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Call for end to subsidies as oil prices hit record rise

Article published on the 2008-06-07 Latest update 2008-06-07 10:21 TU

A trader in the crude oil feature pit of the New York Mercantile Exchange (Photo: Reuters)

A trader in the crude oil feature pit of the New York Mercantile Exchange
(Photo: Reuters)

The US, Japan, China, India and South Korea called for a gradual end to fuel subsidies at a conference in Japan. In New York oil prices took their biggest rise in a single day, hitting record levels, but US officials said there is no need for more market regulation and blamed the price rises on subsidies.

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Oil prices, which have gone up five-fold since 2003, posted their highest-ever one-day gain in New York, leaping over ten dollars to 138.54 dollars (88 euros) a barrel.

In a statement made as the G8 club of rich economies meets in Japan to discuss the energy crisis, oil ministers from the US, Japan, China, India and South Korea called for developing countries to stop subsiding fuel prices.

"We recognise that, moving forward, phased and gradual withdrawal of price subsidies for conventional energies is desirable," the statement said, calling for "better targeted" policies to help the poor in developing countries.

There have been large protests in India and Indonesia after recent cuts in subsidies. Malaysia also reduced subsidies this week.

The joint statement claimed that "undistorted and market-basedd energy-pricing" would "enhance energy efficiency and increase investment in alternative sources of energy".

Chinese and Indian representatives stressed that the statement was not a call for an immediate end to subsidies.

Meanwhile, US Energy Secretary Samuel Bodman, who is also at the meeting, blamed the price rises on subsidies, denied that there is an oil crisis and rejected calls for tighter controls on the market.

"We've looked at it and have concluded unfortunately that this is not a matter where there needs to be more regulation of markets," he said.

In the US some Democratic Party representatives have called for new regulations amid claims that speculation may be contributing to price rises.

The Friday surge followed predictions that oil could hit 200 dollars (127 euros) a barrel during the next 18 months, as well as a statement by Israeli Transport Minister Shaul Mofaz that an attack on Iran is "inevitable" due to its nuclear programme.