RIYADH, July 26: For a change, and indeed a welcome one, oil markets are on the retreat. In two weeks crude knocked off nearly 14 per cent off the record peak registered earlier. And this knocking off had nothing to do with the fundamentals of the market.

Easing tensions with Iran, bigger than expected growth in US crude reserves and the growing concerns about the health of the US economy apparently dampened the market sentiments, underlining once again the complexity of the energy market.

Indeed crude is not that crude an affair. Extra fundamentals continue to play havoc.

Like any other commodity, crude is also controlled by market factors. Politics apart, the principle remains the producers’ need to sell it, all the more as most of them are virtually single product economies. And consumers absolutely need to buy it, irrespective of their political affiliations.

Whether one likes or not, the fact is that energy makes this world more and more interdependent. Consumers and producers are mutually dependent and - yet poles apart. And this is the problem the world is faced with. How to bridge this widening gap?

With the world facing what is being termed as the third oil shock, there is a growing onus on bringing the gap. However, the efforts as yet have not been convincing. Blame game rules wherever and whenever the producer-consumer dialogue takes place.

For their part, consumers are increasingly eager to avoid reliance on imported oil and gas. President Bush has repeatedly stressed upon it. The hawk in the Italian Prime Minister Silvio Berlusconi insists on consuming countries to meet and fix a maximum price they are willing to pay for oil, or they would have to invest in nuclear power. Is that possible? Before suggesting any such idea, Mr Berlusconi needed to be practical. It takes years to bring on new nuclear capacity and it does not meet transport needs. The bulk of the crude consumption, up to 75 per cent, is in this very sector - transportation.

Varying positions are evident. The London-based Centre for Global Energy Studies, in its current Monthly Oil Report (MOR), blames Opec for the current predicament of the markets, stressing the world needs more crude, priced at a level that makes it viable to process more of the heavy grades in refineries without sophisticated upgrading capacity.

“However, Saudi Arabia, the one country that could supply significant additional volumes quickly, refuses to widen the discounts against benchmark grades for its heavy oil, while Opec continues to assert that the world is well supplied with crude and refuses to accept that production needs to rise.

In the absence of additional supply, only a global recession, destroying enough demand to reduce the need for Opec oil, can set prices on a downward path. It is a bleak picture. Opec’s continued assertion that the world is well supplied with oil does not stand up to scrutiny,” the MOR stressed, making clear its view on the issue.

The dividing lines are getting deeper.

This is despite the fact that some remain sceptical of the process of the dialogue and accommodation. Libya’s top oil official, Shokri Ghanem is one of them. “From the beginning, I said this is a big subject to be discussed in a very short meeting. It will be just a few niceties, a few words here and there,” he was recently quoted as saying.

Others, however, concede there is now a greater recognition of a mutual need to pursue the process, at all levels and all groups. And the trend is evident. In April, the IEF ministerial meeting took place in Rome. It was followed by the Saudi convened energy summit in Jeddah last month and then it was immediately followed by the World Petroleum Congress in Madrid.

At the initiative of Gordon Brown, leaders of the Group of Eight (G8) industrialised nations agreed earlier this month to convene the world energy forum in Japan in September to discuss energy efficiency and new technology.

And then while in Jeddah, at the specially convened energy summit, the British prime minister had offered to take the dialogue further by hosting follow-up talks in London later this year.

”Each of us must do what we can to alleviate these difficult conditions,” argued Saudi Oil Minister Ali al-Naimi then.

And the reasons are simple. “The big producers and big consumers need each other very much and that’s always the bottom line,” says Mike Wittner of Societe Generale.

The momentum toward a mutually agreed solution to this complex issue is definitely on the rise. “Although you are not going to see a sea change because of the Jeddah and G8 meetings overnight, they could deliver some very real political benefits which will improve the upstream outlook as we go further forward,” concedes Lawrence Eagles of the International Energy Agency.