Tuesday, June 10, 2008
Tuesday, May 20, 2008
NYMEX Oil Complex Roars Higher on Speculative Hype; We Compare Hype to Reality
May 20, 2008
By John Troland, Tom Waterman
All records fell again today as speculators drove the oil markets to new heights after T. Boone Pickens added his two cents to the Goldman rally. Speculators were only too happy to oblige.
The NYMEX June crude, which expired today, along with the gasoline and heating oil contracts roared higher, setting new all time highs and settles.
There are few real reasons for today's rally other than to say this is how the commodity speculators have been playing the energy markets for about four years, and never more pronounced than since the first Goldman rally back in December drove prices to within an eyelash of $100 per barrel.
The standard reasons are as numerous as they are irrelevant. A weak dollar, demand in growth areas such as China, India and the Middle East, geo-political concerns regarding potential supply disruptions in producer countries Iran, Iraq, Nigeria and Venezuela and so on.
Today's rally began early in the morning after T. Boone Pickens was interviewed on CNBC and affirmed last week's predictions by Goldman Sachs' analysts that prices for crude would hit at least $150.00 by year's end. It should be mentioned that at one point in the interview, Mr. Pickens had to admit that he was quite long some NYMEX energy contracts such as crude oil and natural gas. As anyone that heard the full interview knows, these types of predictions are self serving, and are the root cause of current runaway prices.
It's our opinion that this is just another example of what's going on in the energy and commodity markets and yet politicians are helpless to do anything about it.
Maybe it is time for Washington to step in and put the brakes on speculative trading. We don't suggest eliminating speculation, merely limiting the amount of influence it now has. Today, Congress was holding hearings about speculation, but there were probably enough smoke and mirrors in the room to at least deflect what damage is being done as a result of a market that escalates on a whim. We don't have much confidence that Congress will get deep enough into the matter to suggest any way out. They need to hire specialists to watch the markets on a day-to-day basis for about a month and report back. Unfortunately, nobody is doing that currently.
While there is truth to the argument that oil resources need to advance in order to satisfy rising energy demand, it is has already reached the point where demand for those resources is slowing down. It is also at the point where many other alternatives are suddenly more viable.
If current fundamentals mean anything at all, the crude oil glut just continues to expand, as do gasoline supplies. The slow U.S. market is backing up gasoline in Europe, where demand is not exactly flourishing either. This is supposed to be the spring gasoline rally but it has become the diesel and crude oil rally instead. By this time in a "normal" year, there would have been many more millions of barrels of gasoline flowing into the U.S. from Europe.
While the total amount of imported gasoline is down by less than 1.0% (it's actually down 0.4%), the actual volumes are more dramatic. On average since the beginning of the year, the U.S. has imported about 4,000 barrels per day less gasoline than a year ago. In total, it's a little more than a half million barrels of gasoline that has not arrived in U.S. ports this year. Yet refiners have not been running at rates seen in normal years and gasoline stocks remain well above last year.
In total, this tells us that we're probably right about how gasoline demand is going to fall by 1.5% to possibly as high as 2.4% this year. That tells us we will need a lot less crude oil this year as well.
Diesel inventories are admittedly low in Europe, parts of Asia and South America due to an extended spring maintenance season in all regions of the world. In the real world of oil, that is a temporary situation as refiners will surely start building excess distillate supplies if for no other reason than they are worth more than gasoline at the moment. What is not true is that demand for diesel is soaring. Quite the contrary, diesel demand is slowing down perhaps faster than gasoline, which will shorten the period where there is a perceived tightness.
Here in the U.S., there are cargoes slated for export to various locations, particularly Europe and South America, as refiners, faced with lower profit margins at a time when margins should be the highest of the year, are purposely churning out more diesel.
Are gasoline inventories in danger? Highly unlikely given the fact that U.S. supplies are still well above last year while demand will be under year ago totals.
Sunday, May 18, 2008
Oil Higher On Goldman Sachs Revision
May 16, 2008
By John Troland, Tom Waterman
The June NYMEX crude, RBOB gasoline and heating oil contracts are expected to open higher this morning as it appears the large hedge funds and financial trading house have returned to the buy side of the market in front of the weekend. We believe that after yesterday's volatile trading session where prices jumped early, collapsed at midday and rallied hard late in the day, speculators have returned not to balance positions but to make another run at record prices.
To the best of our knowledge there is little market moving news to have prompted a sharp move higher other than the usual hype and fear mongering about supplies being inadequate to keep up with demand, plus another market-moving prediction by none other than Goldman Sachs.
Goldman Sachs told clients that they have revised higher its New York crude-oil price forecast for the second half of this year indicating it will average $141 a barrel in the second half of the year, up from its previous forecast of $107. The company said prices will rise further in 2009, averaging $148 a barrel, the bank said. We suppose that the firm was a little nervous about their longer-term options positions, given the fact that fundamentals are essentially toilet-bound.
So there you have it, another Goldman rally starts today as no doubt all the speculators will pile on this one and prices have nowhere to go but up.
These "geopolitical tensions" and supply constraints are bogus as OPEC supply and non-OPEC supply will rise this year and in case they haven't noticed, demand is weakening and will weaken further, especially as Asia starts to feel the effects of a global economic downturn.
One of the latest concerns mentioned is the catastrophic earth quake in China will increase demand for diesel fuel and put a greater strain on supplies that the bulls claim is at a breaking point. Our opinion is that these reasons we hear every day are just hype, used to cover up the real reason prices have risen for nearly four years.
Our first look at today's open outcry session suggests prices have a good chance of repeating yesterday's trade action with prices moving in both directions, however as the major speculative firms get to the office this morning, they will be jumping on this bandwagon.
Wednesday, May 14, 2008
Oil's Murky Math
by Peter Coy
May 13th, 2008
Where are we headed: Up to $200 a barrel? Down to $80? With little good data on supply or demand, oil's next price move is anyone's guess
At around $125 a barrel, crude oil has more than doubled in price since the end of 2006. How is it possible that the vast majority of government forecasters, stock analysts, economists, traders, and journalists who follow the oil market failed to foresee this? Moreover, how can it be that even today, the bulls and bears on oil are extremely far apart, disagreeing not only on the oil outlook but even the present situation?
The answer is simple. You can't predict what oil prices are going to do even in the short-to-medium term unless you have a good handle on the forces of supply and demand. And that requires thorough and reliable data—which don't exist. Regrettably, the world oil market is no more transparent than a fragrant barrel of extra-heavy Orinoco crude. And the situation is getting worse because the world's fastest-growing oil consumer is also one of the most opaque: China.
The scarcity of good global data is a key reason why it's impossible to know for sure whether the next "super-spike" in oil in the coming three or four years will be up to $200 or more…or down to $80 or less. Even though the statistics aren't exact, they're all anyone has to go on, so they still have an enormous impact.
On May 13, for example, the price of crude oil rose to a record close of $125.80 on the New York Mercantile Exchange after the International Energy Agency announced its estimate that inventories of distillate fuels such as diesel and heating oil in developed nations fell 6.7% in March from a year earlier. If inventories really are shrinking, it should be bullish for prices because it indicates that production isn't keeping up with consumption. That's certainly the viewpoint of oil bulls like Matt Simmons, president of Houston investment bank Simmons & Co. International. Says Simmons: "We have lousy data, but what data we have is somewhat scary." He sees prices hitting $200 to $500 in six months to four years.
