same if you look at future years due to the rise of China, India, Asia, and, equally importantly, the rise in oil consumption in the oil-producing countries from Nigeria to the Arab countries. So, whatever the impact of speculative forces, the real issue, the concrete problem, is how demand can be brought into supply with demand.”

Brown said he was willing to examine the impact of speculation – billions of dollars in financial investments in oil by investors hedging against a weakening US dollar – but stressed it was not the predominant source of the crisis.

He said: “We have had the credit crunch, we have had food prices rising very fast, we have had a trebling of oil prices, which is creating a huge amount of stress because of its effect on petrol, gas and electricity and the follow-through to the rest of the economy.

“This is the third great oil shock in three decades, but this is the worst oil shock because of the severity of the rise in price, and the unpredictability and volatility in the markets.”

The Saudi summit was seen as a high-risk venture, because, if it fails to convince the markets, there are fears that oil prices already pressing $140 a barrel will rise further this week.

Pointing to the fall in oil production in Nigeria at the weekend, Brown did not suggest that the summit itself will cause a short-term drop in the oil price.

At the talks

Among those present at the conference were:

Prime minister Gordon Brown

Energy minister Malcolm Wicks

Saudi king Abdullah bin Abdul-Aziz

Shell chief executive Jeroen Van de Veer

BP chief executive Tony Hayward

Saudi oil minister Ali al-Naimi

US energy secretary Sam Bodman

Secretary general of Opec Abdullah al-Badri and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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