U.S. Energy Secy says fuel subsidies "ought to stop"

By Osamu Tsukimori

AOMORI, Japan (Reuters) - U.S. Energy Secretary Sam Bodman called on more countries to scrap fuel price subsidies that stoke oil demand, and warned the world to brace for more "shocking" volatility a day after oil's biggest price surge ever.

Bodman's comments on Saturday come just ahead of his meeting with top energy officials of Japan, South Korea, India and China, the latter of which have failed to raise domestic gasoline and diesel prices fast enough to keep up with roaring global markets.

It is part of a broader Group of Eight energy gathering that follows oil's over $10 surge to an all-time high above $139 a barrel on Friday, the biggest one-day gain on record.

"It's a shock, but if you look at the rate of oil production globally, it has been 85 million barrels a day for three years in a row," Bodman told a group of reporters.

"We know demand is increasing because a lot of nations are still subsidising oil, which ought to stop," he said.

India raised domestic fuel prices by about 10 percent this week, provoking a muted public backlash and threatening to stoke inflation to a 13-year high with only its second increase in two years. China has raised pump rates only once since mid-2006 due to inflation worries, increasing them by 10 percent in November.

But both measures leave prices lagging well behind oil's rally, and analysts say the measures will do little to temper demand growth from two of the world's fastest-growing major consumers until they allow rates to rise more quickly.

Oil's Friday jump doubled the previous one-day record, set just the day before, and extends a six-year bull run that has seen prices rise seven-fold since 2001 as investors and speculators see producers struggling to keep up with demand.