KUALA LUMPUR - The oil industry will stay volatile even after a price rally towards US$70 (S$101.82) a barrel, as it is still unclear if the rise is due to the broader economy or a new speculative play, the chief of Malaysia's state oil and gas company said on Monday.

Mohd Hassan Marican said the industry is undergoing a further wave of consolidation, as cash-strapped small- to medium-sized firms sell off assets due to lower margins, and that selected international and state-run oil companies will gain from this.

"It is still uncertain whether the increase is due to the 'green shoots' of economic recovery or due to a new speculative play in the commodities and the weakening of the US dollar," Petronas President and Chief Executive Officer Hassan told the annual Asia Oil and Gas Conference.

"Despite the fragile sense of stability emerging in the market, I believe that we can expect continued volatility in the industry for some time to come, reflecting the ongoing developments in the broader economy."

US oil prices jumped to a seven-month of $70.32 on Friday, before easing below $68 on Monday as the US dollar continued to strengthen from its recent weakness.

Oil prices have doubled from the low $30s hit last winter, although many in the industry fret that the rise is not fed by fundamentals but by optimism only.

Hassan said that after nearly a decade of limited spare capacity averaging 2.7 million barrels per day (bpd), spare crude capacity this year is expected to rise to 6.4 million bpd, or about 8 percent of world oil demand.

He urged the industry to continue to develop oil and gas fields without excessive disruption due to adverse market conditions in order to moderate the volatility inherent in the industry cycle. -Reuters