But other experts say oil inventories appear to be at least adequate. While agreeing with Simmons that the oil market is "data-famished," analyst Edward Morse of Lehman Brothers (LEH) concludes in a May 9 report that "fundamental misperceptions" have caused prices to overshoot. He thinks crude could fall to $83 by next year, a one-third drop.
Chalk up the poor underlying data to a combination of gamesmanship and incompetence.
Oil statistics are reasonably good for the wealthy nations that make up the Organization for Economic Cooperation and Development (OECD), although even in data-rich countries like the U.S. there are unexplained discrepancies. But the rich countries matter less and less because their production and consumption are both roughly flat.
Outside the OECD, where the growth is, countries either don't want to divulge data for strategic reasons, or haven't yet developed the systems to collect and compile the necessary numbers. The Joint Oil Data Initiative, an organization launched jointly by producing and consuming nations in 2002, is supposed to improve matters. But the group acknowledges on its Web site that "the database is still far from perfection."
China, which has grown into the world's second-biggest oil consumer after the U.S., stands out as a particular problem. Just ask Eduardo Lopez, who tries to dope out the China market as the senior demand analyst for the Paris-based International Energy Agency, an affiliate of the OECD. He says China does not report demand, leaving him and others to figure it out from data on production, trade, and inventories. What's more, he says, "there are thousands of so-called teapot refineries all over China" that are technically illegal and therefore left out of China's official statistics.
Making his job even more trying, China appears to be creating a strategic stockpile of oil, but has never acknowledged it, Lopez says. If Lopez and others are underestimating how much oil China is squirreling away, then they're inadvertently overestimating true global consumption, and vice versa if they've overestimated China's stockpiling.
Many other countries aren't much better. Lopez says Russia produces "awful data" and demand statistics are patchy in countries like India and Indonesia. On the supply side, OPEC nations don't report their output reliably, sometimes because they don't want to officially admit they're producing above OPEC's quota. That leaves the agencies relying on unofficial "tanker trackers" like Lloyds Maritime Information Services and Petro-Logistics SA, a tiny company that operates upstairs from a grocery store in Geneva, Switzerland. OPEC members also jealously guard critical data about when new fields will begin production and how quickly existing fields are declining, says Matt Cline, an economist for the U.S. government's Energy Information Administration in Washington.
What makes good information so important in the oil market is that both the supply and the demand for oil are extremely inflexible, especially in the short term. That means even a small, unanticipated shortfall in output—from, say, strife in Nigeria—or a bigger-than-expected rise in consumption can send prices through the roof. On the other hand, prices can plummet if demand growth drops because of an economic slowdown or production jumps because some delayed project finally comes on line.
One indication of uncertainty is the extreme range of bets being made in the oil options market. On May 13, bulls were willing to pay around $1.40 per barrel for a "call" option that will pay off if oil goes over $200 a barrel by next February. Bears, meanwhile, were paying about the same amount for a "put" option that will be in the money if oil goes below $84 by then. Larry Chorn, chief economist of Platts, the McGraw-Hill Companies' (MHP) energy information unit, says the actual costs incurred in producing the most expensive oil is only around $70 or $80 a barrel, meaning that about $50 of the current price represents "the market's risk premium plus speculation."
In other words, there's a big slab of unknown built into the price of oil. Lots of people will confidently predict where prices are headed next, but most of them, including the bulls, have been wrong more than once. Truth is, the world is almost as starved for information as it is thirsty for oil.
Thursday, May 8, 2008
Barclays Raises 2008 Crude Oil Forecast to $116.90
By Christian Schmollinger and Sophie Tan
May 8 (Bloomberg)
Barclays Capital raised its forecast for U.S. crude oil prices this year by 16 percent, citing stronger demand from China and the Middle East and declines in production at non-OPEC countries.
Barclays increased its average estimate for West Texas Intermediate, the physical grade for oil futures traded on the New York Mercantile Exchange, to $116.90 a barrel from its previous prediction of $100.80.
``Non-OPEC supply remains weak and continues to under perform dramatically relative to consensus expectations,'' Barclays said in a May 7 report, led by commodity research analyst Paul Horsnell.
China, the world's fastest-growing major economy, has more than doubled oil use since New York crude dropped to this decade's low of $16.70 a barrel on Nov. 19, 2001. Record prices have failed to stem rising consumption in developing nations.
Crude futures for June delivery in New York rose $1.69, or 1.4 percent, to settle at $123.53 a barrel yesterday, the highest close since trading began in 1983, on signs that the U.S. economy is improving and may spur energy demand.
``We are in a phase during which the nature of the fundamentals is being revealed by the ascent of prices,'' the report said.
The supply response from oil-producing nations outside of the Organization of Petroleum Exporting Countries has been weak, with Russia ``having been added to the already-significant list of supply disappointments,'' the report said.
The drop in oil demand in the 30 developed nations, including the U.S., Japan and Germany, represented by Paris- based Organization for Economic Cooperation and Development ``has not been consistently large enough to bring global demand growth much below 1 million barrels a day,'' the report said.
``Non-OECD demand growth remains robust, most particularly China, Middle East and India,'' Horsnell said. ``The decline in OECD demand started in 2005 hasn't accelerated significantly.''
Alternative energy sources aren't being developed fast enough to stop fossil fuel prices from going higher and Barclays estimates the new investment flow into commodity indexes during the first quarter is $2 billion, which has gone mostly into agriculture and precious metals, not energy, the report said.
``Biofuels look set to be smashed against political rocks, oil sands lack scale and are being enveloped in carbon and other issues,'' the report said. ``There is no evidence for the price rise this year being due to speculation, exchange rates or flows of funds into commodities.''
The push to increase biofuel usage as a means to reduce carbon emissions has driven prices for staple foods such as rice and wheat to records as farmers convert more land to grow palm and soy beans to benefit from government subsidies.
Global food prices rose 57 percent in March from a year earlier, according to the United Nations. The World Bank says civil disturbances may be triggered by rising food prices in 33 countries. Rice, the food staple for half the world, has more than doubled in the past year.
Tuesday, May 6, 2008
Goldman's Murti Says Oil `Likely' to Reach $150-$200
By Nesa Subrahmaniyan
May 6 (Bloomberg)
Crude oil may rise to between $150 and $200 a barrel within two years as growth in supply fails to keep pace with increased demand from developing nations, Goldman Sachs Group Inc. analysts led by Arjun N. Murti said in a report.
New York-based Murti first wrote of a ``super spike'' in March 2005, when he said oil prices could range between $50 and $105 a barrel through 2009. The price of crude traded in New York averaged $56.71 in 2005, $66.23 in 2006 and $72.36 in 2007. Oil rose to an intraday record of $122.49 today on speculation demand will rise during the peak U.S. summer driving season.
