Base Oil Market

Base oil business still flourishing on the Streets

Mon, 31 Jan 2011 00:00:00 +0100

Despite directive by the Department of Petroleum Resources that engine oil should no longer be sold on the streets and other unauthorised places, effective from January 1, 2011, dealers tend to have ignored the regulator’s warning, SAMSON ECHENIM writes

On his way back to Lagos a few days after the New Year celebrations, which he observed in his home town, Orlu, Imo State, Mr. James Okafor, had noticed the warning signal from the oil indicator light on the dashboard of his car.

He knew that he needed to top up the car’s oil if he must cover the next few kilometres to Lagos. He was fortunate to have reached Okada, a town near Benin City. But he could not get his brand of engine oil.

Although he eventually got a gallon of branded engine oil, the product was only dubiously labelled as one of the popular brands in the lubricant market. He had to make do with that.

Okafor only managed to drive the car to Ore. He needed no specialist to tell him that he had bought adulterated engine oil as the car began to emit dark smoke. He had barely covered three kilometres when the car suddenly stopped and had to be towed to Lagos.

Okafor’s experience is just one phase of the many problems being faced by motorists using unrefined engine oil for their vehicles. Many also run their generators, equipment and other machinery on such oil.

Investigation by our correspondent showed that the sale of base oil, which could be adulterated engine oil, is still a thriving business in the country. The sellers are found displaying the product on the streets in major cities and along highways leading to major towns.

Experts believe that about half of estimated N250bn worth of base oil imported into Nigeria annually is being sold in its raw form to consumers, with the environment constantly polluted by vehicles and equipment, in which the unrefined oil is used.

The implication of this, according to the Lubes Operations Manager, MRS Oil Nigeria Limited, Mr. Ayobami Odetola, is that the country is importing twice the quantity of base oil it needs, with the environment constantly being polluted by vehicles and machines in which the oil is being filled.

He says, “The health implication of the use of unrefined oil becomes too enormous at the realisation that no amount of money is big enough for human life. Respiratory infections are expensive to treat, with the costs running into several billions of naira annually.”

The Lubes and Specialties Manager, African Petroleum Plc, Mr. Obed Ekeocha, says it is important that users understand that they would end up spending more if they continued on base oil.

He says, “Certain properties required in engine oil are not contained in the base oil and there are harmful properties in the base oil that need to be eliminated before it is used. When you use base oil, your machine starts having problems earlier than normal.”

The campaign against the sale and use of base oil has been running for a good period of time, without success, forcing relevant agencies to turn to enforcement. The practice has continued largely because of ignorance and unemployment, experts note.

“This oil (base oil) is being used by commercial motorcyclists and for generators for a very long time, but no one has ever complained and we have not seen anyone who dies because he used this oil,” says an oil vendor, Mr. Samuel Udehi. He hawks unrefined oil in Ikeja, Lagos.

Udehi, who can not hide his anger, adds, “The poor are always being chased from one place to the other. If the government does not want us to sell oil again, it should give us other jobs.”

Unfortunately, this is the line of thinking by virtually everyone who sells base oil on the street. Those, who patronise them, especially the commercial motorcyclists, also think the same way.

Odetola says many attempts have been made to involve engine oil hawkers in the standard lubricant market, by encouraging them to open a store and begin selling refined and branded engine oil.

However, the gesture, he stresses, has produced no significant result, leading to the involvement of Department of Petroleum Resources, which is looking towards enforcement to ensure sanity in the lubricant sub-sector.

Mr. Olasupo Agbaje of the Petroleum Products Pricing Regulatory Agency says the DPR and the Standards Organisation of Nigeria are joining forces to rid the country of unrefined and adulterated engine oil dealers.

Agbaje, who heads the Lubricants Stakeholders Technical Committee, says in line with the decision of stakeholders in the lubricant sub-sector to rid the market of adulterated products, the DPR is ready to begin the enforcement action against violators of the relevant regulations guiding the sales and distribution of lubricating oils in the country.

He says, in a statement made available to our correspondent on Thursday, that the action against the sale of unrefined engine oil to unsuspecting users will proceed to the next phase, with the enforcement of existing regulations on the sale of base oil, adulterated lubricants and other unwholesome practices in the sector.

The DPR is the agency empowered by law to regulate engine oil sales and distribution in the country.

“The agency has called on all users of engine oil to patronise only authorised lubricants sales outlets and stop the use of unprocessed base oil for lubrication of their engines,” Agbaje says.

Noting that the use of unrefined engine oil is largely responsible for the damage to the engines of many vehicles and machinery, Agbaje adds that the practice also accounts, in a large measure, for the pollution of the environment and other unhealthy effects that impact negatively on the health and well being of Nigerians.

“It is estimated that vehicles and machinery owners spend between N80bn and N100bn to repair their vehicles and machines annually due to the use of unrefined or adulterated oil,” he says.

Source: Nigerianbestforum.com

Oil keeps climbing as Egypt unrest escalates

Mon, 31 Jan 2011 00:00:00 +0100

Egypt unrests continue to drive global oil prices for the second week on concerns that it will spread to oil rich nations in the region.

Light sweet crude for March delivery was seen trading at $89.87 a barrel at 12.30 p.m Singapore time while Brent crude was at $99.71 a barrel in London.

Analysts said the black gold is likely to climb further during the day on sparked fears that the unrest may spread to other Middle-East nations, putting the crude supplies from that region under some threat.

Futures jumped as much as 1.7 percent on concerns that oil supply via Suez Canal could be disrupted.

Millions of barrels a day of oil and products moved north through the Suez Canal, which passes through Egypt, to European and other developed economies.

Any disruption to Middle East oil supplies could harm oil markets with an immediate effect on prices, analysts said.

Saudi Arabia and the other seven Middle Eastern and North African countries in the Organization of Petroleum Exporting Countries pump about 31 percent of world oil output.

On Friday, oil prices surged more than four percent as New York's main contract, light sweet crude for March, soared $3.70 to $89.34 a barrel while Brent crude for delivery in March surged $2.03 to $99.42 per barrel in London.

Source: Commodityonline.com

China Set to Approve PetroChina-PDVSA Refinery

Mon, 10 Jan 2011 00:00:00 +0100

China's Ministry of Environmental Protection plans to give environmental approval to the joint refinery proposed by PetroChina Co. (PTR) and Petroleos de Venezuela SA in southern Guangdong province, the ministry said.

Getting environmental clearance has become a key hurdle for proposed refineries to receive final approval from the central government. A joint venture refinery and petrochemical complex planned by China Petroleum & Chemical Corp. (SNP) and Kuwait Petroleum Corp. was delayed in 2009 when the original site for the refinery in the more heavily populated Nansha district in Guangdong, was rejected on environmental grounds.

The PetroChina-PDVSA refinery, to be located in Jieyang city, Guangdong, will be built with an investment of CNY57.34 billion and will have a heavy oil processing capacity of 20 million metric tons a year, or 401,644 barrels a day, the ministry said on its website Wednesday.
Jing Yang contributed to this article.)

Source: Downstream Today

Will China Prevent $5 A Gallon Gasoline Here?

Fri, 07 Jan 2011 00:00:00 +0100

Recent television news show visits by John Hofmeister, former president of the U.S. subsidiary of Royal Dutch Shell (RDS.A-NYSE), have led to a wave of media stories about his projections that gasoline prices will hit $5 a gallon before very long.

Mr. Hofmeister suggests that due to rapid crude oil demand growth coming from developing economies such as China and India, world oil prices will rise and send gasoline pump prices skyrocketing in the United States. Many people are questioning Mr. Hofmeister’s analysis given the current surplus of global crude oil production, the large gasoline refining capacity surplus in the United States and the damage to the economy caused by high oil prices needed for $5 a gallon gasoline prices.

Many people are questioning Mr. Hofmeister's analysis given the current surplus of global crude oil production
As Mr. Hofmeister was talking, the Chinese government was acting to cool its auto market and its economy overall. By raising interest rates on Christmas Day, the Chinese government hopes to cool off its economy. In the capital city of Beijing, the metropolitan government instituted measures to restrict the number of cars that can be sold in the city next year. This action, designed to help reduce traffic congestion, is accompanied by other steps such as increasing parking fees in the city while reducing them outside, building more roads, restricting the number and use of government vehicles, and incentivizing citizens to use mass transit. There also will be restrictions against non-Beijing licensed cars entering the city during rush hours. The decision to limit the issuance of license plates to 240,000 next year, or about a third of the number of cars estimated to have been sold this year, however, was a greater reduction than anticipated and sparked a surge in car sales before the rules were scheduled to go into effect.

China’s other major city, Shanghai, began auctioning license plates in 1994, along with restricting non-Shanghai cars from using city roads during rush hours. According to Chinese media reports, the license fees in Shanghai are now averaging about $6,000 per car. The media also reports that since the city instituted the license restriction measure, traffic that once crawled now moves much better and, in fact, better than it moves in Beijing. Of course, the greatest criticism of Beijing traffic comes from its poor urban planning. By separating residential from commercial sectors, the government has increased the length of citizens’ commutes and the need to drive to work and shopping. Poor planning was further impacted by low parking rates charged in commercial areas that promote the purchase and use of cars over mass transit. Maybe the government’s actions will help ease some of the city’s traffic congestion, which saw a “commuter pain” report issued by IBM (IBM-NYSE) earlier this year rank Beijing’s traffic equal with Mexico City for the most onerous traffic among 20 major world cities surveyed.

By separating residential from commercial sectors, the government has increased the length of citizens' commutes and the need to drive to work and shopping.

Less than a week after the Beijing announcement, the Chinese government confirmed rumors that it would end the special sales tax break for small cars that had been in effect for all of 2010. The tax rate will return to its original 10% rate that existed prior to 2009. The rate was lowered in January 2009 to 5% following the global financial crisis in an attempt to stimulate economic activity. The rate was raised to 7.5% in January 2010. The government now believes that restoring the 10% rate will help cool the economy and ease carbon emission problems. The government has maintained its historic 40% tax rate for large, fuel-inefficient vehicles throughout the economic downturn. What remains unknown is whether the government will end its cash subsidy for buyers of certain fuel-efficient vehicles with 1.6-liter or smaller engines.

The government now believes that restoring the 10% rate will help cool the economy and ease carbon emission problems.

The conclusion of auto industry analysts is that these Chinese government actions will cut the rate of auto sales growth to 8%-10% from the 34% projected for 2010 and the 25%-a-year average for the past decade. The 2010 growth rate may be higher as the government’s steps pull new car sales forward from 2011. The potentially greater problem for the auto industry may be a shift in emphasis to smaller cities and rural areas where the focus tends to be on smaller and cheaper cars. But even in certain rural provinces governments are moving to restrict the number of cars sold. The Wall Street Journal wrote that based on state media reports, “the wealthy eastern provinces of Jiangsu and Zhejiang are also considering measures to tighten car use, such as requiring residents to secure a parking space before being allowed to buy a car.

Source: Downstream Today

Rebound in commodity prices set to continue

Mon, 03 Jan 2011 00:00:00 +0100

ANALYSIS: Demand for hard assets and for raw materials saw prices bolstered unexpectedly this year, writes CAROLINE MADDEN

A COMBINATION of growing investor demand for hard assets and an increasing appetite for raw materials in emerging eastern economies saw commodity prices rebound strongly in 2010.

They rose so strongly in fact that some analysts believe the price collapse of 2008 was not the end of the multi-year commodities rally dubbed a “super-cycle”, but simply a pause.

The Reuters-Jefferies CRB index, a benchmark of commodity prices, has risen this year to over 320 points, its highest level in two years. Brian Gallagher, an analyst at Dolmen stockbrokers, says commodities such as industrial metals were outperformers in 2010, driven mainly by demand from China. He says the world’s most populous country is going through a process of urbanisation and is literally building its economy.

“They need a huge amount of resources to support this infrastructure build,” he says. “About 40 per cent of global demand for most metals can be accounted for by the Chinese economy.”

Within the industrial metals sector, copper prices surged this year to hit an all-time high of $9,267.50 a tonne in December and analysts believe the red metal’s rally has further to run. “For 2011, we like copper but not aluminium,” Gallagher says.

In a recent commodities outlook report, Credit Suisse analysts predicted copper would be among the best-performing base metals again next year.

Iron ore, used for steel, has also performed strongly, with its price rising about 40 per cent on the year to current levels of almost $170 a tonne. This rally was partly due to an iron ore export ban from India’s Karnataka State, leading to a fall in global supplies. The rise was tempered by a mid- year slump in global steel production. Credit Suisse analysts expect prices to move higher, backed by a rebound in Chinese steel production in the first half of 2011, before slipping towards the $150 level later in the year. Precious metals such as gold have also had a very strong year.
Gallagher explains the enormity of the sovereign difficulties facing Europe has put pressure on paper currencies, with the result investors have turned to the “quasi-currency” of gold.

After two decades of being net sellers of gold, central banks have resumed the policy of storing some of their wealth in the precious metal as a hedge. Gold has risen more than 20 per cent this year and in recent weeks has traded at all-time nominal highs of more than $1,400 an ounce.

However, when the price is adjusted for inflation it is still quite a way off the peak reached in 1980.

“Many savers concerned about their savings and the risks posed by the depreciation of the euro are diversifying into gold and silver,” says Mark O’Byrne, director of Dublin-based wealth manager and bullion broker Goldcore.

Credit Suisse believes gold prices could rise by 22 per cent next year, as uncertainty surrounding the impact of increases in the US and global money supply continue to support precious metals.
However, Gallagher is forecasting growth of just 7 to 8 per cent next year and does not see gold breaking through $1,500 an ounce. He prefers precious metals that also have significant industrial uses, such as silver, palladium and platinum.

While metal prices soared this year, the performance of energy commodities was more muted.

“The difference between energy commodities and metals is that they [energy commodities] are much more leveraged to developed world markets,” Gallagher explains. “Obviously the demand wasn’t as strong there so they [energy prices] didn’t advance much in 2010.”

Crude oil prices ticked above $80 a barrel in January and by the end of the year, it was trading above $88 a barrel. Oil markets endured two years of falling demand in 2008 and 2009 but inventories are starting to fall in developed markets and global demand is likely to remain robust.

Many analysts believe oil will remain range-bound between $70 and $90 a barrel next year. “We do not share the growing sentiment that oil prices are on an inevitable upward and sustainable journey to over $100 a barrel any time soon,” Credit Suisse said.

After falling 35 per cent this year, natural gas prices are expected to remain weak in the year ahead. Even though this winter may result in increased weather- related demand, a global glut of gas supply, partly due to new gas fields in the US, is expected to keep a lid on prices.

One of the most striking features of the 2010 commodities market was the supply loss of soft commodities such as wheat, sugar, rice, coffee and cotton due to severe weather events. This spurred surges in agricultural commodities prices.

Summer wildfires and severe droughts devastated much of Russia’s wheat harvest, leading the country to impose a rare ban on grain exports. Sugar prices moved higher after a poor crop in Brazil, while cotton prices soared to 15-year highs, due partly to floods in Pakistan, the fourth largest producer of cotton in the world.

“There are increasing risks that low-income countries will again have major difficulties in financing necessary grain imports,” the Association of European Conjecture Groups working group on commodities warned in a report. “Sharply rising prices for staple foods may even lead to another food crisis in the developing world.”

Some market commentators believe the sudden inflation is linked to the large amount of speculative money pouring into commodity derivatives markets.

Commodity prices are expected to rise again in 2011. This is good for producers, speculators and hedge funds, but bad for consumers – particularly in the world’s poorest nations.

Source: Irishtimes.com

Oil Ends Lower on Stronger Dollar

Thu, 02 Dec 2010 00:00:00 +0100

Crude oil lost ground Friday, dogged by a weaker euro resulting from continued fears that Europe's spate of debt crises will spread from Ireland to Portugal and Spain.

Oil for January delivery fell 10 cents to end the day at $83.76 a barrel. The euro declined 0.9 percent against the greenback Friday. Thanks to Ireland's debt woes, along with those elsewhere in the bloc, the EU currency has slipped by more than seven percent in less than a month. A stronger dollar makes oil less of a value for those holding other currencies.

Oil traded from $82.78 to $83.87 Friday.

Buoyed by predictions of colder temperatures in December for much of the country, January natural gas rose by a penny Friday to settle at $4.40 per thousand cubic feet. The December contract, which expired Wednesday, settled at $4.27.

The January natural gas futures price fluctuated from $4.35 to $4.48 Friday.

December gasoline was unchanged Friday, again settling at $2.21. It traded within a range from $2.20 to $2.23.

Source: Downstream Today

The world's Most Powerfull People

Thu, 11 Nov 2010 00:00:00 +0100

There are 6.8 billion people on the planet. Here are the 68 who matter according to Forbes:

http://www.forbes.com/wealth/powerful-people?boxes=Homepagetopspecialreports#p_1_s_arank

New heavy oil refinary for taratastan

Mon, 08 Nov 2010 00:00:00 +0100

October 28, 2010 MOSCOW -- Russia's new 140,000 b/d refinery in Nizhnekamsk is expected to start refining heavy oil with sulfur content of 3.5% in 2016, an official with project operator Taneco said Thursday.

The refinery, built in the heavy oil province of Tatarstan, was launched earlier this week in testing mode.

Taneco, a subsidiary of Russian oil producer Tatneft, expects the refinery to start operating in a normal working mode to refine oil with sulfur content of 1.8% starting from 2011, the Taneco official told a governmental meeting focused on the long-term program for the development of the oil industry through 2020.

Taneco expects to start refining crude with sulfur content of 2.3% in 2013, the official said, adding construction of a hydrocracker at the refinery has already started.

Russia expects the launch of the Taneco refinery to help it improve the quality of the country's key export blend, Urals, by excluding heavy crude oil from the export flows.

The refinery's capacity will be expanded to 280,000 b/d at a later stage.

The refinery is part of a $5.6 billion refining and petrochemicals complex that Tatneft is building via Taneco. The refinery's key products are likely to be gasoline, heating oil, kerosene, vacuum gasoil, heating oil, and sulfur, Tatneft said on Tuesday.

Source:

Shell ranked no.1 lubricants supplier globally for fourth consecutive year

Mon, 25 Oct 2010 00:00:00 +0200

Customer focus and technology leadership ensured increased market share and competitive lead despite economic recession.

Shell has been named the No.1 global lubricants supplier for the fourth consecutive year in an annual research study carried out by Kline & Company (”Kline”).

Despite one of the toughest operating environments since the Great Depression, Shell Lubricants trumped a tumultuous 2009, growing its global market share to 13.4% from 12.7% in 2008. It also widened its lead over its nearest competitor to 2.5%, up from 1.6% the year before. These figures are especially significant, given that 2009 worldwide lubricant demand declined 8.4% over 2008 to 35 million tonnes.

“Kline’s research shows that despite very challenging market conditions, Shell has continued to outperform the lubricants market as a whole and maintain our global leadership position,” said Chong-Meng Tan, Executive Vice President for Shell B2B and Shell Lubricants. “I believe this is the result of a consistent strategy that focuses squarely on customers, as well as leading technologies delivering superior products and services that add value for clients.”

According to Kline, the impact of the global recession had been less severe in the Asia-Pacific region, which continued to show the most robust volume growth. Shell achieved strong growth in China to garner an 11% market share, extending its lead as the top international supplier; in growth markets like Indonesia, Shell is a significant player among international oil companies. Kline also noted that the USA – the largest lubricants consuming market – was among those that were most impacted by the economic downturn. Nevertheless, Shell continued to maintain its leadership position with an 11.6% share.

On the industry’s competitive landscape Kline indicated that technological expertise has been, and will increasingly become, an important differentiator for lubricants suppliers. This is a key strength for Shell, whose technological leadership includes more than 70 years of innovation through investing in research and development (R&D), and recruiting world-class scientists to create some of the most advanced lubricant products available. Most recently, Shell broke ground for the construction of a technical services centre in Zhuhai, China. When operations start in 2011, the centre will provide comprehensive lubricating solutions to Chinese customers in the automobile, shipping and power industries. Shell also partners with leading original equipment manufacturers, customers and institutions in projects that enable testing of its products in some of the most demanding conditions.

Shell’s focus on customers has won the confidence of many who are market leaders in their sectors. Earlier this year, Shell and Hyundai Motor Company announced the renewal of their global lubricants agreement, making Shell the preferred lubricants supplier for a further five years. International mining companies such as Anglo American have also extended their contracts with Shell over the last 12 months.

Oil hovers above $81 amid mixed stock markets

Tue, 05 Oct 2010 00:00:00 +0200

SINGAPORE � Oil prices hovered above $81 a barrel Tuesday in Asia as traders looked for a new catalyst to extend last week's rally amid mixed regional stock markets. Benchmark oil for November delivery was up 14 cents to $81.59 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract lost 11 cents to settle at $81.47 on Monday. Earlier on Monday, it rose to $82.38, the highest level since Aug. 6. Oil has plodded along in the $70s for most of the last year, but broke above $80 last week, bolstered in part by a rally in global stock markets. Oil traders often look to equities as a barometer of overall investor sentiment, and the Dow Jones industrial average rose 10.4 percent last month. The Dow slid 0.7 percent overnight. Asian stock markets were mixed Tuesday. Investors will be closely watching Friday's monthly jobs survey and earnings on Thursday from Dow industrials component Alcoa Inc., a report that marks the traditional kickoff to the quarterly earnings season. "The overhang of uncertain macroeconomic sentiment has acted as a drag on prices, and we are not convinced that those pessimistic clouds have drifted away just yet," Barclays Capital said in a report. In other Nymex trading in November contracts, heating oil gained 0.75 cent to $2.29 a gallon and gasoline held at $2.09 a gallon. Natural gas was steady at $3.72 per 1,000 cubic feet. In London, Brent crude was up 14 cents at $83.43 a barrel on the ICE Futures exchange. Source: Yahoo News

Oil falls below $78 on signs world economy slowing

Thu, 12 Aug 2010 00:00:00 +0200

SINGAPORE – Oil prices fell below $78 a barrel Thursday in Asia, extending losses amid signs the global economy will grow at a slower rate in the second half than previously expected.

Benchmark crude for September delivery was down 28 cents at $77.74 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract fell $2.23 to settle at $78.02 on Wednesday.

Oil traders look to equities as a gauge of overall investor sentiment, and most Asian stock markets fell while European stocks were mixed in early trading Thursday.

