Oil & Gas 01 (May 08 - Jul 08)

[winston]

Oil prices plunge on worries about economic downturn
Posted: 16 July 2008 0503 hrs

NEW YORK : Oil plunged in the steepest fall in 17 years in New York on Tuesday amid concerns that slower economic growth in the United States, the world's largest energy consumer, could dampen demand.

New York's main oil contract, light sweet crude for August delivery, sank 6.44 dollars to close at 138.74 dollars a barrel. It was the sharpest single-session decline since January 1991.

In London, Brent North Sea oil for August fell 5.17 dollars to settle at 138.75 dollars.

Crude oil prices skidded after US Federal Reserve chairman Ben Bernanke's comments citing a range of economic risks and a "high degree of uncertainty" about the outlook.

"Ben Bernanke's gloomy assessment of the economy and a cut in the demand forecast by OPEC were factors behind the huge price drop in crude," said Al Goldman at Wachovia Securities.

Traders remain on edge about the possibility of a prolonged economic slowdown in the United States because the country consumes nearly 20 percent of the world's oil output.

Soaring oil prices, and related skyrocketing gasoline prices, are partly to blame for the US economy's sluggishness.

Mastercard, the credit card giant, said Tuesday that US gasoline demand had fallen last week for the 11th consecutive week, despite the peak-demand summer holiday driving season underway, as motorists curbed spending in the face of higher prices.

Trading on the oil market was volatile Tuesday. Earlier, prices had jumped toward recent record peaks as traders reacted to the dollar striking a record low level against the euro.

In the foreign exchange market, the euro hit a record 1.6038 dollars on mounting investor fears about the stormy US economic outlook, dealers said.

World equity markets also fell heavily on scepticism that a dramatic US government plan to rescue the two mortgage-finance giants, unveiled late Sunday, would contain the ongoing crisis in American finance, analysts said.

The weakening US currency stimulates demand for dollar-denominated raw materials like oil, which become relatively cheaper for buyers using stronger currencies.

A five-day strike by oil workers in Brazil against state-run Petrobras meanwhile exacerbated supply concerns, traders said.

Demand worries were stoked by the oil producers' cartel OPEC, which revised lower its forecast for world demand growth this year to 1.20 percent from 1.28 percent, citing the economic slowdown and the effect of high fuel prices.

"The new price structure and slower world economy have helped dampen oil demand growth in many regions," the Organization of the Petroleum Exporting Countries said in its monthly report.

The price of oil has more than doubled over the past 12 months. Both benchmark futures contracts hit new record peaks last Friday: 147.27 dollars in New York and 147.50 dollars in London.

- AFP /ls

[LenaHuat]

Oil price is correcting steadily as growth is obviously sliding in ALL major economies. This demand destruction, plus confidence-talking abt freeing up drilling opps, hopefully will bring prices down to around $120. But there's got to be greater certainty that it will stay at that level so that economies can recover. Been wondering what will provide that certainty.

[millionairemind]

Wondering how much of a LONG position does he have?? hmmm.....

Oil price is driven up by politics, not speculators says ICE chief
By Graham Ruddick
Last Updated: 7:09pm BST 15/07/2008

Sir Bob Reid, head of the Brent Oil trading market in London, says the increase in oil prices is being driven by global political problems not speculators, and warned that the boom is set to continue.

The chairman of ICE Futures Europe was giving evidence to the Treasury Committee in Westminster about the regulation of the oil market and the dramatic rise in the price of oil to more than $140 a barrel.

He also dismissed US concerns about the "London loophole" - a fear that gaps in regulation have led to excessive speculation or manipulation in the UK oil market - saying that monitoring of the market was more like a "reef knot".
According to Sir Bob, the price of oil is being driven by "unbelievable" political tensions in Nigeria, Iran, Russia and Brazil at a time when the balance between supply and demand is "very tight".

"Every day you have opened the paper in the last few months there seems to be something else that suggests it is going to draw oil from this balanced equation," he said.

"This has been an unusually difficult time. Will it ease off? I think you've got to look at each of those political situations and ask yourself, 'Is that likely to be solved?' Unfortunately, it's not very promising."

Sir Bob denied that speculators were a key factor behind the oil price boom, saying that market abuses were non-existent in the UK.

"This market is orderly - there is no absence of information, no sign of manipulation or activity of that nature that could constitute market abuse," he said.

The US Congress has brought up concerns that the ICE Futures market is not as closely regulated by the Financial Services Authority (FSA) as the US watchdog, the Commodity Futures Trading Commission (CFTC), controls American traders.

However, Sir Bob shrugged off these fears and said he was relaxed about CFTC plans to introduce new regulation on speculation into the UK.