``The possibility of $150-$200 per barrel seems increasingly likely over the next six-24 months, though predicting the ultimate peak in oil prices as well as the remaining duration of the upcycle remains a major uncertainty,'' the Goldman analysts wrote in the report dated May 5.
A report yesterday showed U.S. service industries expanded in April, signaling higher energy use. The Institute for Supply Management said its index of non-manufacturing businesses, which make up almost 90 percent of the economy, grew for the first time since December. China is increasing refining capacity and boosting imports to meet rising demand for the Olympic Games.
U.S. gasoline demand typically climbs going into the summer season when Americans take to the highways for vacations. The peak-consumption period lasts from the Memorial Day weekend in late May to Labor Day in early September. Monthly fuel sales were the highest during August in five of the last six years, according to data from the Department of Energy.
China, the world's fastest-growing major economy, has more than doubled oil use since New York crude oil dropped to this decade's low of $16.70 a barrel on Nov. 19, 2001. Record prices have failed to stem rising consumption in developing nations, with demand led by China, India and the Middle East.
Price forecasts for spot U.S. benchmark West Texas Intermediate crude oil for 2008 to 2011 were revised higher by Goldman. The 2008 price estimate was raised to $108 a barrel from $96, the 2009 forecast to $110 from $105, and 2010 to 2011 estimates are projected at $120 from $110, the analysts including Murti and Brian Singer said, citing slowing supply growth in Mexico and Russia, and low spare production capacity in OPEC.
Deutsche Bank AG Chief Energy Economist Adam Sieminski, who forecasts oil averaging $102.50 next year, today said Asian demand and limited extra supply will keep pushing oil to record levels. There's a ``huge risk'' that prices will rise to a level, perhaps $200, ``when demand finally collapses because ordinary people can no longer afford to burn as much energy as they are burning now,'' Sieminski said in an April 25 report.
Threats to Supply
Oil has also rallied amid a dispute between the U.S. and Iran regarding the Persian Gulf oil producer's plan to develop nuclear energy.
In Nigeria, Africa's biggest oil exporter, militants have attacked oil installations and kidnapped workers since the beginning of 2006, forcing Royal Dutch Shell Plc to halt output.
In Venezuela, production has slumped to about 2.34 million barrels a day from almost 3 million barrels a day in 2002, according to Bloomberg's estimates, before President Hugo Chavez fired almost 20,000 workers who had closed the state oil company in an attempt to overthrow the government.
Iraq's oil production has yet to reach levels attained before the U.S.-led invasion of 2003 as the country struggles with sectarian fighting and attacks on its energy infrastructure.
Mexico's production has fallen below 3 million barrels a day since October as Petroleos Mexicanos, the state-owned oil company, failed to compensate for a 30 percent drop at Cantarell, its largest field, which accounts for 40 percent of output.
``There are supply constraints with many producers, especially from non-OPEC struggling to find new reserves and China and Middle East demand keeps growing,'' said Victor Shum, senior principal at energy consultant Purvin & Gertz Inc. in Singapore. ``The fundamentals are prompting investors to get into oil in a big way and all that points to higher prices.''
Spare production capacity of the Organization of Petroleum Exporting Countries is low and the group's exports may fall because of ``lackluster'' supply growth and rising domestic consumption in member countries, the Goldman analysts said.
``Non-OPEC supply is struggling to grow, with notable declines being seen in Mexico and Russia showing signs of rolling over following an extended period of rapid growth,'' said Goldman, the world's biggest securities firm by market value.
Prices are also poised to gain as major oil-exporting countries restrict foreign investments, limiting supply growth, while demand from developing countries, or ``non-OECD'' nations is rising on economic expansion and power shortages, prompting higher demand for gasoil and fuel oil, the Goldman analysts said.
Crude oil for June delivery was trading at $122.18 a barrel, up $2.21, on the New York Mercantile Exchange at 12:22 p.m. Futures yesterday rose to $119.97, the highest closing price since trading began in 1983.
``The core of our super-spike view has been that a lack of adequate supply growth coupled with price-insulated non-OECD demand growth'' is leading to higher prices, the analysts said. That could result in a ``sharp correction in oil demand,'' the Goldman analysts said.
Crude oil's increase above $100 a barrel was partly because of the dollar's decline against the euro, which boosted oil prices because it made commodities cheaper for buyers outside the U.S. and attracted investors as a hedge against inflation. Oil in New York touched $100 a barrel on Jan. 2.
The U.S. currency has declined more than 5 percent against the euro so far this year.
Members of OPEC, which supply more than 40 percent of the world's oil, have said supplies are adequate and blamed speculators for pushing prices up to records. The producer group won't consider raising output before it meets in September as the market is well supplied, Qatari Oil Minister Abdullah al-Attiyah said on May 2.
There's a fundamental misperception that so-called speculators are driving prices to unjustified levels, the Goldman analysts said. ``Unfortunately, we do not think the energy crisis will be solved by finding and punishing the big bad speculator.''
Commodity investors, the Goldman analysts wrote, are ``helping to solve the energy crisis'' by speeding up the process for oil companies to spend more on energy projects and at the same time encourage efficiency.
Thursday, February 21, 2008
Shell President: America's Energy Security a 'Mess'
by Kerry Laird
Shell President John Hofmeister addressed U.S. policy makers on Feb. 21 to proffer suggestions for energy policy changes. Hofmeister urged policy shapers to extend the rights of U.S. companies by allowing them to drill the outer continental shelf of the U.S., which is currently illegal.
Hofmeister said that the U.S.'s energy consumption, along with outdated policy, have led to a failure in energy security.
"During the course of today, the U.S. will consume 10,000 gallons of oil a second," said Hoffmeister. "That equivalent is 21 million barrels of oil a day ... that's a swimming pool full of oil every second of every minute of every hour throughout the day.
"In addition, we will consume some 60 billion cubic feet of gas. Sixty billion cubic feet of gas, if stacked on top of each other, would be 25 roundtrips to the moon. So when you put that kind of energy consumption in perspective … when we deal with energy security in this country, that's a very big deal.
"It's the basis of our lifestyle."
Hofmeister admitted that while Shell has been one of the first big oil companies to invest in alternative energy sources, such supplies "while meaningful over the longer term … cannot displace or replace the kind of day-to-day demand for hydrocarbon energy" the U.S. has today.
"My goodness, what a mess we're in when it comes to national energy security," he concluded.
Hofmeister said that energy security should enjoy the same importance as homeland and economic security, because each contributes to the other as a part of the "foundation of America's well-being."
"With energy security, we can have the best of all worlds," he said.
The Shell president defines energy security as a "comprehensive, holistic strategy with a short-term makeup, a medium-term makeup, and a long-term makeup," which is how Shell designs its own business model.
Consequently, Hofmesiter said that this country's "short-term hurt" is that it imports more than 60% of the oil it consumes. The $2 trillion the U.S. spends on oil imports is $2 trillion that the country will never see again, he said. That money is used to develop and maintain resources for oil exporters in other parts of the world.
Last year, S&P's top-six oil companies were state-run companies, like PDVSA, Petrobras, and Rosneft. Hofmeister said the nationalism of natural resources is the "legitimate" right of sovereign nations, yet this is where American energy security fails. He said that contrary to popular belief, the energy market place is not a free market.
