OPEC and large Asian oil consuming countries led by Japan, India and China met on Sunday for the third Asian Ministerial Energy Roundtable. The group’s goal is to
To foster dialogue between Asia’s resource producers, primarily Middle East countries, and consumers, such as China and India, and to send a message to the world that both sides are cooperating in Asia to stabilize the international energy market.
The group called for greater transparency in oil markets and reductions in price fluctuations. Lofty goals — but the group put forward little policy solutions to meet them. Japanese Trade Minister Toshihiro Nikai comments after the discussions encapsulated the lack of concrete outcomes.
We will take actions to avoid any excessive volatility in commodity futures, and Japan will look into what measures are appropriate
The group hopes that limiting positions speculators can take will reduce volatility in the oil market. Countries, like India, have previously banned some commodities trading and US legislators now are considering different options to police the markets. Countries are reluctant to ban futures trading as those who trade physical oil use these derivative markets to lock-in prices. There is also open debate regarding the extent that futures trading influences the price of the underlying physical product. However, OPEC and others at the meeting believe that such speculative trading “largely contributed to skyrocketing prices, in the past” as Saudi Oil Minister Ali al-Naimi stated.
But separating speculators from traders is a difficult regulatory task that would likely have to be done by individual country. And to date, no country has been able to find an adequate regulatory framework.
The meeting also highlighted the growing concern over a lack of investment in oil infrastructure. Oil companies are finding it difficult to access credit to invest in new production and — due to the fall in oil prices — they also lack their own capital to fund new projects. The Roundtable highlighted the potential for oil to spike, as many others have predicted, if investment in infrastructure continues to flounder. However, other than the Saudis, who stated that they planned to continue to increase output to 12.5 mln barrels per day (up from 8 mln currently), few other nations have the capital to spend. Even Kuwait which plans to reach a goal of 4 mln barrels a day by 2020, up from roughly 3 mln, scrapped plans to build several projects including a refinery.