LONDON (Dow Jones Newswires), December 19, 2008
U.K. Prime Minister Gordon Brown said Friday that oil price volatility is the most pressing energy challenge facing the world and called on oil producers and consumers to work to reform markets to prevent another price spike like the one seen this summer.
"We need to protect families and businesses across the world from the worst excesses of price fluctuations," Brown said at a meeting the U.K. government is hosting in London of energy ministers and executives from around the world.
Brown said that the recent oil price spike had damaged the global economy and shaved $150 billion off global GDP this year. The subsequent sharp fall in prices has made it harder for countries with oil resources to invest in additional production, Brown said.
Oil prices have shed more than 75% of their value since hitting record highs above $147 a barrel in July. Nymex light sweet crude oil futures for January hit a four-and-a-half-year low to trade below $34 a barrel Friday morning.
If investment in oil and other energy sources stagnates as a result of these low prices it could cause supply to tighten just as it is needed, Brown said.
A report from Cambridge Energy Research Associates, commissioned by the U.K. governme/p>
It estimated that the $150 million a year that the oil industry needs to invest in new supply sources in the next few years will fall by around 40% and if prices stay low projects will be delayed or canceled.
The world's spare oil production capacity could hit 7 million to 8 million barrels a day by 2013, but from that point will begin to erode and could be very tight again by 2018, potentially pushing prices above the highs seen this year, the report said.
High prices caused by a failure to invest in sufficient new energy infrastructure now could cost the world economy $1.5 trillion a year by 2030, Brown said.
Brown said the U.K. will chair a global task force to pursue reforms to regulation of international energy markets. Ed Miliband, secretary of state for energy and climate change, said the task force will look at the scope of current regulation, the level of market oversight and how transparently important data is reported in each country. The point of this process will be to discover, "how do we avoid the price spike we saw this year happen again," he said.
Miliband declined to say what the U.K. or other consumer governments thought would be a fair oil price in the medium term, but he said it is important that it should stay low in the near future to help the global economy out of its downturn. Saudi Arabian Oil Minister Ali Naimi said a price of around $70 a barrel is necessary to guarantee sufficient investment in both oil infrastructure and alternative energy sources.
The task force will operate under the umbrella of the Madrid-based International Organization of Securities Commissions and will issue specific proposals at the G20 meeting in April, Miliband said.
Copyright (c) 2008 Dow Jones & Company, Inc.
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