"When a cartel of countries can determine production limits which help to guide a price level, and when U.S. companies are prohibited by public law from developing U.S. natural resources, that represents constraint of a free market," said Hofmeister. "And so it is a myth to think that U.S. oil companies can just go and explore and produce where they choose in a free oil market."
Hofmeister pointed out that only 15% of the outer continental shelf of the U.S. is available for E&P purposes while 85% is off-limits by law.
"As long as that is the case, we are contributing to, in a sense, the lack of development of our own national natural resources," he said, "and it is necessary for us then to pull upon a pool of international natural resources, which are controlled by nationally sovereign nations."
Hofmister said that to secure the U.S.'s energy future, policies must be moved so that the country can manage its natural resources in the interest of the American people.
"Calling for a comprehensive, integrated, short-term, medium-term, long-term energy strategy would put in place for America an energy strategy that has not existed over the last 50 years," said Hofmeister. "The last time America had an energy strategy … in terms of a coherent, integrated, short-medium-long-term approach, was World War II.
"The strategy was simple: Produce all the energy the nation can produce and ration it to consumers in order to support the war effort.
"Since then, we've relied upon free markets, which have consistently lost their degrees of freedom over the last 50 years. It's time now for the nation … to approach energy security in a bipartisan nationally led model, such as we do with homeland security and economic security."
Tuesday, January 22, 2008
Nigeria to Renegotiate Contracts With Oil Companies
By Julie Ziegler
Jan. 22 (Bloomberg)
The Nigerian government informed oil companies it would like to renegotiate production contracts within the next three months, a move that will likely increase the nation's share of oil wealth.
``There's an indication of that made to the oil industry,'' Nigerian National Petroleum Corp. spokesman Levi Ajuonuma said in an interview today, adding that the renegotiation of some of the contracts is ``long overdue.''
About 95 percent of NNPC's projects are funded through joint ventures such as Shell Petroleum Development Co., in which NNPC has a 55 percent stake. Nigeria's 2006 budget called for about $4.2 billion for funding of these ventures. The country also wants more favorable terms to improve its deepwater production-sharing contracts, many of which were signed during the 1990s when oil prices were below $20 a barrel.
Nigerian President Umaru Yar'Adua said he wants to end government funding of joint ventures and instead leave oil companies to raise money on international capital markets. Oil companies, in turn, have also complained that the joint ventures don't work. Shell's Nigeria venture, in its latest annual report, said a shortfall in government funding impeded the company's ability to meet a target to stop the flaring of gas associated with oil production.
``We are aware of the Nigerian government's planned review of aspects of the 1993 production-sharing contract agreement which guide offshore concessions,'' Caroline Wittgen, a spokeswoman for Shell, said in an interview.
``We intend to make our position known to the government at the appropriate time, and do not wish to comment further or speculate ahead of anticipated discussions,'' Wittgen said.
Michael Barrett, a spokesman for Chevron Corp., said he hadn't heard of any official notification.
Shell, Chevron and other companies signed production- sharing contracts during the 1990s that allowed them to operate without a joint venture with the government and to pay royalties once the cost of developing the field was fully recovered.
H. Odein Ajumogobia, Nigeria's petroleum minister of state, said in September that a ``fundamental change of circumstances'' will influence the renewal terms of those contracts. Oil prices reached a record $100.09 on Jan. 3.
Oil companies also favored the deepwater oil blocks to move away from the restive Niger delta where militant groups and criminals damaged pipelines and created production outages. The Movement for the Emancipation of the Niger Delta, or MEND, has shut as much as a fifth of Nigeria's oil production since attacks in February 2006.
Sunday, November 25, 2007
China Calls for Warning System to Ensure Oil Supplies
By Xiao Yu
Nov. 25 (Bloomberg)
China urged local governments to set up an early warning system to ensure sufficient oil supplies at filling stations, which face shortages across the nation, the state-run Xinhua News Agency reported.
The Ministry of Commerce ordered local authorities to monitor oil supplies and work out measures to cope with emergency shortages, Xinhua said yesterday. The report didn't elaborate on requirements for the warning system.
Demand for crude oil in China has exceeded output as some refineries cut production because of soaring costs and government-capped fuel prices. The nation's crude oil imports also fell to the lowest in eight months in October as prices climbed to records.
``China's fuel shortage will continue unless the government improves its pricing mechanism and raises domestic fuel prices,'' said Wu Jun, a Shanghai-based analyst with China International Futures (Shanghai) Co. in a telephone interview today.
Premier Wen Jiabao last week said he would ask refiners to expand capacity to turn crude oil into fuels to run cars and factories. Some of the nation's refineries aren't running at their maximum operating rates, Wen said Nov. 21 in Singapore, where he attended the East Asia Summit.
``Refiners lack incentives to produce more after crude oil prices rose to a record. Domestic fuel prices are lower than international prices'' because the government determines prices, China International's Wu said.
China's government has urged refiners including China Petroleum & Chemical Corp., known as Sinopec, to ensure fuel supplies are sufficient, Xinhua reported. Many regions still face ``tight diesel supplies,'' Xinhua said, citing a notice from the Commerce Ministry.
China increased fuel prices by as much as 10 percent from Nov. 1 in what the government said was an ``urgent step'' to help the nation's oil refiners cover rising costs.
``The increase of fuel prices is far from sufficient to cover the cost of rising crude oil,'' Wu of China International said today. ``Some refiners may take advantage of the fuel shortage to press the government for a fundamental change of its pricing mechanism.''
Wednesday, October 31, 2007
Oil Rises to Record $94.74 as U.S. Supplies Fall to 2-Year Low
By Mark Shenk
Oct. 31 (Bloomberg)
Crude oil rose to a record $94.74 barrel in New York after an Energy Department report showed that U.S. inventories fell to a two-year low. Today's 4.6 percent gain was the biggest since Jan. 30.
Stockpiles dropped 3.89 million barrels to 312.7 million barrels last week, the department said. It was the lowest since October 2005. A 400,000 barrel gain was expected, according to a Bloomberg News survey. Supplies at Cushing, Oklahoma, the delivery point for New York futures, fell 17 percent.
``We've lost a lot of oil at a time when we should be building supply for winter,'' said Phil Flynn, a senior trader at Alaron Trading Corp. in Chicago. ``Nearly all the analysts expected inventories to rise, making this an extremely bullish number.''
Crude oil for December delivery rose $4.15 to settle at $94.53 barrel at 2:50 p.m. on the New York Mercantile Exchange. Futures touched $94.74 the highest since trading began in 1983. The exchange reported a high of $94.80 during the session and subsequently canceled the trade.
Oil rose 16 percent in October, the biggest one-month gain since September 2004. Prices are up 61 percent from a year ago.
The futures plunged 3.4 percent yesterday after Goldman Sachs Group Inc., which said in July oil may reach $95 a barrel, told clients it was ``time to take profits.''
``The DOE report was the catalyst for this breakout,'' said John Kilduff, vice president of risk management at MF Global Ltd. in New York. ``Prices are also up because of the falling dollar and strong GDP number, which is a sign that demand will pick up. Economic growth both here and abroad are leaving us vulnerable to the myriad of supply threats out there.''
