The last june 22, Gordon Brown today clashed with leading oil producing nations by insisting that fundamental market imbalances, rather than speculative pressures, were driving up oil prices and creating the world's third and worst oil shock.

Gordon Brown was in Jeddah at an unprecedented one-day oil summit of producers and consumers convened by Saudi Arabia, saying it was the duty of the world leaders to address the biggest crisis facing the world. Brown was the only major world leader to travel to the summit among the 35 nations attending the hastily convened conference.

Gordon Brown's analysis of the causes of record oil costs was at odds with the OPEC president, Chakib Khelil, who reiterated opposition to increased production by saying that "the price is disconnected from fundamentals" of supply and demand.

"We believe that the market is in equilibrium. The price is disconnected from fundamentals. It is not a problem of supply."

The Indian finance minister, Palaniappan Chidambaram, agreed. He said producers and consumers should "wrest control" of oil trading by agreeing to restrict prices.

"Surely demand and supply cannot explain what has happened over the last 12 months," Chidambaram said. "Oil prices were $70 a barrel in August 2007 and how is it that they've doubled when there has been no dramatic change in demand?"

But in the increasingly divisive debate on the cause of the quadrupling of oil prices since 2000, Brown has support from the US and least some OPEC members, notably Saudia Arabia, the largest oil producer. Under diplomatic pressure from America and Europe, Saudi Arabia increased production in May by 300,000 barrels a day, to 9.45m barrels a day. Oil minister Ali al-Naimi has said he will increase production by 2%, to 200,000 barrels a day, next month.

Brown addressed the conference with an offer of a long-term deal whereby the oil consuming nations will diversify energy supplies, moving into nuclear and renewables, and the oil producing countries will increase production, and invest some of its $3 trillion oil revenues in western renewable technologies.

In the short term, there was a clear need for extra oil production Gordon Brown said. In a speech to the conference he said "all of us need credible future commitments on increased oil supply because even with further action we propose to tackle climate change, demand for oil will continue to be strong over the medium term."

He claimed his new deal could bring an end to "the zero sum game between producers and consumers" from which no one benefits. He insisted the world has to address not just short term under-production of oil, but the long-term boom in demand likely to come from China and India, a surge that requires the west to look for new sources of secure energy.

He told reporters in Jeddah that over the next few years China will see car ownership grow from 37m to 100m, a further 100 airports will be constructed and 1,000 cities built.

He said: "Anyone looking at it knows there is more demand than supply, and it is the same if you look at future years due to the rise of China, India, Asia, and equally importantly, the rise in oil consumption in the oil producing countries from Nigeria to the Arab countries. So whatever the impact of speculative forces, the real issue, the concrete problem is how demand can be brought into supply with demand".

Brown said he was willing to examine the impact of speculation — billions of dollars in financial investments in oil by investors hedging against a weakening US dollar — but stressed it was not the predominant source of the crisis.

Stressing the severity of the crisis he said: "We have had the credit crunch, we have had food prices rising very fast, we have had a trebling of oil prices which is creating a huge amount of stress because of its effect on petrol, gas and electricity and the follow through to the rest of the economy. This is the third great oil shock in three decades, but this is the worst oil shock because of the severity of the rise in price, and the unpredictability and volatility in the markets."

In signs that Gordon Brown has made progress in putting himself in the vaguard of the international discussions on oil price, Gordon Brown disclosed that Britain will host the follow-up summit in London to build the shared anaylsis of what he described as the biggest problem of the world. The London meeting will probably be held in October.

The Saudi summit was seen as a high risk venture since if it fails to convince the markets there are fears that oil prices already pressing $140 a barrel will rise further this week. Light, sweet US crude oil futures closed at $134.62 on Friday, despite a 17% Chinese rise in petrol prices, the country's first rise since November.

Pointing to the fall in oil production in Nigeria prompted by sabotage at the weekend - predicted to cause a 120,000 barrels a day drop in production — Brown did not suggest that yesterday's summit itself will cause a short-term drop in the oil price.

That view was echoed at the conference by the chief executive of Royal Dutch Shell, Jeroen van der Veer. He said: "What I've heard so far are basically all good ideas, but it will probably not change the price tomorrow morning.

"The mood of the meeting is all about investment, that is the way to go. For investment we need fiscal stability and security."

Brown stressed his determination to balance the UK energy portfolio by a big expansion in nuclear and renewables, including plans to produce 15% of the UK's energy with renewables by 2020.

Gordon Brown steered clear of his recent more populist attacks on OPEC in deference to the Saudi decision to cooperate over the escalating high oil price. Instead he called for Gulf states to be given significantly more opportunities to recycle increased oil revenues — whether through sovereign wealth funds or directly into alternative energy investments in developed economies.

