TMCnet News
Data shows world facing '3rd oil shock': IEA chief+(Japan Economic Newswire Via Acquire Media NewsEdge) TOKYO, June 12_(Kyodo) _ The world is probably facing "a third oil shock" as the latest figures show that the proportion of global oil expenditures to global gross domestic product is expected to leap in 2008, coming close to the levels which followed the second oil crisis in 1979, according to Nobuo Tanaka, head of the International Energy Agency. "I think it is probably safe enough to say that we are facing a third oil shock," as British Prime Minister Gordon Brown recently pointed out, Tanaka said in an interview with Kyodo News in Tokyo on Wednesday. Tanaka said the Paris-based agency estimates that the so-called oil burden, world oil spending as a share of world GDP on a nominal basis, to jump to as much as 6 percent in 2008, citing the latest figures in the agency's monthly oil market report, released Tuesday. It compares with about 4.2 percent in 2007 and a peak of 7.3 percent in 1980, on the back of the second oil shock caused in connection with the Iranian Revolution. The 6 percent is on a par with the 1982 level and higher than some 3.7 percent in 1974 after the first oil crisis in 1973. Tanaka, however, said the main cause behind the current turbulence seems to be different from that of the two previous oil shocks. "Supply cuts triggered the two shocks. This time it is that supply is not keeping up with increasing demand" coming mainly from China, India and other emerging economies, he said. "The current third oil shock is stemming from structural problems." Tanaka acknowledged that there should be a number of reasons for fast-rising crude oil prices, which have more than doubled since the beginning of 2007. But he said a lack of investment from the mid-1980s through the early 2000s -- a period in which first oil prices were on the decline and later became relatively stable -- has largely been the cause of the problems. For many years, real global GDP grew at a faster pace than real oil prices, but the opposite has taken place since the late 1990s, even though the world economy constantly became more oil-efficient, he said. Tanaka, executive director of the energy agency since September 2007, said he believes the burden projected this year will have a major impact on the global economy. "I can't comment on what the prices will be in the near future," he said. "But what I can say is that the current prices are very high and our basic stance is that an improvement in the fundamental supply and demand balance" is most needed to stem the rise of the price of oil. He said "there is no doubt" that hot-money from hedge funds and other powerful investors is one of the factors driving the prices higher, but "it is difficult to explain to what extent this is the cause." Tanaka said the IEA will leave the assessment of volatile commodity prices and the role of speculators to financial regulators. Tanaka said he is looking forward to hearing the latest opinions when he attends the forthcoming Group of Eight finance ministers meeting, to be held in Osaka on Friday and Saturday. Also, he welcomed that Saudi Arabia earlier this week said it would organize an urgent high-level meeting for major producers and consumers on June 22 to discuss all-time high oil prices. Spare output capacity by the Organization of Petroleum Exporting Countries, including Saudi Arabia and Kuwait, fell below 2 million barrels per day in May for the first time since the third quarter of 2006, according to the IEA report. "This indicates that OPEC may not be able to have an increase in its output even if it wants to," he said. "We are closely watching whether supply and demand will be balanced if oil-producing countries continue to maintain the current output level." "There are conflicting agenda items between oil-producing countries and oil-consuming countries. But there are also many things with which they can cooperate," he said. "It is extremely important that they promote dialogue. I believe dialogue is the first step of problem solving." Copyright ? 2008 Kyodo News International, Inc. |