Economic growth in the U.S. unexpectedly accelerated in the third quarter as increases in exports, consumer spending and investment made up for another plunge in home construction, a government report today showed. Gross domestic product grew at an annual rate of 3.9 percent in the quarter, the most since the first three months of 2006.
Oil inventories at Cushing, where West Texas Intermediate and other sweet, or low-sulfur, grades of oil are delivered for the futures market, dropped to 15.1 million barrels, the lowest since October 2005. Today's decline was the biggest since November 2004, Energy Department data show.
``There is no reason I can think of for a refiner to buy a single barrel to put a barrel in inventories,'' said Tim Evans, an analyst with Citigroup Global Markets Inc. in New York. ``Crude oil is expensive, refinery margins are weak, product inventories are rising anyway and backwardation makes it very dangerous to hold into oil.''
New York crude oil futures closest to delivery are more expensive than the prices for contracts for later delivery, a condition known as backwardation. During the first half of the year the market was in contango, where oil for future delivery is higher than near-month prices. Contango trading encourages companies to increase stockpiles.
``The bottom line is that there isn't enough sweet crude to meet demand,'' said Ric Navy, a broker at BNP Paribas SA in New York. ``We've almost erased yesterday's correction and may get another leg up if the Fed makes an interest rate cut.''
The Federal Reserve today announced a quarter-point interest rate reduction to bolster economic growth. Crude-oil surged and the dollar plunged after the Federal Reserve cut its benchmark interest rate by half a percentage point on Sept. 18, more than economists had predicted.
``When the dollar is weak, a lot of overseas investors seek a safe haven in commodities, such as gold and oil,'' said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois. ``Falling interest rates also have bullish implications for demand because it may boost economic growth. A weak dollar also cushions European consumers somewhat against higher prices.''
Brent crude oil for December settlement rose $3.19, or 3.7 percent, to $90.63 a barrel on the London-based ICE Futures Europe exchange, a record close. Brent reached $90.94 a barrel during today's session, a record intraday price.
The Organization of Petroleum Exporting Countries agreed last month to raise output by 500,000 barrels a day starting tomorrow to help ease prices that threaten economic growth. The move failed and prices have jumped 17 percent since the Sept. 11 announcement of the increase.
``Global demand for oil largely exceeds the production of non-OPEC countries and the difference is not matched by OPEC, so there is tension on the market,'' said Harry Tchilinguirian, an analyst at BNP Paribas in London. ``Oil-consuming countries will certainly be putting pressure on OPEC to increase output, but in the short term we don't anticipate a production increase above 500,000 barrels a day.''
Goldman Says `Take Profits' After Crude Hits Record
By Mathew Carr and Margot Habiby
Oct. 30 (Bloomberg)
Goldman Sachs Group Inc., the bank that said in July oil may reach $95 a barrel, told clients it was ``time to take profits'' after crude rose to a record $93.80 in New York yesterday.
``We are now more cautious on the near-term upside potential for oil prices,'' analysts including Jeffrey Currie in London said in the bank's Energy Weekly today. ``We are not trying to call a top here, just take profits.''
Goldman said it was closing its long positions in New York oil futures. Oil has gained 51 percent this year as hedge funds and other large speculators increased bets on rising prices. Net-long positions in New York crude futures in the week ended Aug. 3 jumped to the highest in more than a decade.
Goldman predicted in March 2005 that oil would enter a ``super spike'' period, fueled by rising demand, and could reach $105 a barrel in the next several years.
Crude oil for December delivery fell $3.15, or 3.4 percent, to settle at $90.38 a barrel on the New York Mercantile Exchange. The price for March delivery was at $87.99 a barrel and at $82.92 for December next year.
``The downside risks we have embedded in our end of first quarter 2008 oil price target of $80 a barrel are beginning to gain momentum,'' Goldman said in the report. ``These include increasing exports, a slowing U.S. economy, an adequate level of heating oil inventories.''
Cold Weather Factor
Goldman's recommendation ``might be a bit early,'' especially if colder weather boosts demand during the next two months, said Francisco Blanch, a London-based analyst at Merrill Lynch & Co. Blanch predicts oil will average $80 a barrel for the three months through December, and that prices are more likely to reach $100 soon than $60.
Twenty-one, or 49 percent, of 43 analysts surveyed by Bloomberg News last week said oil prices will fall through Nov. 2, the least bearish response since Sept. 7. Eighteen, or 42 percent, said prices will rise, the most bullish response since the week ended July 6. Four forecast little change. The previous week, 69 percent of respondents said oil would fall.
``I think you'll get some more oil into the U.S.,'' Blanch said today by phone. ``It will take another few months to get it up and running.''
An increase in crude supplies will partly come from the Greater Plutonio oil field in Angola and the Genghis Khan field in the U.S. Gulf of Mexico, which both started this month and will likely ramp up production during the next few weeks, Goldman said.
``The strength in freight rates from West Africa to the U.S. Gulf Coast suggests that U.S. refineries may be preparing to receive more of the new Angolan low-sulfur medium grade Plutonio,'' Goldman said.
Lehman Brothers Holdings Inc. forecast a ``sharp price fall'' by late winter in a report released today. The Lehman analysts, led by New York-based Edward Morse, said there's a 50 percent chance that Nymex futures will exceed $96.50 a barrel before the December contract expires.
Lehman raised its fourth-quarter forecast for Brent oil by $10 to $85 and said it expects Nymex oil to average about $2.50 a barrel higher than that.
``Our view is that we don't think prices are sustainable where they are,'' Michael Waldron, an energy markets research analyst in New York and one of the authors of the Lehman report, said in a telephone interview earlier today.
OPEC, whose members produce more than 40 percent of the world's oil, said current crude prices don't reflect the group's objectives.
The Organization of Petroleum Exporting Countries has a ``duty'' to supply the world with oil at stable prices, Mohamed al-Hamli, the group's president, said today at an oil conference in London. If the market needs more oil, OPEC will supply it using spare capacity of 3.5 million barrels a day, he said.
OPEC ``recognizes it has a responsibility'' to ensure ``stable'' prices for producers and consumers, he said. Al-Hamli said he doesn't expect oil to reach $100 a barrel in the near future.
Tuesday, October 9, 2007
Oil Futures Market Is Better Predictor Than Analysts
By Bill Murray
Oct. 9 (Bloomberg)
The crude futures markets in London and New York have been more accurate predictors of oil prices than market analysts during the past eight years, Deutsche Bank AG said.
The average forecasting error by the crude futures market since 1999 has been 17 percent, compared with 31 percent by a group of more than 30 oil analysts surveyed by Reuters, senior analysts Michael Lewis and Adam Sieminski said in a note to clients published Oct. 5.
``The hidden truth behind analyst oil price forecasts is that they have more to do with the current spot oil price than prospective oil market fundamentals,'' they wrote. ``We find that for the past nine years the analyst community has consistently under-estimated the oil price.''
In the 1990s, crude traded between $15 and $25 a barrel 85 percent of the time. In the present decade, it has averaged $42 a barrel with greater price volatility, the report said.
