Oil Companies Rebut Speculation Charges

The leaders of some of the world’s biggest oil companies countered Monday charges by the Organization of Petroleum Exporting Countries that speculators were driving oil prices higher, blaming instead a dearth of new supply.

The chief executives of Shell, BP and Repsol told the oil industry’s biggest gathering in three years that restrictions on where they could invest and high taxes meant they could not help increase supplies as much as they might.

BP’s chief executive, Tony Hayward, said the argument that financial investors buying oil futures were behind the four-year rally, which pushed oil prices to records above $143 barrel Monday, was a myth.

He said the problem was a failure of supply growth to match demand growth. “Supply is not responding adequately to rising demand,” he told thousands of delegates at the World Petroleum Congress.

Repsol’s chief executive, Antonio Brufau, agreed. “The fundamentals in the industry are the significant reasons for having these prices,” he said.

Royal Dutch Shell’s chief executive, Jeroen van der Veer, said that there was enough supply to meet current demand but that the market was tight and that many users were justifiably worried that future supplies would be insufficient.

Insofar as financial investors were involved in the market, they were only following such supply fears, he said.

Van der Veer said: “We don’t think that the financial markets are leading the speculation. Probably they follow what other people fear as long-term fundamentals. I do not think that you can blame speculation for the oil price.”

Van der Veer said that while Shell did use energy derivatives, it did not speculate on the oil price and that its net trading position was balanced.

Oil companies often hedge production but do not usually bet on the direction of the oil market, with the possible exception of BP, which is considered the most aggressive trader among its peers.

Analysts at Goldman Sachs have dismissed the speculative bubble argument. “We find the concerns that commodity markets are in the midst of a speculative bubble unwarranted,” the investment bank said in a research note published Sunday.

Hayward said politics rather than geology was the reason behind anemic supply growth. “The problems are above ground, not below it,” he said.

Brufau noted that 90 percent of the world’s oil reserves were in countries like as Saudi Arabia and Kuwait that restricted investment by international oil companies.

Despite the fall in spare global oil production capacity, OPEC says that supplies are ample and that they are investing enough to ensure consumers will have the oil they need in future.

However, analysts say while major oil companies tend to increase their investments when oil prices rise, in the hope of lifting output and profits, state-run or national oil companies often do not respond to market signals.

Originally published by Reuters.

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