The Dow Jones industrial average plunged 2.5 percent Wednesday after the Commerce Department said the trade deficit widened in June to its highest level in 20 months as exports dipped. This could signal a slowdown in manufacturing and a slumping economy.

"The economy is still very fragile and wishy-washy, every couple weeks the mood of the market changes," Sander Capital said in a report. "The economy has a fear of devaluing assets and if this occurs then consumers will not consume."

In other Nymex trading in September contracts, heating oil fell 1.87 cents to $2.0565 a gallon, gasoline dropped 1.18 cents to $1.9858 a gallon and natural gas slid 1.4 cents to $4.312 per 1,000 cubic feet.

Brent crude was down 38 cents at $77.26 a barrel on the ICE futures exchange.

Source: Yahoo.com

Bad Jobs Data Pushes Dollar Down

Thu, 12 Aug 2010 00:00:00 +0200

Disappointing jobs data causes Us dollar to fall significantly. Economy seems to be stalling.

During the Friday currency trading session, the US dollar fell significantly. All investor eyes were on the jobs report for the month of July which was released during the trading day. The US jobs report for July showed a poor picture of the jobs market in the country.

The US dollar moved to the lowest level it has had in 2010 against the yen. It is getting closer to a 15 year low against the yen, especially with changes on Friday. However, the euro managed to gain more steam during the day and rose to a three month high against the US dollar, to US $1.33. The UK pound also moved to an improved position against the US dollar, to its strongest point in six months.

US Data

There was no doubt that the US jobs data was the single most important factor during the trading session during the day. The week jobs numbers add to the other weak economic data out of the US. This is even more reason why the Federal Reserve may be forced into the position of announcing new measures to help kick start a potential double dip recession in the US. The Federal Reserve is set to meet on Tuesday, at which time it may announce new changes. Investors had hoped that the US bank would be working towards tightening up monetary policy but instead, it may be doing just the opposite. That would further push the value of the dollar down.

The economy shed more jobs in the month of July than economists had predicted. The unemployment rate in the country is steady at 9.5 percent.

Canadian Dollar

Source: Currency-Converter

Also notable during the trading session was that the Canadian dollar was the only one of the US dollar’s competitors that did fall against the US dollar during the trading session. This is due to the disappointing jobs data that came out of the Canadian government during the day’s trading. Investors turned away from the Canadian dollar as a result. The US dollar gained 1.25 percent against the Canadian counterpart during the day.

South Korean Won

Also notable was the changes in the South Korean won. The currency moved to a two and a half month high. This occurred even though investors believed that the central bank intervened during the trading day.

By The Numbers

At the end of the trading day on Friday in New York, the euro had moved from US $1.3186 as of late Thursday to US $1.3294. The euro rose to a three month high at US $1.334 during the day’s session, though it fell back some as the US stocks fell during the day. The euro moved from Y 113.16 to Y 113.48 during the day. The US dollar moved from Y 85.74 to Y 85.40. The US dollar moved from CHF 1.0475 to CHF 1.0377. The UK pound moved from US $1.5884 to US $1.5968. The ICE Dollar Index moved the US dollar from 80.766 to 80.317.

PetroChina to start up Ningxia refinery in 2011

Thu, 12 Aug 2010 00:00:00 +0200

PetroChina, the nation's second-largest oil refiner, will begin production at its expanded Ningxia refinery at the end of 2011, later than originally planned, parent company China National Petroleum Corp. (CNPC) said.

Platts has previously reported that the refinery was expected to start operations in September 2011. But according to the China Daily report, the planned start-up represents a delay of one year from the original schedule.

The Ningxia refinery in northwestern China is currently undergoing a 7 billion yuan (US$1 billion) expansion, which will raise capacity from 1.5 million metric tons per year (MTPY) to 5 million MTPY, enabling it to produce 1.67 million MTPY of gasoline and 2.29 million MTPY of gasoil, China Daily reported, citing CNPC's online newsletter.

The upgraded refinery will produce fuels that meet China IV emission standards, which are similar to Euro IV, according to the statement. (June 29, 2010)

Source: fuelsandlubes.com

BP could be ripe for takeover

Tue, 06 Jul 2010 00:00:00 +0200

NEW YORK (CNNMoney.com) -- BP's stock price has fallen far enough for the oil company to become an attractive takeover target for its biggest rivals, according to industry analysts.

BP's stock finished at $28.88 Wednesday, a plunge of more than 50% from its close of $60.09 on April 19, the day before its leased oil rig, the Deepwater Horizon, exploded and sank in the Gulf of Mexico.

Fred Lucas of JPMorgan believes that investors have overdone it, making the stock an attractive value for buyers -- including other companies.

"In theory, either Exxon Mobil or RD Shell could consider a bid for BP," wrote Lucas in a note to investors. "We focus on these two names because they have similar business models and similar global asset structures. They also bear the lowest political risk to a potential combination with BP."

Lucas said that his idea of a proposed takeover of BP was "prompted by the gap between the current market value of BP and the intrinsic value that we see in BP."

Another oil industry analyst, Douglas Youngson of Arbuthnot Securities, told CNNMoney last month that if BP's stock dropped below $30 a share, it would become an attractive takeover target.

"If the share price continues to fall, other companies may see this for the bargain it will be," said Youngson, when BP's stock closed at $37.66.

Of the various big players in the oil industry -- including Gazprom and PetroChina -- Lucas believes that ExxonMobil is in the best position to be the acquirer.

He wrote that Exxon Mobil "has the largest rating advantage and strongest balance sheet," providing it with enough cash to handle the deal.

"Exxon Mobil has also proven its ability to integrate a very large transaction successfully -- its merger with Mobil was a resounding success," added Lucas. "RD Shell has no large-scale merger integration experience."

Gazprom wouldn't be a contender because of a "low stock market rating," he said, while PetroChina "would encounter major political barriers given its controlling shareholder - the Chinese government."

BP has been purging itself of cash to try and fix the environmental and economic aftermath of the disaster.

The company said it has paid out $2.65 billion for the clean-up, and another $130 million on 41,000 claims from workers and business owners who lost their livelihoods in the wake of the spill. More than 80.000 claims have been submitted so far. Bowing to pressure from the U.S. government, BP has put $20 billion in escrow to cover damages.

Lucas figures that the leak will stop sometime in July, meaning a finite cap to the liabilities. So this might be a good time for Exxon Mobil to swoop in, especially since the oil giant has had its own experiences with catastrophic oil spills.

Before BP's environmental disaster in the Gulf, Exxon had the dubious distinction of causing the nation's worst oil spill, when the Exxon Valdez oil tanker ran aground off the coast of Alaska in 1989.

"In many respects, an accurate valuation of BP today depends less on a valuation of its assets, but more on an accurate value of its potential liabilities," wrote Lucas. "Who knows better how to price potential clean-up costs and associated civil claims than Exxon Mobil?"

Spokesmen for BP and RD Shell declined to comment on this story. Exxon Mobil did not respond to messages from CNNMoney.com.

Source: CNN Money.com

The real cost of cheap oil

Thu, 03 Jun 2010 00:00:00 +0200

The Gulf disaster is only unusual for being so near the US. Elsewhere, Big Oil rarely cleans up its mess.

Big Oil is holding its breath. BP's shares are in steep decline after the debacle in the Gulf of Mexico. Barack Obama, the American people and the global environmental community are outraged, and now the company stands to lose the rights to drill for oil in the Arctic and other ecologically sensitive places.

The gulf disaster may cost it a few billion dollars, but so what? When annual profits for a company often run to tens of billions, the cost of laying 5,000 miles of booms, or spraying millions of gallons of dispersants and settling 100,000 court cases is not much more than missing a few months' production. It's awkward, but it can easily be passed on.

The oil industry's image is seriously damaged, but it can pay handsomely to greenwash itself, just as it managed after Exxon Valdez, Brent Spar and the Ken Saro-Wiwa public relations disasters. In a few years' time, this episode will probably be forgotten – just another blip in the fortunes of the industry that fuels the world. But the oil companies are nervous now because the spotlight has been turned on their cavalier attitude to pollution and on the sheer incompetence of an industry that is used to calling the shots.

Big Oil's real horror was not the spillage, which was common enough, but because it happened so close to the US. Millions of barrels of oil are spilled, jettisoned or wasted every year without much attention being paid.

If this accident had occurred in a developing country, say off the west coast of Africa or Indonesia, BP could probably have avoided all publicity and escaped starting a clean-up for many months. It would not have had to employ booms or dispersants, and it could have ignored the health effects on people and the damage done to fishing. It might have eventually been taken to court and could have been fined a few million dollars, but it would probably have appealed and delayed a court decision for a decade or more.

Big Oil is usually a poor country's most powerful industry, and is generally allowed to act like a parallel government. In many countries it simply pays off the judges, the community leaders, the lawmakers and the ministers, and it expects environmentalists and local people to be powerless. Mostly it gets away with it.

What the industry dreads more than anything else is being made fully accountable to developing countries for the mess it has made and the oil it has spilt in the forests, creeks, seas and deserts of the world.

There are more than 2,000 major spillage sites in the Niger delta that have never been cleaned up; there are vast areas of the Colombian, Ecuadorian and Peruvian Amazon that have been devastated by spillages, the dumping of toxic materials and blowouts. Rivers and wells in Venezuela, Angola, Chad, Gabon, Equatorial Guinea, Uganda and Sudan have been badly polluted. Occidental, BP, Chevron, Shell and most other oil companies together face hundreds of outstanding lawsuits. Ecuador alone is seeking $30bn from Texaco.

The only reason oil costs $70-$100 a barrel today, and not $200, is because the industry has managed to pass on the real costs of extracting the oil. If the developing world applied the same pressure on the companies as Obama and the US senators are now doing, and if the industry were forced to really clean up the myriad messes it causes, the price would jump and the switch to clean energy would be swift.

If the billions of dollars of annual subsidies and the many tax breaks the industry gets were withdrawn, and the cost of protecting oil companies in developing countries were added, then most of the world's oil would almost certainly be left in the ground.

Source: Guardian.co.uk

Weak euro zone states may not need aid

Fri, 14 May 2010 00:00:00 +0200

With their bonds strengthening after the announcement of a $1 trillion financial safety net for the euro zone, even the weakest states other than Greece may not need to use the net, officials and analysts say.

Countries are reluctant to apply for emergency aid partly because it would come with tough requirements to impose austerity measures, similar to those demanded in the International Monetary Fund's bailout programmes.

Here is the outlook for Portugal, Ireland and Spain, the three countries which many analysts see as the next potential "dominoes" after Greece. PORTUGAL

Finance Minister Fernando Teixeira dos Santos said in Brussels on Sunday night that it would be premature to decide whether Portugal would need to apply for emergency funds.

Commerzbank economist Ralph Solveen said, "I wouldn't say the probability of Portugal needing to apply for the safety net is high. If the ECB's bond buying is successful and it calms down the markets, I'd say it's lower than 50 percent.

"The ECB is buying bonds and the pockets of the ECB are very deep. Perhaps they will not need the bailout after all."

Moody's Investors Service last week put Portugal's Aa2 rating on a three-month review for a possible downgrade, but said that though Portugal's financing costs might rise for some time because of market pressures, it expected debt servicing to "remain very affordable in the near to medium term".

It said "the government's debt is neither unsustainable nor unbearable."

Diego Iscaro, economist at IHS Global Insight in London, said: "I don't think Portugal has liquidity problems, so the need to apply is surely below 50 percent. All depends on how this aid will materialise, but I'd say the probability is about 20 percent in a 12-month horizon."

He added, "If they choose aid at IMF terms, I think there will be a lot of opposition, especially from the people, since the economy is already performing poorly and unemployment is on the rise."

But Antonio Costa Pinto, a political scientist in Lisbon, said that if the government did apply for the safety net, its plan would probably be accepted by parliament, where the main opposition party is on the centre-right of the spectrum.

"There will be some social polarisation, but from the example of our direct agreements with the IMF in 1979 and 1983, which had very tough conditions, I don't expect too much opposition. The levels of social conflict in Portugal are relatively low."

Portugal's budget deficit is expected to drop from 9.4 percent of gross domestic product in 2009 to 8.5 percent this year and 7.9 percent in 2011, the European Commission forecast this month. Gross government debt is predicted to rise from 76.8 percent to 85.8 percent and 91.1 percent. [ID:nBRQ009230] [ID:nBRQ009831]

IRELAND

Ireland has no immediate funding problems and sees no need to use the safety net, the Finance Ministry said on Monday.

Finance Minister Brian Lenihan said his country's fiscal position was not questioned at the meeting of euro zone finance ministers on Sunday.

"There's no suggestion that any state other than Greece has funding difficulties...There were no suggestions in the meeting that Ireland has any difficulties whatsoever," Lenihan told national radio RTE, adding that he was under no pressure to draw up an early budget.

Ireland could continue borrowing at current market rates without seriously damaging its finances until the first half of 2011, according to Alan McQuaid, chief economist at Bloxham Stockbrokers.

Asked about the chances of Ireland applying for a bailout in the next 12 months, he said: "I would have it relatively low. Obviously it depends on global conditions, but I would have it relatively low, 25-30 percent."

McQuaid said there was a recognition among public sector workers that they did not want to go down the Greek route.

"I think there is an element, and you can see it here with the public service unions and union leaders, there is a recognition that you don't want to go down the step where you have to need recourse to the IMF."

Retail sales, jobless, budget and Purchasing Managers Index data last week offered signs that Ireland might be about to exit the euro zone's longest running recession.

"Last week was the best week for a long time on the Irish economy data front," Brian Devine, economist at NCB Stockbrokers, said in a note. "The worry was that financial contagion would spread and harm the recovery. The EU bailout should ensure that this does not occur."

Ireland's budget deficit is due to shrink from 14.3 percent of GDP last year to 11.7 percent this year, but edge up to 12.1 percent next year, according to the EC. Its government debt/GDP ratio is expected to rise from 64.0 percent last year to 77.3 percent this year and 87.3 percent next year.

SPAIN

Spain says it has the necessary financing and access to capital sources to avoid having to use the safety net.

"The Spanish government will not have to use this measure at all; Spain's deputy prime minister (and economy minister) Elena Salgado was very clear about that yesterday," a spokesman for the economy ministry said.

Many analysts agree. "The pressure on Spain's financing costs is not enough to trigger this aid mechanism. Portugal's situation is more compromising, but the approval of the measures dissipates the tension," said Sara Balinas from Analistas Financieras Internacionales.

The existence of the safety net should be enough to bolster markets and this, combined with fresh cuts in the budget deficit announced on Monday, should make any use of emergency funding less likely, BNP analyst Luigi Speranza said. [ID:nMDT009015]

"The fact that the money is available is having a huge impact on the market today; this in itself reduces the chances that Spain will have to tap the extra financing."

He added, "There has been considerable commitment from institutions including the ECB. Now it's really important to see how markets take it...at the moment they are taking it very well."

Prime Minister Jose Luis Rodriguez Zapatero is expected to give more details on the new deficit cuts -- which would bring the deficit to 9.3 percent of GDP in 2010 and 6.5 percent in 2011 -- when he appears before parliament on Wednesday. Last year the deficit was 11.2 percent.

Spain's debt/GDP ratio is expected to climb from 53.2 percent last year to 64.9 percent this year and 72.5 percent next year, the EC said last week, before the announcement of the new deficit targets.

Source: Reuters

Greece may survive, but the bailout won�t help it heal

Fri, 14 May 2010 00:00:00 +0200

Europe's gargantuan bond and bank bailout this weekend is nothing but "morphine to stabilize the patient," according to the International Monetary Fund's Director for Europe, Mark Belka. The joint deal by the European Union and the IMF to pump up to one trillion dollars in loans and guarantees into Greece and other European countries threatened by government insolvency was far larger than expected, a case of shock and awe that has for now impressed the markets. Finally European leaders ended their months of fiddling while Athens burned and burned. By the end of trading Monday, European stocks were up a spectacular 7.39 percent.

The markets might be placated for now, but the crisis is by no means over. As Belka emphasized at a meeting of the World Economic Forum in Brussels, the bailout resolves none of Europe's very serious underlying problems. Just like the $800 billion U.S. banking bailout in 2008 had to be followed up by restructuring and recapitalizing banks and writing off debt, so Europe's problem of out-of-control government debts can only be solved with deficit cutting, economic reforms and possibly restructuring debt. The problem is that while Europe now has a mechanism to pass out bailouts to troubled member states, it still has no system in place to get bailed-out countries back on the road to fiscal and economic health. In Brussels on Monday EU officials talked vaguely about "economic governance" and "coordination" but the 27 member governments are are still deeply at odds over what that might mean. Ditto for the question of what happens if a member state getting bailouts does not comply with whatever austerity program gets imposed. Sooner or later markets are bound to notice that spreading debt all around Europe, from profligate countries to less profligate ones, is not an exit strategy from rising debt and deficits.

Not talked about much, but at the heart of all this is the festering problem of Europe's banks. Unlike the U.S. and U.K., major Eurozone countries like France and Germany have to this day refused to subject their banks to stress tests, or provide for any kind of transparency about the true health of their financial sectors. According to the IMF, a larger share of bad assets is still hidden on the books of European banks than American or British ones. (Those bad debts are a source of embarassment to Europe's politicians, as they are likely concentrated in state-owned banks.) If France and Germany were more transparent about who owns which shaky government bonds, it would be far easier to calculate and prepare for the effects of, say, a Greek government bankruptcy, which unlike a banking crisis is a fairly straightforward problem for a financial system to resolve. Instead, because Europe still refuses to go public with the lingering problems of its banks, each impending crisis brings more uncertainty and the threat of systemic failure. Because politicians and regulators refuse to shed light on their banks, this crisis will likely linger.

Source: Newsweek

Oil edges up on rising stocks, weak dollar

Thu, 15 Apr 2010 00:00:00 +0200

SINGAPORE: Global oil prices recovered in early Asian trade Wednesday as the equity markets turned positive amid weak dollar.

light sweet crude for delivery in May was seen trading at $84.39 a barrel at 11.30 a.m Singapore time while Brent crude was at $85.01 a barrel in London.

Analysts said expected increase in US stockpiles hurt oil prices Tuesday but rising stocks and weak dollar helped it to recover in Asian trade.

Oil climbed to trade above $84 on Wednesday, ending a five-session losing streak, as rising stock markets and a weaker dollar offset an industry report showing gains in U.S. inventories of every fuel category.

US crude stockpiles rose in line with expectations by 1.4 million barrels in the week to April 9, the API said, while gasoline stocks increased 1.6 million barrels and distillates including heating oil and diesel climbed by a larger-than-expected 1.7 million barrels.

On Tuesday, oil prices fell as the International Energy Agency warned about potential risks to the economic recovery posed by high energy costs.

New York's main contract, light sweet crude for delivery in May, dropped 29 cents to $84.05 a barrel while Brent North Sea crude for May also slipped five cents to $84.72.

The IEA revised upward its forecast for global oil demand in 2010 by 30,000 barrels per day owing to unexpectedly strong economic activity in the United States, Asia and the Middle East.

Source: Commodity Online

Rising Concern over Oil Prices

Thu, 15 Apr 2010 00:00:00 +0200

In January 2010 oil prices briefly surged past US$ 80 a barrel, prompting US Energy Secretary Chu to add more proof that high-priced oil, if not global warming is taken seriously by high level national deciders and policy makers.

Chu's concern over high priced oil, despite the positive effect of higher energy prices on investment for developing usually costly new and renewable energy sources, is now echoed by Al Gore, who with Rajendra Pachauri is probably the world's best known promoter of what they call "catastrophic global warming".

In a late February interview with New York Times, Al Gore said: "It would be an enormous relief if the recent attacks on the science of global warming indicated that we do not face an unimaginable calamity requiring large-scale, preventive measures to protect human civilization as we know it.

“Of course, we would still need to deal with the national security risks of our growing dependence on a global oil market dominated by dwindling oil reserves in the most unstable region of the world, and the economic risks of sending hundreds of billions of dollars a year overseas in return for that oil."

This new approach, also used by world environment ministers meeting in Bali, Indonesia in late February, links the "unimaginable calamity" of global warming, with more down-to-earth and practical themes: what are called high oil prices.

As Al Gore and economic deciders like Ben Bernanke of the US Federal Reserve and Jean-Claude Trichet of Europe's Central Bank have many times said since late 2009, economic recovery from what the IMF calls the worst economic recession since 1945 is, they say, threatened or menaced by high oil prices.

It is important to compare the oil price, with other global macroeconomic indicators, factors and trends. If we only take global equity markets, these have shown growth and recovery quite similar to recovery of the oil price since the lows of 2008.

In December 2008 the January 2009 delivery WTI contract price on the US Nymex was traded at about US$ 32.40 a barrel. Many equity markets have grown by over 50 per cent since early 2009, taking headline index composite values. Gold prices have also shown strong recovery and growth since 2008.

In the case of gold this price growth is encouraged by the weakness of the US dollar against other world moneys, which also advantages the oil price. One major reason for the weakness of the US dollar, GB pound, the Euro, and certain other major moneys is national debt and government budget deficits.

The US budget for financial year 2009, recently announced by Obama, is a major example of this huge debt problem: the deficit for FY 2009 will be about US$ 1 300 billion. Many other countries have budget deficits equal to 10 per cent or 12.5 per cent of total annual economic output, or GDP.

This spending deficit is due to economic recession and accumulated, very large national debts, in many cases equal to more than one year's GDP. Restoring economic growth is therefore vital.

There is no alternative to this, except devaluing national money to depreciate the real value and real cost of repaying debt, or in extreme cases simply repudiating national debt. When or if any major country is forced to this extreme solution the global economy would suffer extreme instability and very, very intense economic slump.

Low and cheap oil prices are in no way capable of changing this situation, over and above the fact that financial and debt crisis in the major countries is not due to the oil exporter countries.

A few simple facts underline, using the example of the US economy.

Recent official monthly trade data for the USA shows that US total net imports of crude oil, after re exports, were 245.45 million barrels (about 8.16 Mbd) in November 2009.

Total payments made by US crude oil importers were US$ 17.81 billion for an average barrel price of US$ 72.54. Other energy imports, specially natural gas, added about US$ 5.4 billion to energy import costs. At the average monthly oil price for November 2009, for a 12-month period, the total annual US crude oil import bill would run at about US$ 214 billion.