Oil prices have quadrupled since January 2002 as surging demand, led by China and the U.S., has left a narrower margin of spare capacity to tap during supply disruptions.
Hurricanes in the U.S. Gulf of Mexico in 2005 and cuts in production from the Organization of Petroleum Exporting Countries helped spur oil prices, which reached a record $83.90 on Sept. 20 this year.
Crude oil for November delivery was up $1.53 at $80.55 a barrel in trading on the New York Mercantile Exchange at 4:06 p.m. London time. Brent crude oil for November was at $77.41 a barrel, up 83 cents, on the London-based ICE Futures Europe exchange.
Brent at $87.80
If the average absolute forecasting error of analysts persists through next year, that would imply Brent crude oil prices in 2008 will actually average $87.80 a barrel, the report said.
The average absolute futures market forecasting error would price Brent at $88.20 a barrel in 2008.
Deutsche Bank itself said oil may fall below $70 a barrel by the end of the quarter as demand for gasoline in the U.S. weakens along with the economy. Oil prices will average $60 a barrel in 2010, the Frankfurt-based bank said.
While oil prices probably won't fall during the fourth quarter as much as they did last year during the same period, fading geopolitical risks, OPEC production growth and economic weakness in the U.S. mean prices are still likely to decline, Deutsche Bank said.
``Futures are saying that in two years prices will be in the low $70s,'' Siemenski said in an interview. ``In addition to the fundamentals of crude, demand has been eroded. Demand has been flat in the U.S. for the past two months.''
U.S. fuel consumption in the four weeks ended Sept. 28 averaged 20.45 million barrels a day, down 0.3 percent from the same period a year earlier, according to the Energy Department.
The Paris-based International Energy Agency, an adviser to 26 industrialized countries, reduced its forecast for global oil demand last month on lower estimates for U.S. economic growth.
Thursday, September 20, 2007
Does the Middle East Matter?
By Peter Glover
Sep. 19, 2007
The May and June issues of the British magazine Prospect hosted a fascinating spat over the strategic importance of the Middle East. In May, “The Middle of Nowhere” by Edward Luttwak, a senior advisor at the Center for Strategic and International Studies in Washington, D.C., made the case that “despite its oil this backward region is less relevant than ever, and it would be better for everyone if the rest of the world learned to ignore it.” Strong stuff.
Enter David Strahan, author of The Last Oil Shock, with a June letter demolishing Luttwak’s critical claim that the importance of Middle East oil is declining, summed up in his pithy counter-assertion, “It’s the oil, stupid.” We agree with Strahan’s conclusion, but with two amendments. Not only does Middle East energy still matter, it will soon matter increasingly – and…it’s the oil and gas, stupid.
As Strahan says, many of Luttwak’s political points “ring horribly true.” Luttwak attacks the oft-repeated fallacy that solving the Israeli-Palestinian conflict is the key to resolving Arab/Muslim-Western tensions. Luttwak also uses statistics to bolster his point that the region is “remarkably unproductive” with a correspondingly low per capita income as a result: “Despite its oil wealth, the entire Middle East generated under 4 percent of global GDP in 2006 – less than Germany.” But it is in his assertion that the region’s relevance is diminishing because “global dependence on Middle Eastern oil is declining,” and the assumption that the region’s energy reserves are unimportant, that Luttwak ultimately gets it badly wrong.
Strahan rightly points out, “Luttwak claims the Middle East is irrelevant because it produces little but petroleum. Hasn’t he heard that oil provides 95 percent of all transport energy and that spikes in oil price have precipitated every major recession in the last 30 years?”
Luttwak comments: “The region produces under 30 percent of the world’s crude oil compared to almost 40 percent in 1974-75. In 2005, 17 percent of American oil imports came from the Gulf, compared to 28 percent in 1975.” True enough. But as Strahan counters, “This is unlikely to last. Non-OPEC production will peak by 2010 or soon after. According to the International Energy Agency, the U.S. Department of Energy, Exxon Mobil, Shell and PFC Energy…OPEC will soon have to provide a much bigger proportion of global supply – almost 50 percent by 2030 according to the IEA – mostly from the Middle East.” However, Strahan acknowledges: “There are well-justified fears that OPEC output will also peak within the next decade…so dragging global oil production into terminal decline. Since OPEC controls 75 percent of known reserves – overwhelmingly concentrated in the Middle East – this can only make the region more critical, not less.” While ET concurs that the region’s importance is growing, we do not agree with Strahan’s overly alarmist view of what he terms the “imminent extinction of Petroleum Man,” central to his thesis in his book, The Last Oil Shock. (A timely, though poorly written, corrective to Strahan’s peak oil theory can be found in the recent The Battle for the Barrels by Duncan Clarke, Profile Books.)
Wednesday, September 19, 2007
Sunday, September 16, 2007
OPEC Says $80 Oil Won't Last Due to `Fundamentals'
Sept. 14 (Bloomberg)
By Fred Pals
OPEC, whose members produce more than 40 percent of the world's oil, said crude at $80 a barrel won't last because ``fundamentals'' don't support the price.
``I don't think the price will stay at $80,'' Secretary General Abdalla el-Badri said today at a press conference in Vienna. ``The fundamentals don't support that.'' The price of $80 a barrel is ``too high,'' he added.
The Organization of Petroleum Exporting Countries unexpectedly agreed to increase oil production by 500,000 barrels a day at a ministerial meeting in Vienna on Sept. 11. The increase, which will be added to the current 26.7 million-barrel-a-day output of 10 OPEC members, starts Nov. 1.
Oil prices gained after OPEC's decision to raise supply, when the U.S. Energy Department reported the country's stockpiles of crude fell more than expected last week. That suggested the increase may not be enough to meet demand as winter approaches in the Northern Hemisphere. Hurricane threats and an attack on Mexican pipelines have also driven up oil prices over the past few days.
Crude oil for October delivery traded down 18 cents at $79.96 a barrel at 9:06 a.m. local time on the New York Mercantile Exchange. The contract rose above $80 a barrel yesterday for the first time, touching $80.20.
El-Badri declined to comment on whether OPEC would discuss raising output again at its December meeting if crude prices remained near their current levels. ``Of course, we will discuss supply, demand and inventories, as usual,'' he said.
OPEC is not pursuing any specific price target or range, El- Badri said. ``It has been a long time ago since we've had a range,'' he said. OPEC having a specific target is ``rubbish.''
Angola, the African nation which joined OPEC on Jan. 1 this year as its 12th member, is expected to have a production quota next year, and El-Badri said he hopes to announce that level at OPEC's December meeting. He declined to comment on whether Angola would get a quota as soon as it reached production of 2 million barrels a day.
Exxon Mobil Corp., BP Plc and other international oil companies see Angola as a growth area. They're finding it harder to expand oil and gas production in other resource-rich countries such as Russia and Venezuela.
Thursday, September 13, 2007
The Energy Report
September 13, 2007
Oil at 80. Are the stars out tonight? I can’t tell if it’s cloudy or bright and that may depend on whether or not you're long oil. The bullish stars came into perfect alignment in an explosive trading session that sent oil out of this world. Oil surged to an all time not inflation adjusted high of $80.00 a barrel in a day that saw all the energy products soar.
