Oil will wipe out gains we made - PC

Finance Minister P Chidambaram on Sunday warned that high oil prices were threatening to wipe out economic gains made by the world in general and India in particular.

Addressing an International Energy Conference in Jeddah, the Finance Minister said “goals that we have set for ourselves are in grave peril”.

Chidambaram further called on oil producing nations to adopt a price band mechanism and wrest control over oil trading from speculators.

"The only way forward is for the both producers and consumers to find common ground... We propose that we adopt a price band mechanism," Chidambaram said at the meeting.

Rejecting suggestions that rising demand was leading to spurt in crude prices, he said, "The causes for the current pandemonium in oil prices lie elsewhere: in unregulated over the counter markets and future trading in oil."

The surge in global oil prices had prompted the government to increase fuel prices early this month that led to inflation surging to a 13-ear high at 11.05 percent in India.

"Three weeks ago, India passed on barely nine percent of the required price increase to the consumers: the result is that the inflation measured by wholesale prices has crossed 11 percent," he said, adding that even oil producers like Russia, Indonesia, Saudi Arabia and Venezuela faced double digit inflation rates.

Chidambaram warned the oil producing nations that "if the global economy slows down or slips into a recession due to high oil prices, that will eventually hurt all of us... We firmly believe that the current level of international oil prices is in the interest of neither oil producing countries nor the consuming countries."

The FM’s remarks came even as OPEC president Chakib Khelil opposed the demand to increase production in a bid to counter record oil costs. "The price is disconnected from fundamentals" of supply and demand, Khelil said as the international summit on the oil price crisis started in the Saudi city of Jeddah.

"We believe that the market is in equilibrium. The price is disconnected from fundamentals. It is not a problem of supply," he added.

Earlier, Chidambaram had asked the oil producing countries to increase supply to control oil prices, saying the present global inflation could not be tolerated.

"My presence in Jeddah emphasises the global nature of inflation. We cannot operate under these prices and oil producing countries need to calm oil markets," the minister told a private news channel.

On his part Saudi Oil Minister Ali-al Naimi said, "We have already increased our supplies substantially and the spurt in oil prices has nothing to do with oil supply in the global market."

Chidambaram and Petroleum Minister Murli Deora are in Saudi Arabia as part of efforts to address the issue of spurt in global oil crisis. The ministers held talks with Saudi officials yesterday over urgent steps to cool the escalating international crude oil prices.

The International Energy Conference in Jeddah is being attended by heads of state and ministers from 35 countries, top executives of 25 oil companies and seven international organizations.

Saudi Arabia is expected to coax its few OPEC peers who have spare production capacity to join the Kingdom in pumping more barrels, although some in the cartel have been openly skeptical that raising output will rein in prices they believe are driven more by speculation than market fundamentals.

While acknowledging the divide, officials said the meeting itself showed the growing will for a global effort to tackle oil`s rise, which has triggered protests from Brussels to Bangkok over record fuel costs that threaten the world`s economy.

"I really believe strongly that there is a political will of oil producers and consumers to lower the price and stabilize it, otherwise they would not have come," a Saudi oil source said late on Saturday. "There is no justification for this price."

Riyadh summoned both producers and consumers, plus chief executives from big oil firms, to the meeting after an unprecedented day of trading on June 6, when oil prices surged by USD 11 a barrel to a new peak, the largest ever one-day rise.

The price has doubled in a year to almost USD 140 a barrel, despite recent efforts to slow the ascent. Light, sweet US crude oil futures closed at USD 134.62 on Friday.

Saudi Arabia, the world`s biggest oil exporter, said in recent days it would raise output to 9.7 million barrels per day (bpd) in July, its highest rate in decades.

Major oil consumers in Asia, including the world`s number-two user China, have recently raised cheap domestic fuel prices that analysts say had aided rapid demand growth, while US regulators are seeking more oversight of futures market speculators.