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Speculation, insufficient supply cause oil price hikes

(Xinhua)
Updated: 2008-07-02 11:08

An insufficient oil supply, a weak US dollar, speculation and geopolitical instability have fanned oil prices to record highs, a senior Chinese oil manager said Tuesday.

The decisive driving force behind the high oil prices, which reached 143 U.S. dollars per barrel Monday, is severe concern about the fundamentals of oil supply and demand, not just for today, but for tomorrow as well, said Fu Chengyu, President of the China National Offshore Oil Corporation (CNOOC).

A weak US dollar and geopolitical instability have been fully manipulated by speculators to drive up oil prices, Fu said at the on-going five-day 19th World Petroleum Congress.

"Speculators have good reasons for expectation of future demand," Fu said, as emerging markets alone will need another 20 million barrels per day, 25 percent of today's production.

In his speech "Energy: Challenges and Solutions - A CNOOC Perspective," the Chinese manager said there are more concerns than ever before about energy security. World oil consumption has been growing at 1.5 percent annually since 1996, he said.

Growing energy demand from emerging markets such as China, India and Russia is a natural need, he said. Around 3 billion people in emerging markets are undergoing industrialization, which means more energy and resource consumption.

However, Fu said emerging economies should not be blamed for consuming more as developed economies should not be blamed for consuming too much.

He said per capita oil consumption is 17 barrels each year in countries of the Organization for Economic Cooperation and Development (OECD), a bloc of developed countries, while consumption in India was less than one barrel in 2006, and 2.1 barrels in China.

"If, say, in the next 20 years, the average consumption per capita in developing countries rises to five barrels, it is still less than one-third of the current level in OECD countries," Fu said.

Fu identified the reasons for the continuous production decline during recent years as geopolitical incidents, which prevented some traditional major supply countries from producing oil at their full capacity, and trade protectionism.

"US political intervention in our efforts to acquire a U.S. oil company in 2005 set a bad example for the rest of the world," the Chinese oil manager said, adding protectionism has continued to rise around the world since then.

"Today we see more barriers such as windfall tax and tougher fiscal regimes, which have limited accessibility to resources and deliverability of production," Fu said.

He said key factors for the healthy development of the oil industry around the world include closer cooperation among governments, a better investment and operation environment, more attractive policies and incentives to encourage investment, technological research and development, and the application of more efficient technologies for energy conservation, the improvement of energy efficiency and environmental protection.

The CNOOC, founded in 1983, is one of the largest state-owned companies in China, as well as the country's largest offshore oil and gas producer. Headquartered in Beijing, it has a total staff of 51,000 with a registered capital of 94.9 billion yuan ($13.8 billion).