Oil Likely To Fall If OPEC Output Stable: IEA, 09/30/08

Nobuo Tanaka, Executive Director of the IEA

According to Nobuo Tanaka, the Executive Director of the International Energy Agency, if OPEC production of crude oil remains stable at its current level, world oil prices are likely to decline in the short-term. However, Tanaka was not quite as optimistic for the medium-term. His concern lies in the lack of new oil production capacity coupled with emerging economies' demand for oil expected to rise. While demand for oil has decreased in the United States and Europe, demand is constantly rising in India and China. OPEC agreed to leave its crude output limits unchanged for now, but called for tighter production discipline which may result in a decrease in physical supply of up to 520,000 barrels per day. While a temporary respite from high oil prices is a welcome relief in the short-term, the lack of new production capacity possibilities make the outlook for the future more dismal. While growing economic markets increase the demand for oil, it is not clear where the supply will be available.

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Commodity Talk: Oil Price Fall To Bring Inflation Relief, 09/29/08

In light of the strengthening of the American dollar against foreign currency and worldwide turmoil in financial systems, oil prices have fallen almost 40% from their record highs set in July of 2008. But as oil falls, commodity experts predict the prices will bottom out at a relatively high level because of positive worldwide growth, oil demand, and OPEC's control over a vast majority of the world's oil. The International Energy Agency reports that although demand for oil has decreased in many markets, those declines are offset by annual growth in demand around 4% despite the high prices. Non-OPEC nations are faced with troubles arising from the high costs of oil production, skills shortages, and declining reserves. Other factors that must be considered are natural disasters such as hurricanes on the Gulf Coast of the United States, violence interrupting production as has been seen in Nigeria recently, and political tensions such as those between the United States and Iran.
What this ultimately means is that OPEC will be largely responsible for supplying future oil growth considering it controls roughly 76% of global reserves. As of now, OPEC is responsible for 43% of the world's oil output, but with the aforementioned considerations, this will likely rise over time. OPEC has flexed its muscle recently in response to low oil prices and opted to reduce output to raise prices. Saudi Arabia however ignored the OPEC mandate to reduce output and instead increased its output to ring relief to the markets. OPEC has the leverage to control prices and their actions to date have suggested that they will not tolerate prices lower than $90 per barrel, and are more comfortable at above $100 per barrel. As of right now, the drop in oil prices will relieve costs of inflation and possibly stimulate more global growth. However, the future of oil prices will remain a relatively high one due to OPEC's massive influence over the global markets.


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Democrats Abandon Drilling Ban, 09/24/08

Amid much consideration on the issue of offshore oil drilling in the United States, House Democrats have abandoned the moratorium on offshore oil drilling which has been stood since 1982 and been renewed every year since. Ending the moratorium could potentially open up the outer continental shelf for oil and natural gas exploration for the first time in 26 years. The end of the moratorium is being viewed by Republicans, who have challenged Democrats over the moratorium in light of high gasoline prices, as a major victory, however it is a victory with a catch. Drilling and exploration can not begin for approximately another year which leaves the issue in the hands of the next President elected. David R. Obey, Chairman of the House Appropriations Committee stated that, "This will mean, quite frankly, that the result of the upcoming election will decide what our drilling policy will be." Senator John McCain, the Republican presidential candidate, is generally in favor of offshore drilling. Senator Barack Obama, the Democratic presidential candidate, is in favor of limited offshore drilling coupled with alternative energy initiatives. Environmental advocates from the Sierra Club, the oldest and largest environmental organization in the United States, have pledged to push to reinstate the ban next year.

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Shell Opens A Baghdad Office After A 36 Year Absence, 09/23/08

Royal Dutch Shell, one of the world's largest oil companies has completed a multi-billion dollar deal with Iraq. They are the first foreign petroleum corporation to foster such a deal since the Iraqi oil industry was nationalized over three decades ago under deposed leader Saddam Hussein. Shell hailed the deal as a major step towards the stabilization of Iraq as a nation, but would still not disclose locations of its offices. A Shell representative also announced that a large force of guards were hired. The goal of the deal is to recapture gas that goes to waste during oil extraction. The recaptured gas will be used to fuel power stations and industrial sites. Crippling power shortages are a common occurance in Iraq, and this will hopefully ease the situation. Iraq's oil minister Hussain al-Shahristani praised the gas joint-venture which will be 51% owned by the Iraqi government, and 49% owned by Shell.

