G-8 Raises Alarm Over Oil, Inflation

Ahead of the annual July meeting of the G-8, finance ministers got together in Osaka, Japan this weekend to go over some issues.

AP: G-8 raises alarm over rising oil prices

The fundamental factor driving oil prices is the imbalance between rising global demand and supply constraints, the ministers said. They added that geopolitical and financial factors also play a role — a reflection of some ministers’ view that speculative trading in oil markets is pushing up prices.

U.S. Treasury Secretary Henry Paulson insisted that the problem stems primarily from tight supplies and warned against embracing “short-term solutions.”

WSJ: G8 warns of higher inflation, commodity prices

High prices for oil and food “pose a serious challenge to stable growth worldwide, have serious implications for the most vulnerable, and may increase global inflationary pressure,” the ministers said in a communiqué marking the conclusion of their two-day meeting in Osaka, Japan.

According to Wikipedia, “the concept of a forum for the world’s major industrialized democracies emerged following the 1973 oil crisis and subsequent global recession.” In 1974, the US created something called the “Library Group” (US, UK, West Germany, Japan, France). Italy was added in 1975, and the group became known as G6 (Group of Six). Canada joined in 1976, making this the Group of Seven (G7). The EU is represented as well, and by 1997, Russia had joined, making it the G-8.

(This is sort of like the Justice League, except the G-8 doesn’t have Superman, Batman, Wonder Woman, Flash, Green Lantern, Aquaman, or the Martian Manhunter.)

These nations represent 65% of the world’s economic output and 14% of the world’s population. They also control almost all of the world’s nuclear weapons. The G8+5 consists of the original G8 plus Brazil, China, India, Mexico, and South Africa.

It will be interesting to see what comes out of these meetings, as well as a summit that Saudi Arabia is planning for June 22. That meeting is intended to “stabilize the international oil market,” according to Saudi oil minister Ali al-Naimi.

Saudi Arabia announced that it will start pumping oil from a new Khursaniyah field within a month. That field is expected to produce as much as 500,000 barrels a day.

In the past few years, Saudi Arabia has announced new production like this, but their overall numbers don’t go up. It seems that any new production is only able to offset the declines in older fields. Still, a stronger dollar, new production, and some kind of action by the G-8 could provide some (temporary) relief on the price of oil in the coming months. Let’s keep our fingers crossed.