G8 concludes no quick fix for oil prices

There are no quick fixes to soaring oil and food prices, Group of Eight finance ministers concluded on Saturday, although disagreements emerged about the role that speculators were playing in exacerbating price rises.

• Under pressure from some ministers, including Italy’s Giulio Tremonti, the G8 agreed to commission a study from the International Monetary Fund to look into the impact that speculation might be having on tight oil supplies.
• Dominique Strauss-Kahn, IMF managing director, said: “Some of the members of the G8 were of the opinion that there may be financial factors, let’s call it speculation, while some say probably not. For that reason they have asked the IMF to provide a report.”
• Fukushiro Nukaga, Japan’s finance minister who chaired the meeting, said that, although the fundamental balance of supply and demand was the main reason behind high oil prices, “financial factors may also play a role. We don’t know yet.”
• However, Hank Paulson, US treasury secretary, was dismissive of the speculation theory, saying: “People want to look for short-term solutions. But the danger of people saying that this is all speculators is that we won’t do what we need to do.”
• Instead of misdiagnosing the problem by pointing the finger at speculators – whose role Mr Paulson said was poorly understood by many critics – what was needed, he said, was “significant new investment in fossil fuels and alternative sources of energy.”
• He was supported in this strong line by Alistair Darling, the UK chancellor. “It would be a pity to let people get off the hook by waiting for a report which might not take us much further,” he said.
• Mr Paulson also said that high oil prices – which he said risked prolonging the US downturn – should not be tackled by distorting subsidies. These were not helpful he said, adding that export taxes on food items also risked exacerbating high prices for rice, wheat and other foodstuffs.
• On the global economy overall, G8 ministers concluded that their economies were showing a “long-term resilience” though they agreed that “uncertainty and downside risks persist.” Lower growth and higher inflation complicated the policy-making process, they said.
• Mr Strauss-Kahn said that “the US, Europe and even Japan” had performed better than expected in the first quarter. “We have been surprised by the strength of growth,” he said, adding that this did not change the fundamental outlook but pushed the curve along. “Even if the slowdown is not going to be very deep, it is going to be protracted,” he said.
• The IMF has shifted its position a long way since its twice-yearly economic forecast in April, when it was markedly more pessimistic about the outlook for 2008 and 2009.
• The final communiqué also concluded that “financial market conditions have improved somewhat in the past few months,” though it said that “strains remain, especially in money and credit markets.”
• Mr Paulson said that US house prices may continue to fall into next year. However, he said that his government’s stimulation package was already having an impact, with retailers reporting higher sales after people received tax-rebate checks. Half of these payments had gone out, he said, with the rest to be sent by early July. The stimulus package would create 500,000 US jobs, he said.