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Crude Oil Prices Up More Than $16, 09/22/08

Crude oil prices posted their largest ever one day gain today spiking more than $16 dollars amid concerns over the governments plan for bail-out of the financial system. Crude oil futures soared to over $130 per barrel before finally settling at $120.92 making a record one day gain of $16.37. Across the board, commodities have been strengthening as the dollar weakens against other foreign currencies. Commodities are being used as a currency hedge, and with the weakening dollar, prices for all commodities are rising. The government's proposed $700 billion bail-out of the financial system to buy out failed mortgages is sending investors to commodities in droves because commodities are generally seen as relatively safe investments. This surge in price comes amid a general falling of oil prices over the past few weeks, but it is evident the relief of those few weeks was short-lived.

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South Copes With Severe Gas Shortage, 09/22/08

Drivers in the Southern United States are facing a severe gas shortage due to production interruptions at refineries in the Gulf Coast following Hurricanes Gustav and Ike. Many gas stations in large cities like Atlanta, Nashville, and Tallahassee have completely depleted the gasoline stocks. Lines up to two miles long have been reported in Marietta, Georgia. Jason Toews, who operates a consumer advocacy website called www.Gasbuddy.com, states that the shortage is self-perpetuating. Toews states that, "when people hear about shortages, they rush to the pump which in turn leads to more shortages." The shortage could continue until Gulf Coast production is back in full swing, but until then, Toews advises drivers to remain patient.

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Nigerian Militants Halt "Oil War," 09/21/08

MEND militants in Niger have announced a cease-fire in their campaign against multinational petroleum companies working in the Niger Delta. MEND stated that the cease-fire precipitated after appeals from tribal leaders in the region. In their week long "oil war," MEND has severely disrupted oil production in the Niger Delta. The attacks forced petroleum giant Shell to declare force majeure on their contract. A force majeure is a common clause which frees all parties from contractual obligation in the case of an extraordinary event such as natural disaster or war. The Nigerian military and petroleum companies are taking the announcement witha grain of salt because this is not the first cease-fire of this type and only time will tell if oil production can remain at full tilt in Nigeria.

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Crude Oil Prices Rise Amid Dwindling Inventories, 09/19/08

After remaining well above $100/barrel for over six months, crude oil prices returned to triple-digits briefly before ending the day at $97.88. Recent hurricanes that battered the Gulf Coast region of the United States and caused major disruptions in oil production have caused oil companies to dip into their reserve inventories. This use of crude reserves has caused stockpiles to their lowest level in years. In response to short term fuel shortages, the government may appeal to the International Energy Agency to release emergency fuel stocks. The IEA is a group that works to coordinate the energy plans of 27 industrialized nations. However, even without emergency stocks from the IEA, fuel shortages may be covered by refineries who are exporting surplus fuel supplies from Europe back to the United States. Other factors leading to the rise in the price of oil are the disruptions of oil production in Nigeria and the weakening of the American dollar against other world currencies.

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House Backs Oil Speculation Bill, 09/18/08

In opposition to a Presidential veto, the House has gone forward and approved measures aimed at curbing speculation in oil and other commodity markets. The new measures will act like a watchdog group focused on hedge fund and large institutional investors. The measures will also allow for additional staffing at the Commodities Futures Trading Commission and would allow the CFTC to limit the stakes traders hold in certain commodity markets. The White House issued a statement explaining the President George W. Bush will likely veto the bill because, "there is no verifiable evidence that oil speculators were behind either the rise in oil prices or their recent decline."