He said oil consuming economies should follow the UK lead that we in the UK have set by offering genuine openness and partnership in our investment markets to those operating under transparent commercial principles".

He said Britain was already involved in such discussions with the Abu Dhabi Investment Authority, the Qatari government and United Arab Emirates.

World production is currently just more than 80m barrels a day, an it is estimated there is at least 3m spare capacity.

Saudi Arabia's offer of a further increase in production to halt the oil price spiral failed to have any impact yesterday on markets more preoccupied with the shutdown of a North Sea oil and gas field, the weakness of the dollar and the renewed surge in product prices.

Futures contracts in New York hit a new intra-day peak of $139.89 a barrel at one stage, before closing down 25 cents at $134.61, while North Sea Brent jumped more than $2.40 to $137.52 in London, on the back of the Statoil decision to cut output from the Oseberg field by 150,000 barrels a day follow

Sterling jumped to its highest level for two weeks on a trade weighted basis in anticipation that the Bank of England's Monetary Policy Committee will be pressured into increasing interest rates because of inflation worries, while the dollar continued to lose ground against the euro.

Figures out today are expected to show consumer price inflation in Britain is running at an annual rate of 3.1pc, well above the 2pc target level agreed with government. Mervyn King, Governor of the Bank, will have to write what analysts feel will be first of a series of letters to the Chancellor explaining why the target has been missed.

Saudi Arabia's decision to increase production by another 500,000 barrels a day followed a meeting with Ban Ki-moon, the United Nations secretary-general, in Jeddah. The increase, the second in a month, will push Saudi output to 9.7m daily barrels and comes as Saudi prepares for a meeting of oil producers and consumer governments in Jeddah to try to put a brake on rising prices.

Malcolm Wicks, energy minister, welcomed the Saudi decision but failed to get the United Arab Emirates to follow suit.

Developers in Bahrain are stepping back in time using a traditional method of air-conditioning a home to provide wind power generation in one of the island's latest towering projects.

Eight thousand lights in the planned BD35 million Orchid Plaza will be powered by employing an adapted 'badgir' or Bahraini 'wind-catcher' also called a 'badqeer'.

Orchid Developers believe it will be the world's tallest electricity-generating wind tower. Orchid Plaza, a 47-storey apartment building comprising 365 apartments will commence construction next month and will take three years to complete.

The badgir will be built on top of Orchid Plaza thus giving the tower a unique standing in the property market of Bahrain.

Situated near Shaikh Khalifa bin Salman Al Khalifa Bridge which connects Juffair to Hidd, the tower is one of the several freehold properties that Orchid Developers has successfully launched on the island.

The blueprints of Orchid Plaza were finalised and the building was launched four months ago but the concept of the wind tower was only conceived last week by the owner of Orchid Developers, Dr Bashar Ahmadi.

He said: "It is a simple concept that has been used to cool homes in Bahrain in the past. But we are using the concept to generate electricity which will eventually be used to operate approximately 8,000 lights in the building. Apart from being cost effective, the concept is an amalgamation of the tradition and the modern - traditional technique in a modern environment."

Badgir was a traditional device used for many centuries to create natural ventilation in buildings and homes.

The tall chimney like structure was a natural air-conditioner which used wind from four directions and channelled it down into the house.

To this day, badgirs can be seen on the rooftops of old houses and buildings in parts of Muharraq and Manama and the tourist attraction Beit Shaikh Isa in Muharraq is a popular example of a badgir in a Bahraini home.

The 21st Century wind-catching tower will be built on the rooftop of Orchid Plaza, 230 metres above the ground and will be eight metres by nine metres and will stand at the height of a five-storey building.

Orchid Developers team is employing the assistance of University of Bahrain's engineering department to design the wind tower and details regarding the size of turbines, theory of generating electricity and the electro-mechanical side of the wind tower is presently under scrutiny.

"Apart from giving Orchid Plaza the competitive edge in the market by building the tallest wind tower in the world, for the first time ever badgir will be used to generate electricity while in the past it has only been used as a natural air-conditioner.

"Since Orchid Plaza will have an additional advantage of being quite high and close to the open sea with no tall buildings in its vicinity, badgir will be particularly effective as it will be able to use wind from all four directions," said Dr Ahmadi.

This concept is likely to make it even more efficient in generating power from wind than the celebrated turbines attached to the World Trade Centre in Manama. Adding superlatives is an attention-grabber like the superlative hungry Dubai but Orchid Developers is doing more than just that.

Utilising an age-old Bahraini tradition will prove to be an energy saver which will be the hallmarks of the ultra modern Orchid Plaza which will house studios, one and two bedrooms duplex and loft-style apartments.

