Oil prices are expected to remain high over the coming years as crude supply would continue to far lag behind demand mainly because of strong growth in China and India, Britain's Energy Secretary has said.
Malcolm Wicks also blamed growing speculation for the surge in crude prices to record high levels and said a global solution is needed to tackle this problem.
"We are seeing a huge and sustained increase in energy demand, in large part thanks to the rapid economic growth of countries such as China and India, and a much slower growth in supply," he said in a lecture at the Riyadh-based International Energy Forum (IEF).
"The sheer scale of the price rises speaks of a clear belief that this supply-and- demand imbalance will continue for years to come – and yes, there are understandable concerns about speculators pushing the price higher than the fundamentals would suggest, a possibility that can best be countered by further transparency and better provision of information," he said in the lecture, published by the IEF Secretariat yesterday.
Wicks said the sharp rise in oil prices would financially benefit producers in the short term but in the long run, they are not in the interests of either producers or consumers as they could stifle growth in demand.
"The dramatic price rise has put pressure on economies – it has put the energy security of some countries under strain and it is creating real problems for many of those people that are least able to pay for the energy they need," Wicks said in the lecture after attending the producer-consumer Jeddah conference, that focused on ways to push down crude prices
"We all know that commodities markets are no respecters of national boundaries, and indeed most of us here today welcome the increasingly global way in which energy markets operate. But this interdependent world also presents national governments with the self-evident fact that global issues can only be solved by global solutions."
The conference underscored the gap between the two sides as producers blame market speculation for the price surge while consumers say the market is under supplied. Although Saudi Arabia, the only country with substantial spare output capacity, agreed to lift its production by a further 200,000 bpd, the market was not affected as crude prices continued their climb.
Wicks said that in the short term, a price "spike" can benefit oil producers as it means much higher revenues, mainly for the countries, which rely heavily on oil exports and require additional income to fund growing development needs.
"But in the medium and long term, it's plainly in the interest of all sides that supply and demand find some kind of equilibrium, so that economies can continue to grow, energy shortages can be avoided, and a reasonable degree of market stability can return," he said.
"Markets are by their nature never entirely predictable, but extreme uncertainty, and the resulting volatility, help no one."
He said Britain, one of the largest crude producers in the Western hemisphere, is working to increase its oil output to contribute to easing prices that shot up to new record high levels of more than $140 last week.
He stressed that a "serious" dialogue was needed to restore stability to the oil market and bridge the gap between producers and consumers regarding their concerns about future supply and demand.