Saudi Aramco To Raise Output, Remain In Korean Market, 10/30/08

Despite OPEC's recent declaration the oil production would be reduced, Saudi Aramco, (Saudi Arabia's nationally owned oil company and the world's largest producer of oil), remains committed to increasing oil production. Saudi Aramco's CEO Abdullah Jumah has stated that the oil company will increase production from 9.4 million barrels/day to 12 million barrels/day by the end of next year. The company also plans to remain a top supplier to the Asian market. The biggest challenge facing Saudi is decreasing global demand for oil. However, Saudi Aramco's Public Relations department manager Emad Al-Dughaither said, "We see long-term growth potential. After 75 years of experience in delivering energy, we know that the cycles exist and we know how we weather the cycles."

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OPEC Warns Oil Price Fall To Hit Projects, 10/29/2008

At the 2008 Oil & Money Conference in London, OPEC officials warned that recent, sharp falls in oil prices as well as the global economic crisis is leading to decreased investment in oil project. In the long term, this could result in shortages. With respect to the last 6 months, during which time oil prices have seen record highs and sharp declines, its not hard to see why investors are shying away from oil. Investors do not have confidence in the stability of the oil market and are scared to put their money in. This creates a situation in which development projects can not be financed and must be sidelined which in turn leads to a shortage of supply down the road. According to Nabuo Tanaka, head of the International Energy Agency, "We need investment now or a supply crunch may come in again but in a more acute way." In order to combat this, the entire energy industry must set aside short-term windfall profits in favor of a more sustainable, long-term plan aimed at stabilizing oil markets worldwide.

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OPEC Says Oil Markets Need Time To Adjust To Production Cuts, 10/29/08

In response to the fact that despite OPEC's recent production cut oil prices are still falling on the markets, OPEC Secretary General al-Badri says that oil markets still need time to adjust to the production cuts. However, al-Badri also warned that if prices do not begin to rise soon, more action will be taken. Wild fluctuations in oil prices have driven many investors away and that is leading to delays and cancellations in many development projects. al-Badri stated that these fluctuations are not good for producers, investors, or consumers in the short and long terms. OPEC's decision to cut production has drawn criticism in the wake of the current global economic crisis, but al-Badri stated that, "we can not bail you out." In the near future, oil prices will have to stabilize or OPEC will probably decide to cut production further.

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Despite Cut, OPEC Remains Concerned: Badri, 10/28/08

OPEC Secretary General Abdalla el-Badri has stated that OPEC is still concerned over the fall in oil prices even though OPEC members just recently agreed to cut production by 1.5 million barrels/day. el-Badri also said that another emergency meeting of OPEC representatives may be called to address the issue before the scheduled December OPEC meeting in Algeria. el-Badri went on record saying that if oil prices dipped below $70/barrel, all future energy projects would be in jeopardy and called on other large non-OPEC producers like Russia and Mexico to cut their production as well. The biggest cut will come from OPEC kingpin Saudi Arabia, which will trim output by 466,000 barrels/day. The Kingdom, which raised supply unilaterally by around 500,000 barrrels/day between June and August this year to meet what it said was higher demand from its customers, already has implemented some cutbacks as demand subsided. The volatile global economic crisis is certainly hurting the oil market and OPEC is committed to stabilizing oil prices.

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Will Russia Join OPEC? 10/27/08

There has recently been much said about the possibility of Russia joining the OPEC oil cartel. According to Qatar's oil minister Abdullah bin Hamad Al-Attiyah, Russia's presence in OPEC would greatly add value to OPEC. He stated that, "Russia is the second largest oil exporter, (behind Saudi Arabia), and as such have a strong role in world oil markets." While Russia has supported cooperation, there is little chance they will seek full membership. Considering OPEC's recent penchant for quotas and strict limitations, Russia really has nothing to gain from a membership in OPEC. As Eric Watkins, author of this article states, the Russians will most likely continue saying "Nyet."

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OPEC Agrees to Cut Production, 10/24/08

Facing steep declines in oil prices, (over 57% drop since July), OPEC member nations met in Vienna to discuss their options. After all was said and done, OPEC members agreed to reduce oil production output by 1.5 million barrels per day and suggested that more drastic cuts were to come. OPEC President Chakib Khalil said, "...there will definitely be another cut... this is a crisis situation." Some OPEC members like Iran and Venezuela were pushing for far more drastic cuts in production to ramp up prices, while other members, (with western allies), like Saudi Arabia pledged to keep markets well supplied in the face of the economic crisis. Saudi Arabia
has repeatedly said it "does not want to add to the world's economic woes by pushing up oil prices." Cartel members stated that they would be happy to see a price band between $80 and $90 per barrel. In the past, some OPEC nations, most notably Saudi Arabia, have ignored production quotas but President Khelil said this time would be different. Khelil said, "Unless they meet their commitments, they will be worse off than they are now. The market is going to test whether we are committed."