"London is regulated not as a loophole but as a reef knot, with the FSA pulling one part of the rope and the CFTC pulling the other.

It is a very tight knot," Sir Bob said.

The FSA, which also gave evidence to the committee, supported the views of ICE Futures Europe despite tough questioning led by Labour MP John McFall, chairman of the committee.

Alexander Justham, the director of the markets division, said: "ICE has over 23 people daily monitoring the activity; we receive that data on a daily basis."

Dr Steven Fries, the chief economist at Shell, said that "underlying economic fundamentals" on supply and demand were the key factors.

The industry was aiming for "significant expansion" over the next two years to boost production, he added.

[millionairemind]

Oil reserves may raise false US hopes
By Sheila McNulty in Houston
Published: July 15 2008 21:40 | Last updated: July 15 2008 21:40

No one knows the extent of US oil and natural gas reserves in the offshore and Arctic areas that are off-limits to drilling. The last time they were surveyed was in the 1980s and the technology then used is no longer considered accurate, say industry experts.

“The youngest seismic [tests] in some of these areas is 25 years old,” said Bobby Ryan, Chevron’s vice-president for global exploration.
So even though President George W. Bush on Monday lifted a presidential ban on drilling on the US outer continental shelf, it does not mean a big jump in US production is in the offing.

Not only must Congress lift a separate ban imposed in the 1980s but the industry must survey the area with new technology to see what is there.

When the latest data on protected areas were gathered, they were collected in pockets instead of across a wide area, as is done now, which makes them much less comprehensive and gives less precise results. The analysis of the data was also relatively primitive. So estimates of an extra 2m-3m barrels of oil a day – roughly the equivalent of the daily output of Venezuela – might be some way off.

With oil prices rising sharply, polls show most Americans want Congress to lift the offshore ban if it would help reduce prices at the pump. John McCain, the Republican presidential candidate, advocates scrapping the ban while Barack Obama, the Democratic candidate, opposes it, saying any extra oil and gas produced would take years to develop and further encourage fossil fuel use.

Regular efforts in Congress to lift the ban have been quashed, but growing public support will give the move a better chance.

Industry believes that surveys with new technologies should be conducted before any decisions about opening up production in the protected areas are made.

New technology would give a far better picture of what is under the ground or ocean than before. It gives indicators about rock type and quality, and whether there may be pockets that might contain fossil fuel deposits, among other things.

But the failure rate is still high until exploration wells can be drilled in promising areas. Two out of three exploration wells in the Gulf of Mexico turned out to be dry holes.

“It’s still a risky business,” Mr Ryan said. “You still have to drill a well to know for sure. You are still wildcatting.”

Tom McClure, responsible for the upstream petroleum segment for IBM Deep Computing, said the technology kept getting better, with computers becoming faster so they could process more data and make better sense of it. “Imaging techniques are even better than they were five years ago.”

David Bader, professor in computational science and engineering at Georgia Institute of Technology, has been working with IBM on developing its PowerXCell processor, a supercomputing chip originally designed for the Playstation 3, to search for oil reserves in what is known as “ultradeep water” – 5,000ft or more deep.

“The chip in the Play- station 3 is equivalent to what was in a super computer five years ago,” Mr Bader said.

But the industry is not going to use this technology to study protected areas unless they are open to production. “It costs a lot of money to take a look,” Mr McClure said. “Nobody wants to take a look unless you could get a return.”
Copyright The Financial Times Limited 2008

[iam802]

Sir Bob Reid, head of the Brent Oil trading market in London, says the increase in oil prices is being driven by global political problems not speculators, and warned that the boom is set to continue.

This statement makes more sense. Though, I think speculators (not the small retail investors) adds to it.

Govt. make move, aid by private sectors.

[Aspellian]

Recent sharp drop in oil prices - $9 the day before and now $4... all these occurred when US mortgage is having a big big problem with FMae and FMac and bank runs. Is it a coincidence or are there "efforts" out there in trying to minimise the effects of the bad news by manipulating oil prices (reducing it)?

does it mean that oil prices will retreat to more sensible levels or will "market forces" take over once again and high oil prices rear its ugly head?

too complicated... shall think about it. any comments?

[kennynah]

hahaha....too complex....for me too....

[HengHeng]

well there are many people benefiting from a lower oil. GS at least made a pile.. LOL

Don't ask me how i know but i guessed.

[winston]

China would like to see lower Oil prices.

What is the chance that China will release better than expected CPI and PPI numbers in 2 hours time?

Not a nice time to be long Oil for the past few days..

[kennynah]

venture guess....cpi/ppi sure high one...higher than expected...

((ps : eh...now i see the timing of the post...i think war over already....hahahaa...))