consumer relationship to yet a higher level. Such dialogue encourages the greater openness and understanding necessary to reduce volatility. Transparency is vital for both producers and consumers, from the considerations of reliable and timely data and their collection and exchange. JODI, which is the acronym of The Joint Oil Data Initiative and itself a direct outcome of improved producer-consumer dialogue, has played a useful role in improving market transparency. Ongoing dialogue and study of volatility and transparency issues within the G20 framework have also been constructive, allowing the international community to improve its understanding of various factors that contribute to market instability. As I have noted, the commoditization of oil and its transformation into a popular asset class for investors have added new complexity and contributed to price volatility. Oil has evolved from being bought and sold for its physical properties as an energy source to its newer incarnation of asset class - as a vehicle for investment, for hedging and broader financial investing to generate returns. Therefore, ladies and gentlemen, the reasons why oil prices have been rising are three-fold. First and foremost, demand for oil, like that for all commodities, has grown at a torrid pace in recent years. I am not speaking solely of demand for the physical product, for fueling transportation and putting the flames under boilers. I am also referring to the demand arising from those investors, hedgers and speculators who value oil not for its energy content, but its potential financial return. Both components of demand, the physical and financial, have been boosted by the greater and more diverse prosperity brought about by globalization, which has increased demand for all commodities, including oil. Second, the relationship between the value of the dollar and oil prices is complex. However, broadly speaking, as the dollar declines, commodities - including oil - attract investors. Investing in futures becomes both a hedge against a weakening dollar and an investment vehicle that could yield substantial profit. The third major factor underpinning rising oil prices is the fact that the resource base is becoming more mature, and of course it is more expensive to produce mature fields. However, let me assure you that the world is not running out of oil. The resource base is vast - there are massive quantities of remaining reserves that can be economically exploited. Also, new resources are continually being discovered, often coming from more remote areas and more complex geology. Like older fields, marginal supplies are high-cost to develop. In fact, the marginal barrel is now coming from higher-cost alternatives like oil sands and ultra deep offshore fields. --More
