The volatility of oil prices poses a significant dilemma, Kuwaiti Oil Minister Sheikh Ahmed Abdullah al-Sabah said Monday, speaking at a roundtable meeting of producers and consumers in Kuwait City.
"The volatility of prices poses a significant dilemma. Despite the upside in demand for oil in a developing world, inflationary pressures could stifle this. At these high price levels, spending on oil imports could represent a significant economic burden for many import-dependent countries," Sabah said in a welcome speech at the meeting.
"However, we are looking for prices that are decided by market fundamentals, sufficiently high to provide an incentive for the incremental barrel to be developed and supplied. Equally, sustainable oil prices should not rise to levels so high as to impair global economic growth," he added.
Sabah attributed the recent increase in oil prices to the loss of a large volume of sweet crude from the market, expansionary monetary policy, a weak dollar, fear of spread of political unrest of other producers, and resilient demand in Southeast Asia.
"However oil traders are driving prices higher and amplifying price signals. Speculative activity has made a record, with net length in Nymex crude reaching an all-time high," he said.
"Yet, the market, on the other hand is well balanced and there is no shortage of supply. The shortfall from Libya has been largely compensated as OPEC moved quickly to ensure adequate supplies to the market," he added.
Sabah said that the situation in 2011 is quite different from 2008 due to availability of surplus crude production and refining capacity as well as high inventories.
Separately, Sabah said that natural gas has become the fuel of choice because of its abundance, clean burning nature and increasing cost competitiveness with other options.
"Fossil fuels remain dominant in the energy mix. Oil use, however, rose at the slowest rate of all fuel types. Fears of a nuclear disaster in the wake of a devastating earthquake in Japan will certainly have its impact on future plans for nuclear power," Sabah said.
Kuwait will donate 5 million barrels of crude or products to Japan.
"To show our solidarity with Japan, the State of Kuwait upon the guidance of his Highness the Emir, Sheikh Sabah al-Ahmed al-Sabah, the Cabinet Ministers have decided to contribute 5 million barrels of crude or byproducts to Japan."
