Washington (Platts)--10Jun2008

US Treasury Secretary Henry Paulson said Tuesday that high global
oil prices are rooted in the basic market fundamentals of supply and demand,
and that record prices had little to do with a weakening dollar or market
speculation.

"This is supply-demand, as we haven't seen production capacity increase
significantly," he said in Washington. "I don't attribute [high prices] to
speculators, financial investors."

Paulson added to his defense of financial investors who he said are
simply following market trends. "Inventories are tight and they are concerned
they are going to be tighter," he said before the Carnegie Endowment for
International Peace.

Paulson noted that since 2004, the value of the dollar has decreased 24%
while the price of oil has gone up 500%, suggesting there isn't the direct
link between the two that many people reference.

He added that the nationalization of the oil industries in many producing
countries has led to a lack of investment, which has decreased global output.

Paulson also said China should stop subsidizing gasoline and other fuels
because it will lead to higher demand and an eventual shortage. "Allow markets
to operate fully and with full information," he said.

The major way to deal with energy was to continue to increase investment
toward alternative fuels such as biofuels, he said, but that takes serious
investment into the agricultural sector. "Often people don't want to treat a
disease until the symptoms become quite severe," he said.

"I don't take the rise in the price of oil at all lightly," Paulson
said. "It's a big burden on Americans and on our economy and I think it brings
with it the risk of a prolonging our economic slowdown."

--Alexander Duncan, alexander_duncan@platts.com