flowing global capital and speculation are competing with supply and demand, the polar forces that have dictated energy markets for more than a century, Saudi Arabia's Minister of Petroleum and Mineral Resources Ali Al-Naimi said Tuesday, as he warned of price volatility in coming years. Al-Naimi's comments at an energy summit in the heart of the nation's energy complex come shortly after oil prices fell $100 per barrel in a matter of months. Market volatility can no longer be pinned on geopolitics, weather or natural disasters as it once was, he said. In a dinner speech at an energy meeting organized by Cambridge Energy Research Associates (CERAW), Al-Naimi listed new factors such as the globalization of capital markets, the emergence of energy as an asset class and climate change. “The danger of price volatility lies in its ability to obscure the market signals required to ensure adequate investing to meet future energy demand,” Al-Naimi said. “Without greater stability in energy markets, the task of achieving global economic recovery will be significantly more difficult.” Globalization, Naimi said, has created an environment where capital flows freely in search of the best returns. “Trillions of dollars are now instantaneously transferred in and out of markets worldwide everyday, with just the click of a mouse,” he said. The second factor he cited roiling energy markets is the increase in the financial community's interest in oil and energy as an asset class. Enormous sums of hedge fund money flowed in and out of energy markets last year as oil became a popular tool for hedging the value of the dollar. “There's no doubt in my mind that increased speculative interest in oil contributed to the extreme price volatility of the past few years,” Al-Naimi said. “The extraordinarily high prices we saw last summer were not as much a measure of market fundamentals as it was a reflection of the strength of the prevailing bullish market psychology of investors.” Climate change is another factor, he noted, because it will have an even more profound impact on redefining the role of governments and government intervention in energy markets. “It's increasingly apparent that the problems we face, like climate change, are so complex and broad based as to defy individual action,” Al-Naimi said. “Perhaps more than any other issue we face, addressing climate change in an economically sound manner demands that we work cooperatively to find solutions.” Some balance must be found, he said, that creates a price for oil sufficient to fund new exploration and production and at the same time prompts consumers to seek better energy efficiency. Saudi Arabia, the world's top oil exporter, has said crude at $75 per barrel was fair for both consumers and producers and would help push investment needed to keep a steady supply of crude available once the world emerges from the current economic crisis.
