The government and speculators should take part of the blame for the excessively high fuel prices that pushed red diesel to 70p/litre earlier this year, according to one of the most important men in the oil industry.
Abdalla Salem el-Badri, secretary general of OPEC, which controls 40% of world oil output, told a briefing in London yesterday that very high prices did not ultimately benefit oil-producing countries because they affected demand. “$147 a barrel was too high,” he said.
Despite repeated requests, Mr el-Badri refused to reveal what OPEC considered an acceptable price for its members. He said, however, that the current price of about $60 a barrel was not enough to sustain investment and could signal a return to higher prices if proposed new production and refining capacity was subsequently put on hold.
If prices failed to stabilise, OPEC would not hesitate to reduce production again at its next meeting in December following the 1.5m-barrel cut in daily output announced in Vienna last Friday, he added.
But Mr el-Badri said it was wrong of Gordon Brown and George Bush to tell OPEC not to cut production during the current financial crisis. “Why should they ask poor countries like Nigeria and Angola to help solve a crisis that started in the US? If Gordon Brown cared about his citizens he could cut fuel taxes,” he said.
Peak oil prices were also nothing to do with supply and demand, Mr el-Badri claimed. “$147 a barrel was down to speculation, not fundamentals. When prices were at their highest there were no queues to buy oil.”
It was unrealistic to remove speculation from the market completely, but regulation was needed if governments wanted to curb volatility, he said. “Companies will still need to hedge against price changes, but if you speculate you should be ready to receive those barrels.”
Andrew Shirley, head of Knight Frank’s rural research department, who attended the briefing, said it was good news for farmers that OPEC did not appear to want to drive prices back up again to unsustainable levels.
“It is almost impossible to quantify just what impact speculators really do have on prices and I am sure a lot of people will be critical of OPEC for cutting production now, but farmers would definitely appreciate anything that would bring some stability to the commodity markets. And I think many would agree with Mr el-Badri that we pay too much tax on fuel in the UK.”