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On Monday British Prime Minister Gordon Brown and US President George W. Bush will meet in London to try to work out a solution to the oil crisis that is battering consumers around the world.
What they will say to each other is hard to imagine.
It's a measure of the problem now facing the global economy that two of the most powerful individuals in the world have almost no power to halt the spiralling price of crude.
Opec - the group of oil-producing nations that controls 40 per cent of the world's production - has considerably more say over the price we pay at the pump.
But it isn't listening to requests from the West to increase supply.
Opec president Chakib Khelil this week ruled out the possibility that members will increase supply to ease pressure on the wallets of Western consumers.
"Supply is more than enough, there won't be a change," Khelil said in Algiers on Thursday, rejecting US arguments that supply and demand, rather than speculators, are behind the surge in oil prices to more than US$130 a barrel.
Record oil prices could also be pinned on Israel's threat to attack Iran if the Islamic Republic continued its nuclear-development programme, as well as dollar weakness that had led investors to buy commodities as an inflation hedge, Khelil said.
His views echoed those of the oil ministers of Iran, Venezuela and Libya this week. Top oil exporter Saudi Arabia, which described higher prices as "unjustified by market fundamentals", called a summit that will take place next Sunday in Jeddah to discuss how to deal with soaring prices.
Bush has declined to attend the summit but Brown and US Energy Secretary Samuel Bodman, the International Energy Agency and heads of major investment banks will be there.
Investment banks Goldman Sachs and Morgan Stanley have forecast that prices may reach US$150 a barrel in the next few months.
Khelil, who is also Algeria's Oil Minister, said that if this level was reached, it would be the work of "speculators", not a shortage of supply.
Supply was exceeding demand by 500,000 barrels a day, he said. "Algeria and Iran are not finding customers for their oil."
That view is directly challenged by the US.
"The reason we are looking at these very high prices for oil is strictly supply and demand," US Energy Secretary Bodman said yesterday. "Their view is that it's all geared to speculation and I differ with them."
But despite the official US view - that Wall St futures traders are not to blame for the spike in prices this year - Congress has held at least five hearings in the past three months seeking answers to record energy prices.
Its members are pushing the Commodity Futures Trading Commission and other agencies to increase efforts at overseeing the markets for fuel.
Investment in commodity index funds, including the Goldman Sachs Commodity Index, has risen from US$13 billion in 2003 to US$260 billion in 2008. Congress has also asked the Commodity Futures Trading Commission (CFTC) - an independent agency that regulates commodity futures and option markets - to use its emergency powers to prevent investors from increasing their holdings in commodity markets or commodity future index funds.
Earlier this month, the CFTC said it was investigating oil trading, including how the movement of crude may have been used to manipulate prices. The announcement was the first time the commission had publicised an ongoing probe since 2004.
Analysts say the problem is that while there is still a good supply of heavy crude - light crude is in short supply.
Heavy crudes are typically more costly to transport and process and have more negative environmental impacts.
"Iran and Algeria are not finding customers for their heavy-grade oil, light crude is in big demand," said Robert Montefusco at Sucden UK in London.
"Opec's ability to act appears limited. Saudi Arabia has a possible spare capacity of 1 million to 1.5 million barrels a day, but the majority of that is probably heavy crude, while the demand is more for lower-sulphur sweet grades that are preferred by the refiners." Opec's crude production rose 0.9 per cent in May to 32.28 million barrels a day as Saudi Arabia and Iraq boosted supply, according to Bloomberg estimates.
The 12 Opec members with quotas are pumping close to their collective official ceiling of 29.673 million barrels a day. War-torn Iraq is allowed to produce oil at will.
- BLOOMBERG