Oil seemed on a mission to fulfill some technical destiny of $80.00 a barrel. It was a price level that was denied this summer as logistical issues kept oil undervalued for most of the summer. But sometimes things are written in the stars and the just wont be denied. It would be easy to point to yesterday’s wildly bullish inventory report as the main reason for the oil market's star search but in reality that was only a small part of the overall story. The market got just about anything a bull could want and perhaps even more.
Even before yesterday's inventory report the market had a strong upward bias. Oil had closed the day before at a record high as it laughed in the face of the OPEC production increase. Why did they raise production? Because OPEC cares. What they care about is a bit uncertain but they say they care all the same. Abdullah el-Badri, OPEC’s Secretary General, said that, “our message to consumers is that we are concerned and we care, and that is why we are raising production". Can you feel the love. Ah gee. OPEC cares about me! I feel special. And of course with OPEC - as always - the devil is in the details. And what you can sure about is what OPEC really cares about is covering their behind.
OPEC raised production because mainly they fear the backlash if the world goes into a recession. The IEA and the market have been sending signals to the cartel all summer that more oil was needed but they failed to act. Now OPEC has made a valiant effort by raising their quota from 25.845 million barrels a day to 27.2 million barrels a day which means that OPEC according to their math would be adding 500,000 barrels of oil. That’s not paper barrels but real oil for real men.
Yet because OPEC leaked its intentions early there was no surprise and the market discounted the oil as just replacing oil that was lost during the last two hurricanes. OPEC is proving once again that as a cartel they are very good at getting the price of oil from falling but they are always behind the curve and fail to stop prices from rising. Sometimes it is an issue of not having enough spare production capacity but many times it is because they are quick to cut but slow to raise production.
So then it was onto the weekly supply report from the Department of Energy. Would it give the bulls more reasons to buy! Well, before the stocks report even came out, natural gas bulls were already buying! This time it was because of the weather. A tropical wave that turned into a tropical storm Humberto caused havoc in the Gulf. The Houston shipping channel would close and there was talk that perhaps some oil rigs might be evacuated. Some weather experts fear that this active storm season will continue to cause more havoc and we may have to get prepared for one storm after another.
Then came the weekly inventory report. It was like a bullish dream. Crude supplies plunge 7.1 million barrels more than twice the average estimate. And that was and in all major categories. But even without the bullish report the mood for oil is bullish; decidedly bullish. The psychology after the OPEC announcement and the subsequent rally was a clear sign that the energy markets are poised to move higher.
Crude is convinced that a Fed rate cut is in store for next week and that should help keep the demand for oil much stronger than feared. The market is also showing that funds are getting an appetite for risk once again. Funds that fled from record long positions because they feared the housing slowdown perhaps are jumping back in. Even those without sub prime exposure fled from risk. Now they are coming back, a strong sign of confidence in our economic future.
Yes the backwardation being at near record levels could signal some slowing demand in the future but it also could signal a lessening of refiners worrying about geo-political risk. Let’s face it, with dealt with a lot of talk of the terror premium and war cutting off supply. Take yesterday, there was talk of the US making war plans against Iran and hardly anyone in the oil patch was talking about it.
Even talk about how Russian President Vladimir Putin rearranging the Russian Democracy in his own KGB image had little effect. No one in oil cared yet.
And we had a fire in Prudhoe Bay Alaska and cut production at a BP plant. We have refineries shutting down due to losing power in Texas we have it all. Aned this all means the bears are dancing in the streets.
OPEC Seeks to Bridge Gulf Over Venezuelan Oil Output
by Adam Smallman, Dow Jones Newswires
FWN Financial News 9/13/2007
VIENNA, Sep 13, 2007
Staff from the Organization of Petroleum Exporting Countries have met with officials from member country Venezuela in a bid to bridge the gulf between the country's stated official oil production level and estimates a third lower by news agencies and institutions, a gap that some say has undermined the credibility of the Latin American nation's oil policies.
Fuad Al-Zayer, who leads OPEC's data services department, said Thursday that he and his colleagues were working closely with Venezuelan officials to narrow the differences to the point where OPEC no longer has to use secondary sources, such as energy information provided by Platts, a unit of McGraw-Hill Co. (MHP), or the Paris-based energy watchdog the International Energy Agency.
Dow Jones Newswires is also a provider of estimated oil output by OPEC member countries.
"We are there to provide them with facilities, to show them how they can coincide with what the secondary sources are saying," al-Zayer said after a press conference on OPEC energy data.
"But there is a gap between the two. We are hoping that they gap will become closer."
Venezuela has longed claimed its oil output is far higher than secondary sources suggest, with the official number around 3.2 million barrels a day, against estimates by Dow Jones Newswires, Platts and the IEA of around 2.4 million barrels a day.
Some analysts attribute the difference to the government of President Hugo Chavez covering up sharp oil production losses experienced in the wake of a clear-out of veteran staff from the state-run Petroleos de Venezuela S.A., or PdVSA, following a crippling strike in December 2002 that lasted two months.
The government subsequently said output levels rebounded to pre-strike levels of around 3.1 million barrels a day.
Some analysts have linked the stated production level to Venezuela's reluctance to lose its influence inside OPEC, which has output targets in place for 10 of its 12 members, including Venezuela.
Al-Zayer said Venezuela's production of heavy, tar-like crude oil may have colored the picture of its actual output.
"We know Venezuelan officials are meeting with Platts and the IEA to show them what's happening," al-Zayer said.
"Some of the problems are that heavy oil is produced in Venezuela and maybe some of the agencies don't count it. So we are trying to iron out this."
However, the International Energy Agency, as an example, clearly breaks out production of Venezuela's Orinoco-derived heavy crude, which it said in Wednesday's monthly oil market report contributed 475,000 barrels a day to Venezuela's output of 2.34 million barrels a day.
OPEC is incorporating secondary-sourced data in its estimates as "that is what the market believes in these days and eventually we hope that we won't do that in the future," Al-Zayer said.
Wednesday, September 12, 2007
Oil Rises to Record $80.18 on Larger-Than-Expected Supply Drop
By Mark Shenk
Sept. 12 (Bloomberg)
Crude oil rose to a record $80.18 a barrel in New York after supplies dropped the most this year.
U.S. oil inventories fell a greater-than-expected 7.01 million barrels to 322.6 million last week, the Energy Department said today. Prices also rose after OPEC said yesterday it would increase production by 500,000 barrels a day, less than is needed to meet a seasonal rise in demand.
``We've shrugged off OPEC's offer of 500,000 barrels,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``There's a tropical storm in the Gulf and inventories posted a huge decline.''
Crude oil for October delivery rose $1.68, or 2.2 percent, to settle at $79.91 a barrel at 2:54 p.m. on the New York Mercantile Exchange, a record close. Futures also touched the highest intraday price since trading began in 1983. The previous record of $78.77 was reached on Aug. 1.
The average cost of oil used by U.S. refiners averaged $37.48 a barrel in March 1981, or $84.73 in today's dollars, according to the Energy Department. Prices rose from 1979 through 1981 after Iran cut oil exports.