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House Adopts Plan To Ease Offshore Drilling Ban, 09/17/08

Speaker of the House, Nancy Pelosi

New legislation proposed and approved by a House vote of 236-189 is aimed at easing long-standing bans on offshore drilling while at the same time promoting development of alternative energy technology. According to the legislation, which has yet to be passed into law, oil companies would lose some tax benefits, utilities would be required to produce 15 percent of their electricity from renewable sources by 2020 and a ban on developing fuel from Rocky Mountain shale would be lifted. “We are opening up to 400 million acres off the Atlantic and Pacific coasts to drilling and expanding the availability of oil by at least 2 billion barrels,” said Representative Nick J. Rahall II, the West Virginia Democrat who leads the Natural Resources Committee. “And we have done so in a balanced, reasonable and responsible manner.” The proposal also creates a policy shift for the Democratic party who have sharply opposed offshore drilling since imposing a ban in 1982. The legislation has met with sharp criticism from oppponents who view the proposal as a mere political gimmick aimed at voters who are frustrated by sky-rocketing gas prices. Some critics claim that the proposal is a sham and the Democrats are only willing to consider lifting an offshore drilling ban because they're sure it will not be passed into law. Whether or not this proposal will be passed into law is yet to be seen, but if it does, the United States could tap some large, domestic oil reserves while developing renewable energy initiatives.

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Oil Station 'Blown Up' In Nigeria, 09/15/08

MEND Militant Fighters

According to the New York Times Interactive World Oil Map, Nigeria is the 12th largest producer of oil in the world. This past weekend, MEND militants, (Movement for the Emancipation of the Niger Delta), began what they called an "oil war." They began their fight against multinational oil corporations by attacking multiple work stations in the Niger Delta and effectively reducing the area's oil output by as much as twenty percent. The militant force has claimed responsibility for kidnappings of oil contractors and blowing up oil pipelines. The Nigerian government depends heavily on income from oil revenues from the Niger Delta region, but the Niger Delta remains stricken by severe poverty and corruption. The MEND militants seek to rid their homeland of "oppression and exploitation" from large oil magnates such as Exxon Mobil.

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Oil Workers Flee Attacks By Militants In Nigeria, 09/15/08

Militants Continue Attacks In Nigeria

Nigerian militants of the MEND, (Movement for the Emancipation of the Niger Delta), continued their attacks in what they are calling an "oil war." A security official who wished to remain anonymous quoted the death toll at over 100 people killed in the fighting. In the most recent attack on a Royal Dutch Shell flow station, MEND militants use heavy automatic weapon fire and dynamite during their siege which lasted over an hour. The MEND seeks to provide more local control over the vast amounts of natural resource deposits in the rich Niger Delta region and has vowed to continue the attacks until they have achieved their goal. The fighting continues to severely disrupt Nigeria's oil output.

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Saudis Vow To Ignore OPEC Decision To Cut Down Production, 09/11/08

King Abdullah, of Saudi Arabia

Following the meeting of OPEC member nations in Vienna and their decision to decrease oil outputs by 500,000 barrels of oil per day, Saudi Arabian officials have assured world markets that they do not intend to abide and will not stem production. Saudi Arabia is by far the most powerful member of OPEC in that they control over 40% of the world's total oil supply. They, like most pro-western, American friendly nations hope understand that high oil prices are driving consumers towards oil-alternatives and hurting their future business prospects. The Saudis hope to keep oil prices low, preferably below $100 per barrel. On the flip side of that, price hawks within OPEC, like Iran and Venezuela, are depending on oil prices remaining as high as possible to help fund a range of social and military policies. It is a delicate balance between too high and too low, and luckily large oil countries like Saudi Arabia have a vested interest in keeping oil prices low.

