Crude oil prices continue to soar. Crude futures prices are setting new records daily and bolted to US$135 per barrel on the New York market Wednesday (Thursday morning, May 22, in Asia).

There is no particular bullishness about the rises, the prices are just increasing because more and more speculative money is flowing into crude oil markets. Some observers warn that crude oil prices could exceed $150 if this goes on.

When the price reached $100 a barrel, economists rightly predicted that high crude oil prices would dampen the world economy. If oil exceeds $150, further adverse effects cannot be avoided.

To prevent crude oil prices rising further, major oil-consuming countries must try harder to save energy and promote the use of alternative energy sources.

International cooperation to deal with the issue of energy use will be a significant item on the agenda at the summit meeting of leaders from the Group of Eight countries to be held in Toyakocho, Hokkaido, in July.

The summit meeting of leaders of major countries started originally as a forum to discuss measures to tackle the first oil crisis in 1973.

At the upcoming G-8 meeting, too, world leaders are expected to send a strong message to the world's markets that major countries will jointly deal with this problem, putting pressure on speculators to stop crude oil price hikes.

Glut of global funds

The crude oil price exceeded $100 a barrel in January. It reached $120 a barrel in early May and increased by $15 over the following two weeks or so.

The background to the rises is a global glut of money. Since the United States moved to further loosen its monetary policy to try to stem the subprime loan crisis, increasing amounts of cash have been entering the market. These surplus funds are moving into crude oil and grain markets in search of profitable investments.

Demand on the rise

Changes in the structure of global demand also have contributed to recent price hikes. Economic growth in China, India and other developing countries have seen a sharp rise in global energy demand.

Coal and natural gas prices have sharply risen recently, too. These price hikes also have impacted on crude oil prices. So there is a vicious cycle of oil prices pushing up other fuel prices, which in turn impact on oil prices.

Is there any way to break this cycle of price hikes?

Some economists propose that service charges or tax on crude oil futures trading should be raised to control the flow of speculative money not related to actual demand. The proposal is worthy of consideration, though its implementation could face technical challenges.

At the time of the 1973 oil crisis, more than 70 per cent of Japan's electricity was generated from oil. Today, the figure is 10 per cent, and Japanese manufacturers are among the most efficient in the world.

It is said that many developing countries could drastically improve their energy efficiency if they introduced the energy-saving technologies used in Japan.