JEDDAH: India on Sunday advocated for a price band for crude oil and blamed the speculators for the surge in global crude prices saying this is threatening to 'wipe out' economic gains of developing countries. "The only way forward is for the both producers and consumers to find common ground... We propose that we adopt a price band mechanism," Finance Minister P Chidambaram said at the meeting of the energy ministers. 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" and urged the oil producing and consuming nations to wrest control over oil trading from the hands of the speculators. The surge in global oil prices had prompted government to increase fuel prices early this month that led to inflation surging to a 13-year high at 11.05 per cent in India. "Three weeks ago, India passed on barely nine per cent of the required price increase to the consumers: the result is that the inflation measured by wholesale prices has crossed 11 per cent," he said adding that even oil producers like Russia, Indonesia, Saudi Arabia and Venezuela faced double digit inflation rates. He 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." Wondering as to how oil prices have doubled from 70 dollars a barrel from August 2007, Chidambaram said, "there is ample evidence that large financial institutions, pension funds, hedge funds etc have channelised billions of dollars -- nay, trillion of dollars -- into commodity investments and commodity derivatives." It is the common knowledge that these financial transactions are unregulated and highly opaque, the Finance Minister, who accompanied Petroleum Minister Murli Deora to the meeting, said, adding the demand for oil generated by these funds is purely speculative.
As per the price band mechanism, proposed by Chidambaram, consuming countries will guarantee that oil prices will not fall below an agreed level and producing countries will guarantee that oil prices will not rise above a guaranteed level. "In the band between these two levels, let prices be determined by market forces. This is the only way to shelter the world from volatility and unpredictability in oil prices," he said. Asserting that India has rediscovered its inner strengths in the recent years and acquired the capacity to end poverty, the Finance Minister said, "I speak with great anguish because the goals that we have set for ourselves are in great peril (because of surging oil prices)." Pointing out that high oil prices have improved the balance sheets of oil-producing nations and companies, Chidambaram also called upon the oil producers to fund capacity expansion. "Fresh investments are not materialising perhaps because of anticipated fall in demand. This is plainly wrong. The cyclical behaviour of oil markets is amply established and we know that oil production provides attractive returns in the long run," he said.
As per the price band mechanism, proposed by Chidambaram, consuming countries will guarantee that oil prices will not fall below an agreed level and producing countries will guarantee that oil prices will not rise above a guaranteed level. "In the band between these two levels, let prices be determined by market forces. This is the only way to shelter the world from volatility and unpredictability in oil prices," he said. Asserting that India has rediscovered its inner strengths in the recent years and acquired the capacity to end poverty, the Finance Minister said, "I speak with great anguish because the goals that we have set for ourselves are in great peril (because of surging oil prices)." Pointing out that high oil prices have improved the balance sheets of oil-producing nations and companies, Chidambaram also called upon the oil producers to fund capacity expansion. "Fresh investments are not materialising perhaps because of anticipated fall in demand. This is plainly wrong. The cyclical behaviour of oil markets is amply established and we know that oil production provides attractive returns in the long run," he said.
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