This can be called "very large", by well-known speakers such as Al Gore, or economic deciders such as Ben Bernanke, but it must be compared with the US budget deficit for FY 2009. The oil import bill is under one-sixth of the budget deficit.

We can next compare the annual oil import bill with the deficit-financed aid, support, low cost loans and bailouts made to the US financial industry and to car makers, certain airlines, and other economic actors since late 2008. Taking only the Poulson Plan of late 2008, under G W Bush, and the Geithner Plan from 2009, under B H Obama, this adds up to about US$ 1 500 billion - equivalent to more than 7 years of total oil import costs at an average US $ 72.54 a barrel.

Even more important however, oil is a "real resource", not a "paper resource".

Payments made by oil importer countries like the USA to the exporter countries quickly result in increased demand for world exports of goods, machinery, equipment and services.

This is shown by detailed IMF studies on the recycling of windfall gains by all commodity producer countries, producing all kinds and types of commodities, since the late 1990s.

Up to oil price levels that Al Gore calls "very high", global economic growth is favoured by stable and remunerative oil prices. High oil prices offer a real world, real economy solution to current very grave financial and monetary challenges.

The process is what I call "Petro Keynesian Growth", and growth is badly needed. Only economic growth can counter the debt menace, certainly not the proposed "Carbon Money" that was discussed, and rejected in private sessions at the Copenhagen climate summit.

Present debt levels in OECD countries, and other countries must be reduced, and the only way for this is economic growth.

This will tend to raise oil prices, but if they are around US $ 90 a barrel this will not at all cause "economic catastrophe", but will strengthen growth.

Source: Alrroya.com

NG Execs Upbeat About Long-term

Thu, 01 Apr 2010 00:00:00 +0200

As natural gas prices fell below $4 for the first time in nearly six months Thursday, participants at an energy conference hosted by former President George W. Bush pondered the future demand for the fuel given that trailblazing U.S. shale drilling has helped create what could be a 100-year supply.

"We have enough for our kids, our grandkids and our great-grandkids," said Randy Foutch, CEO of Tulsa-based Laredo Petroleum and a panelist for the one-day Natural Gas Nation conference at Southern Methodist University.

Not long ago there was widespread concern whether the U.S. could produce sufficient natural gas to meet demand for heating, power generation and other uses. There was also angst over excessive price volatility. However, with recent huge increases in proven and potential natural gas reserves as a result of so-called unconventional drilling in areas such as the Barnett Shale of North Texas, energy experts say there is likely a century's supply, and price volatility appears less of an issue.

"I believe relative price stability is achievable," said panelist David Biegler, CEO of Southcross Energy and the former chief executive of Enserch Corp. "The more supply you get, the less volatile the price becomes."

Ensearch was the parent company of the former Lone Star Gas, the natural gas utility known today as Atmos.

Tumbling prices

In futures trading on the New York Mercantile Exchange, gas fell 13 cents to $3.98 per million British thermal units in contracts for April delivery after a government report showed that U.S. inventories were larger than expected. Demand is expected to remain weak in coming months.

The many gas industry participants at the conference might have gotten some longer-term encouragement, however, from Bernard Weinstein, associate director of SMU's Cox Maguire Energy Institute, which co-hosted the event with the George W. Bush Institute, a nonprofit focused on research and practical solutions to issues such as education and economic growth.

"I don't think gas is going to stay at $4," Weinstein said. A rebounding economy and rising natural gas demand are likely to boost gas prices to "somewhere in the $7 to $8 range over the next two years," he forecast.

Natural gas producers say prices need to be about $6 to $8 for a substantial rise in drilling activity, which plunged along with gas prices in the latter half of 2008.

Prices had soared to more than $13.50 in July that year before taking a precipitous fall as a result of the severe national recession and excess supply of the fuel.

Power generation fuel

Daniel Yergin, the conference's keynote luncheon speaker and chairman of the prominent IHS Cambridge Energy Research Associates energy-consulting firm, forecast that the biggest growth in gas demand will come from electric power generation, both in replacing aging coal-fired plants and in serving as a backup source for wind- and solar-generated power when the wind isn't blowing and the sun isn't shining.

Yergin foresees the potential for significantly more use of natural gas as a transportation fuel, especially in commercial or government fleets such as trucks, taxis or buses.

In his opening remarks, Bush said that "technology is a game-changer in America," as evidenced by major advancements in gas drilling. The technological progress is "transformative in helping America become independent of foreign sources of energy," boosting the nation's security, he said.

Technological advances, including horizontal drilling, have had a huge impact in North Texas, where there are about 14,000 producing wells in the Barnett Shale, a geological zone that in 2008 became the largest natural gas producing area in the nation.

Biegler said estimates of a 100-year gas supply show that "it's time to think of natural gas as a critical component of our energy supply" for the long term, not merely as a "bridge fuel" to be used until greater supplies of alternative energy sources such as nuclear, wind and solar power can be developed.

The U.S. produces about 22 trillion cubic feet of natural gas annually, but 30 trillion cubic feet of production is "eminently achievable," Biegler said.

Source: Downstream Today

Oil Product Imports from Mideast to Challenge Chinese Producers

Mon, 29 Mar 2010 00:00:00 +0200

China's oil product imports from the Middle East countries will pose a challenge to its domestic producers, Feng Shiliang, deputy secretary general of China Petroleum and Chemical Industry Association (CPCIA) was quoted as saying by Shanghai Securities News on Thursday.

He said a number of petrochemical projects would be put into operation in oil-producing countries in the Middle East in 2010, which may lead to inflow into China of cheap petrochemical products in big quantities and in turn posing a major threat to the domestic producers.

The cost of the Middle East oil products could be about 30 percent cheaper than home-made products in China even when the transportation fee and import tariffs are included, the CPCIA official said.

According to him, the Middle East region has become the world's major ethylene producing base in recent years. The additional annual ethylene production capacity will be averaged at about four million metric tons during 2008 to 2013.

The ethylene output capacity would add 16 million metric tons a year by 2013, accounting for 47 percent of the world's total added capacity at that time, he said.

Source: Downstream Today

Chinese Refining Glut Concerns May Stymie New Investors

Mon, 29 Mar 2010 00:00:00 +0200

Foreign investors seeking a foothold in China's oil refining sector are facing a long wait to get their proposed investments approved, as Beijing worries about overcapacity and risks to the environment.

That was the message from many delegates to the National People's Congress, China's annual legislative session which closed Sunday, who drew parallels between the rapid construction of new refineries and the serious overcapacity in China's steel industry.

Most at risk are likely to be proposed refinery investments by Western oil majors. That's because they do not bring guarantees of crude oil supplies, unlike state-owned competitors from resource-rich countries such as Venezuela and Saudi Arabia.

If all projects under construction and under planning are brought online, China's annual refining capacity will reach 800 million metric tons around 2015, said Wei Wenbo, party secretary of China Petroleum & Chemical Corp.'s (SNP) Luoyang unit.

That's far beyond the 550 million tons required to meet China's oil product demand in 2015, Wei said, citing a survey done by its parent company Sinopec Group.

As a result, the central government will likely focus on expanding and upgrading existing refineries in the 2011-2015 period, rather than building new ones. This will particularly be the case on the east coast, where large new refineries will have a much bigger impact on the environment, Wei said.

The seeds of the problem were sown last year when the State Council, China's Cabinet, issued a stimulus plan for the refining and petrochemical industries. This plan called for speeding up construction of major refining and ethylene projects to help support economic growth, which slowed to a seven-year low in the fourth quarter of 2008.

Foreign companies including Royal Dutch Shell PLC (RDSA), BP PLC (BP), Kuwait Petroleum Corp., Petroleos de Venezuela SA and Qatar Petroleum want to build joint venture refineries in China, so curbs on the growth of the nation's refining capacity may mean final approvals are even slower in coming.

"I don't think China would easily say no to foreign companies that can provide us with stable energy supplies. But I wouldn't be surprised to see a long and complicated process of getting the projects approved, particularly in terms of the environmental assessment," said Zhang Mingsen, a deputy chief engineer with Sinopec's Beijing Chemical Research Institute.

China imported a record 203.79 million tons of crude oil last year, which for the first time met over half of its crude needs. That's equivalent to 4.1 million barrels a day.

Kuwait Petroleum knows how "long and complicated" the approvals process can be. Despite an initial agreement back in 2005, its proposed 300,000-barrel-a-day joint refinery project with Sinopec has yet to receive the official go-ahead from Beijing due to hurdles over its location.

The refinery was originally planned in Nansha district of Guangzhou city, but mounting concern over its proximity to crowded areas led to its relocation to the much-less populated Zhanjiang City.

South Africa's synthetic fuels specialist Sasol Ltd. (SSL) is also facing a challenge to get its project sanctioned.

A document prepared by the local-level economic planning agency of Ningxia region indicated Sasol's CNY56 billion coal-to-liquid joint venture project is facing further delays, if not termination.

The document--circulated at the NPC--showed that Shenhua Ningxia Coal Group, Sasol's local partner, had asked a unit of Sinopec Group to put together a rival report on the feasibility of using home-grown CTL technology.

Source: Downstream Today

Oil prices up for 3rd time in March

Thu, 25 Mar 2010 00:00:00 +0100

MANILA, Philippines—(UPDATE) Local oil companies have raised prices of gasoline, diesel and kerosene by 50 centavos a liter.

Petron Corp., the country's biggest oil retailer and refiner, took the lead in the latest oil price increase as early as 12 noon on Tuesday, while Chevron and Seaoil Philippines implemented their respective price hikes as of 12:01 a.m. Wednesday.

Independent oil player Phoenix Petroleum Philippines meanwhile said it will raise diesel and gasoline prices by 50 centavos effective 12:01 a.m. Thursday.

Spokesman Raymond Zorilla said the increase was "in view of the continued increase in the prices of refined petroleum products in the international market."

The increases were the third so far this month.

On March 9, local oil companies raised prices of gasoline by 50 centavos a liter, and of diesel and kerosene by 25 centavos a liter, while on March 3, they increased cost of gasoline by P1 a liter, and of diesel and kerosene by 75 centavos a liter.

Data from the Department of Energy showed that the price of the regional benchmark Dubai crude rose to $77 a barrel as of March 17, from the $73-a-barrel average in February.

Prices of unleaded gasoline based on the Mean of Platts Singapore benchmark for refined petroleum products, also rose to $91 a barrel in the first 17 days of the month, from the previous month's average of $87 a barrel.

Similarly, MOPS-based diesel prices increased to $88 a barrel within the March 1-17 period, compared to the $84-a-barrel average in February.

Source: Inquirer.net

World NG Demand To Absorb Excess Supply - Execs

Tue, 16 Mar 2010 00:00:00 +0100

HOUSTON (Dow Jones) -- Energy executives see world demand for natural gas growing significantly, absorbing excess supply and tightening gas markets.

The need for natural gas in developing countries--as a source fuel for power generation and to meet requirements to cut the heat-trapping gases blamed for global warming--are expected to drive long-term gas demand.

That outlook for natural gas given at IHS Cambridge Energy Research Associates' CERA Week conference in Houston underscores the bright future the energy sector sees for the fuel, which has been hard-hit by the economic downturn.

"We have suffered a huge economic crisis, and the world of gas energy has been totally turned upside down," said Philippe Boisseau, president of gas and power for the French energy company Total SA (TOT, FP.FR).

The executive said natural gas markets are flexible enough to absorb the excess supply that has resulted from new shipments of super-chilled liquefied natural gas and, in the U.S., from vast new supplies from prolific onshore fields known as shales.

These new supplies have put pressure on prices, allowing natural gas to take a bigger share of the electricity generation market from coal. The fuel also burns cleaner than coal, releasing about half of the carbon emissions.

But natural gas still faces image problems.

Jean-Francois Cirelli, president and vice chairman of GDF Suez SA (GSZ.FR), said natural gas "has to be restored as a clean fuel," Cirelli said, urging CERA attendees to "defend the gas brand."

The problem is particularly acute in Europe, where shortages provoked by tensions between Russia, a big gas supplier, and Ukraine, a transit country, have resulted in unpopular price spikes.

Tom Walters, president of gas and power marketing for Exxon Mobil Corp. (XOM), said ever increasing demand will create a "supply gap."

"Our challenge is to develop new supplies," Walters said.

China becomes world's 4th largest oil producer

Mon, 15 Mar 2010 00:00:00 +0100

BEIJING (Commodity Online) : China’s oil output of 189 million tons in 2009 earned the dragon nation the no 4 rank in global production last year.

According to China’s Ministry of Land and Resources, the country replaced Iran as the No. 4 biggest oil producer in 2009.

China's oil output in 2009 accounted for 5.4 percent of the world's total, following Russia, Saudi Arabia and the U.S.

However, domestic output meets half of China's oil demand, it said. China's 2009 domestic oil output reached 189 million tons, while the amount of imports was 204 million tons.

The ministry said China's oil demand can be roughly calculated by adding the output and import numbers, which means China's output only accounted for 48 percent of its oil demand in 2009.

The annual output increased by about 1 to 2 percent in recent years, which is lower than the increasing rate of the demand.

The newly increased demand is mainly met by imports even after Sinopec’s takeover of Addax Petroleum Corp in 2009 has boosted its overseas oil production.

SHELL Lubricants - new facility

Mon, 22 Feb 2010 00:00:00 +0100

Shell Lubricants inaugurated on Sunday a lubricants bulk storage facility in Jebel Ali Free Zone (Jafza) in Dubai. The new investment considerably raises Shell Lubricants’ bulk finished product storage, making it one of the largest lubricants storage facilities available locally. Key officials from Jafza and Shell attended the inauguration event to commission the new storage installation.

With the commissioning of this state-of-the-art facility, Shell Lubricants’ storage capacity will increase by 550 metric tons. This brings the total bulk finished product storage to 2000 metric tons, including barge and third party storage. The new facility will cater to the growing local and regional demand for commercial lubricants as well as local and international demand for marine lubricants.

Ibrahim Al Janahi, Chief Commercial Officer, Jafza said: “We are very pleased to play host to Shell Lubricant’s new state-of-the-art facility in Jafza. I am confident that Jafza’s efficient logistics base and related services will further facilitate Shell Lubricants expanded operations and business in the region.”

Amr Adel, General Manager, Shell Lubricants Middle East, South Asia and East, said, “We are proud to launch this new lubricants storage facility with our partners in Jafza. This investment highlights our commitment to ensuring high quality lubricants supply to our distributors in the local as well as regional markets. The increased storage capacity substantially reduces lead times and improves supply continuity by maintaining stocks of all major lubricants grades.”

Shell Lubricants manufacture and market some of the world’s leading lubricants brands including Shell Helix, Pennzoil, Quaker State, Shell Rimula, Shell Rotella and Shell Tellus. The product range meets the needs of a broader group of customers than any other lubricants’ supplier, and varies from automotive oils to lubricants for power generation and mining operations.

Source: Shell

Strong euro pushes oil higher

Mon, 22 Feb 2010 00:00:00 +0100

Oil prices jumped 4 percent to above $77 a barrel, responding to a weaker US dollar, stronger equities, and growing tensions over sanctions against Iran.

US crude for March delivery rose $2.94 to $77.07 a barrel by 1:36 p.m. EST (1836 GMT). In London, the benchmark Brent crude contract for April delivery rose $3.26 to $75.77 a barrel.

Trading volumes were light, with much of Asia shut for the Lunar New Year holiday and US markets opening after Monday's closure for the Presidents Day holiday. There was no settlement price on Monday as floor activity on the New York Mercantile Exchange was closed.

``The oil market is reacting to the dollar being weak, and that is a big part of why crude futures are higher today,'' Phil Flynn, an analyst at PFGBest Research in Chicago, said.

``At the same time, we are seeing prices of other commodities, such as gold, silver and copper, rise sharply. Trading volume is light at this point and that is making price moves faster than they would be if volumes were heavier,'' he added.

The US dollar slipped against the euro on Tuesday as some traders felt the European currency had dropped too far in recent weeks over concerns about the Greek economy.

A strong dollar tends to pressure dollar-priced commodities as they become more expensive for holders of other currencies.

Wall Street stock indexes were lifted by commodity-related shares and by a jump in New York state's manufacturing index, which rose more than expected in February.

Expectations of an economic recovery have supported oil prices, which have traded in a relatively tight $15 range between $69 and $84 a barrel since the beginning of October.

Prices had climbed to a record above $147 a barrel in July 2008, then fell to less than $33 at the end of that year.

Iranian President Mahmoud Ahmadinejad said talks were still going on over a proposed nuclear fuel swap and any country that tried to impose new sanctions on Iran would regret its actions.

US Secretary of State Hillary Clinton has sought backing from oil giant Saudi Arabia to help win Chinese support for additional sanctions targeting Iran's Revolutionary Guards.

In Nigeria, the acting president, Goodluck Jonathan, is looking for swift progress reviving an amnesty program in the oil-producing Niger Delta, where years of attacks by militants have disrupted supplies.

US oil inventory reports will be published a day later than usual this week because of Monday's holiday.

The American Petroleum Institute will release statistics collated from industry sources on Wednesday, followed by government data from the Energy Information Administration on Thursday.

Source: Stuff.con.nz

Saudi Arabia to Supply Full Crude Oil Volumes to Asia

Thu, 10 Dec 2009 00:00:00 +0100

Saudi Arabian Oil Co., the world’s largest producer, will supply full volumes of crude to refiners in China, South Korea and Japan for January.

Saudi Aramco, as the company is known, will provide 100 percent of cargoes sold under long-term contracts next month, according to a Bloomberg News survey of refinery officials in Japan, South Korea, China, who asked not to be identified because of confidentiality of agreements with the company.

For December, Saudi Aramco will provide full volumes to refiners in Japan while other Asian refiners will get 85 percent to 90 percent of their contracted deliveries.

Aramco on Dec. 6 raised the official selling price for its Medium grade by 10 cents to a discount of 45 cents a barrel to the average price of Middle East benchmarks Oman and Dubai. It Heavy crude was increased by 20 cents to a discount of $1.25 a barrel. Arab Light, the country’s largest export type, was lowered by 5 cents to a premium of 45 cents a barrel.

Super Light crude was raised by 40 cents to a premium of $1.70 a barrel while Extra Light was left unchanged at a premium of $1.25 a barrel.

Saudi Arabia has reduced its output under the production quotas instituted by the Organization of Petroleum Exporting Countries. The country is OPEC’s biggest producer.

Saudi Arabia has an OPEC production quota of 8.051 million barrels a day. In November, the kingdom pumped 8.19 million barrels a day, up from 8.19 million barrels a day in October, according to a Bloomberg News survey.

OPEC’s compliance with its production target has slipped as crude prices have climbed. The target for the 11 members with quotas, all except Iraq, is set at 24.845 million barrels a day. Since reaching a low of 25.32 million barrels a day in March, output has climbed to 26.5 million barrels a day last month.

Crude oil traded in New York was at $70.68 a barrel at 12:21 p.m. Singapore time. Prices have gained 59 percent this year. The OPEC price basket, a volume-weighted average of the various grades produced by the group, was at $74.60 on Dec. 8, the last day it was calculated. That’s up from $37.73 a barrel a year ago.

By Christian Schmollinger and Yuji Okada (Source Bloomberg)

Exxon's New Jersey Franchisees Sue Over Fuel Prices, Rent

Thu, 10 Dec 2009 00:00:00 +0100

Exxon Mobil Corp., the biggest U.S. oil company, was sued by operators of more than 100 of its New Jersey gas stations claiming they are being forced to overpay for wholesale gasoline and rent.

The complaint, filed yesterday in federal court in Newark, New Jersey, claims Exxon Mobil manipulates the quantity and timing of fuel deliveries to overcharge franchisees. The company split the state in 100 different zones, charging varying prices for the same quality and grade of fuel, according to the complaint.

“Exxon has unlawfully utilized its control over virtually all aspects of plaintiffs’ stations in a manner that has threatened the continued viability of the stations as ongoing businesses,” according to the complaint.

Exxon Mobil last year posted the highest profit on record for any U.S. company. The Irving, Texas-based company intends to defend itself vigorously against the lawsuit, said spokesman Kevin Allexon.

“Exxon dealers are independent business people who set the retail price at the pump,” Allexon said yesterday in an e-mailed statement. “Exxon Mobil sets its wholesale price on a number of factors that are designed to allow our dealers to compete with competitors in their local trade area. Competitive conditions change rapidly, affecting price differences from one area to another and from one day to another.”

Manipulating Timing

The oil company is manipulating the timing of its fuel deliveries to stations, according to the complaint. Franchisees must buy gas exclusively from Exxon and on the company’s schedule.

When market prices for gasoline are rising, the company has delayed deliveries to obtain higher prices, according to the complaint. In falling markets, Exxon has loaded gas onto its delivery trucks earlier, to avoid price drops after midnight, the dealers claim.

Exxon Mobil’s “zone pricing” saddles franchisees with gas costs that are “inexplicably disparate” and don’t “bear a relationship to meeting competition,” according to the complaint.

The company has increased the rent charged franchisees even as the real estate market has fallen, according to the complaint.

The franchisees allege the company violated the federal Robinson-Patman Act, the New Jersey Franchise Practices Act, and the state’s Unfair Motor Fuels Practices Act. They seek unspecified compensatory and punitive damages and a judge’s order ending the zone-pricing scheme.

Seven U.S. Refineries

Exxon Mobil refines crude oil into fuels such as gasoline and diesel at seven U.S. plants. The company also operates 19 power plants in the U.S. that run on natural gas and waste heat from adjacent refineries, chemicals plants and gas-processing stations.

The company’s U.S. refineries had losses of about $2.3 million a day during the third quarter. Worldwide petroleum demand fell by enough to fill 62 supertankers during the July- to-September period, according to the International Energy Agency in Paris.

By David Voreacos and Andrew M. Harris (Source: Bloomberg)

European Base Oils and Lubricants Summit

Thu, 12 Nov 2009 00:00:00 +0100

Conference details:
Name: European Base Oils and Lubricants Summit
Uncovering Trends, Discovering Opportunities and Meeting Challenges
Place and dates: 24th & 25th of November 09, London, UK
Telephone: +44 (0) 207 981 2503
E-mail: mmagtultol@acieu.net
Contact Name: Marisa Magtultol
Conference Fee: £950

Notes:
European Base Oils and Lubricants Summit will bring together European base oil and lubricant experts from oil majors, base oil and lubricant manufacturers, additive companies, refineries, academics and solution providers. The event will look at the current economic trends and discuss the key challenges and opportunities that exist to facilitate success and growth for the Eurpean base oil and lubricant industry.

