ROME (AP) -- Tight crude supplies and vibrant demand in China and other emerging markets -- not speculative trading -- are the main reasons oil prices have been setting record highs, a top energy official said Monday.
International Energy Agency head Nobuo Tanaka also warned that current prices are too high for all consumers and are particularly punishing for developing nations, where fuel accounts for a big chunk of consumer income.
''The problem is not underground but aboveground ... to have better infrastructure, more stable policies in producing countries is important to increase capacity,'' Tanaka said at a biennial energy conference in Rome.
''There is no quick fix on the supply side and spare capacity is likely to remain tight,'' he said, underscoring the need for investment.
OPEC and its member nations, meanwhile, are maintaining that raising capacity is unlikely to have any impact as oil prices are not following supply and demand fundamentals. Other critical factors include the weakening U.S. dollar, the political situation, market speculation and investors using commodities as a hedge, and the threat of strikes and natural catastrophes.
''We are supplying more than enough. There are other issues which are affecting oil prices. If the dollar continues to slide downward then oil prices will come up,'' Iranian Oil Minister Gholam-Hussein Nozari said on the sidelines of the International Energy Forum.
His comments follow the OPEC line given Sunday by Secretary-General Abdullah al-Badri, who said that the group was ready to raise production if the price pressure was due to a shortage of supply -- but that he doubted the connection.
''Oil prices, there is a common understanding that has nothing to do with supply and demand,'' al-Badri said on the sidelines of an energy conference in Rome.
The front-month contract for light sweet crude hit a record of $117.40 a barrel Monday in electronic trading ahead of the opening on the New York Mercantile Exchange.
In other industry developments, Iraq's Oil Minister Hussein al-Shahristani said that oil contracts between the autonomous Northern Iraqi Kurds and foreign companies remain invalid, despite recent amicable talks between the two sides over the country's long-delayed federal oil law.
The Kurds have signed around 25 production-sharing contracts with several small and mid-sized oil companies, but Al-Shahristani said they do not meet the conditions of the draft 2007 law.
''We do not recognize them,'' al-Shahristani said.
The draft law requires an open bidding process, and also would establish which foreign countries are eligible to work in Iraq. The dispute between the two sides has dragged on for many months and delayed agreement on a final oil law that Iraq needs to provide the legal framework critical to attracting foreign investment and ramp up oil production.
Passage of a draft oil law was expected back in 2005.
Despite the delays, the CEO of Italy's largest energy company Eni Spa was quoted Monday as saying that the company is ready to return.
''Now there is the possibility of locking up contracts in the new legislative period,'' the Milan-based Corriere della Sera quoted Paolo Scaroni as saying. ''We consider Iraq an opportunity.''
Before the war, Eni had rights to an oil field with 2 to 3 billion barrels of reserves, the newspaper reported.