OPEC secretary general says speculation activity behind oil price jump

OPEC secretary general Riwalnu Lukman said on Wednesday that speculation activity was the main reason behind the current soaring international oil prices.

"The main reason behind the higher oil prices is what I like to term as market hype," he said in his speech at the IIOGE oil conference in Jakarta.

Lukman said that supply and demand was no longer the only factors affecting oil price.

"Things are not so simple today. International oil trading has grown to become a cut-and-thrust, jittery institution that can create boom or bust situations simply through psychologically and speculation and trading in what we call 'paper barrels'," he said.

He pointed out as an example that when OPEC decided earlier this month to boost output by another 800,000 bpd in its latest bid to reduce oil prices, the markets were rife with speculation about how consumers could possibly get through the winters with stocks so low, prices so high, and OPEC seemingly disinterested in hiking output substantially, for fear of price crash.

"Trading became frantic and brokers worked themselves up into a frenzy?," he said.

"This hype alone resulted in the price of crude hitting record highs - even higher that during the Gulf conflict 10 years ago, when there was a real physical reason for prices to soar.

Riwalnu said that OPEC was committed to maintain oil price level that would make both producers and consumers happy.

But he warned that creating a stable oil price could not only be burdened to OPEC members because there were other factors at work.

"OPEC is only one part of the equation and for it all to add up, the other actors in the industry - the producers outside the Organization, the oil companies, the traders, the consumers, and the consuming government - all need to play their part," Lukman said.

He called on the consuming governments in Europe including France, U.K., Belgium and Spain to lower their sky level oil tax.

"The government of these countries say they are loathe to cut taxation levels on fuel because the money generated is vital for their environmental and health budgets. But at the same time, these very same authorities are subsidizing coal, a known heavy polluter," he said.

"Is it then fair for the budgets of our Member Countries -- who rely so heavily on a single commodity for their livelihoods and development - to suffer alone," he added.

Lukman said that this type of issue would be on the agenda when producers and consumers get together in Saudi Arabia in mid-November for the latest energy forum between the two sides. (R. Amoros)