See the article here. -V

150th (Extraordinary) Meeting of the OPEC Conference, 10/24/08

In order to discus the financial crisis, the conference of Organization of the Petroleum Exporting Countries meet at OPEC headquarters in Vienna Australia. The convention recognized that this world economical crisis has already reflected upon demand for energy linking oil a priority matter. OPEC leaders noted that oil prices have fallen placing in jeopardy the current alternative projects and potentially resulting in “a medium-term supply shortage.” Given the circumstances the Conference will continue to provide for consumers although they have decided on a production ceiling. OPEC producer countries will reduce their28.808 million barrels a day output by 1.5million barrels per day. This will be effective November 1, 2008 with allied member countries commitment to only reduce their supply by that agreed amount. The convention recognized the Organization’s commitment as a supplier but called on non OPEC producers and exporters to continue contributing in efforts to restore equilibrium.

Country: Decrease (b/d)
Algeria: 71,000
Angola: 99,000
Ecuador: 27,000
I. R. Iran: 199,000
Kuwait: 132,000
Libya: 89,000
Nigeria: 113,000
Qatar: 43,000
Saudi Arabia: 466,000
U.A.E.: 134,000
Venezuela: 129,000

Total: 1,500,000

See the article here. -S

OPEC Secreteary General Sees 'Huge Oil Excess' In 2009, 10/22/08

OPEC Secretary General Abdalla Salem el-Badri

OPEC Secretary General Abdalla Salem el-Badri predicted that if oil markets were not brought into balance, there would be a huge oil surplus in 2009. And while OPEC is doing its best to stabilize the market, it can not do it alone. OPEC's President Chakib Khelil has asked that other non-OPEC countries reduce their output in order to help stabilize oil prices. He called on Russia, Norway and Mexico to aid in reducing production outputs. All of this come amid sharp criticism from Great Britain's Prime Minister Gordon Brown who claims that taking measures to raise oil prices would be devastating in the midst of the world financial crisis. Badri replied by stating, "We cannot bail out the financial crisis created by Mr. Brown and others in the United States... If Mr. Brown is truly concerned for his citizens, he should look into the taxes he imposes... I have no doubt everybody will be affected by this financial crisis." During his announcement, Secretary General el-Badri was in Moscow discussing a possible proposal for cooperation between OPEC and Russia.

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Saudis Could Withstand $30/Barrel, 10/20/08

According to Merrill Lynch's quarterly report on the Middle East region, Saudi Arabia and other Gulf oil producers in the region are "well placed to weather the sharp decline of oil prices." While other Middle Eastern oil producers may need a higher price threshold, Saudi Arabia could handle prices as low as $30.00/barrel. In its previous quarterly report, when oil prices were hitting record highs between $135-$150/barrel, Gulf oil producing countried like Saudi Arabia, Kuwait, Oman, Bahrain, Qatar, and the United Arab Emirates were able to achieve a current account surplus of over $1 billion per day. In light of the recent economic crisis, these countries will have to fall back on profits saved and accumulated in recent years for just such an occasion. Merril Lynch's report defined just how low a price each country could handle while still maintaining current budget spending. Saudia Arabia's breakeven oil price was the lowest at $30/barrel, on the other end of the spectrum, Kuwait could only really afford prices as low as $75/barrel. All but two of the nations reported on in the Merrill Lynch quarterly report are members of OPEC, and along with Iran, Saudia Arabia, Kuwait, Qatar, and the UAE account for over 60% of the world's known crude oil deposits. It will be interesting to see how OPEC handles the situation in their upcoming extraordinary meeting.

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OPEC Talks Push Oil Prices Higher, 10/20/08

Fears of a world-wide economic crisis have pushed oil prices down over 50% since they hit their all time highs in July of 2008. Many OPEC member have stated that they would like to see production cut in order to stabilize oil prices. For example: Iran has the second largest oil reserves in the world, and for every dollar the price of oil per barrel falls, Iran loses about a billion dollarsof oil revenue. Also bearing in mind that OPEC comprises 13 of the world’s largest oil producers, Algeria Iran and Venezuela have publicly stated that they would like to experience an output cut so to help rise prizes. Algeria’s energy minister hoped that the advancement of the OPEC meeting by three weeks should announce the “substantial” cuts. Most analysts are in agreement that this cut would be done by cutting production of about one million barrels a day. The results of this cut down on oil production could result in higher prices and more potential harm to the economic slow down.

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One Week Break, 10/12/08-10/18/08

Hello readers,
We'll be taking a one week break from our postings for the week of October 12th to the 18th. Our Postings will resume on the 19th of October. Thanks!

