Jeddah, June 22
Smarting under oil-inspired runaway inflation, India today asked oil producing nations not to remain a “passive spectator of speculation” and called for adopting a “price band mechanism” to cool down prices.

“Questions have been raised about the fundamentals of the oil industry. There is a need for the oil industry to reassert its leadership in price formation and not remain a passive spectator of speculation and paper trading in oil.

“The global hydrocarbon community must address this situation through appropriate supply side responses and calm the oil markets,” finance minister P. Chidambaram said addressing the energy ministers meeting here.

Chidambaram, accompanying petroleum minister as part of the Indian delegation to the summit, said the only way forward for both producers and consumers is to find a common ground.

“We have a proposal that will instill mutual confidence. We propose that we adopt a price band mechanism. Consuming countries must guarantee that oil prices will not fall below an agreed level and producing countries must guarantee that oil prices will not rise above a guaranteed level,” he said.

In the band between these two levels, the minister said, let the prices be determined by market forces. “This is only way to shelter the world from volatility and unpredictability in oil prices.”

Maintaining that situation would eventually hurt all, Chidambaram said India passed on barely nine per cent of the required price increase to customers three weeks ago and the result was that inflation crossed 11 per cent.

“Oil prices threaten to wipe out the economic gains made by developing countries in recent years. The irrational escalation in oil prices is a cause of diversion of cash resources from education, health and other social sector schemes,” he said.

Analysing the current situation, he said the vulnerability of supply chain to temporary supply disruptions stood exposed. He said while global consumption grew by one million barrels a day last year, production fell by 1.30 lakh barrels per day.

Rejecting the suggestion that rise in demand is the cause of spiralling prices, Chidambaram said that demand and supply dynamics cannot explain what has happened over the last twelve months. — PTI