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Iraq Cancels Six No-Bid Contracts, 09/10/08

Iraq's Oil Minister, Hussain al-Shahristani

Iraq's Oil Minister, Hussain al-Shahristani announced that six no-bid contracts for oil companies in Iraq were no longer available. al-Shahristani cited The fact that negotiations had gone on for so long that oil companies would no longer be able to complete work in the allotted time frame. The contracts with Exxon Mobil, Chevron, Shell, Total, BP and several smaller companies for one-year deals are no longer available. The deal, which was not particularly lucrative by industry standards, provided a foothold in one of the world's most oil-rich nations. The deal provided for Iraq's oil production to be boosted by up to 500,000 barrels of oil a day, which also happens to be the amount agreed upon by OPEC members to reduce daily output. The contracts are now open to bidding from anyone willing and able. Had the contracts gone through, it would have been the first deal with the central government concerning oil production since the fall of Sadaam Hussein. However, since that time, Iraq has made large deals with China's National Petroleum Corporation. Earlier this summer, a group of Democratic senators led by Chuck Schumer of New York had appealed to Secretary of State Condoleeza Rice to block the deals, contending that they could undermine the efforts of Kurds, Sunnis and Shiites to reach agreement on a hydrocarbon law and a revenue-sharing agreement. This criticism was conveyed to Mr. Shahristani by the American Embassy in Baghdad in late June, and after that the deals were delayed. Nevertheless, the Oil-Ministry of Iraq has decided to pursue revving up production of oil and has open contracts available for bidding.

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OPEC Takes Steps to Cut Oil Production, 09/10/08

OPEC MEMBER NATIONS

During a meeting of OPEC oil cartel representatives in Vienna, the decision was made to reduce oil output by half a million barrels a day in order to stem the tide of falling oil prices. Members of the Organization of the Petroleum Exporting Countries account for 40 percent of the world’s oil exports. They had scheduled the late-night session to consider how to respond to a 30 percent drop in oil prices since July. Many OPEC member nations believed the market was over-saturated and that supply was too high, thus resulting in relatively smaller profits. Saudi Arabia, the world's leading oil producer, argued that production should remain at "full-tilt" and that prices should be allowed to dip further. On the other side of the spectrum, Iran and Venezuela representatives argued that supply should be lessened to slow falling prices. The decision was reflected in the market following the announcement of the decision with oil prices rising $2. Chakib Khelil, Algeria's oil minister and the president of OPEC stated that, " My hunch is that prices will be going down despite this decision. There is an over-supply, everybody agrees about this." OPEC representatives will meet again in December.

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Factory Prices Down On Oil Relief, 09/08/08

Due to a drop in cost of raw materials, such as oil and metal, factory output prices fell in August at their fastest monthly rate since records began in 1986. The Office for National Statistics said factory output prices were 0.6% lower in August than in July after a 2% fall in the cost of raw materials and fuel. Connected with the 11% decline in oil prices from July through August, the manufacturing processes have become more economical due to the transportation cost also declining. Most home produce aliments declined but price of food products rose at its fastest pace since 1986, a 12.5% rise in the year to August. The Bank of England’s concern for rising inflation has raised a concern for interest rates and has not been able to cut interest rates. Even though England’s Monetary Policy Committee kept interest rates at 5% the bank’s approach is not defined. Experts say banks should be more aware of a decrease in demand rather than the rising inflation. As we have seen in previous articles, this one demonstrates how many other sectors of production are keyed off by the price of oil.

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The Bad News About Falling Oil Prices, 09/05/08

According to economic studies, producers have not been able to maintain or lift profits and sit at a production cost passing only 60% of their higher costs to consumers. As the assumption that lower gas prices signal a better economy, large corporate restaurants and stores like Bennigan’s and Linens 'n Things continue declaring bankruptcy. To stay in the market many companies and restaurants are decreasing their product quality to be able to compete and stay in the market. Other companies as airlines are charging for any extra commodity as pillows, blankets and foods etc. In conclusion it is unreasonable to think that the economic crisis headed towards inflation is done. Lower gas prices have secondary effects not exposed to the naked eye.

