The big surge in oil prices that has occurred this year has been driven primarily by strong global demand and not market speculation or a decline in the value of the dollar, a top Treasury Department official said Tuesday.
David McCormick, Treasury's undersecretary for international economics, said that the role of market speculators and the falling dollar had a "relatively minor" impact on the huge run-up in oil prices.
He said the root cause of the dramatic increase in oil was "a growing gap between the world's desire to consume oil and its capacity to produce it."
McCormick said he was not dismissing the impact of market speculation and the falling dollar completely but "we must not let concerns over these second-order factors distract us from focusing our attention on the root cause of dramatic increases in price."
When oil prices fell to a low of $10 per barrel in 1997 in the midst of the Asian currency crisis, which severely dampened global growth, that big price decline triggered a sharp reduction in oil company exploration plans, he said.
Over the next decade oil exploration for new oil fields and production increases have not kept up with growing global demand especially in developing countries such as China, he added.
He called the drop in the value of the dollar against other currencies a "relatively small" factor in the rise in oil prices, disputing the contentions of some private analysts that one reason oil producers have been boosting their prices is to compensate for the weaker purchasing power of the dollar on global markets.
McCormick's remarks were delivered in a speech to the Peterson Institute, a Washington think tank. They represented the administration's response to efforts by Democrats in Congress to enact new energy legislation that would impose restrictions on trading in commodities such as oil in an effort to combat what Democrats see as unfair market manipulation.