- V & S

Oil Plunges Below $80 As IEA Reduces Estimates, 10/11/08

As the stock market took a huge hit, the price of oil also fell dramatically, reaching its lowest point in over a year. US light crude fell $8.89 to settle at $77.70 per barrel, and London Brent Crude fell $8.57 to settle at $74.09. The huge fall in oil prices came as the International Energy Agency cut back future demand estimates amid global recession. Many representatives from OPEC member nations have called for a stop to the falling oil prices. When interviewed, Abdullah al-Attiyah, the Qatari oil minister, told Al Arabiya television that oil prices faced a "huge decline" unless Opec moved quickly to counterbalance the volatile economic situation. OPEC has already cut production once last month in an attempt to stabilize fluctuations in oil prices, but will meet later next month to discuss the course of action to be taken. John Waterlow at Wood Mackenzie, a mineral and energy research and consulting firm explains that, "OPEC is in a cleft stick: they want to protect revenues but still be sure people do not permanently decrease their demand."

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OPEC Urged Not To Cut Oil Production, 10/11/08

British Prime Minister Gordon Brown

British Prime Minister Gordon Brown appealed to the OPEC cartel this past Friday claiming that cutting oil production would only hurt the world economy during this period of global economic crisis. He called on the leaders of OPEC to be responsible for adjusting oil prices and demanded they act ‘statesmanlike’ to help the rest of the world by assuring a stable price reduction on oil. On the contrary, the members of OPEC worry the financial crisis will result in global shutdown on the demand of crude oil. Members of the Arab-dominated oil-producing organization are worried about the impact of the international financial crisis and global economic slowdown on demand for crude. The Paris-based International Energy Agency said Friday that the slowdown is already cutting into global demand for oil, as leading industrialized economies face being plunged “into outright recession.” Libya’s oil minister Shukri Ghanem said on Thursday that oil-producing nations should ‘look after their interests’ and called for ‘a reduction in output to respond to the fall in income’ resulting from lower oil prices.

See the article here. -S

Venezuela Spends Big On Gasoline Subsidy As World Growth Weakens, 10/09/08

Venezuelan President Hugo Chavez

Amid economic downturn following the world financial crisis, Venezuela is losing billions of dollars in oil revenue to keep motorists happy. While Venezuela boasts the world's cheapest gasoline, ($0.14 per gallon), the steeply rising demand for gasoline and more than 43% rise in car sales is costing the country more than 9 billion dollars annually by conservative estimates. While consumption of oil for gasoline and energy production has increased, prices have remained the same, (approximately $8.18 per barrel compared to $96.12 for the same barrel overseas). Hugo Chavez, who is notorious for criticizing American energy demands, is faced with the dilemma of domestic consumption reducing profits. Chavez claims his administration will make natural-gas fueled cars available next year. However, in order to avoid deficits in the near future, Venezuela may have to reconsider its subsidized gasoline program and begin selling oil domestically at market prices.

See the article here. -S

"Deteriorating" Market Prompts OPEC Meeting, 10/09/08

OPEC leaders announced today that they will hold an emergency meeting session on November 18, 2008 in Vienna, Austria. The emergency meeting was called in response to the growing financial crisis and its impact on oil in world markets. OPEC members last met on September 9, 2008 and agreed to leave production limits unchanged while reining in oversupply. The next meeting was not scheduled until December 2008, but OPEC's Vienna secretariat released a statement on behalf of the cartel stating that, "In response to growing unease, OPEC will meet November 18, 2008 to address growing unease in global oil markets. The purpose of the meeting is to ensure that oil market fundamentals are kept in balance market stability is maintained." While no official planes have been released for the meeting, Qatari oil minister Abdullah al-Attiyah said a supply cut is indeed a possibility. At the meeting, Venezuela, the world's 9th largest oil producer wants OPEC to adopt a system of price bands to stem wild fluctuations in oil prices.

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EIA Sees OPEC Output Trailing Global Demand Over Next Six Months, 10/08/08

According to the United States Energy Information Administration's latest Short-Term Energy Outlook, demand for OPEC crude oil will exceed OPEC's actual output over the next six months unless the global economy is weaker than expected. Higher oil production in Saudi Arabia during summer 2008 combined with the demand response to extremely high prices and recent credit market problems that point to a lower trajectory for the world economy and oil consumption growth are currently reinforcing the sentiment of a loosening in the global oil balance. As a result, the recent supply disruptions in the Gulf of Mexico have not resulted in the kind of price increases that would have been expected had they occurred earlier in the year. However, unless the global economy is weaker than anticipated, the EIA expects that the call on OPEC's crude oil will exceed OPEC crude oil production over the next 6 months. This market balance and the relatively low level of Organization for Economic Cooperation and Development commercial oil inventories suggest some upward pressure on prices. However, if non-OPEC oil production increases as expected during 2009, oil price pressures would then moderate. What it really comes down to is the role Saudi Arabia plays in oil production over the next six months and their goals in terms of oil production.