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As Oil Prices Fall, OPEC Faces a Balancing Act, 09/04/08

The recent fall in oil prices has been a welcome respite for consumers but a thorn in the side of large oil corporations accustomed to rising oil prices and raking in profits. Oil has dropped nearly one third from its record high of $145.29 per barrel in July down to $107.89 per barrel by September. Despite the drop in prices, oil prices are still up 14%. Michael Wittner, the global head for oil research at Societe General states that, "They, (OPEC), are playing a balancing game. If prices are too high, they will kill the golden goose and hurt consumption. But at the same time, they see the weakening economy and are thinking the world doesn’t need so much oil right now.” Some members of OPEC such as Iran and Venezuela state that they do not want to see the price of oil dip below $100 per barrel, while King Abdullah, the leader of the world's most oil-rich country Saudi Arabia, said he believes $100 per barrel is too high. OPEC representatives will be meeting in Vienna to discuss pricing and the need to cut oil production and distribution in order to keep prices where they want them. OPEC countries are able to somewhat control the price of oil because the 13 countries represented are responsible for 40% of the world's oil output. They can manage prices by controlling production of oil. All thats left to do is wait and see what price OPEC members are willing to settle on. The balancing act is to find that right number where oil is still affordable enough not to curtail consumer purchase, but not so low as to sharply reduce revenues.

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Gulf Oil Production Scrambling Back, 09/03/08

According to U.S. Department of the Interior's Minerals Management Service, 95.8% of crude oil production and 91.6% of natural gas production in the Gulf of Mexico remains shutdown due to the damage caused by Hurricane Gustav. Most oil companies are returning crews to their platforms to complete safety checks before resuming production of oil and natural gas. However, the main problem facing oil companies are the power disruptions that have affected 55% of Louisiana. Without reliable electricity, production companies will not be able to fully resume production. Thirteen of the thirty-two Gulf Coast refineries remain shut down, and as a result of this, there is a 5.6 million barrel per day reduction in gasoline production. In response to the gasoline shortage, refinery company Citgo requested a release of 250,000 barrels from the nations Strategic Petroleum Reserve, which was approved. The oil market on the other hand did not show much concern when oil only fell $1 Wed. Aug 27^th to nearly $6 on Tuesday Sept. 2^nd. Energy analyst compared the concern from 2005 when demand was higher to now not being much of an issue. Demand is 1.2million barrels/day less today than a year ago and oil prices are almost two times higher than when Katrina and Rita hit. The supply today seems to be enough to make it through even with the immediate shortage.

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Oil Prices Plunge to Five-Month Low, 09/02/08

Oil prices hit $105 per barrel, (a five-month low), during early trading and settled at $109.71 per barrel by the end of the day. The drop was precipitated by investors selling off their bets that oil prices would move higher. Many feared that Hurricane Gustav would severely disrupt refineries in the Gulf region, but the Hurricane came and went without much damage. The implication of the drop in oil prices is that many other sectors of the market are keyed off by oil prices. Companies in the transportation industry, such as Delta Airlines saw a 12% jump in their stocks. Businesses and investors also hoped that cheaper energy costs would lead to greater spending. On the other hand, commodities such as coffee, corn, and wheat and raw materials like gold and silver all declined. The drop in oil price also strengthened the dollar against foreign currencies like the Euro and British Pound. Tom Bentz, an energy analyst at BNP Paribas, states that,“A lot of commodities are keyed off of oil. Whether that’s due to the weakness in energy or due to the strengthening of the dollar, it’s hard to say.” It is evident from this article that many market trends are determined and influenced by energy costs.

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Crude Falls As Gustav Fears Ease, 09/01/08

Following weather forecaster's downgrading of Hurricane Gustav from a Category 3 to a Level 1 hurricane, oil prices quickly dropped. The downgrade followed Gustav hitting Fourchon, a port in Louisiana, and quickly weakening. US light crude oil fell $4.24 to $111.20 a barrel by late trade in Europe. London's Brent crude settled down $4.64 to $109.41 a barrel. According to industry professionals, following Hurricane Katrina in 2005, (a Category 3 hurricane which badly damaged 100 of the 4,00 oil and gas platforms in the Gulf of Mexico and caused massive spikes in oil prices), the energy sector and other industries in the Gulf of Mexico are much better prepared for this type of disaster. Phil Flynn, an analytst for Alaron Trading states that, "The industry is much more prepared and taking things much more seriously. That's why so much has been shut down so quickly." In preparation for Hurricane Gustav, New Orleans and surrounding areas were evacuated early in anticipation of the storm.

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