ENERGY SUMMIT Calls for price band mechanism, action against oil speculation JEDDAH : Smarting under oil-inspired runaway inflation, India today asked oil producing nations not to remain a "passive spectator of speculation' and called for adopting a "price band mechanism' to cool down prices. Finance Minister P Chidambaram, addressing the meeting of Energy Ministers in Jeddah, warned that the present situation would eventually hurt all. He said he was speaking with "great anguish' because India's goals were in "grave peril'. "Oil prices threaten to wipe out the economic gains made by developing countries in recent years. The irrational escalation in oil prices is a cause of diversion of cash resources from education, health and other social sector schemes,' he said. "Questions have been raised about the fundamentals of the oil industry. There is a need for the oil industry to reassert its leadership in price formation and not remain a passive spectator of speculation and paper trading in oil. The global hydrocarbon community must address this situation through appropriate supply side responses and calm the oil markets,' he said. Accompanying the Petroleum Minister as part of the Indian delegation to the summit, Chidambaram said the only way forward for both the producers and consumers is to find common ground. "We have a proposal that will instil mutual confidence. We propose that we adopt a price band mechanism. Consuming countries must guarantee that oil prices will not fall below an agreed level and producing countries must guarantee that oil prices will not rise above a guaranteed level,' he said. In the band between these two levels, he said, let the prices be determined by market forces. "This is only way to shelter the world from volatility and unpredictability in oil prices.' Cautioning the oil producers that they would also be sufferers in case the global economy slows down or slips into recession due to high oil prices, he said the current level of prices was in the interest of neither the producers nor consuming countries. Chidambaram said India passed on barely nine per cent of the required price increase to customers three weeks ago and the result was that inflation crossed 11 per cent. He noted that even oil producing countries like Indonesia, Russia, Saudi Arabia and Venezuela face double digit inflation up to 29.3 per cent. Analysing the current situation, he said the vulnerability of supply chain to temporary supply disruptions stood exposed. He said while global consumption grew by one million barrels a day last year, production fell by 1.30 lakh barrels per day. "Spare capacity, across the supply chain, has dwindled considerably. This has added to risks and uncertainty. Hence the need to fast track development of oil resources,' he said. Rejecting the suggestion that rise in demand is the cause of spiralling prices, Chidambaram said that demand and supply dynamics cannot explain what has happened over the last twelve months. "How is that oil prices were $70 a barrel in August 2007 and how is it that they have doubled when there has been no dramatic change in demand? The causes for the current pandemonium in oil prices lie elsewhere: in unregulated over-the-counter markets and futures trading in oil,' he said. The Finance Minister said there was ample evidence that large financial institutions, pension funds, hedge funds, etc, have channelised billions of dollars