Our expert panel of speakers include:
Apu Gosalia, Fuchs Petrolub, Paul Whitehead, Castrol Industrial Lubricants and Services, Valentina Serra-Holm, University of Iowa, Alan Outhwaite, Chevron Global Lubricants, Terry Dicken, European Lubricating Grease Institute ELGI, Graham Gow, Axel Christernsson, Hans Thomassen, CEC and many more.

For Information or to register contact Marisa Magtultol on: +44 207 981 2503 or mmagtultol@acieu.net

Russia's anti-trust watchdog fines Lukoil US$224 million

Wed, 11 Nov 2009 00:00:00 +0100

Russia's Federal Antimonopoly Service (FAS) said it fined the country's second-largest oil producer Lukoil 6.545 billion rubles (US$224 million) for abusing its dominance in the domestic wholesale oil products market in the first half of 2009. "The results of these actions were the stifling of competition and infringement of other entities' interests," the FAS said, adding Lukoil violated anti-monopoly legislation in the gasoline, diesel fuel and jet fuel markets.

The FAS has been monitoring Russian oil companies since the end of 2008, when the government criticized companies for maintaining artificially high oil product prices despite a sharp fall in crude oil prices in the second half.

Source: F+L Int.

PetroChina to add storage capacity in NE China

Wed, 11 Nov 2009 00:00:00 +0100

PetroChina, China's largest oil producer and second largest refiner, plans to add 1.04 million cubic meters of storage capacity for oil products in northern China during the 2009-2011 period, the website of its parent company CNPC said.

CNPC said PetroChina has started constructing storage tanks in Chengde city, Hebei province, with storage capacity of 380,000 cubic meters.

In the first nine months of this year, PetroChina expanded its oil products storage capacity by 1.50 million cubic meters.

Source: F+L Int.

Euro Rises Versus Dollar As Global Equities Rally

Wed, 11 Nov 2009 00:00:00 +0100

The euro saw strength against its lower-yielding rivals on Wednesday in New York as higher global equities boosted risk appetite. All eyes are focused on the U.S. interest rate decision later this afternoon.

The Federal Open Market Committee's decision is expected at 2:15 p.m. ET. Rates are expected to be left uchanged near zero for the foreseeable future, but traders will watch accompanying comments for clues on future moves.

The euro tested a weekly high against the dollar, moving above 1.4840. The European currency also drifted toward the 14-month high above $1.50 reached last month.

The monthly Automatic Data Processing report showed that non-farm private employment fell by 203,000 jobs in October following a revised decrease of 227,000 jobs in September. Economists had expected a loss of 198,000 jobs compared to the decrease of 254,000 jobs originally reported for the previous month.

The euro was little-changed near a six-day low of 0.8920 against the sterling. The pair moved near 0.8960 in the early-afternoon.

A UK consumer confidence index stood at 72 in October, unchanged from September's revised reading. The expectations index dropped to 106 from 108, while the present situation index climbed to 22 from 19. The spending index was stable at 103.

The euro drifted to a five-day high against the yen, touching as high as 134.96.

The Eurostat said in a report that Eurozone industrial producer price index or PPI dropped 7.7% year-on-year in September, compared with a 7.5% fall in the previous month. The September month producer prices came in line with economists' expectations.

The German Business Activity Index stood at 50.7 in October, lower than the flash estimate of 50.9 and 52.1 in September. A reading above 50 indicates expansion, while a reading below 50 signals a contraction.

In France, the Markit/CDAF Services Activity Index or services PMI increased to 57.7 in October from 53.2 in September. This was the highest reading in 20-months. Economists expected a reading of 57.8 for October.

Source: RTTN News

REACH: what it is and why the base oil community should care

Wed, 07 Oct 2009 00:00:00 +0200

By Peter Douben (REACHWise) & Joost Dekker (REACH ExpertDesk)

REACH: Registration, Evaluation, Authorization and Restriction of Chemicals

The new European REACH regulation (1907/2006/EC) entered into force on June 1st, 2007. The objective of REACH is to ensure a high level of safety when producing and using chemical substances in the EU. An additional objective of REACH is to “assure the free movement of chemicals within the EU market and enhance innovation and the competitiveness of the EU based chemical industry." At the same time, REACH streamlines the existing EU’s legislative framework on chemicals.

In practice, REACH gives industry greater responsibility to manage and reduce the risks that chemicals may pose to health and environment, thus changing the burden of proof from the authorities to industry more explicitly.

In order to prove safe use, a substantial amount of new information on substance properties is required. The requirement to obtain this information with a minimum of animal testing (specifically using vertebrates only as a last resort) has been built into the Regulation. To make this possible, a system has been set-up that enables the sharing of data among potential registrants while maintaining a certain level of confidentiality. Others who own data that they wish to share (the so-called “data-holders”) can participate in this process even though they do not need to register themselves.

As a result, REACH is considered to be one of the most complex regulatory changes ever to impact the chemical industry.

REACH impacts all companies that have dealings with chemical products
Industry has to prove safe use of the substances it puts on the market. This is done in a registration process that requires insight in (hazard) properties of substances, how substances are used throughout the entire supply chain (in all life stages) and what the exposure levels of humans and the environment are to these substances.
REACH therefore affects all companies that have dealings with chemical products: manufacturers, importers, downstream users and distributors. Depending on their roles under REACH, companies have different obligations.

REACH requirements are stricter on manufacturers and importers (who put the substances on the market) than on downstream users and distributors of these substances:

Manufacturers and importers with registration obligations have to collect data on physical chemical, toxicological and eco toxicological properties as part of the registration process. The quantity and nature of the data that needs to be collected depends on the production or import volume, the nature of the substance involved, its intended use and the resulting expecetd exposure of people and environment to those substances.

Downstream users and distributors have an obligation to communicate the information they have on use and exposure risks to their suppliers (producers/importers) and must take actions in implementing risk reduction measures communicated to them by their suppliers. In addition they have an obligation to pass safety information on risks to health and environment to their downstream customers.

Companies can have different roles, depending on the types of substances they use and the stage in the life cycle of the substances. A company can be a manufacturer or importer of one chemical, and a downstream user for another. Companies sometimes even have dual roles...

REACH is about substances
REACH is about substances physically manufactured in the EU (plus Norway, Liechtenstein & Iceland) or brought into it. REACH requires that all substances put on the EU market need to be registered, save some exemptions. Where deemed necessary, substances will be Evaluated, Authorized or Restricted: eligible substances that are not registered will not be allowed on the market.
As a result, substances will disappear from the market or will be restricted in their use.

Typical for base-oils/lubricants is that they are a mixture of substances (under REACH these are called “preparations”). In order to be able to continue to sell these preparations into the EU it is necessary to ensure all substances in the preparation are registered. When products contain hazardous substances, it is necessary to take into account the possibility that over time important components in the mixture will disappear from the market. This way REACH can have a direct impact on the performance and marketability of base oil trade products.

What does REACH mean for (global) traders of lubricants & additives?
As a buyer of an additive or a base-oil from a EU supplier, you don't have to register the respective substances. Your supplier has that responsibility. You do need to ensure that your intended uses for the substances purchased are covered by the registration of your supplier. This includes the uses of subsequent users downstream.

Downstream users have an interest in collaborating with their suppliers to ensure that their uses are covered in the registration. Depending on the diversity of uses within the industry sector, this can be more than a trivial exercise. A system of use descriptors has been prescribed to standardize this communication.

Non-EU suppliers exporting products to the EU have to take care that the substances in the products they trade are registered under REACH . No registration means no market, also for them.

Registration can only be done by a EU based entity! Non EU entities can assign an Only Representative to complete the registration. This relieves their importers from this burden but it also helps with ensuring that confidential business information remains that way: confidential. It simplifies the supply of information needed to complete the technical and safety dossiers required for registration.

To protect their business in the EU, suppliers may wish to assist their EU based registrant with his registration by providing information needed for the dossier (e.g. toxicological or environmental information, as well as safety data).
In comparison to producers, traders of products always have an additional challenge of obtaining the product data needed for the registration.

When a chemical substance is brought into the EU, and the importer is not contractually defined, the buying/purchasing company that brings the substance into the EU is most likely to become the importer under REACH. The company where the goods are delivered can become the importer under REACH. Ultimately the importer under REACH needs to register.

In general, products made up of substances that have been registered under REACH should be more valuable since they can be traded without further obligations into the EU.

When doing business in the EU, being “REACH compliant” provides a company a competitive advantage versus companies that are not. This requires having a good understanding of REACH and all the obligations that follow from the different roles a company can have.

For more information on REACH and direct access to REACH experts, please visit the REACH ExpertDesk at www.reachexpertdesk.com.

Crude Oil Rises for First Time in Four Days as Dollar Weakens

Wed, 23 Sep 2009 00:00:00 +0200

Crude oil rose for the first time in four days as the dollar declined, bolstering the appeal of commodities as a hedge against inflation.

Oil climbed 2.6 percent as the U.S. currency slipped to $1.4821 per euro, its weakest level since Sept. 23, 2008. Net crude oil imports by China, Asia’s biggest energy-consuming country, increased 18 percent to 17.92 million metric tons in August, the second-highest level on record.

“More than anything else, we are seeing a reaction to the incredible weakness of the dollar,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “Yesterday, the dollar strengthened and oil fell more than $2. Now the dollar’s plunged to the lowest level against the euro in a year and look what’s happened.”

Crude oil for October delivery rose $1.84 to settle at $71.55 a barrel at 2:42 p.m. on the New York Mercantile Exchange. Yesterday, prices declined $2.33, or 3.2 percent. The October contract expired today. The more actively traded November futures rose $1.83, or 2.6 percent, to $71.76.

The November contract retreated from the settlement after the American Petroleum Institute reported that U.S. stockpiles rose 276,000 barrels to 337.2 million last week. Oil was up $1.69, or 2.4 percent, to $71.62 a barrel at 4:32 p.m.

Oil has gained 60 percent this year on speculation fuel use will recover as the global economy emerges from the recession.

Higher Prices

“The market today is not based on physical offer and demand, but what they see as offer and demand in five, six years’ time,” Total SA Chief Executive Officer Christophe de Margerie said today in a Bloomberg Television interview in New York. “In the short term, it’s true there is oversupply. In the medium to long term, we see oil prices steady to say the least, with a risk to go to higher levels if we can’t meet demand.”

Futures for delivery in December 2015 rose $1.10, or 1.3 percent, to $86.66 a barrel in New York.

The U.S. Federal Reserve will keep its target rate for overnight bank loans at a record low of between zero and 0.25 percent following its two-day policy meeting starting today, a Bloomberg survey showed. Group of 20 leaders are meeting in Pittsburgh on Sept. 24-25.

“The G-20 and Fed meetings will potentially have a major impact on oil prices because of what they may mean for the dollar,” said Phil Flynn, vice president of research at PFGBest, a Chicago-based brokerage.

China’s net crude oil imports in August were second only to the record 19.2 million tons in July, according to data released by the Beijing-based Customs General Administration.

Asian Growth

“The Chinese are importing more oil than they need,” Flynn said. “Some is being purchased to build stockpiles and to meet future needs. They are also purchasing it as a hedge against the dollar.”

The Asian Development Bank said economic growth in the region, excluding Japan, will climb 3.9 percent this year, better than its March estimate of 3.4 percent, as China, India and Indonesia expand.

“The fundamentals, if anything, are still pretty weak and I don’t see a major turnaround,” said Guy Caruso, who was administrator of the U.S. government’s Energy Information Administration from 2002 until September 2008. “There are expectations that economic growth is returning, but at the same time production capacity has grown.”

The U.S. Energy Department may say crude oil supplies declined for a fourth week, according to analysts surveyed by Bloomberg News. Stockpiles fell 1.4 million barrels in the week ended Sept. 18, from 332.8 million, according to the median of 17 forecasts.

The Energy Department is scheduled to release its Weekly Petroleum Status Report tomorrow. The industry-funded API put out its own data at 4:30 p.m. today in Washington.

Excess Capacity

“There’s at least 4 to 5 million barrels a day of excess production capacity as we go into the winter season, which would usually mean pressure on prices,” said Caruso, now a senior energy and security adviser at the Center for Strategic and International Studies in Washington. “It appears the financial markets are prompting people to look at crude oil, and we may stay in a $60 to $80 range for the foreseeable future.”

Saudi Arabian Oil Co., the world’s biggest state oil company, sees little chance of pumping crude from idle fields next year because a recovery in world demand has yet to begin, its chief executive officer said. The kingdom has idled about 4 million barrels a day, according to the oil ministry.

Long Haul

“We’re prepared for the long haul,” Saudi Aramco CEO Khalid al-Falih said in an interview yesterday in Jeddah, on the Red Sea coast of Saudi Arabia. “We have the excess capacity in case it’s needed, but we also have the ability to sustain ourselves with production levels similar to what we see today at prices similar to what we have seen so far.”

Brent crude for November settlement rose $1.84, or 2.7 percent, to end the session at $70.53 a barrel on the London- based ICE Futures Europe exchange.

Oil volume in electronic trading on the Nymex was 331,246 contracts as of 2:52 p.m. in New York. Volume totaled 580,080 contracts yesterday, 7.4 percent higher than the average over the past three months. Open interest was 1.15 million contracts, the lowest since Aug. 20.

Source: Bloomberg.com (by Mark Shenk)

IEA predicts global oil demand to rise 1.7%

Tue, 01 Sep 2009 00:00:00 +0200

After a two-year slump, a rebound by 1.4 million barrels a day, or 1.7% in the global consumption of crude oil shall take place next year, according to the International Energy Agency (IEA). In its first 2010 forecast included in a monthly report, the adviser claimed a growth of 85.2 million barrels per day .The expected increase in worldwide demand for crude oil was based on the forecasts of major players in the industry. The extent of this predicted recovery will depend on the overall performance of the worldwide economy and crude oil prices, the IEA said. The agency’s forecasts were based on assumed China gross domestic product (GDP) growth of 6.5% this year and 7.5% in 2010.

Source: Oiltrends.Asia

Base oil Conference in Londen

Tue, 01 Sep 2009 00:00:00 +0200

European Base Oils and Lubricants
24th & 25th November 2009 - London, UK

Uncovering Trends, Discovering Opportunities and Meeting Challenges

Join ACI’s European Base Oils and Lubricants Summit 2009 in London, UK, to meet your industry peers and leading experts from oil majors, base oil and lubricant manufacturers, additive companies and technology providers as well as leading academics.

Hear the latest challenges and developments, discover the current economic trends and discuss the key challenges and opportunities in order to facilitate success and growth for the European base oil and lubricant industry.

Click here to download: FULL AGENDA

Speakers Include:

Alan Outhwaite, Chevron Global Lubricants
Paul Whitehead, Castrol Industrial Lubricants and Services
Dr. Suhair Abdelhalim, Ford Motor Company
Valentina Serra-Holm, Nynas
Apu Gosalia, FUCHS PETROLUB
Dr. Lou Honary, University of Iowa – National Ag-Based Lubricants Centre
Terry Dicken, European Lubricating Grease Institute
Graham Gow, Axel Christernsson
Jean-Claude Dufour, EUROLUB
Luca Raffellini, Kline & Company
Hans Thomassen, CEC
and many more…

The two day agenda includes:

·         European lubricant Industry trends
·         Supply base oils from Eastern Europe and Russia
·         Automotive lubricant specifications
·         The growth of bio-lubricants
·         Exploring the metal working lubricant market
·         Additive industry update
·         Forming successful relationships between base oil & lubricant manufacturers
·         The impact of REACH on the base oils & lubricants markets
and many more....

For the event website: CLICK HERE

TAKE ADVANTAGE OF OUR 15% EARLY BIRD DISCOUNT NOW!

For more information or to register
contact ACI by,

Calling Marisa Magtultol
On +44 (0)20 7981 2503
Emailing mmagtultol@acieu.net

We look forward to welcoming you on board!

GET YOUR EARLY BIRD DISCOUNT NOW:

Take advantage of the 15% Early bird discount, by booking before Friday 4th September 2009
OR
10% discount before Friday 18th September 2009

To claim your discount
Contact:
Marisa Magtultol
+44 (0)20 7981 2503
mmagtultol@acieu.net

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www.acius.net

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Yemen approves crude oil sales for July 2009

Thu, 30 Jul 2009 00:00:00 +0200

The Supreme Crude Oil Marketing Committee approved crude oil sales for the month of July to the highest bids presented by 13 international companies at an overall amount of 200,000 barrels of al-Masila oil, in addition to 305,000 barrels of Marib oil.

The report ensured a rise in the level of competition to secure bids, and that new companies have entered into the competition as well. It also mentioned noticeable increases in the companies' demand amounts, attributing this to the new, transparent policy approved by the committee, which ended negotiation processes with companies, and approved sales to the highest bidder.

It also reviewed the technical committee's report on the execution of May and June 2009 sales, which were based on the standards approved at previous committee meetings.

The committee praised the continued progress of the technical committee's performance with respect to improvements made in the amounts' presentation mechanism, invitations to bid, the quotations reception and analysis process, as well as the transparent identification of sales options and selling according to the best prices.

In a related context Yemen's oil export revenues have dropped off in the first quarter of 2009 to $254.8 million (about 74.5 percent), as compared to $ 998.8 million during the same period last year.

A report issued by the Central Bank of Yemen showed that the decline in oil revenues coupled with a decline in the government's share of the overall oil exports during the first quarter of 2009 caused a decrease in production from 10.4 million barrels to only 5.9 million barrels.

The report pointed out that the average price of crude oil was $43.1 per barrel, plunging from $96.3 per barrel in the same period last year.

The report also revealed a decline in foreign currency reserves in Yemen to about $7.4 billion by the end of March 2009, compared to $8.2 billion during the same time in 2008.

It should be noted that Yemen depends mainly on crude oil revenues, which cover about 70 percent of the resources in the State's general budget, 63 percent of the country's total exports, and 30 percent of the total gross domestic product.

Source: Zawya

the world today!

Fri, 03 Jul 2009 00:00:00 +0200

The EUR continued its advance against the USD yesterday, reaching its highest level in nearly a month. The European currency received an additional boost after the release of better than expected results from German Retail Sales. Since Germany is the largest economy in the Euro-Zone, it tends to have significant effects on EUR movements.

The EUR/USD pair hit as high as $1.4201 after the release of the U.S. ADP Non-Farm Employment Change report, which showed worse than expected results. However, the EUR/USD finished trading at 1.4115, whilst the the Pound Sterling was at $1.6464 from $1.6449.

Traders should pay close attention to the ECB Press Conference at 12:30 GMT as monetary policy and economic outlook will be discussed. Although the Interest Rate is expected to remain unchanged at 1%, the statement will provide insight to the Bank’s new covered-bond purchase program, as well as the progress of the quantitative easing program. This will provide direction for the EUR by possibly extending its recent gains.

JPY - JPY Gains against USD Ahead of Crucial U.S. Data Releases
The Yen gained against the Dollar ahead of the release of the U.S Non Farm Employment Change and Unemployment Rate which may show that unemployment in the U.S rose to the highest level in 25 years. To a certain extent, this spurred demand for the safety of the JPY. Traders should be aware that the USD/JPY pair will be the main pair to watch today as data is released from the U.S.

The Japanese currency has been suffering recently due to increased optimism and risk appetite among investors, who traded the relatively safe JPY for higher yielding riskier currencies. Although risk tolerance remains high in the market, worse than expected results from the U.S and Euro-Zone may help extend the JPY’s gains throughout the day.

Crude Oil - Crude falls Below $70 on Release of Inventories Data
Crude Oil fell by over $2.50, or 5%, to $69.01 a barrel on Wednesday. The drop came after the U.S. Energy Information Administration (EIA) released a report showing that Crude Oil Inventories are 18.3% higher than last year. Despite falling inventories in the past 4 weeks, demand continues to be weak, whilst supply remains abundant.

Despite recent gains in the equity markets and the continued weakness of the Dollar, Oil has had difficulties sustaining prices above $72. This is as demand continues to lag and inventories remain high. Today’s trading session may provide some boost to Oil prices as U.S unemployment data which is set to be released today may exacerbate the Dollar’s recent bearish trend.

GBP/USD
The cross finished yesterday’s trading in neutral territory, and relatively unchanged at 1.6464. If you look at the daily chart’s RSI, we can see that the pair is in the overbought territory, and a sharp downward move could occur anytime soon. Entering this trend at an early trade may turn out to pay off as Thursday’s trading gets under way.

USD/JPY
The pair currently stands at the 96.60 level. It seems that USD/JPY’s recent bearishness may be short lived, as the chart’s 4-hour RSI indicates that there is still steam left in the pair. Additionally, the chart’s daily Stochastic Slow signals that we may be facing an upward trend today. Going long with tight stops may be a wise choice today.

USD/CHF
The pair has experienced much volatility in recent days, range trading between the 1.0700 and the 1.0920 levels. The weekly chart’s Slow Stochastic signal the pair will go bearish today. Whereas the hourly chart’s MACD signals an upward trend to take place for the coming day. Entering the pair when the signals are clearer may turn out to be a wise choice today.

The Wild Card
Crude Oil has been hit badly in recent days, and currently stands at $69.20 a barrel. The daily chart’s Stochastic Slow supports a further bearish move for the commodity in today’s trading. This is also supported by the daily chart’s MACD. Going short with tight stops may turn out to be the safe bet for forex traders today.

Source: Forex Analysis

Some price recovery seen at the end of May

Thu, 18 Jun 2009 00:00:00 +0200

by Jeroen Looye

In May, most markets remained stable with prices showing some upward movement towards the end of the month, mainly due to the rise in crude oil prices. European FOB prices increased by US$90/metric ton (mt) for BS150 and US$65/mt for SN500 at the end of May.

Experts are predicting that the price of crude oil will exceed US$70 a barrel when stock levels fall and demand for crude oil further rises. Certainly, the overall trend for base oils is upwards and this will be seen in the feedstock values which are so important for base oil numbers.