It was announced last week that world oil prices had set another record. They were talking about the oil types that are traditionally considered the main ones – the American WTI ($119 per barrel) and North Sea Brent ($116). Lately Arab and Russian producers have entered the fray over whose oil is the benchmark, however.



Russian citizens are used to rejoicing at the news of rising oil prices. The authorities have already forgotten about the theory of Dutch disease, according to which the growth of raw materials exports ruins the economy. On the contrary, they point out that Russia has shown only high GDP and personal income growth with the rising oil prices, as well as a budget surplus, in which money for increased social spending has been found. The public observes the influx of petrodollars into Russia with satisfaction and assumes that it will have the opportunity to use that money. Indeed, they have that opportunity now. The stores are full of imported goods and they enjoy a vigorous demand. The authorities, though, are hinting that the public's petrodollar opportunities will be even greater, if only in connection with the reform of the stabilization fund and the theoretical possibility of using the accumulated funds for pensions. In any case, they tell the public about the fantastic of growth of the Central Bank's gold and currency reserves and create the impression that, with such reserves, the ruble will not collapse. Not only that, the plentiful reserves and good shape the budget is in convince them that Russian banks, with the state's help, will withstand the world credit crisis. Meanwhile, the public gives little thought to what the world oil prices are. Some know from newspapers and the television news that the main types of oil are the America WTI and North Sea Brent. They are the ones setting records. But along with WTI and Brent Russian Urals and Siberian Light are rising to, and Russia is becoming richer.

It is not really so simple. West Texas Intermediate and North Sea Brent are so far the main crude oils in the world. That is mainly because they are in the “sweet” category, that is, the are distinguished by their low level of sulfur, less than 3 percent, and their lightness, that is, they are not thick. Therefore, it is easier to make gasoline form them. The fact that the London ICE exchange trades in future on the deliver of Brent plays a big role too. London's role as the world's main financial center and the high liquidity of Brent futures has made that oil type world financial benchmark for decades. In recent years, however, WTI has been considered the benchmark and it futures sold on the New York NYMEX. It has somewhat higher quality than Brent and is sold in the United States of America, the world's main oil consumer. The quality of WTI and the strategic location of its sales has caused WTI to sell for $1-2 more per barrel than Brent. Obviously, when records have been set in recent years, it is WTI that has drawn attention – the most expensive type of oil was the first to pass the $90, $100 and $110 levels.



ICE Futures exchange and NYMEX compete fiercely. (The situation is complicated by the fact that the London ICE Futures exchange belongs to American investors.) ICE Futures exchange started trading in light American oil as well as Brent to undermine the position of WTI. In response, NYMEX began trade in contracts on Brent.

In February of last year, due to a fire at an oil facility in Oklahoma that served as a distribution point for WTI from Texas, local reservoirs received an excess of oil, and it fell sharply in price, confusing everything forever. WTI was then $6 cheaper than Brent. The fact that WTI is sold exclusively on the American market began to be seen not as an advantage, but as a fault. Leo Drollas, chief economist at the Center for Global Energy Studies, commented that everyone has seen now that WTI is a “local crude,” incapable of being the world's benchmark. Ed Morse, energy economist at the Lehman Brothers investment bank, called WTI a “broken benchmark” and said it was caught in the American trap, cut off from the world market, which is based on waterborne crudes.

Arab exporters of oil to the U.S. especially Saudi Arabia, expressed their discontent at the beginning of last year that the fall in price of WTI brought down the price of their oil as well.

The continually falling production of that type of oil also causes exporters to doubt that WTI can remain the benchmark. The same can be said for Brent, which now is delivered to be world market in only a few tankers a week. Experts doubt its place as well. At present, the production and export are increasing for thicker sour crude oil, with a higher level of sulfur, such as is produced in the Persian Gulf, Russia and Venezuela. That type of oil already accounts for 80 percent of world production. Last year, the question arose of what should be the price benchmark for the most widely distributed oil in the world. ICE Futures exchange and NYMEX undertook it to answer that question. The New York exchange organized the Dubai Mercantile Exchange, which opened on June 1, 2007, with the support of the United Arab Emirates and Oman, since Oman oil was chosen as its benchmark for sour crude. ICE Futures exchange tried to surpass its competitor and announced in April 2007 that it would begin electronic trading using its own benchmark for sour crude, called Middle East Sour Crude. David Peniket, president of ICE Futures exchange, stated that “We have designed this contract in response to customer demand for a better tool to serve their risk-management needs within the dynamic global crude market.”

Jon O'Neill of Hess Energy Trading Co. called the opening of the Dubai market a decisive step in depriving WTI of its benchmark status. Ed Morse said that an exchange like Dubai's could replace those in New York and London and create a benchmark that has real meaning.