KUALA LUMPUR - Oil prices are unstable because markets are not well supplied, and higher taxes in producing countries are not conducive to investing in new output, the head of energy major BP (BP.L: Quote, Profile, Research) said on Monday.
Tony Hayward, CEO of BP, whose Russian joint venture TNK-BP is the subject of a dispute over strategy and ownership between the major and its Russian shareholders, also called for new forms of contractual relationships between national oil companies (NOCs) and global majors.
"In a well functioning market where supply and demand are balanced, prices should be stable. Where prices are high, however, they show that supply is not responding adequately to rising demand ... and that is where we find ourselves today," Hayward told an oil and gas conference in the Malaysian capital.
Oil's six-year rally has gathered steam this year, with prices rising 40 percent since January -- hitting a high near $140 a barrel last week -- as funds hedge against the dollar and some bet that long-term oil supplies will struggle to keep up with demand in the decades ahead.
U.S. light crude CLc1 was around $137 on Monday, down about $1.00 on profit taking, after soaring more than $11 on Friday, its biggest ever one-day gain, on a weak U.S. dollar and escalating Israel-Iran tensions.
"The taxes governments take from the oil and gas industry have continued to increase across the world. I believe this is unsustainable and counterproductive. All it means is that you have less money to invest in new production," Hayward told the Asia Oil and Gas Conference.
Hayward's comments came a week after Royal Dutch Shell (RDSa.L: Quote, Profile, Research) chief Jeroen van der Veer said he did not see any shortage of physical oil supplies and that price volatility had a lot to do with psychology, a line also taken by OPEC producers.
Hayward criticized the use of subsidies to protect consumers from surging oil prices, echoing remarks by U.S. energy secretary Sam Bodman and some regional officials, and said falling gasoline demand in recent months shows that consumers are responding to price rises.
In a high price environment, I don't believe these subsidies are sustainable. Not only do they put pressure on public finances they also discourage sensible fuel efficiency measures," he said.
Malaysia, which uses some of its huge oil and natural gas export revenues to subsidies some of the cheapest fuel prices in Asia, raised petrol prices by 41 percent and diesel by 63 percent last week, pledging to bring pump rates into line with international prices in the next few months.
NEW TIES NEEDED
Hayward said BP would invest $22 billion this year on new production, upgrading refineries and investing in alternative forms of energy, an increase of nearly 15 percent on 2007.
He said while the industry requires a hefty $22 trillion of investments to meet future energy needs within 30 years, it must develop new contractual ties between state firms and international oil companies (IOCs) that go beyond the old model that requires ownership of reserves and production.
"These partnerships must be genuinely based on a deep sense of trust and mutual advantage, so that both sides benefit," he said.
"I think the principle of reciprocity will gain ground in the years to come and I don't believe relationships between NOCs (national oil companies) and IOCs (international oil companies) will purely be confined to accessing resources in the host country. Rather, I think we'll have to move into the sphere of genuine international cooperation."
The comments came as clouds over the future of BP's giant Russian venture did not lift at Russia's annual investment forum last week, as key players failed to seal a deal.
Analysts say the row over the highly profitable TNK-BP TNBPI.RTS, owned 50:50 by BP and a group of four Russian oligarchs, was sparked by Kremlin pressure on the owners to cede control to a state firm.
The Russian shareholders have also accused BP of trying to block the firm's expansion overseas by failing to approve projects at board level. Top TNK-BP managers say they are not opposed in principle to such projects, which must pass a rate of return test like any other investment.
Resources nationalism has swept the globe from Russia to Bolivia, with IOCs tightening their grip on oil and minerals resources in recent years, as governments are torn between continuing with costly subsidies and high inflation.
Tony Hayward, CEO of BP, whose Russian joint venture TNK-BP is the subject of a dispute over strategy and ownership between the major and its Russian shareholders, also called for new forms of contractual relationships between national oil companies (NOCs) and global majors.
"In a well functioning market where supply and demand are balanced, prices should be stable. Where prices are high, however, they show that supply is not responding adequately to rising demand ... and that is where we find ourselves today," Hayward told an oil and gas conference in the Malaysian capital.
Oil's six-year rally has gathered steam this year, with prices rising 40 percent since January -- hitting a high near $140 a barrel last week -- as funds hedge against the dollar and some bet that long-term oil supplies will struggle to keep up with demand in the decades ahead.
U.S. light crude CLc1 was around $137 on Monday, down about $1.00 on profit taking, after soaring more than $11 on Friday, its biggest ever one-day gain, on a weak U.S. dollar and escalating Israel-Iran tensions.
"The taxes governments take from the oil and gas industry have continued to increase across the world. I believe this is unsustainable and counterproductive. All it means is that you have less money to invest in new production," Hayward told the Asia Oil and Gas Conference.
Hayward's comments came a week after Royal Dutch Shell (RDSa.L: Quote, Profile, Research) chief Jeroen van der Veer said he did not see any shortage of physical oil supplies and that price volatility had a lot to do with psychology, a line also taken by OPEC producers.
Hayward criticized the use of subsidies to protect consumers from surging oil prices, echoing remarks by U.S. energy secretary Sam Bodman and some regional officials, and said falling gasoline demand in recent months shows that consumers are responding to price rises.
In a high price environment, I don't believe these subsidies are sustainable. Not only do they put pressure on public finances they also discourage sensible fuel efficiency measures," he said.
Malaysia, which uses some of its huge oil and natural gas export revenues to subsidies some of the cheapest fuel prices in Asia, raised petrol prices by 41 percent and diesel by 63 percent last week, pledging to bring pump rates into line with international prices in the next few months.
NEW TIES NEEDED
Hayward said BP would invest $22 billion this year on new production, upgrading refineries and investing in alternative forms of energy, an increase of nearly 15 percent on 2007.
He said while the industry requires a hefty $22 trillion of investments to meet future energy needs within 30 years, it must develop new contractual ties between state firms and international oil companies (IOCs) that go beyond the old model that requires ownership of reserves and production.
"These partnerships must be genuinely based on a deep sense of trust and mutual advantage, so that both sides benefit," he said.
"I think the principle of reciprocity will gain ground in the years to come and I don't believe relationships between NOCs (national oil companies) and IOCs (international oil companies) will purely be confined to accessing resources in the host country. Rather, I think we'll have to move into the sphere of genuine international cooperation."
The comments came as clouds over the future of BP's giant Russian venture did not lift at Russia's annual investment forum last week, as key players failed to seal a deal.
Analysts say the row over the highly profitable TNK-BP TNBPI.RTS, owned 50:50 by BP and a group of four Russian oligarchs, was sparked by Kremlin pressure on the owners to cede control to a state firm.
The Russian shareholders have also accused BP of trying to block the firm's expansion overseas by failing to approve projects at board level. Top TNK-BP managers say they are not opposed in principle to such projects, which must pass a rate of return test like any other investment.
Resources nationalism has swept the globe from Russia to Bolivia, with IOCs tightening their grip on oil and minerals resources in recent years, as governments are torn between continuing with costly subsidies and high inflation.