Meanwhile, major Indian and Chinese refineries have increased their prices significantly. However, buyers were reluctant to accept these prices. The consumption level so far this year remained well below last year’s levels. Only a few transactions were seen in India, Africa and China. Deals were done for BS150 at US$775/mt CFR North China. Offers for Group II base oils were heard at US$660/mt CFR Keelung, Taiwan. In the Middle East, prices were quoted at US$585mt CFR for Russian material.

On the supply side this month, several refineries in Europe and Asia resumed production, such as S-Oil and SK Energy. On the other hand, several refineries closed for a turnaround in May. In Asia, GS Caltex was closed and in Europe, Repsol and ENI Italy closed their doors. They expect to re-start their production in June.

Since the gap between the prices of Group II and Group I is becoming smaller, it will be interesting to see when Formosa’s new Group II plant (with the capacity to produce 450,000 mt per annum) will enter the market next month.

The global financial crisis has also hit the shipping industry hard. The shipping industry has been hit by both supply and demand problems. At the moment, there is a surplus of carriers and also demand has fallen. As a result, ship owners cancelled orders for 260 vessels carrying commodities and containers. Outbound cargoes from Asia are still slow. Ship owners in the Far East are still waiting for better numbers; otherwise, they will not leave the region.

Rising Commodities Help Boost Stocks

Wed, 03 Jun 2009 00:00:00 +0200

Buoyancy in commodities, particularly oil, helps lift stocks overseas, with markets in Asia and Europe marking sharp gains. Those positive vibes are resonating in the US now, with premarket futures pointing to a strong open.

GM’s bankruptcy is old news as far as investors are concerned, though it’s probably cavalier to think there aren’t a host of ugly consequences lurking in the wake of GM’s bank-out.

Economic data calendar is busy this week; April personal income & spending due at 8:30am; April construction spending, May ISM manufacturing index set for 10:00am. May auto sales figures also due for release today. Also on tap this week: pending home sales, factory orders and May unemployment report Friday.

Source: Market Talk

Gazprom Neft establishes lubricants division

Wed, 03 Jun 2009 00:00:00 +0200

LLC Gazprom Neft- Lubricants, a subsidiary of Russian oil company JSC Gazprom Neft, will establish a business division in Omsk, called the Omsk Lubricants Plant, following a decision by the Gazprom Neft board. All the assets of the Gazprom Neft Omsk Refinery involved in the production and shipment of lubricants will be assigned to the new company. Gazprom Neft Lubricants is planning to introduce high-quality lubricants for the industrial and commercial sectors in 2009 through the upgrade of existing and construction of new production facilities. Meanwhile, the company also acquired an oil and lubricants production facility in Italy from Chevron Corp., which makes 30,000 tons of oil and six tons of lubricants per year. In accordance with a technology agreement, Chevron has handed over technical data and patent rights on production to Gazprom Neft Lubricants.

Source: Oiltrends

OPEC ideas with oil prices might change your mind

Tue, 02 Jun 2009 00:00:00 +0200

If the Saudi Arabian oil minister is right, and OPEC succeeds in jacking up oil prices well above the July, 2008 record of $147 US a barrel, what would you think?

Good for the Newfoundland and Labrador treasury?

Good for the environment?

Just the other day, a CBC news story quoted Ali al-Naimi as saying that oil prices could surpass the record by the year 2012. In a nutshell, a boon for the OPEC nations that comes with much trepidation and concern for the consumers in North America and indeed, worldwide.

Consider this...

As oil prices hit the record of $147.23 a US barrel last July 7th, consumers were also facing the elevated price of heating oils that hit close on $1.24 a litre. The record heating oil price came close to killing the local heating oil industry here, leading to some radical changes in the ownership of the local dealers. Some retailers sold out leaving the industry here dominated by big oil rather than being influenced by the mom and pop operation.

If OPEC succeeds in driving prices in excess of the old record, will OPEC also succeed in killing the heating oil industry? Will we see an enforced conservation because people simply will not be able to afford to buy heating oils?

What of the affect on gasoline or diesel prices?

No doubt that pricing for refined commodities would hit the roof. The fact that OPEC is even of this way of thinking is both alarming, and a foreboding of the possibility of things to come if you're a heating oil user.

I don't think there's any consolation in OPEC's way of thinking and the provincial treasury simply would not be able to keep up even though the treasury would like the influx of cash. The reality is that OPEC is stepping on insecure ground and it's actions like driving up the price of oil could do more to impact demand by the consumer.

They could end up sshooting themselves in the foot...

But really...Isn't it time that Canadians insulate themselves from OPEC?

Your thoughts?

Source: Gas and Oil

With Easy Oil Gone, Pemex Sobers Up

Fri, 08 May 2009 00:00:00 +0200

HOUSTON -- Thirty years ago, a fisherman saw an oil slick in the shallow waters off the coast of Mexico. The discovery would lead to one of the largest crude reservoirs in the world and a party keg for an impoverished country.

Production at Cantarell, as it was named after the fisherman, peaked at more than 2 million barrels of oil a day in 2004 and then began to fall sharply. It is expected to bottom out in three or four years, perhaps between 300,000 and 600,000 barrels a day.

Cantarell's decline has marked the end of an era of easy oil for Petróleos Mexicanos, or Pemex, as the state oil giant is called. Needless to say, Pemex needs to stabilize production, which today stands at 2.7 million barrels of oil a day, down from 3.3 million at its peak. The company, however, is realizing how soft its hands became by coasting through the late 1980s and 1990s, not investing enough in exploration, particularly in deep waters, where the future growth of Pemex rests.

"That was not the correct strategy," Carlos Morales Gil, Pemex's director of exploration and production, said during a speech here Wednesday at the Offshore Technology Conference. "We cannot stay dependent on one single reservoir anymore, even if it's very good. That is something that we have to keep in mind every day that we wake up."

It's impossible not to.

Pemex foots 40% of the country's budget. As major international and national oil companies like Brazil's Petrobras roam the globe in search of hydrocarbons and make record discoveries in ultra-deep water, Mexico has isolated itself by depending on Cantarell, sitting beneath just 180 feet of water in the Bay of Campeche. The storied reservoir fed a generation of social programs, but dependence on the field caused Mexico's national oil industry to fall behind the pack, not developing the ability to operate where geology is more complex, and more avant-garde and expensive technology is necessary. Offshore, Pemex hasn't produced beyond 300 feet of water, while the industry standard can be measured in miles.

"Now it's our time to restart these activities, and that is the challenge that we have today," Morales said, adding, "We have to also learn and apply new technologies."

Nicolas Borda, an attorney from Mexico City who specializes in energy law, said Pemex is some 20 years away from being a contender in deep waters. He and others, including Morales, have called for a relaxation of Mexican energy laws to allow joint ventures with companies that have expertise producing far-flung oil. "Otherwise, we will remain status quo forever," Borda said. "Right now [Pemex has] no idea in deep water."

For decades, Mexico's constitution has stipulated that the country's oil belongs only to its people, a fact leftist politicians have used to fan the fire of public opinion against allowing foreign companies in, saying oil left in the ground is like leaving money in the bank for Mexico's future children and grandchildren.

Foreign oilfield service companies like Schlumberger operate in Mexico, but major exploration and production companies are literally floating at the border, waiting to see if there is upside potential with the passage of new energy laws last year that were partly designed to address the fall in production. While the wording of new contracts must still be painstakingly matched to the constitution, the reforms permit Pemex to tap the technology of foreign oil services companies--finally opening Mexico to deepwater exploration of the Gulf--and to pay them incentives based on Pemex's success.

The new legal framework will allow more outside investment and permit Pemex to modify contracts once projects have already begun, rather than be bound by the confines of the original contract and technology expectations. However, the specific design of contracts under the new laws isn't clear yet.

"Pemex will align its objectives with the contractors' objectives," Morales said. "We will give incentives and flexibility as the main ingredients of the new generation of contracts." He said "if everything goes well," new contracts will be ready to be awarded sometime between the end of 2009 and the beginning of 2010.

George Baker, an analyst who follows Pemex at Houston-based Energia.com, said the national company faces an "impossible math problem" with the contracts because Mexico's constitution makes it very clear that foreign profits can't be tied to production. "The real question now is, 'What do you mean value?' and 'How do you want to measure value?" he said of the incentives.

Mexican discussion often turns to Norway and Brazil as models for Pemex. The countries have national oil companies with independent regulatory agencies; both allow private investment with compensation measured by conventional contracts.

Asked about Petrobras, which became largely independent after a minority offering of its shares in the 1990s, Morales said in an interview that there is no equal for Mexico.

"Petrobras is a model that has been used by the Brazilians, by the owners of Petrobras," he said. "The owners of Pemex have decided to keep Pemex as it is."

Petrobras produces 1.8 million barrels of oil per day, partners with oil companies around the globe and has made headlines for its offshore discoveries, particularly in the Santos Basin off Brazil.

"They became a largely independent company and had the freedom then to develop the technology and the commercial strategies that they needed," said Christopher Ross, a Houston-based oil and gas consultant and vice president at CRA International.

Ali Moshiri, president of Chevron Africa and Latin America Exploration and Production Co., said in an interview that Petrobras is "probably one of the best national oil, one of the best companies to work with in Latin America and outside Latin America."

In late 2007, Petrobras announced its giant Tupi discovery, which contains an estimated 5 billion to 8 billion barrels of recoverable oil and gas. It is 180 miles offshore and three miles down, below obstacles like 7,000 feet of water and a sub-salt structure a mile thick. At nearby Iara, there is another estimated 3 billion to 4 billion barrels of oil and natural gas.

Brazilian President Luiz Inacio Lula da Silva has basked in the promise of the country's new oil wealth, pledging to use the resources to fight poverty and bolster education. On May 1, as Petrobras announced the start of an extended well test at Tupi, Lula reportedly told a crowd, "This is a second independence for Brazil."

It's often asked of Pemex if Petrobras would be a likely partner to exploit Mexico's deep waters. "Of course they have experience," said Pemex's Morales, "and they will be made very welcome if they want."

Of course, on Pemex's terms.

Source: Forbes.com

Oil rises above $57 on economic recovery hopes

Fri, 08 May 2009 00:00:00 +0200

Oil prices rose above $57 a barrel Friday in Asia as investors bet that a year-end recovery in the global economy will boost oil demand.

Traders have shaken off weeks of dismal economic news amid signs that the slowdown has eased and a recovery could gain steam by the end of the year.

"Market psychology has clearly turned around," said Christoffer Moltke-Leth, head of sales trading for Saxo Capital Markets in Singapore. "I could see oil going above $60."

Benchmark crude for June delivery was up 68 cents to $57.39 a barrel by late afternoon in Singapore, in electronic trading on the New York Mercantile Exchange. On Thursday, the contract rose as high as $58.57 a barrel, a six-month high, before settling up 32 cents at $56.47.

Until this week, oil had traded in a range near $50 a barrel since the end of March as investors looked for evidence that the U.S. economy had stabilized after a severe recession in the fourth and first quarters.

On Thursday, several U.S. retailers, led by Wal-Mart Stores Inc., reported better-than-expected April sales, and new applications for jobless benefits fell to the lowest level in 14 weeks, signaling a wave of layoffs may have peaked.

Still, some traders are skeptical that the recent run-up in prices is warranted, given the slump in consumer demand and surging crude inventories. The International Monetary Fund forecasts the global economy will shrink 1.3 percent this year.

"I think the market has gotten a little ahead of itself," Moltke-Leth said. "The fundamentals don't support this recent rally."

Investors will be watching for the monthly U.S. jobs report for April. The unemployment rate rose to 8.5 percent in March, the highest since 1983.

"It's like the market is saying, `Hey, we're not in free fall anymore, that's good.'" Moltke-Leth said. "But you still have an economy contracting and more people unemployed, and that will continue for a long while."

In other Nymex trading, gasoline for June delivery rose 3.44 cents to $1.70 a gallon and heating oil gained 3.22 to $1.52 a gallon. Natural gas for June delivery jumped 5.2 cent to $4.13 per 1,000 cubic feet.

In London, Brent prices rose 81 cents to $57.29 a barrel on the ICE Futures exchange.

Source: Businessweek.com

Oil weak as demand fears remain

Fri, 17 Apr 2009 00:00:00 +0200

The price of oil remains weak, at just under $49 a barrel, amid Opec warnings of falling demand and reports of high inventories.

US light crude was down 42 cents at $48.99 a barrel, after three days of falls. Brent oil fell 54 cents to $51.42 a barrel.

The oil producers' cartel said demand was shrinking faster than expected.

Oil prices have slumped since hitting a record high of more than $147 a barrel in July last year. Prices dropped below $40 a barrel late last year.

Crude stocks reached 366.7 million barrels in the US, according to government data, the highest total since September 1990.

At the same time, Opec forecast that demand would drop by 1.37 million barrels per day this year - greater than the 1.01 million barrels per day originally forecast - to average 84.2 million.

"In the coming months, the market is expected to remain under pressure from uncertainties in the economic outlook, demand deterioration and the substantial overhang in supply," Opec said.

Retail sales dropped 1.1% in March in the US, according to a government report released on Tuesday, renewing fears of a slowdown in demand.

"Crude fell on the back of weaker-than-expected March retail sales, which also dragged on equities, and the main worry is still the large weekly increase in crude inventories," said Peter McGuire, managing director of Commodity Warrants Australia.

There is as yet little sign that demand is picking up, said Ben Westmore, energy analyst with National Australia Bank. "Demand will have to come back before you see the oil price move up from $50 in a sustained way," he added.

Last week, the International Energy Agency predicted that the global recession would cut demand for crude this year, with world oil demand falling by 2.4 million barrels a day to 83.4 million barrels.

Separately, Mexico's state-owned oil company Pemex has unveiled plans to built its first new refinery in 30 years. The $9.1bn (£6.1bn) refinery is expected to come online in 2015.

Even though Mexico is the world's sixth-biggest oil producer, it relies on US refineries to process a lot of its crude.

Source: BBC

Oil market acting more like currency

Thu, 16 Apr 2009 00:00:00 +0200

The dollar got up off the mat and the industrial commodities paid the price. The confidence that was creeping back into the marketplace seemed to be shaken a bit in yesterday’s trading session.

Talk that the International Monetary Fund was getting ready to sell about 450 billion dollars in gold reserves sent safe haven gold buyers scurrying to the dollar. The resurgent dollar and the fact that oil supplies are again expected to rise had oil back to test the $50 a barrel breakout point.

The oil market still is acting more like a currency than a commodity. It responds more to the stock-market and global currency moves than it does to stories of weakening demand and rising supply.

Currency values and perceived balances and imbalances seem to be the major factor controlling the price of oil. Today The Financial Times reports that the Federal Reserve has lined up almost $300 billion of Euros, yen, pounds and Swiss francs to lend to US based banks if necessary to meet foreign currency needs.

Officials see it as a precaution to strengthen their capacity to respond to any further pressure. The Wall Street Journal is reporting that the Swiss National Bank, SNB, said Monday it has expanded its existing swap arrangements with the U.S. Federal Reserve. Should the need arise, Swiss francs would be provided to the Federal Reserve via these swap arrangements, the SNB said. The swap line enables the Federal Reserve to draw Swiss franc liquidity of up to 40 billion Swiss francs ($35.39 billion) against U.S. dollars when needed. Is the Fed worried about a run on dollars?

As I have said before, optimism in recent weeks has the market seeking the same type of strategies that helped inspire the oil run to record highs. The yen carry trade and the euro versus dollar relationship is all making oil just a pawn in the greater global economic game. As the Fed and the EU battle to save the economy the renewed confidence is bullish oil. Not because we will use that much more right away but we may see the dollar get hammered as traders look for places to park their carry trade profits. And if the dollar will stay weak then what better place to speculate but right into the oil market.

Lower oil prices are still having an impact on lowering production. Dow Jones reports that Total SA may delay its investment decision costs in Canadian oil sands. The French oil major holds a 74% interest in the oft-stalled development and had previously intended to make a go-ahead decision in early 2010. Dow says that developing Alberta's vast oil sands resource - the biggest hydrocarbons basin outside Saudi Arabia - is an expensive process with major up-front capital costs.

But as oil prices sank more than 70% and North America's economy seized up at the end of last year, a number of proposed projects have been delayed or cancelled, relieving some of the inflationary pressure. Several companies are now rethinking their oil sands plans to take advantage of lower costs.

Our barrel is running over! Tonight the API will tell us by how much! A Bloomberg News survey expects that crude oil supply will increase by 1.25 million barrels in the week ended April, 3 from 359.4 million the previous week. Refinery runs flat at 81.7 percent of capacity. Gasoline stockpiles probably dropped 1.5 million barrels from 216.8 million the prior week. Supplies of distillate fuel probably declined 350,000 barrels.

We're long May crude from apprx 5075 - stop 4890.

Source: Commodityonline.com

There is Plenty Of Oil (For Now)

Sat, 28 Mar 2009 00:00:00 +0100

Real-time Inflation Indicator (per annum): 8.7%
Stocks and the petroleum complex held hands this week as both markets skipped onto higher ground. Equities have been leading the way, providing a gauge of economic confidence for oil traders. It shouldn't be surprising, then, that last night's weakness on the equity bourses put pressure on oil prices. Oil slumped throughout the night, seeing its only bullish sparks on short covering near the open of day-session trading.

Crude prices rose nearly 10% over the past week despite significant inventory building. Given the buildup in oil supplies, the price hike's gotten pundits' and traders' tongues wagging, wondering if current market fundamentals justify the rally. U.S. oil stocks are, after all, near capacity and fast approaching highs set in boom-time 1993.

This week's U.S. Federal Reserve announcement of quantitative easing fueled oil's rally further, propelling nearby NYMEX oil futures through the $50 mark.

Also driving last night's selling was the market's digestion of data from the American Petroleum Institute showing a 4.6-million-barrel crude oil build last week. Oil analysts surveyed by Platts had earlier forecast a much more modest 1.4-million-barrel add.

Crude oil inventories, according to this morning's report from the U.S. Energy Information Administration (EIA), showed a 3.3-million-barrel increase last week. Total motor gasoline inventories dipped 1.1 million barrels, slightly more than expected, while distillate fuel inventories fell by a whopping 1.6 million barrels, more than seven times the anticipated drawdown.

Refineries operated at 82% of capacity, just slightly below expectations, cranking out less gasoline and distillate fuels than the previous week.

NYMEX traders telegraphed their apprehensions about production, moving heating oil prices higher and buoying margins yesterday. Refining mixes appeared to tip into a spring pattern when heating oil cracks surpassed parity with unleaded gasoline on Tuesday's three-penny jump in oil prices.

Crude oil stocks at the NYMEX delivery point at Cushing, Okla., fell 2.2 million barrels, or 6.4%, last week. The nearby quarterly NYMEX carry improved by 48 cents a barrel Tuesday. Over the past trading week, carry averaged $1.96 a barrel, five cents better than the previous week.

By the numbers, oil's demand picture hasn't brightened much yet. Currently, gasoline demand is running 0.7% higher than year-ago levels, but the country's thirst for distillate fuels – including heating oil and bellwether diesel – has slackened 9% according to the latest EIA figures.

OPEC production cutbacks alone may not be enough to bolster oil's price, especially if cartel members are tempted to claw back lost revenue by cheating on their quotas.

Since last week's volume spike, trading activity in the nearby May NYMEX crude contract has slowed, perhaps signaling new buyers' shyness about current prices. Momentum, though, remains technically strong. There's resistance at $56.17 and support at the $50.60 level for May futures.

Out-of-the-money call spreads on March 2010 crude suggested by Stephen Schork's recent interview (see "Oil Spreaders Heed Schork's Call") have gained 93% over the past three weeks

Source: Hardassetsinvestor.com written by Brad Zigler

The Tables Have Turned on Big Energy Players

Wed, 25 Mar 2009 00:00:00 +0100

Oil companies, energy-exporting nations, and sovereign wealth funds will lose power as they try to maintain liquidity and financial flexibility.

Less than a year ago, the price of oil was close to $150 per barrel and many oil and natural gas producers were riding high with strong ratings and record profits. At the same time, nations whose economies were tightly tied to energy prices saw increasingly favorable trade balances. Those inflows also fueled the growth of powerful sovereign wealth funds that became major global investors. The oilfield services companies also profited from the boom, as demand for rigs and drilling services stayed strong.

But by mid-March of 2009, oil had been knocked down to roughly one-third its 2008 peak price, with similar steep declines for natural gas. Making matters worse for oil and gas producers, the world has also now settled in for what looks to be a wide, unexpectedly deep, and possible lengthy recession.

For energy producers, the tables have clearly turned. Oil-importing nations, some energy-intensive industries, and individual consumers can expect relief while oil prices remain low, but Standard & Poor's Ratings Services believes this global economic slump will be a time of stress for oil and gas producers—especially speculative-grade exploration and production companies—and to some degree, for sovereign wealth funds. Many speculative-grade U.S. oilfield services and drilling companies are facing a severe downturn in earnings and cash flow, and in February we revised the outlook on 11 of these companies to negative and lowered the ratings on three. Moreover, we believe this downturn may cause us to revise ratings on some sovereigns themselves—although even for countries that depend most on oil, energy prices are just one factor that influences sovereign ratings.

The long-term outlook for energy is undeniably strong. The mega-economies of India and China will again start pushing forward and driving up demand. The industrialized nations will once more begin to grow, and the global economy will eventually rebound. But until that day arrives, many oil producers can expect they won't be calling the shots the way they did a year ago, as they seek to maintain liquidity and financial flexibility in an era of low prices and less certain access to credit. In our opinion, that will make 2009 a crucial year for them.

Europe May Fare Worse Than the U.S.
This year and 2010 will be difficult for major producers. We believe the ratings of the big, integrated, Western European producers—BP (BP), Royal Dutch Shell (RDSA), Total SA (TOT), and Eni SpA (ENI)—could come under pressure as a result of continuing large dividend payouts and high levels of capital expenditures. In an era of low oil prices, such spending might limit their financial flexibility to a degree we don't expect to see at their U.S. counterparts—ExxonMobil (XOM), Chevron (CVX), and ConocoPhillips (COP)—which are less generous in dividend payouts. Taken together, we expect the four European majors to pay out nearly 40% of their funds from operations in dividends this year.

