South East Asian countries unveiled a plan Wednesday to stockpile crude in response to swings in oil prices, and urged governments to scrutinise oil trading on commodities exchanges. The move has the potential to boost Asian demand for Middle East oil as the reserves are filled, experts say, and comes after the creation of a similar reserve in China. Representatives from the Association of Southeast Asian Nations (ASEAN) met officials from China, Japan and South Korea in Malaysia yesterday and agreed to set aside about 10 per cent of consumption in reserve.
ASEAN did not elaborate on the figure but previous agreements have said emergency oil supplies should be large enough to meet up to 10 per cent of the normal consumption level for at least 30 days. Ministers said in a statement that they had "serious concerns" about high oil prices. "To meet the anticipated doubling of energy demand, the ministers affirmed that concerted efforts are needed to build up sufficient and reliable supplies," said the document, which was obtained by Dow Jones.
The 10 members of ASEAN have become increasingly dependent on overseas crude as production in Indonesia, Malaysia and other member states has declined. South East Asian governments have generally made little progress on developing strategic reserves, which have long been established in Europe, North America and Japan, said Tom Grieder, an Asia energy analyst for IHS Global Insight. "Member states in the region have been very reluctant to commit to an oil stockpile programme," Mr Grieder said.
The 10 per cent target was "highly ambitious", he said, "considering stockpiles in these countries are very low or non-existent". As imports increased, energy security has become increasingly important, with ASEAN members pledging yesterday to cut energy consumption by 8 per cent by 2015 and use more coal instead of oil. The group also called on governments to investigate speculators on commodities markets, who have been blamed by political leaders and OPEC officials for making oil prices more volatile.
In the US, the Commodities and Futures Trading Commission (CFTC), which is responsible for regulating oil markets, is considering a proposal to put new limits on the amount of futures contracts traders can hold at one time. At a hearing yesterday, Gary Gensler, the CFTC chairman, said all parties had accepted the idea that new limits were warranted, but the commission still had to decide the level of the limits, and whether some types of traders will continue to be exempt.
New curbs on speculators and more information on their positions could help reduce instability in the global oil market by limiting the disproportionate influence speculators have on oil prices, said Dalton Garis, an assistant professor of economics and market behaviour at the Petroleum Institute in Abu Dhabi. But the government would have to be careful not to go too far and eliminate speculators, who serve a crucial role in discovering the fair market price for oil, Mr Garis said.
"We don't want to make it hard for them to speculate," he said. "We do want some sort of open book on what they open and how much they can own." Speculators have been publicly reviled throughout history, Mr Garis noted, but ultimately their willingness to bear the risk of price swings reduced the volatility of the market. "A speculator is not a gambler. He makes his money on the basis of price moves," he said. "Anywhere you don't have speculators standing by, you have huge swings in the market."
Goldman Sachs warned the commission yesterday that the CFTC limits could be "disruptive" to commodities markets. "The role that is played by non-traditional participants such as index investors and other financial participants often has been mischaracterised," said Donald Casturo, a Goldman Sachs managing director. * with agencies cstanton@thenational.ae