Oil markets risk another speculative bubble unless the financial sector is reformed and transparency increased, but prices are not yet a threat to economic recovery, the EU and OPEC said after joint talks on Tuesday.
U.S. oil was trading at around $68 a barrel on Tuesday, far below a record of nearly $150 hit last year and also below the $75-$80 OPEC officials have said they seek.
“The 2008 bubble could be repeated if adequate regulatory reforms, including greater transparency, (are) not made as part of an overall reshaping of the global financial sector,” the European Union said in a statement issued following the talks in Vienna.
It said the meeting had agreed the role of speculation in financial markets “had not been resolved.”
The Organization of the Petroleum Exporting Countries has repeatedly blamed speculation for last year’s run to record highs.
“Since the middle of 2008, we have been alerting the world … that there is a bubble. We need to have some kind of regulation,” OPEC Secretary General Abdullah al-Badri told a joint press conference after Tuesday’s talks.
OPEC’s leading producer Saudi Arabia said at the group’s last conference in May oil prices of $75 a barrel could be achieved this year and the economy was ready to cope.
Members of the group have since nudged their price aspirations even higher and Angolan Oil Minister Jose Botelho de Vasconcelo, who is also OPEC president, said on Tuesday he “would love to reach $80 per barrel.”
NOT DAMAGING YET
For the fragile world economy, $80 could be alarming, but representing the European Union, Energy Commissioner Andris Piebalgs said a price approaching $70 was not damaging.
“What we also discussed in our meeting is that $70 per barrel, the current price, definitely does not impede the recovery of the economy,” he said.
“We really believe the current situation has some good stability. If it continues it will be a chance for (economic) recovery and also guarantee that upstream investments will continue.”
OPEC has often argued too low an oil price chokes off investment in new supplies and Tuesday’s joint statement said any inability to invest in new production capacity “could lead to a perpetuation of damaging boom/bust cycles.”
At its last two meetings, OPEC has kept existing output curbs in place, saying it wanted to prevent overly high prices that could jeopardize economic recovery, even though the amount of excess oil supply meant there was a case to cut production.
Badri said it was too early to say what the group’s next meeting in September would decide, but OPEC’s focus for now was on improving compliance with existing limits.
Discipline had dropped to 75 percent, he said, from highs earlier this year of about 80 percent, adding he hoped it would be back to more than 80 percent next month.