The big Russian producers OAO Gazprom and LUKoil OAO could also encounter difficulty. Although we've a stable outlook on LUKoil (as we have on the European and U.S. majors), LUKoil and Gazprom will be vulnerable to steep drops in refining profits in 2009 as a result of Russia's economic weakness. Our pricing assumptions for Russian oil, at $38 per barrel (bbl), are also lower than the $40 per barrel benchmark we're using for 2009 in our analysis of European and U.S. producers.

Russian producers will have significant refinancing needs this year. Finding access to capital from international sources will generally prove more difficult than from domestic ones, and to the extent that producers can tap local capital, they will have an easier time coming through the downturn. But the potential for a negative free cash position at Gazprom is, in part, why we've already assigned it a negative outlook.

One major factor in the Russians' favor, however, is the ruble's devaluation. Along with lower industry costs, this will help see Russia's producers through the downturn. In addition, favorable tax changes, including the lowering of the Russian corporate tax rate to 20%, from 24%, will also boost cash flow at Russian companies.

Sovereign Wealth Funds Are More Cautious
Last year it seemed as if the sovereign wealth funds—nationally owned and controlled investment companies that bought stakes in both foreign and government-owned enterprises—would never stop growing. These funds, many of which are in big oil exporters such as Russia, Kuwait, Abu Dhabi, and Norway, invested in a swath of U.S. financial firms, including Merrill Lynch (MER), Citigroup (C), Morgan Stanley (MS), the Blackstone Group (BX), and Lehman Brothers.

Now that many of those investments have nose-dived in value, sovereign wealth funds are far more cautious about investing than they were a year ago—and the recession is just adding to their pullback. We expect that, because inflows from oil revenues are falling at many of these wealth funds, they'll invest more in their home countries, providing economic stimulus to the local economy or financing to state-owned industries. Such investment can reduce or even eliminate the need for companies to raise more difficult-to-find capital. These funds are also propping up deteriorating currencies, and they can help mitigate banking turmoil, as they're now doing in Russia.

Oil Prices and the Sovereign Rating
It's important to remember the price of oil has no direct link to a sovereign rating. Big oil-exporting nations have such a variety of other factors in play that we can't simply say that if the price of oil goes down, so will the sovereign rating. Nations whose economies are closely tied to oil revenues can still withstand this falloff with little to no rating damage if other important factors are in place. These factors include political stability, a nation's overall wealth, and structural fiscal and economic factors.

We can show how this works by looking at the four nations whose heavy dependence on oil production makes them most vulnerable to falling prices: Bahrain, Saudi Arabia, Azerbaijan, and Nigeria. Their sovereign ratings range from AA- (Saudi Arabia) to BB- (Nigeria). These countries are most at risk because of their relatively narrow economies, exports, and revenue streams. Yet their ratings range from investment grade to speculative grade, largely because of the other factors in the mix, including differences in geopolitical risks, overall economic development, and political stability.

A New Era for Producers and Exporters
Perhaps there is no other industrial sector as crucial to the world economy's well-being as oil and natural gas. But the global economy is weak and so is the demand for these resources. As the beneficiaries of last year's high oil prices head into a future of lower revenues and for some, possibly lower ratings, Standard & Poor's will continue to monitor how the players in the world's energy business are adapting in an economy so different than what existed a year ago.

Source: Businessweek.com by R. McNattt

Euro Falls Versus Dollar as EU Prepares to Double Crisis Fund

Wed, 25 Mar 2009 00:00:00 +0100

The euro fell against the dollar as European Union leaders prepared to double a credit line for member states in financial distress.

The euro slid from near a two-month high against the U.S. currency after European Commission President Jose Barroso said leaders may agree today to boost the amount of cash for struggling countries to 50 billion euros ($68 billion) from 25 billion. The dollar rose as some traders bet the slump this week stoked by the Federal Reserve’s plan to start buying Treasuries was overdone given the outlook for the U.S. economy.

“Investors are concerned that such a bailout would be a liability for the European Union, especially the euro zone,” said Geoffrey Yu, a London-based strategist for UBS AG, the world’s second-largest foreign-exchange trader. “Any rescue would be positive for risk appetite. But if the euro zone is bearing the cost alone, it will be seen as euro negative.”

The euro declined to $1.3569 as of 7:39 a.m. in New York, from $1.3665 yesterday, when it touched $1.3738, the strongest level since Jan. 9. The single currency advanced 4.9 percent versus the dollar this week. The dollar strengthened to 95.51 yen, from 94.51 yesterday. The yen was at 129.55 per euro, from 129.17 yesterday.

Increased funds for beleaguered economies will show “solidarity” with EU members that haven’t yet adopted the euro, Barroso said at the leaders’ two-day summit in Brussels. French President Nicolas Sarkozy backed the increase because of the higher risks of financial stress in central European countries, a French official told reporters. Eight of the 11 eligible countries are in eastern Europe.

Source: Bloomberg

How Do You Buy Spot Oil?

Tue, 24 Mar 2009 00:00:00 +0100

The first question to ask is, which oil? West Texas Intermediate (WTI)? Brent Crude? Russian? Saudi Arabian? Oil from Dubai? The OPEC basket price?

The U.S. Energy Information Administration (EIA) does a nice job collecting the weekly average spot oil prices from countries all over the world. Maybe that's what you're looking for?

For most people, what they mean when they say "oil" is the oil they hear about on the nightly news or read about in the Wall Street Journal. If that's the case, they're not talking about spot oil at all. Instead, they're probably referring to the price of the "front-month" oil futures contract trading on the New York Mercantile Exchange. That contract covers the price of West Texas Intermediate-grade oil, delivered on a specific date within the next month to a transfer hub in Cushing, Oklahoma, and it is the de facto reference for oil prices in the U.S.

If you are reading the latest "This Week in Petroleum" from the EIA, you'll notice that they have data not only on spot prices, but prices on four different futures contracts. That's because they recognize that in the world of oil, spot and future are inextricably tied in the minds of the media.

What is the spot price?

The spot price is what you would fork over to take physical delivery of that oil today. The EIA defines it as:

The price for a one-time open market transaction for immediate delivery of a specific quantity of product at a specific location where the commodity is purchased "on the spot" at current market rates.

The spot price is relatively unimportant in global oil markets. Most refiners purchase oil with the help of long-term contracts, either one-off privately negotiated contracts or contracts from an exchange.

But the idea of spot price is one that fascinates investors - everyone is intent on trying to invest in something that tracks "the price of oil" as closely as possible. Why? To counteract that pesky profit eater - contango.

As we cover in Hard Assets University, contango has a huge impact on investors in oil futures contracts. Contango is the situation where the "out-month" contracts are more expensive than the "near-month" contract. When that's the case, there are real costs to allowing a contract to roll forward into the next month's contract.

In fact, contango can turn rising oil prices into a loss if it is steep enough. Just a few months ago, the contango in oil was so severe that simply investing in the front month created a 15% monthly headwind. That spurred a lot of emails asking how to access spot oil, as investors in oil futures saw their investments lag further and further behind oil itself. By investing in something that tracks the spot price of oil, an investor would gain (or lose) on the movement of oil itself - not on the need to roll a contract over at the end of the month.

As we have talked about before, there are many exchange-traded funds (ETFs) that focus solely on oil. Each ETF is structured slightly differently depending on the futures contract it holds, but all aim to give investors an easy way to invest in oil.

Because of this, as you would expect, each of the ETFs are closely correlated with spot oil prices.

But what does a correlation tell you? A perfect correlation of 1 means that when the price of one entity goes up, the price of another also moves up. A correlation of zero means that when the price of one entity goes up, the other price moves randomly. Negative correlations mean the two are mirror images.

But what correlation does not tell you is the amplitude or investability of those correlations. For example, if the price of oil goes up from $10 to $20 and temperature goes from 80 to 82 degrees on a given day - that would be a perfect correlation of 1. Personally, I'd much rather make ten bucks off oil than be a little warmer.

The oil ETFs are all highly correlated with the spot price of WTI oil, which makes sense. It would be surprising to find any long asset that connected to petroleum that consistently went up on the same day oil went down. The more important question is how these investable alternatives have performed versus a hypothetical investment in in-tanker spot oil.

Quite a wide range in returns - some performing better, some performing worse - some even doing both depending on the time frame you look at, but none exactly tracks spot's return.

There is a simple reason the ETFs don't exactly track the price of spot oil - they all use the futures market to trade in oil, and futures prices, by definition, are not spot oil. As a futures contract comes close to its due date, if all goes according to plan, its price can approach (or converge) on spot. But the futures price starts either higher or lower than spot, meaning that the market values future oil more or less than oil it can take delivery on today. And that difference impacts returns.

Each ETF has its own approach to deciding which contracts to hold and when those contracts must roll to the next contract. These variables open the ETFs to the effects of backwardation and contango.

The chart below was created by taking four different futures contracts and subtracting spot price from each on a daily basis. If the difference is positive (the future price is higher than spot price), the futures curve was in contango. If the difference is negative (the future price is lower than spot), the futures curve was in backwardation.

During the past two years, oil futures have switched back and forth between contango and backwardation. Logically, the front-month contracts show the least effect of both backwardation and contango - with usually only a few cents between the front-month contract and spot. But this doesn't always hold true; for example, on December 22, 2008, there was an $8.81 difference between spot and the front- month contract.

It is also interesting to note that while contango isn't new, this past fall saw some of the steepest contango we've seen in the past two years.

Solutions?

Ultimately, there may be no magic solution for getting the price of OIL, not OIL FUTURES, into your portfolio.

One option, which had iffy results the last time around, is the MacroShares Oil Up (and down) ETFs (UOY and DOY, for up and down, respectively). Instead of holding actual futures contracts, they hold promises-to-pay: The up fund promises to pay the down fund for any dollar change on the price of a barrel of oil, and vice versa, as measured by the front-month futures contract.

In theory, despite the fact that the word "futures" is in the description, Macros should provide something closer to the real return of the daily spot-price change in oil compared to an ETF simply rolling the front-month contract over and over again. It should also - again in theory - avoid the contango issues, since it never actually rolls anything; rather, the two funds simply exchange assets based on the daily dollar change on whatever the front-month contract happens to be.

The gigantic caveat is that there is no active arbitrage mechanism that forces the Macros to stay close to the price of oil, at least in the short term, so they often trade at large discounts or premiums to the reference price. Right now, they are trading at a 10% premium each to their reference price, so again, you can't count on them to track spot crude perfectly.

The Macros are scheduled to be liquidated on December 27, 2013. On that day, investors in the funds will be paid out based on the price of the February 2014 oil contract. That should be relatively close to the "spot" price of crude at that time, so if you wait long enough, you should get what you're looking for. In the interim, however, the returns may vary.

As investors (not necessarily traders), we need to step back once in a while and think about what we're really trying to capture. It's nice to think about the spot price of oil that we hear about on the news. But in the case of oil, the front-month contract may simply be the best economic proxy we can get.

Source: Hardassetsinvestor.com

OPEC: As Irrelevant As Ever

Thu, 19 Mar 2009 00:00:00 +0100

Oil markets on Friday had something to look forward to this weekend – the Organization of the Petroleum Exporting Countries met at the modest Hofburg Palace in Vienna to discuss quotas, prices and the general meaning of life. In the end, even though countries such as Algeria and Libya had signaled the need for further production cuts in the days leading up to the meeting, OPEC balked, and left production levels alone.

With the decision made Sunday, OPEC is counting on the previously planned cuts to make a difference in oil prices as the effects slowly travel through the system. Back in December, the members of OPEC agreed to the second of two production cuts, totaling 4.2 million barrels per day based on September 2008's output. At Sunday's meeting, OPEC was much more concerned with compliance with those cuts than with cutting production any further.

At this point, OPEC estimates that they have roughly an 80% compliance rate to the production quotas that were set back at the end of 2008. That means approximately 80% of that 4.2 million barrels per day (or 3.36 mb/d) are not being produced, out of a peak 32 mb/d at OPEC's peak production:

It's worth noting that these cuts put it back around 2002 production levels (29 mb/d), an anomalous year. More realistically, production in the 27 mb/d range sends us back to the mid-90s. Kind of like the stock market.

It is thought that some countries, such as Saudi Arabia, have cut more than required, and others still have cuts to make. But of course, a lot of these numbers are estimates, and all analysts have their own estimates on how good compliance really is. From an article by Rachel Ziemba, an analyst with RGE monitor:

"Compliance has been good among the other Gulf Arab countries, the UAE, Kuwait, and Qatar, all of whom are estimated to have implemented around 85% of their agreed output cuts. After that, the Nigeria and Libya have implemented 60-70% of the cuts, while compliance by Algeria and Angola (the newest OPEC member) is estimated to be between 50-60%. And bringing up the rear – Iran, Venezuela and Ecuador are expected to have implemented only 40% of the cuts."

Most analysts agree that an 80% compliance rate is considered quite good compared with compliance to earlier cuts.

So here we are, OPEC producing about 3.36 million barrels per day less currently than it was in September – and oil prices have settled into a somewhat steady level of $35 to $45 per barrel.

OPEC members can't be happy about that – but they are in some ways stuck between a rock and a hard place. Yes, oil prices are low, but they could be worse. Compared to December 22's closing price of $30.81, Friday's close at $46.25 is manna from heaven. And yes, the countries would love to see higher oil prices – in fact, many of their budget projections call for oil above the $50 mark. But demand is surprisingly low ...

There's also a bit of self-serving altruism here. Given the economic times, higher oil prices could spell further economic disaster. That's not good for anyone, and it could kill demand longer term.

Since the market has already priced in the 4.2 million bpd cut, if OPEC can get all of its member states to comply, supply should tighten up, and that might nudge up prices without making OPEC look like even more of a global bogeyman. A recent article by Reuters states:

On the basis of the IEA's current market snapshot, full compliance would take OPEC output a hefty 1.6 million bpd below 2009 demand for the producer group's oil, the IEA, which represents consumer nations, said in a monthly report.
"Our view is that OPEC's current targets, if they comply with them fully, will begin to tighten the market quite sharply from late in the second quarter," said David Fyfe, head of the oil industry and markets division at the IEA.

OPEC supplies about 40% of the world's oil, with Saudi Arabia as the largest producer. The second-largest oil producer is non-OPEC member Russia. 40% is a large amount of oil under OPEC control, but the point is that there's still a lot of global production OPEC can't touch.

But Russia too is cutting production. The Russian Deputy Premier Igor Sechin said that Russia would cut oil exports, along with expanding oil refining and increasing domestic consumption. Russia will also be delaying bringing new supply online by delaying development of two oil fields. He also told OPEC that production had already decreased by 1.9% for January and February of this year. But there is some doubt that those decreases were intentional – consensus among analysts is that the decrease is all about decaying infrastructure. It's really the classic unintended consequence of low prices – nobody wants to invest.

Even if it is just spin, with Russia looking to make nice with OPEC, European countries may start getting jumpy. Russia has shown a predilection for using oil and gas exports as political levers, and this theoretical alignment with OPEC may mean Russia's export decreases take on a stronger meaning besides just helping to support oil prices.

But then again, a 1.9% decrease in supply from Russia just isn't that much when the IEA has lowered global demand to 84.4 million barrels a day -1.5% less than 2008. It was the seventh month in a row that the IEA has lowered its demand forecast, calling the demand collapse "staggering."

So that's today's picture: a glut in worldwide stocks; real, meaningful declines in demand; cuts already in place. It's hard to make a short-term prediction that's not "more of the same." Until stocks come down and demand picks up, there doesn't seem to be the political will even on the part of the world's largest producers to close down the pipes to bring up the world price of oil.

Source: Hardassetsinvestor.com (by Julian Murdoch)

Crude Oil revenues to plunge drastically in 2009

Thu, 05 Mar 2009 00:00:00 +0100

As the onslaught of grim economic news continued, oil markets saw crude oil prices declined by nearly 10% during the first month of 2009. Waning energy consumption and rising stockpiles depressed energy prices considerably.

However, oil prices last month received some support from the geo political tensions (the conflict in the Gaza strip) and the Russia – Ukraine gas dispute. OPEC’s decision to cut output further, also controlled the downward slide of prices. Crude oil prices in January declined by over 55 percent from year ago levels and lost over $100/barrel from the peaks touched in July’08.

The benchmark crude oil prices i.e. the Brent blend crude oil and the West Texas Intermediate (WTI) were in the $40 -$45 range for the most of January.

Demand
Oil markets have been flushed with a steady stream of negative demand data. Oil demand in the U.S, the world’s biggest consuming country, has fallen to record lows. Fuel consumption in the U.S. reportedly fell by nearly 5% to around 19 million
barrels per day in January. Demand in OECD countries has been continuously deteriorating owing to the fall in exports. Asian countries such as Japan and China too are witnessing large scale decline in exports which has in turn lowered their fuel
consumption.

The oil demand forecast for 2009 has been revised lower reflecting the worsening global economic situation. The IEA has projected global oil demand to be 84.7 million barrels/day, 1 million barrels/day lower on year-on-year basis. Domestic consumption growth forecast too have been reduced by 1% to 4% for 2008-09.

According to the Centre for Monitoring Indian Economy (CMIE), the country’s consumption of petroleum products is likely to see moderate growth in the coming months on account of the economic slowdown that has impacted the auto and industrial sector of the country.

Although many analysts have been speaking of demand revival, oil traders have been increasingly skeptical of the revival of fuel demand in the immediate future. They on the contrary expect consumers and businesses to cut back spending further in the coming month. The weak economic outlook is weighing on market sentiments.

Oil Stockpiles
The deteriorating world economy has led to a significant fall in global oil consumption which has in turn led to a massive build up of crude oil inventories. The OECD reportedly has stocks to the tune of 57 days of forward cover. The growing consumer and industry stockpiles have been weighing on oil prices, which is a cause of worry for oil producers viz. OPEC.

The oil cartel is of the view that the growing stock levels is likely to disrupt the overall stability of the oil markets. The build up of supplies at Cushing, Okhlahoma, where the U.S. benchmark grade the West Texas Intermediate is stored has resulted in the benchmark trading at a discount to the Brent blend.

Historically, the WTI, the superior quality crude oil, has traded at a premium to the Brent blend crude oil.

The governments of China and US are taking advantage of the fall in prices to fill their strategic oil reserves. The US Department of Energy aims at filling its reserves to the full capacity of 727 million barrels.

Oil Earnings
The revenue earned from oil exports of producing countries is forecast to fall drastically this year. According to the US Energy Information Administration, OPEC’s oil export earnings in 2009 is projected to be $402 billion, less than half of the $971 billion earned in 2008. The collapse in oil prices in the last few months has so far reportedly resulted in $356 billion in lost revenue for OPEC, producers of 40% of the world’s oil.

Futures Market
The futures market saw some revival at the start of the year owing to the geo-political tensions in the Middle East and the Russia – Ukraine gas dispute. However, market sentiments reversed on account of the gloomy economic outlook pointing to slower oil demand growth. On NCDEX, traded volumes in January increased by 7% on a month-on-month basis. 61,95,900 barrels of Light Sweet Crude oil were traded on the exchange during the month.

Source: Commodity Online by Kavita Chacko

Oil's Carry Trade In Trouble?

Fri, 20 Feb 2009 00:00:00 +0100

This week's oil inventory report seemed to justify traders' short covering in the overnight markets. Oil stocks, which analysts had forecast to rise by 2.7 million barrels, instead fell by 200,000 barrels according to the U.S. Energy Information Administration.

Lots of bear spreads unwound ahead of the report, shortening the quarterly carry by $5 a barrel. The recent volatility in the spread has got some traders wondering if, in fact, the carry trade's days are numbered. The three-month carry had fattened to as much as $14 in mid-January. But enthusiasm for the trade has been dampened, in part, by rising financing costs and the topping off of storage capacity at the Cushing, Okla. oil terminus.

EIA says refinery usage slightly exceeded barrel-counter expectations last week, yielding a 1.1 million-barrel build in gasoline inventories. Analysts had predicted a 400,000 drawdown in motor fuel supplies.

Traders walloped the RBOB crack ahead of this week's report, ratcheting down the 1-to-1 refining margin by about a third and shaving its premium over heating oil. Product cracks are near parity according to NYMEX pricing. Not surprising, given the 800,000 draw on distillate fuels-including diesel and heating oil.

The nearby NYMEX contract has barely managed to hold above support levels established in December. Still, technical signals are hinting that a short-term low might be near. A close above the 20-day moving average at $40.14 would confirm a short-term turnaround.

Taking out the $33.87 December low, on the other hand, would point to lower prices and set traders' sights on psychological support at $30.

Source: HardAssestsInvestor.com (by Brad Zigler)

Energy Spreads Offer Leveraged Profits, Reduced Risk

Thu, 05 Feb 2009 00:00:00 +0100

The inherent volatility of the energy markets can make them very dangerous places for retail investors to trade, especially in transitional periods. The roiling crude and distillate marketplace can bounce thinly capitalized traders out rather rudely and rather quickly. Spread trades can stretch an investor's capital and minimize risk.

We've examined spreads before, mostly to good effect. Often, though, newer readers ask why we bother talking up these trades. "Spreads are too complicated and expensive" is an oft-heard plaint.

Well, I'm here to tell you they ain't. Complicated or expensive, I mean.

A spread is a trade in which two or more futures (or options) are combined to exploit a change in their price relationship. Traders will buy or sell outright futures when they have definitive expectations about the direction and degree of a commodity's price movement. A long position, for example, will only return a profit if the underlying commodity moves above the contract's break-even price. Spreaders consider the contracts' absolute price levels as secondary to their relative values. A spread may, for instance, narrow whether the market environment is bullish or bearish.

Spreads are often used as training wheels for novice futures traders. There are a couple of reasons for this. First, spreads are often less volatile and more predictable than outright trades. Spreads are often seasonal in nature and tend to recur reliably. All this makes spreads seem less scary for the neophyte.

Second, a spread's capital commitment may be significantly smaller than that required for an outright trade. This gives spreaders more bang for their margin bucks. Let's look at an example to see how it works.

Suppose, in November, when spot was $1.0125 per gallon, you wanted to trade gasoline on the long side (gasoline, like heating oil, trades in contract lots of 42,000 gallons). With an initial margin requirement of $9,450 and a maintenance level of $7,500, there's room for as much as a 6.25 cent-per-gallon decline, or a fall to 95 cents, before a call for variation margin would be issued.