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The Saudis and OPEC: Behind The Flare Up, 10/06/08

As the leader in both world oil reserves and oil production, (and by that right the most powerful member of OPEC), Saudi Arabia is one of the few members of the OPEC oil cartel that constantly battles to keep prices low. Although OPEC often sets production limits to cut supply and raise prices, Saudi Arabia often ignores those limits and increases production to meet world demand and keep prices low and customers happy. While this may seem to fly in the face of conventional wisdom, (considering Saudi Arabia has the largest supply of one of the most sought after goods in the world), there is a reason behind their determination to keep prices low. The problem with keeping prices high is that it hurts consumption of that good. Saudi Arabia's entire export economy is centered on oil, and if oil gets too pricey, people are going to be searching for alternatives to replace oil and Saudi Arabia will find itself in serious economic trouble. Other OPEC countries such as Iran and Venezuela don't have nearly as much oil in the ground or money in the bank as Saudi Arabia does. Their main goal is to maximize profits. These diametrically opposed perspectives on the oil market have created a lot of friction within OPEC.
Most recently, Saudi Arabia flew in direct opposition to OPEC when they announced a cut back in production on September 9, 2008, of more than half a million barrels per day. In response, Saudi Arabia increased its production to satisfy the world markets. When OPEC members get hungry for profits and decide to scale back production, Saudi Arabia is the nation that is able to balance the scales and keep oil prices in check.

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Why An Oil Producer Turned Into An Importer, 10/04/08

INDONESIAN OIL

In the past decade, oil production in Indonesia has declined by nearly 50%. Rising local demand and bureaucratic red tape faced by oil companies have turned this once exporting nation into a net importer of oil. Indonesia's current production is only at about 850,000 barrels per day, a far cry from the 1.5 million barrels it was producing daily in the 1990s. Production has fallen off so much the OPEC agreed to suspend Indonesia's, (the sole Asian OPEC member), 46 year long membership on September 10, 2008. The end of Indonesia's membership in OPEC was a long time coming because it has not been able to meet production standards and as a net importer of oil, rather than an exporter, it no longer made sense to stay on. Large new taxes, natural barriers to oil reserves, and difficult oil laws have discouraged investors from exploration and production. Mr. Anthony Nunan of the Mitsubishi Corporation in Tokyo explained that, "If Indonesia was willing to explore and drill new areas offshore, let international companies in, and make fiscal terms better, there would be an improvement in the situation. However, it will not be a large increase, it will be a marginal increase."

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Oil Falls On Demand Concerns, 10/02/08

As the American Dollar strengthened against the Euro, oil prices fell by $2. The decline results from investors buying heavily in commodities to defend the strength of the dollar and use the commodity stocks as a hedge against inflation. But as the currency strengthens, investors sell the commodities and return to the Dollar. Also, recent data show that American fuel demand is falling while supplies are growing. The Energy Information Administration reported that crude oil stocks rose by 4.3 million barrels, (1.5%), and gasoline inventories rose by 900,000 barrels, (0.5%). At the same time however, fuel consumption for the four-week period ending September 26, 2008, was only about 19 million barrels/day, down 7% from the same period last year. Jonathan Kornafel, the Asia Director for Hudson Capital Energy in Singapore predicted that oil would be traded between $80 and $90 dollars per barrel over the next few months due to falling demand. However, he also warned that if prices do dip below $80 per barrel, OPEC would certainly take action to stem the tide of falling prices.


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Falling Oil Price Is A Positive Note Amid Turmoil, 10/02/08

After months of record-high oil prices that crippled airlines and automakers, drove up gasoline and food costs, and thinned out wallets across the land, American consumers now have a reprieve from the battery. The recent decline in oil prices is expected to put billions of dollars back into consumers' wallets and help the shaken economy. Ben Bernanke, Chairman of the Unitd States Federal Reserve, referred to the decline in oil prices as a "positive note" in a recent address to Congress. Although American consumers are happy with decline, oil producers in foreign nations are feeling the effects of the decline in prices. Mexico may have to cut its budget for next year following the drop in petroleum revenues, and countries like Venezuela and Russia may be forced to scale back enormous energy projects that require enormous funding. While OPEC has said it will step in and try to scale back declines in price by cutting production, its most powerful member, Saudi Arabia wants to keep oil below $100 per barrel. Whatever action OPEC takes, weaker global growth and demand are likely to keep prices relatively low. “The fall in oil prices is equivalent to a new stimulus package for consumers,” said Lawrence J. Goldstein, an energy analyst at the Energy Policy Research Foundation. Goldstein calculates that each drop of $10 a barrel in the price of oil lowered the nation’s annual bill by about $70 billion. That is $230 for every American.

See the article here. -V