Nicolas Sarkozy and Gordon Brown say government intervention into the oil market is needed to limit the erratic price swings of the past year.
While conceding that the oil market is complex, they say wild price swings defy “the accepted rules of economics.” Even with a steady supply of oil in the past two years, the price has swung from $80 a barrel to $145 down to $30 and back to $70.
With oil once again on the march, Sarkozy and Brown say:
Governments can no longer stand idle. Volatility damages both consumers and producers. Importing countries, especially in the developing world, find themselves committed to big subsidies to shield domestic consumers from potentially devastating price shifts.
To control the swings in price, they suggest increased coordination between energy agencies to get a better grip on oil fundamentals, transparency in the marketplace and increased regulation:
At the London Energy Meeting last December, all participants agreed that closer coordination between the International Energy Agency, the International Energy Forum, and OPEC was necessary to develop a shared analysis of future demand and supply trends. The Expert Group of the International Energy Forum should take the lead in establishing a common long-term view on what price range would be consistent with the fundamentals.
These experts should also consider any measures that could be put in place to reduce volatility. And they should look again at whether trading activity is amplifying erratic price movements.
We therefore call upon the International organisation of Securities Regulators to consider improving transparency and supervision of the oil futures markets in order to reduce damaging speculation. This would serve the interests of orderly and adequate investment in future supplies, since volatility and opacity are the enemies of growth. Climate change is also altering government attitudes to energy.
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