June 9, 2008 / 7:31 PM / in 9 years

Canada says no magic solution to record oil prices

MONTREAL (Reuters) - Canadian Finance Minister Jim Flaherty is keeping options open as he heads into a discussion on soaring oil prices at a meeting this weekend of finance ministers from the world’s top industrialized countries.

Flaherty said on Monday that although he believes markets not governments set oil prices, he is willing to listen to those who encourage boosting oil supplies as a way to lower prices.

“I‘m sure we’ll be talking about it. I suppose we could encourage more supply, that’s certainly what some of the ministers have been talking about,” he told reporters after a speech in Montreal.

“But there isn’t the ability to force anyone to do anything,” he said.

“I‘m not going to encourage anything... I‘m not going there with a preset notion of we should do ‘A’ or ‘B’,” he said.

Flaherty, a strong proponent of free markets in Canada’s Conservative government, was less emphatic than in past remarks on the need to let markets decide prices. He suggested that speculation was partly to blame for skyrocketing oil and commodity prices.

“I think we need to discuss it. We’ve seen some fluctuations, particularly last week, which is some evidence of some possible speculative component there and that is something that we need to talk about.”

Flaherty also said that Ottawa was open to a request by Saudi Arabia for a meeting of oil-consuming and oil-producing nations.

“I‘m happy to talk with Saudi Arabia. I‘m happy to talk with any of the other suppliers,” he said.

Earlier on Monday, a senior finance official acknowledged that higher prices were battering both consumers and businesses, but he said the market should be allowed to work.

After an unprecedented $16 surge on Thursday and Friday, oil for July delivery fell $4.19, or 3 percent, to $134.35 a barrel on the New York Mercantile Exchange on Monday. Prices have more than doubled over the past 12 months.

Oil has rallied because of tight supplies, rising demand from developing countries and the falling U.S. dollar.

The regularly scheduled meeting of Group of Eight ministers this weekend in Japan, ahead of next month’s G8 summit, will also note the global financial situation has improved somewhat since April, though financial turbulence is clearly not over.

The official renewed Canada’s criticism of China’s slowness in letting its currency appreciate, and said perhaps the food price inflation there might now make China realize the benefit of letting the yuan rise faster.

He said that as the U.S. dollar depreciates, it has to fall against other currencies, and if countries such as China do not let their currencies rise, then the adjustment falls disproportionately on Canada, Europe and others.

The official said he would not be surprised if there were a discussion of foreign exchange at the G8 talks but he would not comment on the direction it would take.

As a major oil exporter, the question of oil prices is a delicate one for Canada, since high prices have beefed up its current account surplus and gross domestic product, and pushed the Canadian dollar higher, helping to keep inflation low.

The official made veiled criticism of those developing countries that control oil prices and pass them on to consumers only slowly.

Addressing the issue of whether the latest spike in oil prices was simply driven by speculation, the official said higher oil prices reflected higher demand as well as the slowness of oil supplies to come on line. He noted Canada’s efforts to develop its oil supplies.

Additional reporting by Randall Palmer in Ottawa; Editing by Peter Galloway

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