There is no doubt in my mind that increased speculative interest in oil contributed to the extreme price volatility of the past few years.
The extraordinarily high prices we saw last summer were not as much a measure of market fundamentals as a reflection of the strength of the prevailing bullish market psychology of investors. Now that market sentiment has flipped, I expect continued volatility with exaggerated price weakness. From a fundamental viewpoint, prices will be just as unsustainable at these low levels as they were at the stratospherically high levels last year.
The high level of volatility that now characterises oil markets represents a significant impediment to ensuring adequate and timely investment in the sector. If today's low prices continue long enough, they will sow the seeds for future price spikes and volatility. Saudi Arabia realises that we have an important role to play in promoting stability in world oil markets.
The most powerful tool we have for achieving a balanced market is our maintenance of spare production capacity. We work very hard to make sure that the global oil market is well supplied and well balanced, and to that end it is our ongoing policy to maintain at least 1.5m to 2m barrels per day of spare capacity to be used when there is an unexpected need. We will also expand refining capacity in Saudi Arabia and in key markets around the world. We are continuing to invest now to help ensure an uninterrupted supply of energy when the global economy recovers. We all have much to learn from the recent turmoil in global markets. We must learn from past mistakes and proceed carefully, ever mindful of the importance of stable energy markets to the world's economic well-being.
For over half a century, Saudi Arabia and the US have worked together in areas of mutual interest. I believe that our long-term relationship in energy has paid great dividends for the health of the global economy, the stability of oil markets and for our respective societies. Working together we can build on these successes to provide the foundation for a strong, sustainable economic recovery and a bright future.
Taken from a speech by the Saudi Arabian Oil Minister, Ali al-Naimi, in Houston on Tuesday