Even though gasoline eventually topped $1.16 within two months, interim volatility would have dragged your account's equity below the maintenance level three times en route. Supporting the position would have required a total cash commitment of more than $20,000. For that, you would have earned a net investment return of 31%.

Let's see what would happen if you instead decided to spread your long gasoline position against, say, a short sale of heating oil.

As we've seen, the initial requirement for a gasoline contract is $9,450. The performance bond for a heating oil contract is $10,125. You don't put up the full requirement for each contract when you trade a spread, however. The exchange clearinghouse grants a 65% margin credit on each leg of this spread, so your total bond would be only $6,852.

Your spread will be margined as a unit, rather than as two separate contracts. Even though an outright contract may be subject to a maintenance call at a certain price level, as your outright gasoline positions was, there may be no call if that contract's part of the spread. Gains and losses on the spread's component legs are netted for margin purposes.

With gasoline at $1.1025 and heating oil at $1.6710, our spread starts out $0.6585 in favor of oil. If you felt that oil's price advantage is due to shrink, you'd spread a long gasoline contract against short heating oil. The maintenance level would be $5,075, reached if the spread widened to $0.7008 (remember, you want the spread to narrow).

Here's how the trade pencils out:

Not all spreads end up with gains on each leg like this one. No matter, though. If a gain in one leg exceeds the loss in the other, a profit will be realized. A large loss in one leg can, conversely, swamp a complementary gain. The bottom line is, literally, in the lower right-hand box; the gains and losses of the spread's legs are netted there.

Here, the spread's 42-cent gain translates to a $17,640 profit ($0.42 x 42,000 gallons), yielding a 257% return on margin. With the spread, a higher return was realized, compared to the outright gasoline trade, and there weren't equity variations large enough to trigger maintenance calls.

Obtaining more leverage with less apparent risk may sound too good to be true, but spreaders have been relying upon these kinds of trades for generations. Spreads don't guarantee you against loss, of course. They simply allow you to exploit market nuances in a manner not possible with outright positions.

Source: Hardassetsinvestor.com (by Brad Zigler)

Lots Of Crude, Products Not So Much

Tue, 03 Feb 2009 00:00:00 +0100

You'd think the betting pools in oil trading rooms would narrow now that the American Petroleum Institute announces oil inventories the night before the U.S. Energy Information Administration's tally. You'd think so, but you'd be wrong. You'd be wrong because – forgive me, API – there's not much trust in the API figures.

And you can see why. Tuesday, API reported crude inventories rising by some 800,000 barrels. Today, the government's numbers showed stocks rising by a whopping 6.2 million barrels, easily doubling the build forecast by Oil Patch analysts.

The jump in oil stocks became a refiner's dream when the EIA also reported drawdowns in gasoline and distillate fuel inventories. Gasoline stocks fell by 100,000 barrels, confounding analysts' calls for a 1.6-million-barrel build. The supply of distillates – including heating oil and diesel – was pared by 1 million barrels, pretty much in line with insider expectations.

Pure refiners, such as Valero Energy Corp. (NYSE: VLO) and Tesoro Corp. (NYSE: TSO) ought to be cheered by today's EIA figures (see why at "Pure Refiners In Play"). A buildup in oil supplies, coupled with draws of distillate products, is bullish for refinery margins.

Indeed, there was a rebound in margins Tuesday when front-month NYMEX crack spreads widened by nearly $2 a barrel. The spreads yield a 30.8% gross margin.

Refining margins have doubled since the start of the year, discounting the recent spikes associated with the expiration of the February NYMEX contracts. In that time, Valero's stock price has risen 12.1%, while Tesoro's gained 21.4%.

Those gains should assuage the trading room pool losers.

Source: Hardassestsinvestor.com (by Brad Zigler)

OPEC: Oil Price Should Be Doubled

Tue, 03 Feb 2009 00:00:00 +0100

Speaking in Davos, the secretary general of the oil cartel said a "fair price" for crude would be $60 to $80 per barrel, twice its current level
By Sean O'Grady

A "fair price" for oil is between $60 and $80 a barrel, the secretary general of OPEC, Abdullah al-Badri, told participants at the World Economic Forum yesterday, up to twice as high as the current price in the market.

Mr Badri warned he believed that the current price of oil, around the $40 mark, was insufficient to provide an acceptable income for OPEC member states, or high enough to fund the investment needed to raise capacity in time for the next economic upswing.

The price of a barrel of oil has fallen from a peak of almost $150 last summer to below $40 in recent weeks as demand for oil has fallen sharply in line with the global economic downturn. The oil producers' group, said Mr Badri, was prepared to act to reduce supply further if necessary; having decided to cut output in September and October, OPEC oil production will be 4.2 million barrels a day lower by the end of this month, and further cuts in supply would act as an inflationary pressure on the market price.

The cartel, which accounts for roughly 35 per cent of world oil production and two-thirds of proven reserves, is next due to meet formally in March in Vienna, Austria. Mr Badri said that if OPEC was still suffering from what he described as a "destruction of demand" in March, then members of the group "will not hesitate to take oil out of the market".

He said he was "not very happy" with oil at $40 "or even $50" per barrel. "Even with $50 we cannot have a decent income for our members," Mr Badri added.

However, while OPEC member states have been warning for some months that the current market conditions cannot continue indefinitely, higher oil prices would be a blow to much of the world. As the global economy enters what the International Monetary Fund said on Wednesday would be the worst recession since the Second World War, cheaper oil is one of the few bright spots. Any push by OPEC for higher prices through restricting supply will suck even more spending power out of the advanced and emerging economies, and may hit developing nations especially hard.

Nevertheless, the OPEC secretary general's declaration of a "reasonable price range" was endorsed yesterday by BP's chief executive, Tony Hayward, who estimated that a price of between $60 to $80 a barrel was needed to ensure adequate investment to meet growing oil demand by OPEC countries. Mr Hayward also said that only this level of price would meet the cost of producing the marginal 3 million to 5 million barrels a day of world supply from sources such as ultra-deep water wells, Angola, Brazil and Canada's oil sands.

The BP boss said, however, that price levels higher than $100 tended to adversely affect consumer behaviour.

Pierre Gadonneix, chairman and chief executive of Electricité de France (EDF), also agreed that $60 to $80 would be compatible with a competitive nuclear power sector, which he favoured.

Indeed the "spirit of Davos" seemed to overwhelm all the energy session panel members in their rush to agree with the $60 to $80 proposal: other panel members, including Mukesh Ambani, chairman of the Indian giant Reliance Industries, which has interests in natural gas, and the President of oil-producing Azerbaijan, Ilham Aliyev, were also happy to back the OPEC line.

Mr Badri repeated the OPEC claim that the spike in the price of oil to an all-time high of $147 last year was artificially created by speculative traders rather than genuinely reflecting demand and supply. He also hinted at the idea that the world's major oil producers and consumers should agree the oil price and make oil a much less traded commodity.

Source: Businessweek.com

Oil On Troubled Waters

Tue, 03 Feb 2009 00:00:00 +0100

Investors looking for safe havens need look no further than the integrated oil companies Exxon Mobil and Chevron for shelter from the financial storm.

It's not so much that these companies are seeing profits grow -- they aren't -- but they had better-than-expected fourth-quarter results, significant cash resources and because they do everything from finding and pumping oil to refining and selling it to motorists, they are benefiting from the recent decline in energy prices in ways that smaller companies cannot.

The industry contracted toward the end of the year with demand falling in a weakening economy, a selloff in oil and gas prices, and the global credit crunch. (See “Rebuilding Global Markets.”) Over the summer, crude hit record highs, peaking at over $147 per barrel. Since then, oil has tumbled below $40 a barrel as demand in the United States and other big consumer nations eased amid a global economic slowdown.

But the largest oil companies like Exxon and Chevron, which have billions in cash, are well suited to weather the downturn. “Exxon has lots of strength and flexibility,” said Edward Jones analyst Brian Youngberg.

Exxon posted a 33.3% slide in fourth-quarter earnings, to $7.8 billion, or $1.55 per share, but that beat the Street forecasts by a dime, compared with year-earlier profits of $11.7 billion, or $2.13 per share, when the Irving, Texas-based firm set a U.S. record for quarterly profit. It has since topped that mark twice, first in last year's second quarter and then with earnings of $14.8 billion in the third quarter. Revenues fell 27.4% to $84.7 billion.

Exxon’s bottom line took a big hit from its exploration and production, or upstream arm, where net income fell 31.7%, to $5.6 million, on lower crude prices, which the firm said decreased earnings by $3.2 billion in the quarter.

San Ramon, Calif.-based Chevron said its earnings rose to $2.44 per share, from $2.32 per share a year earlier, helped by a one-time gain of $600.0 million from an asset swap in which it received stock for a producing field. Excluding the one-time gain, adjusted earnings did fall from the year-prior to $2.23 per share, but still beat expectations from analysts polled by Thomson Financial that anticipated earnings of $1.81 per share.

The sharp decline in oil prices did hit Chevron’s revenues, which tumbled 26.4%, to $45.2 billion, from $61.4 billion in the year-earlier period.

Chevron's total oil and gas production fell 70,000 barrels per day, to 2.5 million barrels, largely from reductions in the Gulf of Mexico due to hurricanes that hit the region in September. (See “Gustav's Daunting Damage Estimates.”)

On Thursday,Royal Dutch Shell posted a quarterly loss of $2.8 billion, against a net profit of $8.5 billion a year earlier, as sliding oil prices and the global economic slump sapped earnings across nearly all the company's divisions. (See “Boom Times Over For Shell.”)

Britain's BP is expected to report earnings on Tuesday.

The Associated Press contributed to this article.

(Also see "Exxon Apostasy.")

Source: Forbes.com

Too Much Oil (And Other Fuels)

Fri, 23 Jan 2009 00:00:00 +0100

Did you ever have one of those nights? You know, when things start one way and end another? Oil traders are thinking that now.

NYMEX crude oil initially traded higher on short-covering in the overnight market, then slumped in the early morning hours ahead of the floor session opening and the release of the weekly petroleum inventory report. Selling was centered in the nearby March contract, indicating renewed concerns about inventory buildups.

Crude prices were buoyed Wednesday when Saudi Arabia stepped up as OPEC's swing producer, cutting back its production below previous commitment levels. The action seemed to have put a floor on the NYMEX March bid at the $35.50-$36.50 level.

The current inventory build, however, may precipitate a challenge to those bids. When the U.S. Energy Department released its report this morning, analysts' hopes for a moderation in supply were blown out of the water.

Crude oil stocks had been forecast to rise 400,000 barrels, but instead ballooned by 6.1 million. Despite an expectation that refinery operations would increase, runs slipped nearly 2%, according to Energy Department figures. Refineries utilized just 83.3% of their capacity rather than the 85.2% level forecast.

Gasoline inventories also shot up dramatically. Oil patch insiders guessed at a 1.8-million-barrel build, but were deluged by a 6.5-million-barrel addition.

An anticipated 1.3-million-barrel drawdown in distillate fuels also failed to materialize. Fuel stocks - including diesel and heating oil - actually rose by 800,000 barrels.

Trader reactions to the inventory news was immediate and bearish across the board. Spot-month unleaded gasoline futures lost two cents a gallon, or 6.9%, nearby crude futures slipped $1.25 a barrel, or 6.2% and heating oil slipped nearly two pennies a gallon, or 3.5%.

A steep sell-off in input costs is likely to reverse Wednesday's market action that cut deeply into refinery margins. Yesterday's nearly $5-a-barrel rise in crude was accompanied by only modest upticks in distillate and gasoline prices. For the week, crude jumped 6.3%, unleaded gasoline (RBOB) returns held steady and the heating oil (HO) crack deteriorated 5.6%.

Even with yesterday's upside reaction, oil's technicals remained weak. Overhead resistance sits at $45.25, basis the March NYMEX contract. Bears will be looking to take out support at the $38.50 level.

Source: Hardassestinvestor.com (written by Brad Zigler)

Did Speculation Fuel Oil Price Swings?

Fri, 23 Jan 2009 00:00:00 +0100

(CBS) About the only economic break most Americans have gotten in the last six months has been the drastic drop in the price of oil, which has fallen even more precipitously than it rose. In a year's time, a commodity that was theoretically priced according to supply and demand doubled from $69 a barrel to nearly $150, and then, in a period of just three months, crashed along with the stock market.

So what happened? It's a complicated question, and there are lots of theories. But as correspondent Steve Kroft reports, many people believe it was a speculative bubble, not unlike the one that caused the housing crisis, and that it had more to do with traders and speculators on Wall Street than with oil company executives or sheiks in Saudi Arabia.

To understand what happened to the price of oil, you first have to understand the way it's traded. For years it has been bought and sold on something called the commodities futures market. At the New York Mercantile Exchange, it's traded alongside cotton and coffee, copper and steel by brokers who buy and sell contracts to deliver those goods at a certain price at some date in the future.

It was created so that farmers could gauge what their unharvested crops would be worth months in advance, so that factories could lock in the best price for raw materials, and airlines could manage their fuel costs. But more than a year ago those markets started to behave erratically. And when oil doubled to more than $147 a barrel, no one was more suspicious than Dan Gilligan.

As the president of the Petroleum Marketers Association, he represents more than 8,000 retail and wholesale suppliers, everyone from home heating oil companies to gas station owners.

When 60 Minutes talked to him last summer, his members were getting blamed for gouging the public, even though their costs had also gone through the roof. He told Kroft the problem was in the commodities markets, which had been invaded by a new breed of investor.

"Approximately 60 to 70 percent of the oil contracts in the futures markets are now held by speculative entities. Not by companies that need oil, not by the airlines, not by the oil companies. But by investors that are looking to make money from their speculative positions," Gilligan explained.

Gilligan said these investors don't actually take delivery of the oil. "All they do is buy the paper, and hope that they can sell it for more than they paid for it. Before they have to take delivery."

"They're trying to make money on the market for oil?" Kroft asked.

"Absolutely," Gilligan replied. "On the volatility that exists in the market. They make it going up and down."

He says his members in the home heating oil business, like Sean Cota of Bellows Falls, Vt., were the first to notice the effects a few years ago when prices seemed to disconnect from the basic fundamentals of supply and demand. Cota says there was plenty of product at the supply terminals, but the prices kept going up and up.

"We've had three price changes during the day where we pick up products, actually don't know what we paid for it and we'll go out and we'll sell that to the retail customer guessing at what the price was," Cota remembered. "The volatility is being driven by the huge amounts of money and the huge amounts of leverage that is going in to these markets."

About the same time, hedge fund manager Michael Masters reached the same conclusion. Masters' expertise is in tracking the flow of investments into and out of financial markets and he noticed huge amounts of money leaving stocks for commodities and oil futures, most of it going into index funds, betting the price of oil was going to go up.

Asked who was buying this "paper oil," Masters told Kroft, "The California pension fund. Harvard Endowment. Lots of large institutional investors. And, by the way, other investors, hedge funds, Wall Street trading desks were following right behind them, putting money - sovereign wealth funds were putting money in the futures markets as well. So you had all these investors putting money in the futures markets. And that was driving the price up."

In a five year period, Masters said the amount of money institutional investors, hedge funds, and the big Wall Street banks had placed in the commodities markets went from $13 billion to $300 billion. Last year, 27 barrels of crude were being traded every day on the New York Mercantile Exchange for every one barrel of oil that was actually being consumed in the United States.

"We talked to the largest physical trader of crude oil. And they told us that compared to the size of the investment inflows - and remember, this is the largest physical crude oil trader in the United States - they said that we are basically a flea on an elephant, that that's how big these flows were," Masters remembered.

Yet when Congress began holding hearings last summer and asked Wall Street banker Lawrence Eagles of J.P. Morgan what role excessive speculation played in rising oil prices, the answer was little to none. "We believe that high energy prices are fundamentally a result of supply and demand," he said in his testimony.

As it turns out, not even J.P. Morgan's chief global investment officer agreed with him. The same that day Eagles testified, an e-mail went out to clients saying "an enormous amount of speculation" ran up the price" and "140 dollars in July was ridiculous."

If anyone had any doubts, they were dispelled a few days after that hearing when the price of oil jumped $25 in a single day. That day was Sept. 22.

Michael Greenberger, a former director of trading for the U.S. Commodity Futures Trading Commission, the federal agency that oversees oil futures, says there were no supply disruptions that could have justified such a big increase.

"Did China and India suddenly have gigantic needs for new oil products in a single day? No. Everybody agrees supply-demand could not drive the price up $25, which was a record increase in the price of oil. The price of oil went from somewhere in the 60s to $147 in less than a year. And we were being told, on that run-up, 'It's supply-demand, supply-demand, supply-demand,'" Greenberger said.

A recent report out of MIT, analyzing world oil production and consumption, also concluded that the basic fundamentals of supply and demand could not have been responsible for last year's run-up in oil prices. And Michael Masters says the U.S. Department of Energy's own statistics show that if the markets had been working properly, the price of oil should have been going down, not up.

"From quarter four of '07 until the second quarter of '08 the EIA, the Energy Information Administration, said that supply went up, worldwide supply went up. And worldwide demand went down. So you have supply going up and demand going down, which generally means the price is going down," Masters told Kroft.

"And this was the period of the spike," Kroft noted.

"This was the period of the spike," Masters agreed. "So you had the largest price increase in history during a time when actual demand was going down and actual supply was going up during the same period. However, the only thing that makes sense that lifted the price was investor demand."

Masters believes the investor demand for commodities, and oil futures in particular, was created on Wall Street by hedge funds and the big Wall Street investment banks like Morgan Stanley, Goldman Sachs, Barclays, and J.P. Morgan, who made billions investing hundreds of billions of dollars of their clients’ money.

"The investment banks facilitated it," Masters said. "You know, they found folks to write papers espousing the benefits of investing in commodities. And then they promoted commodities as a, quote/unquote, 'asset class.' Like, you could invest in commodities just like you could in stocks or bonds or anything else, like they were suitable for long-term investment."

Dan Gilligan of the Petroleum Marketers Association agreed.

"Are you saying that companies like Goldman Sachs and Morgan Stanley and Barclays have as much to do with the price of oil going up as Exxon? Or…Shell?" Kroft asked.

"Yes," Gilligan said. "I tease people sometimes that, you know, people say, 'Well, who's the largest oil company in America?' And they'll always say, 'Well, Exxon Mobil or Chevron, or BP.' But I'll say, 'No. Morgan Stanley.'"

Morgan Stanley isn't an oil company in the traditional sense of the word - it doesn't own or control oil wells or refineries, or gas stations. But according to documents filed with the Securities and Exchange Commission, Morgan Stanley is a significant player in the wholesale market through various entities controlled by the corporation.

It not only buys and sells the physical product through subsidiaries and companies that it controls, Morgan Stanley has the capacity to store and hold 20 million barrels. For example, some storage tanks in New Haven, Conn. hold Morgan Stanley heating oil bound for homes in New England, where it controls nearly 15 percent of the market.

The Wall Street bank Goldman Sachs also has huge stakes in companies that own a refinery in Coffeyville, Kan., and control 43,000 miles of pipeline and more than 150 storage terminals.

And analysts at both investment banks contributed to the oil frenzy that drove prices to record highs: Goldman's top oil analyst predicted last March that the price of a barrel was going to $200; Morgan Stanley predicted $150 a barrel.

Both companies declined 60 Minutes' requests for an interview, but maintain that their oil businesses are completely separate from their trading activities, and that neither influence the independent opinions of their analysts. There is no evidence that either company has done anything illegal.

Asked if there is price manipulation going on, Dan Gilligan told Kroft, "I can't say. And the reason I can't say it, is because nobody knows. Our federal regulators don't have access to the data. They don't know who holds what positions."

"Why don't they know?" Kroft asked.

"Because federal law doesn't give them the jurisdiction to find out," Gilligan said.

It's impossible to tell exactly who was buying and selling all those oil contracts because most of the trading is now conducted in secret, with no public scrutiny or government oversight. Over time, the big Wall Street banks were allowed to buy and sell as many oil contracts as they wanted for their clients, circumventing regulations intended to limit speculation. And in 2000, Congress effectively deregulated the futures market, granting exemptions for complicated derivative investments called oil swaps, as well as electronic trading on private exchanges.

"Who was responsible for deregulating the oil future market?" Kroft asked Michael Greenberger.

"You'd have to say Enron," he replied. "This was something they desperately wanted, and they got."

Greenberger, who wanted more regulation while he was at the Commodity Futures Trading Commission, not less, says it all happened when Enron was the seventh largest corporation in the United States. "This was when Enron was riding high. And what Enron wanted, Enron got."

Asked why they wanted a deregulated market in oil futures, Greenberger said, "Because they wanted to establish their own little energy futures exchange through computerized trading. They knew that if they could get this trading engine established without the controls that had been placed on speculators, they would have the ability to drive the price of energy products in any way they wanted to take it."

"When Enron failed, we learned that Enron, and its conspirators who used their trading engine, were able to drive the price of electricity up, some say, by as much as 300 percent on the West Coast," he added.

"Is the same thing going on right now in the oil business?" Kroft asked.

"Every Enron trader, who knew how to do these manipulations, became the most valuable employee on Wall Street," Greenberger said.

But some of them may now be looking for work. The oil bubble began to deflate early last fall when Congress threatened new regulations and federal agencies announced they were beginning major investigations. It finally popped with the bankruptcy of Lehman Brothers and the near collapse of AIG, who were both heavily invested in the oil markets. With hedge funds and investment houses facing margin calls, the speculators headed for the exits.

"From July 15th until the end of November, roughly $70 billion came out of commodities futures from these index funds," Masters explained. "In fact, gasoline demand went down by roughly five percent over that same period of time. Yet the price of crude oil dropped more than $100 a barrel. It dropped 75 percent."

Asked how he explains that, Masters said, "By looking at investors, that's the only way you can explain it."

Source: CBS News

Don: Asia will save the world from crisis

Fri, 23 Jan 2009 00:00:00 +0100

KUALA LUMPUR: Asia will save the world from the financial crisis because history proves that it can, says the London School of Economics and Political Science’s head of department and professor of economics Danny Quah.

According to Quah, the world economy was stabilised through periods of US slowdown by East and South-East Asia (ESE Asia) and China.

“In 2001, for example, when US growth fell, ESE Asia and China grew by 78% and 34% more than the US,” he said.

When US growth turned negative in 1991, growth in both ESE Asia and China remained positive, Quah said during a talk entitled: Will Asia save the World here on Wednesday night.

