Oil consumers and producers united yesterday to warn that extreme price volatility was dangerous for the world economy, but disagreed on what an appropriate price should be.
The disagreement in a meeting in London came as oil prices tumbled more than $3.50 to below $34 a barrel, a four-year low, amid concerns about the global economy and Opec's ability to cut its production.by the 2.2m barrels a day it promised earlier this week.
Ministers from consuming and producing countries blamed financial trading for part of the extraordinary volatility in oil prices this year. In July prices surged to an all-time high of $147.27 a barrel, only to drop to yesterday's low of $33.44 a barrel.
Gordon Brown, UK prime minister, said the most pressing challenge was oil price volatility. "Such volatility is in no one's interests," he said. "Such fluctuations damage producers and consumers alike."
Mr Brown promised action next year to improve regulation of the oil and commodities financial market.
The British view on the influence of financial traders was backed by Opec ministers and officials, including Ali Naimi, the powerful Saudi oil minister.
However, Jeffrey Kupfer, US deputy secretary of energy, said he did not believe financial investment in futures markets played a very significant role in determining the price of oil. The conclusion was backed by an investigation by the US commodities regulator.
"It has some impact, but it is not nearly the driver that some people say it is," Mr Kupfer said.
Traders are sceptical about the impact of any further regulatory measures on the oil market, arguing that fundamental factors, such as strong demand earlier this year, and a drop in consumption now, were behind the wild swing in prices.
Mr Naimi reaffirmed that $75 per barrel as a target for oil prices was fair and reasonable as it was the price marginal producers needed to maintain investments in future oil supplies.
Mr Naimi warned that without the investments, there would be extreme swings in prices. He added: "Today's price levels are wreaking havoc on the industry and threatening current and planned investments."
Ahead of the meeting, Mr Kupfer said the price fall would help the world economy, and the "right" price would be set by a free market. The price was close to its ten-year average, he said. "Sure, we've seen the price drop in the past six months, but we have also seen a sharp run-up before that."
Daniel Yergin, of Cambridge Energy Research Associates, the influential consultancy which was commissioned to write a report for the meeting, said that greater transparency in the oil market could help to reduce volatility, although it was "not a miracle cure".
He added: "When you have this kind of violent volatility it is really damaging. We had had the auto companies teetering on the verge of bankruptcy. It was not the management of the companies, it was the price at the pump that did that."
Copyright: The Financial Times Limited 2008