Brent crude oil for October settlement rose $1.30, or 1.7 percent, to $77.68 a barrel on the London-based ICE Futures Europe exchange, the highest since Aug. 7, 2006.
A 2.7 million barrel drop in oil supplies was expected, according to the median of responses by 17 analysts surveyed by Bloomberg News before today's report.
``Seven million barrels is an awful lot of oil to lose in one week,'' said Rick Mueller, an analyst with Energy Security Analysis Inc. in Wakefield, Massachusetts. ``There's a feeling that OPEC waited too long to make this move.''
Two Tropical Depressions
Oil also rose after the National Hurricane Center said Tropical Storm Humberto formed off the coast of Texas in the northwestern Gulf of Mexico. Tropical storms or hurricanes spur prices higher because they can threaten offshore production.
Some manufacturers and utilities can switch between oil- based fuels and natural gas depending on costs.
``There's a huge amount of hedge fund money moving into the long side of the crude-oil market,'' said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois. ``The global supply balance will be tight as we go into the fourth quarter. There's already a lot of concern about low stocks.''
Oil prices have risen 31 percent this year as hedge funds and other speculators purchased futures because of surging energy demand. Long positions are bets that prices will rise.
OPEC will target crude production of 27.2 million barrels a day after abandoning its former quotas. The 500,000 barrel-a-day increase will be on top of actual output, according to Kuwait's acting oil minister, Mohammed Abdullah al-Aleem.
``Too much attention was paid to what the Iranians, Venezuelans and Nigerians said before the meeting,'' said Brad Samples, commodity analyst for Summit Energy Services Inc. in Louisville, Kentucky. ``The Saudis and other Gulf producers are the swing producers, the only members with spare capacity, and have the greatest influence. The Saudis had been silent.''
Before the decision, OPEC members including Venezuela, Algeria, Iran and Libya had said the world was adequately supplied with oil. Western officials, including the head of the International Energy Agency and U.S. Energy Secretary Samuel Bodman, lobbied for increased output.
The United Arab Emirates is expected to cut crude oil production in November by as much as 600,000 barrels a day because of maintenance, reducing output by about one quarter, the IEA said.
``The supply and demand is pretty OK,'' Royal Dutch Shell Plc Chief Executive Officer Jeroen van der Veer said at a briefing with reporters in Calgary today. ``What we do have is a lot of psychology in the price. We have to expect volatility in the oil price due to this psychological component.''
The IEA, an adviser to 26 industrialized nations, said global oil demand will rise 1.4 percent to 85.9 million barrels a day this year, in a monthly report. Consumption will increase 2.1 million barrels a day in 2008.
``The IEA report is still bullish, even with the downward revisions,'' Mueller said. ``They are still looking for pretty strong gains in demand. It doesn't appear that they are too worried about the subprime crisis hurting demand.''
The agency reduced its demand forecast for this year by 90,000 barrels a day and by 160,000 barrels a day in 2008 from last month's forecast.
``There's still a big question of how the credit crunch will ultimately affect demand,'' said Eugene X. Hodge, a managing director at John Hancock Financial Services Inc. in Boston, who manages a $4.3 billion oil and gas company bond portfolio. ``It's too early to know what will happen.''
Saturday, September 8, 2007
Platts: OPEC Output Dips in August
OPEC crude production fell by 40,000 barrels per day (b/d) in August, to 30.46 million b/d from 30.5 million b/d in July, mainly because of lower exports from Iraq, a Platts survey showed September 7.
The ten members bound by production agreements, however, boosted output by 80,000 b/d, to 26.79 million b/d in August from 26.71 million b/d in July, the survey showed.
OPEC ministers meet in Vienna on September 11 to review the current agreement, which sets target output at 25.8 million b/d. Several ministers have said in the runup to the meeting that they do not see any need for the group to raise this target.
Actual OPEC-10 production has been steadily creeping up over the summer, however, and is now about a million barrels per day above the 25.8 million b/d target.
John Kingston, Global Director of Oil at Platts, said, "OPEC faces a real dilemma at its upcoming meeting. On the one hand, prices have climbed back up toward the $75 level, and the supply/demand balance projects a tight market in coming months, which might encourage OPEC to raise production. But when the organization looks at Friday's U.S. employment figures, and considers the ramifications of the US subprime mess, it will be concerned that a significant slowdown in demand could be around the corner. With that in mind, it is difficult to see a scenario in which it will vote to raise output, given that based on our survey, production is rising slightly regardless."
Apart from a small dip in Iranian production, the only significant decline came from Iraq. Iraqi exports had been boosted in July by the first liftings from Turkish Mediterranean port Ceyhan since January. There were no exports from Ceyhan in August, leaving Iraq to rely solely on its southern terminals. State oil marketer SOMO will sell 5 million barrels from Ceyhan in September, however, having built up stocks at the port.
Iraq, struggling to rebuild its oil industry after years of United Nations sanctions and a US-led war in 2003, does not participate in OPEC output pacts. Angola, which became a member in January this year, has yet to join the quota system.
Table in original article
Thursday, August 23, 2007
OPEC Output -840,000 B/D on Year, Inline vs. Past Wks
by Spencer Swartz
Aug 23, 2007
LONDON - Seaborne OPEC oil shipments are expected to jump by 610,000 barrels a day in the four weeks to Sept. 8 from the previous one-month period as some of the producer group's Middle East members respond to market calls for more crude, U.K. tanker tracker Oil Movements said Thursday.
The rise, the third in as many weeks, was also pinned to a weaker comparison in the month-ago period, when OPEC shipments were unseasonably low, said Roy Mason, head of the consultancy.
Shipments by Organization of Petroleum Exporting Countries are seen rising to a total of 24.2 million barrels a day versus 23.59 million barrels a day in the four weeks to Aug. 11, he said.
Mason said the last time OPEC shipments were at the current expected levels was in late April when they came in at 24.3 million barrels a day.
He maintained though that he didn't expect OPEC shipments to continue ramping up in the weeks ahead as milder autumn weather arrives in U.S. and European markets.
"We're now moving into the beginning of the period when refineries go into maintenance which normally means demand for crude goes down," he said.
Mason made a negligible reduction of 30,000 barrels a day to last week's data.
Sailings from key OPEC Middle East countries are forecast to increase by 540,000 barrels a day to 17.35 million barrels a day in the four weeks to Sept. 8 relative to the previous one-month period of 16.81 million barrels a day.
OPEC is currently pumping about 840,000 barrels a day fewer than at this time last year, Mason said, inline with the past couple of weeks, although well below about a month ago when OPEC had even more barrels out of the market at about 1.2 million barrels a day year-on-year.
OPEC is scheduled to meet in Vienna on Sept. 11 and indications from some OPEC ministers and officials are that the 12-nation group is likely to keep its production targets unchanged and not increase output, as the International Energy Agency has urged, due to concerns about high U.S. oil inventories and uncertainties over the fallout on energy demand caused by U.S. credit woes.
Oil Movements forecasts OPEC exports based on spot and term chartering of crude from OPEC member countries. Production from OPEC's 12 members meets around 40% of the 86 million barrels consumed globally each day.