The Asian region now had a banking system that had not been extended aggressively which would work in its favour. “The banking system in this region is well capitalised and there is abundant liquidity,” he said.

“Financial markets respond to trust and confidence and that confidence has been seriously dented.

That’s nothing much we can do now except to pick ourselves up, shake off the dust and resume productivity,” Quah said.

The contribution of ESE Asia and China in the world economy was not limited to boosting world gross domestic product (GDP) but they also helped reduce the absolute numbers of poor people in the world.

“China on its own has brought over 600 million people out of extreme poverty in the last quarter century,” Quah said.

To a question from the floor, Quah said it was highly unlikely that a subprime crisis such as the one in the US would occur in China.

“No, I don’t think that will happen, it is highly unlikely that any bubble is brewing in China,” he said.

Source: The Star Online (by Don Quah)

Exxon: Waiting for the tiger to pounce

Tue, 06 Jan 2009 00:00:00 +0100

The company is sitting on a pile of cash, and some think it may soon buy another major oil firm.

Thanks to record oil prices over the last few years and a cautious investment strategy that drew fire from critics, the company has nearly $40 billion in cash reserves. It has another $225 billion in repurchased stock tucked away for a rainy day.

That's enough money to pay a nearly 60% premium, in cash, for every share of its next largest competitor - Royal Dutch Shell (RDSA).

Some analysts think it may do something just like that.

"It's not if, it's when and which [company]," said Fadel Gheit, a senior energy analyst at the investment bank Oppenheimer.

Gheit is in the minority of oil analysts, but he's still convinced Exxon's target will be one of the big oil firms.

"When Exxon came calling last time, they didn't dial the little guys," he said, referring to the 1999 takeover of Mobil, then the country's second-largest oil company. "It has to be a big one in order to move the needle."

Exxon management: Tough as nails
Shrewd management has put Exxon (XOM, Fortune 500) in this position to buy.

Over the last five years oil companies worldwide have scrambled to develop new projects to take advantage of oil's rising price - often paying exorbitant sums for leases, drilling rigs and other assets needed to bring crude to market.

But not Exxon. Although criticized for not doing enough to pump more crude, the company has maintained the price spike was temporary, and that it wouldn't overpay for projects.

The position has paid off. With crude prices crashing, many oil firms are now deep in debt and stuck with expensive projects.

Share prices of the majors have fallen in line with the broader stock market.

Shell is down 35% in the last 6 months. Chevron (CVX, Fortune 500) and BP (BP) are off about 30%.

Shares in many other oil firms that rushed to expand over the last few years are down even more.

But Exxon has lost just 10%.

"It's hard to question their management style and expertise," said Ken Carol, an oil company analyst at the investment bank Johnson Rice & Co. "They've been proven absolutely correct."

For Exxon, taking over another big firm would give it much-needed oil reserves in a time when the multinational oil companies find themselves increasingly locked out of the best new oil plays by national firms like Russian's Gazprom, Saudi Arabia's Aramco or Venezuela's PDVSA.

It would also give it more financial muscle when negotiating with these governments.

Is Shell in Exxon's sights?
A deal with Shell might be particularly sweet for Exxon's ego.

The two firms have been archrivals since the early days of the oil barons, with the Anglo-Dutch Shell and John D. Rockefeller's Standard Oil, which spawned Exxon, going head to head in markets around the globe.

Competition and price wars were fierce, and several times during the late 1800s and early 1900s men in gray suits crossed the Atlantic looking to strike a deal between the world's two giant firms - to no avail.

But Carol, like most other oil analysts, doesn't think Exxon will go for one of the big players.

"Never say never, but that's not their history," he said. "They tend to be very conservative."

A more cautious approach would be to buy one of the smaller independent companies.

Gheit said if Exxon doesn't go for a major company, firms with lots of debt could make good targets.

Those include XTO (XTO, Fortune 500), Chesapeake (CHK, Fortune 500), Anadarko (APC, Fortune 500) and Pioneer (PXD), according to their balance sheets.

A smaller firm would give Exxon more of a specialty in a particular area - like oil production in the case of Anadarko or natural gas in the case of XTO - rather than mimic the capabilities, and liabilities, they already have as an integrated firm.

"Ultimately, Exxon will do something with this money," said Blake Fernandez, an integrated oil analyst at the New Orleans-based investment bank Howard Weil. "But why would they buy someone with the same growth problems they've got?"

An even safer option would be to buy leases from distressed companies looking to raise cash, or to develop leases it already has. The company may also find some bargains overseas, as declining oil prices may spur foreign governments to make more leases available.

Exxon itself has certainly left the door wide open to doing any or all of the above.

"We're watching the valuations of a broad range of companies, just as we've done all the time," Exxon boss Rex Tillerson told reporters at a recent industry gathering. "Just have to wait and see."

Source: CNNMoney.com, by Steve Hargreaves

Oil up 38% since Christmas

Tue, 06 Jan 2009 00:00:00 +0100

Crude prices continue to rise as concern that Israel's move into Gaza could lead to a withholding of supply paces the futures advance.

Oil prices soared again Monday - moving closer to the $50 mark - as the movement of Israeli forces into the Gaza Strip this weekend added to worries about Middle East supply disruption.

U.S. crude for February delivery rose $2.47, or more than 5%, to settle at $48.81 a barrel. It rose as high as $49.28 before easing.

It was the fifth gain for oil in the past six sessions, rising 38% in that span from a close of $35.35 on Dec. 24.

Prices have risen in recent days as investors worried that fighting in the Middle East could lead to a withholding of supplies from a major oil producing nation such as Iran.

"That's a wild card all the time (Israel gets involved in a conflict), but that's really hard to imagine," said James Cordier, founder of brokerage OptionSellers.com in Tampa, Fla.

An Iranian military commander called on Islamic nations Sunday to pressure Israel's Western allies by withholding crude oil supplies. However, a source within the Organization of Petroleum Exporting Countries, of which Iran is a member, said the implementation of any such plan was "very unlikely," according to Reuters.

"The reality is there's no oil involved," said James Williams, energy economist with WTRG Economics in London, Ark.

Israel and the Gaza Strip are not major oil producers.

The last major crude disruption resulting from a conflict involving Israel came in 1973 with the Middle East oil embargo, Williams said.

That year, Middle Eastern nations withheld exports in protest over American support of Israel during the Yom Kippur war.

2009 bulls: Prices also rose as a lot of commodity investors, who had been waiting in the wings toward the end of 2008, began making their first 2009 purchases, according to Cordier.

The first official day of 2009 oil trading was Friday, but because it was not a full week due to the New Year holiday, the number of trades in the market was relatively low.

"A lot of (investors) were sidelined at the end of last year," said Cordier. "The stock market has been in flux, so much that people are looking for an alternative investment."

Commodities may be that alternative, and some investors are looking for long-term bets, he added.

Russia: Investors have also been keeping a wary eye on Russia after its state-owned energy company held back deliveries of natural gas last week from neighboring Ukraine due to a contract dispute.

The move has already reduced the flow of energy supplies to the Czech Republic, Turkey and other Eastern European nations, according to reports.

While the current dispute does not involve crude oil, it points out Europe's precarious position of relying on Russia for most of its energy needs, according to Williams.

"I think (Russian Prime Minister Vladimir) Putin has pretty well demonstrated he will use energy as a policy tool," added Williams.

Many investors have been worried over the past several months that Russia, a major oil producer, may try to follow in the footsteps of OPEC and cut production or take some other coordinated action in an effort to boost prices.

Demand: Crude oil prices have fallen more than $100 a barrel since hitting a record $147.27 a barrel last year as demand worries began to appear.

Demand for crude has fallen off dramatically following an unprecedented slowdown in global economic activity, but supplies have remained steady, according to Michael Lynch, president of energy advisory Strategic Energy & Economic Research, Inc.

"We still have a lot of surplus oil on the market and in storage," he said.

Concern about the economy shows no sign of abating. In the United States, the world's largest oil consumer, President-elect Barack Obama was set to push an economic stimulus package that could cost between $675 and $775 billion.

And monetary policy officials at the Federal Reserve and the European Central Bank geared up for what could be a lengthy fight against currency deflation.

The market will be looking to see what kind of impact production cuts from OPEC will have on inventories, according to Lynch.

OPEC: OPEC, whose members produce about 40% of the world's oil, has been increasingly concerned about the price of crude oil over the past several months.

At the end of last year, OPEC pledged to bolster prices by reducing production by 2.2 million barrels a day starting this month.

The group is also mulling another emergency meeting in Kuwait in February to discuss production levels, according to reports.

The low price of oil has also prompted China to continue expanding its strategic energy stockpiles. The United States has also taken the opportunity to resume filling the Strategic Petroleum Reserve.

"Because prices are cheap, this is a good buying opportunity (for them)," said Lynch.

Source: CNNMoney.com, by Kenneth Musante

Crude prices rebound, most believe it's temporary

Fri, 26 Dec 2008 00:00:00 +0100

Oil prices rebounded Friday in what some market analysts believed was only a brief pause for steadily declining crude prices.

Awful holiday retail sales, job uncertainty and shrinking global trade all suggest that demand for energy from both businesses and consumers will continue to fall into next year.

"By Tuesday or Wednesday, we could easily see crude oil roughly $3 below what it is right now," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.

New evidence that OPEC members had cut production and a weaker dollar boosted crude prices Friday in light trading.

Light, sweet crude for February delivery rose $2.36, more than 6 percent, to close at $37.71 a barrel on the New York Mercantile Exchange. Trading was closed Thursday for Christmas.

In London, February Brent crude rose $1.84 to $38.45 a barrel on the ICE Futures exchange.

Tumbling crude prices have led to enormous declines in the price of retail gasoline.

At the pump, retail gas prices fell six-tenths of a penny overnight to a new national average of $1.642 a gallon Friday, well below the year-ago average of $2.981 a gallon, according to AAA and the Oil Price Information Service.

"We're paying about a billion dollars per day less than we were in July" for gasoline, said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service. "We could probably bail out some banks and maybe even some of the auto companies with the savings."

The Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global supply, has announced crude production cuts totaling more than 4 million barrels per day as it tries to stop the decline in prices. OPEC members, however, have a history of ignoring announced quotas and crude traders waited for concrete evidence that the 13-nation group was tightening the spigot.

Analysts pointed to a release from the United Arab Emirates advising clients that it would reduce supply almost immediately. The state-owned Abu Dhabi National Oil Company said it would cut production of some grades of crude by as much as 15 percent next month.

"For now, at least Saudi Arabia and the United Arab Emirates seem to be fully complying with the cuts," said analyst Olivier Jakob of Petromatrix in Switzerland.

OPEC may meet again in Kuwait City on Jan. 19 to discuss further production cuts. The group's next official meeting is March 15 in Vienna.

Investors in recent months have ignored supply cuts from OPEC, with demand issues clearly driving the market. What's kept crude prices at four-year lows is the steady drumbeat of gloomy economic news that shows consumers aren't spending like they used to.

The latest comes from a preliminary report by MasterCard SpendingPulse, which said retail sales fell between 5.5 percent and 8 percent during the holiday season, compared with last year. Excluding auto and gas sales, they fell 2 percent to 4 percent, according to SpendingPulse.

SpendingPulse is a division of MasterCard Advisors that tracks total sales paid for by credit card, checks and cash.

Crude has given up 70 percent of its value since July, and this month alone it has fallen by more than $17 per barrel, a 30 percent decline.

Tom Kloza said he'll know that crude prices are poised for a sustained rebound when global demand matches last year's levels for several weeks in a row.

"Before you turn the corner, you need to get to the corner," Kloza said. "And right now we're seeing gasoline demand running about 3 to 5 percent behind year-ago levels.

Investors eyed more evidence that plummeting consumer demand from the U.S. and Europe is undermining growth in export-dependent Asia, as production at major Japanese manufacturers fell by its largest margin ever in November.

Japanese industrial production fell 8.1 percent in November from a month earlier, the largest drop since the government began measuring such data in 1953, the Ministry of Economy, Trade and Industry said Friday.

The decline followed a 3.1 percent drop in October, and the government expects another 8 percent plunge in December.

"These are pretty ugly figures that show the recession deepened in Japan," said Christoffer Moltke-Leth, head of sales trading for Saxo Capital Markets in Singapore. "I don't see any catalyst to bring crude higher. We'll likely test $30."

Many companies will likely report dismal earnings for the fourth quarter and may use the lowered expectations to include massive writedowns or one-time charges, Moltke-Leth said.

"I think a lot of CEOs want to put everything bad into the fourth quarter because the market expects it to be bad so why not put everything you can in there," he said. "There's going to be a lot of bad corporate news during the next few weeks, and that's going to reinforce the demand destruction theme for crude."

In other Nymex trading, gasoline futures rose 5.17 cents to settle at 88.4 cents a gallon. Heating oil gained 4.67 cents to settle at $1.245 a gallon while natural gas for January delivery fell 6.7 cents to $5.843 per 1,000 cubic feet.

Source: BusinessWeek (by Chris Khan)

Associated Press writers Alex Kennedy in Singapore and Pablo Gorondi in Budapest, Hungary contributed to this report.

Goldman Sachs slashes 2009 oil forecast to $45

Fri, 26 Dec 2008 00:00:00 +0100

Goldman Sachs Group Inc. has further slashed its forecast for crude oil prices in 2009 to $45 a barrel as demand deteriorates.

According to Goldman equities analyst Arjun Murti, oil prices will average $35 a barrel during the first half of 2009, before rebounding to $50-60 a barrel in the second half of the year.

“While global oil demand is very weak and the duration of demand weakness is unclear at this time, we believe oil supply will collapse if prices remain below $40 a barrel for an extended period of time 6 to 12 months or longer, suggesting we are likely to have entered the bottoming phase of the cycle," Murti said in a research note Friday.

This is the bank's third revision of its crude oil prices forecast for 2009.

In September, the bank revised its 2009 price forecast from $140 to $100 a barrel on slowing demand.

In a separate report, Goldman Sach's commodity research group also predicted crude oil prices to average $45 a barrel in 2009.

“The collapse in world oil demand in the fourth quarter of 2008 as the global credit crunch intensified now threatens to push oil prices below $40 a barrel in the near term,” said the team led by Jeffrey Currie.

The investment bank predicted that world oil demand would fall by 1.7 million barrels per day (bpd) in the first quarter of 2009 pulling oil prices down to $30 a barrel.

"we are likely to have entered the bottoming phase of the cycle"“We expect that an additional 2 million barrels per day of OPEC supply cuts will be required in 2009, along with 600,000 bpd reduction in non-OPEC production, in order to rebalance the market,” they wrote.

Analysts at Goldman Sachs expect prices to rebound after the 2008/2009 slump.

“We do not believe oil markets are on-track for a decade-plus period of weakness like seen in the 1980s and 1990s,” according to Murti's notes.

The bank predicted that positive demand growth and shrinking non-OPEC supply would lift oil prices to $70 a barrel by 2010 and to $195 a barrel by 2012.

Oil prices have fallen more than 70% in New York since hitting a peak of $147.27 per barrel on July 11.

Source: Bunkerworld

Oil prices slip to below $46 in Asia

Mon, 15 Dec 2008 00:00:00 +0100

KUALA LUMPUR, Malaysia (AP) - Oil prices retreated to below $46 a barrel Friday in Asia after a strong rally overnight, but traders said expectations of a sharp production cut by OPEC will support the market.

Light, sweet crude for January delivery fell $2.38 to $45.60 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore.

Prices fell further after news broke that a $14 billion emergency bailout for U.S. automakers had collapsed in the Senate. Overnight, the contract surged $4.46, or 10 percent, to settle at $47.98.

David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney, said comments by Saudi Arabia's Oil Minister Ali al-Naimi on Thursday that November production by the world's largest exporter was in line with OPEC's recently lowered targets indicated it was serious about output cuts.

"There are expectations that OPEC will move to tighten supplies," Moore said. "Oil prices softened this morning but well within the range we saw last night (despite) worries about falling consumption because of economic weakness."

The Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global crude supply, has signaled it plans to reduce output quotas at a meeting Dec. 17 in Algeria.

Many analysts expect a production cut of as much as 2 million barrels a day, which would match the combined reductions of two previous output cuts earlier this year.

But they say the success of any production cuts in stabilizing oil price will depend on how closely OPEC members comply with it. OPEC's overall November production was well above quotas agreed to by member states, according to Platts, the energy information arm of McGraw-Hill Cos.

Victor Shum, energy analyst at consultancy Purvin & Gertz in Singapore, said oil prices were adjusting Friday to what was seen as an "overdone" rally. Weaker equities markets across Asia also pressured prices, he said.

"The biggest factor is still the expectation that OPEC will make substantial production cut next week, with coordination from Russia," he said.

Russia has said it plans to coordinate production levels with other non-OPEC producers. On Thursday, Russian President Dmitry Medvedev suggested that Russia is ready to work with OPEC.

Oil's rally overnight was boosted by a falling dollar, which makes commodities like oil more attractive. It outweighed a warning from the International Energy Agency that energy demand will shrink this year for the first time since 1983.

In the report Thursday, Paris-based IEA cut its forecast for global oil demand in 2008 by 350,000 barrels a day to 85.8 million barrels a day, down 0.2 percent from 2007. It also said 2009 demand would increase by just 0.5 percent to 86.3 million barrels a day. That's 200,000 barrels a day less than its estimate last month.

Oil prices have fallen 70 percent since peaking at $147.27 in July. After hitting $40.50 a barrel last week, some oil traders believe that if the market has not bottomed out, it is close to doing so.

In other Nymex trading, gasoline futures fell 3.8 cents to $1.0400 a gallon. Heating oil dipped 4.2 cents to $1.4645 a gallon and natural gas for January delivery lost 10.2 cents to $5.496 per 1,000 cubic feet.

In London, January Brent crude fell $1.85 to $45.54 a barrel on the ICE Futures exchange.

Source; Wtop.com by Eileen NG

GLOBAL MARKETS-Stocks plummet, yen jumps as auto bailout fails

Mon, 15 Dec 2008 00:00:00 +0100

HONG KONG, Dec 12 (Reuters) - Asian stocks plunged more than 5 percent on Friday after a collapse in the U.S. carmaker bailout jeopardised the industry, sending investors fleeing to the safety of government bonds and the yen, which shot to a 13-year high.

The suddenness of the move in the yen, which pushed the U.S. dollar below the sensitive level of 90 yen, fed concern Japanese officials would enter the market to stabilise their currency.

Investors bailed on stocks and piled into U.S. Treasuries, knocking the benchmark 10-year yield to the lowest in more than five decades, as the bargain-hunting that had helped to drive up shares in the last week dried up in the face of a worsening global economic backdrop.

U.S. stock futures gapped lower, with S&P 500 futures down 5 percent, pointing to a much lower open on Wall Street. while European stocks were also set to open sharply weaker.

The collapsed bailout led to weakness across commodities, everything from copper to crude and rubber, as investors speculated on even weaker demand for raw materials.

Without the help of the $14 billion package of loans, the potential for the so-called Big Three car manufacturers -- Ford Motor Co, General Motors Corp and Chrysler LLC -- to go under could kill investor sentiment, lead to higher unemployment and deepen the U.S. recession, economists said.

"What the failure of this deal does is that it will set back sentiment not only in the U.S., but also set back sentiment globally. There is going to be further risk aversion going forward," said Joseph Tan, chief Asian economist with Credit Suisse in Singapore.

The MSCI index of Asia-Pacific stocks outside Japan fell 5.4 percent, eroding more of its double-digit percentage gains in the last week. The index is down 56 percent on the year, easily the steepest decline since the gauge started in 1988.

Japan's Nikkei share average sank 5.5 percent, snapping four days of rises.

Shares of Toyota Motor Co were off 10 percent and Honda Motor Co off 12.7 percent on worries about massive disruption caused to the industry by the collapse of one of the U.S. automakers.

Hong Kong's Hang Seng index was down about 7 percent, weighed by shares of PetroChina, Asia's top oil and gas producer, which tumbled 10 percent as crude prices dropped.

RISK, ONCE AGAIN, IS SOLD

Even before the automaker deal fell apart in the U.S. Senate, Asian shares had already been under pressure because of unease about the shrinking financial sector and economic malaise.

"It shouldn't come as a surprise that Asian equity markets are selling off today on news of the U.S. auto bailout failure," said Tim Rocks, equity strategist with Macquarie Securities in Hong Kong.

"For Asia, the major issue is how much damage is being done to earnings and balance sheets, and we won't know until February when companies announce fourth-quarter earnings," he said.

The rapid shift out of risky assets on Friday propelled the yen. The U.S. dollar fell as low as 88.40 yen, the lowest since 1995, before recovering to around 89.75 yen.

The yen's spike prompted Japan's top financial diplomat, Naoyuki Shinohara, to say the currency movements were too volatile and the moves in the foreign exchange market were being watched with concern. The last time the Bank of Japan intervened in the market, on behalf of the Ministry of Finance, to cap the yen was in 2004.

"Without an intervention, the dollar could hit 85 yen, so Japan will likely intervene to prevent that from happening," said Masafumi Yamamoto, head of foreign exchange strategy with Royal Bank of Scotland in Tokyo.

"The worst case scenario for Japanese authorities is that the yen's appreciation pushes down Japanese share prices which will further aggravate of the economy, and they see it happening now."

In the bond market, the yield on the benchmark 10-year note, which moves in the opposite direction of the price, slipped to 2.48 percent, the lowest in more than 50 years hit earlier this month.

Maturities of less than a year traded at barely any yield at all, with the 3-month bill yield flitting between 1.5 basis points and zero. Year-end is usually a time when global investors and corporates pile into the highly liquid short-term U.S. debt market to keep cash safe and dress up balance sheets.

However, the ferocity of the global economic slowdown this year has made 2009's prospects particularly grim.

U.S. light crude for January 2009 delivery tumbled $2.25 to $45.73 a barrel, creeping back down toward a four-year low of $40.50 hit earlier in the month.

Remarks from OPEC President Chakib Khelil overnight about the need for a big cut in production increased speculation among traders that supply will be cut by 1-2 million barrels per day. (Editing by Lincoln Feast)

By Kevin Plumberg

Oil prices slip to below $46 in Asia

Fri, 12 Dec 2008 00:00:00 +0100