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Speaking in advance of the G7 meeting, the Chancellor said:
"A global recovery is under way with growth stronger over the past year but it remains uneven and fragile. High and volatile oil prices pose a risk to the outlook, dampening consumer spending and company profitability. If high prices persist, the consequences could become more serious, denting confidence and pushing up inflationary pressures. I believe there are four steps that must be taken now to reduce this risk.
"First, that while OPEC has responded to earlier calls for action by increasing supplies, oil stocks remain low with only limited spare production capacity available. Oil prices, which reached record levels this week, remain high and volatile. So OPEC must continue to take the necessary action to return oil prices to levels consistent with global economic prosperity.
"Second, action must also be taken to improve the functioning of the oil market to ensure lower and more stable prices over the medium term. That is why, as a next step, I am calling for actions to improve the transparency and efficiency of the oil market. A lack of transparency in oil markets and poor quality information contributes to volatility and uncertainties. So today I am calling for renewed co-operation between oil producers, consumers and market participants to ensure oil market decisions are based on timely, reliable and transparent information. And I am also calling for an enhanced role for the IMF and World Bank, building on their experience with improving data and Codes and Standards, in encouraging better and more timely information.
"Third, more needs to be done to encourage the investment that is required to guarantee the stability of supply needed to maintain global growth, including from non-OPEC countries. So concerted action is needed by oil producing countries to promote sustainable investment in their reserves and productive capacity, consistent with their wider development goals. Oil producers also need to make more use of the Fund and World Bank's expertise to improve their investment frameworks.
"Improving the broader investment climate, and establishing a clear, transparent and competitive oil investment framework will help insure future supplies match demand and support global growth, in the interests of all.
"Fourth, as IMF Managing Director Rodrigo Rato has said recently, all countries need to do more to promote greater energy efficiency and develop new sources of energy. That is why international co-operation on tackling climate change will be a key theme of our G8 presidency.
DETAILS
1. The Chancellor's call for action builds on the existing joint oil data initiative (JODI) initiative led by the International Energy Agency (IEA).
2. The Chancellor's proposals:
* call for producers and consumers to work together to devise a
phased timetable for producing transparent, high quality, timely and
reliable oil market data, which is made available to all;
* seek to raise the profile of JODI, based on a high-level agreement,
to achieve a step change in provision of timely, high quality and
transparent oil market data. The lack of this data currently distorts
economic decision-making and is a source of unnecessary volatility in
oil markets with damaging effects on global economic activity;
* call for enhanced involvement of the International Financial
Institutions (IFIs) to:
i) improve oil data reporting building on experience with the SDDS
and Codes and Standards frameworks;
ii) include oil market information as part of IMF and World Bank
surveillance activities; and
iii) strengthen the capacity needed to improve oil market data;
* call on the IMF and World Bank to promote best practice and support
oil producing countries in improving their oil investment frameworks
to be clear, transparent and competitive and consistent with wider
development goals
* call for mechanisms to bring oil producing governments and oil
companies together to identify barriers to investment;
* call for oil producers to sign up to the Extractive Industries
Transparency Initiative as a further means of enhancing transparency;
the IMF and World Bank should play a leadership role in this; and
* call for renewed commitment to the implementation of the Energy
Charter Treaty and for new signatories so that global coverage can be
achieved.
3. Oil prices have been high and volatile this year. Prices have been reaching record highs over the past week; trading around $46/bbl. Prices have doubled since the end of April 2003, and have increased by 16/bbl since February this year. Volatility in oil prices has also been increasing. The average daily price change in 2004, so far, has been $0.60/bbl, compared with $0.45 in 2003 and $0.35 in 2002. Relative volatility was considerably less marked in the mid 1990s, when prices remained below $25/bbl.
4. The International Energy Agency (IEA) was established in November
1974 in response to the oil crisis as an autonomous intergovernmental
entity within the Organisation for Economic Cooperation and
Development (OECD) to ensure the energy security of the
industrialized nations.
5. The Joint Oil Data Initiative (JODI) was established after the 7th International Energy Forum in 2000. This was in response to volatile oil prices and a view that transparent, timely and reliable oil statistics would provide a better understanding of the world oil supply and demand situation. In April 2001 the Joint Oil Data Exercise was launched. 85 countries, as well as many oil companies, now participate. The 9th IEF in Amsterdam in May launched the World JODI Database. Monthly updated production, demand and stocks data will now be accessible to all participating countries at first and, as the data quality improves, to all users at a later stage.
6. The International Energy Forum (IEF) is an informal gathering of ministers from energy-producing and -consuming countries, which aims to build confidence, exchange information, and develop a better understanding of the underlying energy issues affecting the world. The gathering started in 1991 in Paris. Around 50 countries take part in the biennial event.
7. The Extractive Industries Transparency Initiative was announced by UK Prime Minister Tony Blair at the World Summit on Sustainable Development in Johannesburg, September 2002. Its aim is to increase transparency over payments by oil, gas, and mining companies to governments and transparency of revenues received by those governments. The IMF and World Bank can support countries in this through surveillance and technical assistance and reports on standards and codes.
8. The Energy Charter Treaty of December 1991 aims to strengthen the Rule of Law on energy issues, by creating a level playing field of rules to be observed by all participating governments, thus minimizing the risks associated with energy-related investments and trade. The Treaty's provisions focus on five broad areas: the protection and promotion of foreign energy investments; free trade in energy materials, products and energy-related equipment, based on WTO rules; freedom of energy transit through pipelines and grids; reducing the negative environmental impact of the energy cycle through improving energy efficiency; and mechanisms for the resolution of State-to-State or Investor-to-State disputes
9.Most European countries as well as Australia have signed the Energy Charter Treaty. Many oil producers, as well as the US, China and Canada have observer status.
10. The SDDS (Special Data Dissemination Standard) was established in 1996 to guide countries that have, or that might seek, access to international capital markets in the dissemination of economic and financial data to the public.
11. The IMF and World Bank have endorsed internationally recognized standards and codes in 12 areas as important for their work and for which (RoSCs) are prepared. Reports on the Observance of Standards and Codes (RoSCs) are prepared and published at the request of the member country by the IMF and/or World Bank in the 12 key areas including data, fiscal transparency, and monetary and fiscal policy. In some cases, detailed assessments of countries' observance of standards are also published.
