Oil & Gas 01 (May 08 - Jul 08)

[kennynah]

too much caviar is bad for the brains...evidently

********************

19 May 2008 11:46 GMT
UPDATE: French Fishing Boats Block Lavera Oil Port
(Adds protests elsewhere, fisheries minister, budget minister comment.)


MARSEILLE, France (AFP)--French fishermen angry at high fuel costs Monday blocked a Mediterranean oil port and stepped up protests at other Atlantic and Channel ports.

Fishing crews strung a drift net across the entrance to the Lavera oil terminal, at Port-de-Bouc, preventing boats from entering and leaving the harbor, the Marseille port authority said.

The eighth largest port at La Rochelle remained paralyzed, including its fuel depot which supplies much of western France as fishermen kept up their protest launched Wednesday.

From Pas-de-Calais in the north to Marseille, fishermen vowed to keep up their protest ahead of a meeting Wednesday with Agriculture and Fisheries Minister Michel Barnier on a rescue package for the industry.

President Nicolas Sarkozy announced a EUR310 million aid package to fishermen after several French ports were blockaded in November. But the fishermen now say the aid isn't enough to cope with the sharp increase in the price of diesel fuel that has reached 79 euro cents a liter, up from 40 cents in November.

Fisheries Minister Barnier Sunday suggested there could be "adjustments" to the aid package.

The president of the fishermen's committee in the northern city of Saint-Malo warned if no breakthrough came from the talks with Barnier "there will be action on land and on sea."

Fisherman Jacques Bigot from the CFTC union in the northern Pas-de-Calais region said fishing quotas were also part of the problem.

"All of last week, the boats went out to sea...but we aren't able to cover the cost of the diesel with what we are allowed to catch," Bigot told AFP. "The situation is getting desperate."

The crews from some 60 boats at the Boulogne-sur-Mer, France's biggest fishing port in terms of tonnage, went on strike Monday.

Budget Minister Eric Woerth said the government was committed to providing promised aid, but said "much had been done on the issue of fuel for the boats and to reduce the social charges of the fishermen."

He suggested France would turn to the European Union, with Barnier due to present French proposals at a meeting in Brussels Monday of European agriculture and fisheries ministers.

Fishermen were also blocking the ports of Ile d'Oleron, Sables d'Olonne, La Turballe and Croisic along the Atlantic seaboard. About a dozen boats also set up a blockade of Cherbourg while fishing boats stood idle in the Normandy ports of Port-en-Bessin and Trouville-sur-Mer.

[HengHeng]

To me around 129 the most. Should be flipping direction soon. Buying volumes start to drop.

[kennynah]

if so....then do consider the Oil Refiners....such as Valero Energy (VLO), Frontier Oil (FTO), Sunoco (SUN)

good luck....

i do note a lack of strength in upward movement of crude today...

[kennynah]

if u r looking for the definition of "bully"....read below

20 May 2008 00:04 GMT

White House Renews Threat To Veto 'NOPEC' Legislation

WASHINGTON -(Dow Jones)- The White House Monday renewed its threat to veto legislation that authorizes the Department of Justice to prosecute the Organization of Petroleum Exporting Countries and related companies for anti-competitive behavior.

The U.S. House of Representatives is scheduled to vote Tuesday on a bill with a provision aiming to "crack down on OPEC-controlled entities and oil companies for oil price fixing." The measure is being sponsored by Rep. Steve Kagen, D-Wis.

Lawmakers are scrambling to find ways to show constituents they are acting to lower energy prices, but analysts say even if the bill makes its way through the legislative process, it will likely exacerbate growing tensions with the world's largest crude producers, and could cause prices to rise instead.

The so-called "NOPEC" provision, passed as part of both the House and Senate's energy packages last year, but it failed to be attached the to final energy bill passed through Congress because of the presidential veto. It would change certain laws, such as the Sherman Act and Foreign Sovereign Immunities Act, to block OPEC countries like Iran, Kuwait, Saudi Arabia and Venezuela from invoking immunity from U.S. court action relating to concerns about oil production.

The Office of Management and Budget said in a statement the administration strongly opposed the measure and senior advisors would recommend that the president veto the legislation.

The White House said the bill would subject sovereign foreign countries to the jurisdiction of U.S. courts.

"The consequent targeting of foreign direct investment in the United States as a source of damage awards would likely spur retaliatory action against American interests in those countries and lead to a reduction in oil available to U.S. refiners," the OMB said in a statement of policy.

"The net effect would be to harm U.S. interests abroad, discourage investment in the U.S. economy, potentially limit the availability of gasoline and possibly further increase fuel prices," it added.

The office of House Speaker Nancy Pelosi, D-Calif., said Monday that with the U.S. importing nearly 6 million barrels of crude oil a day from Saudi Arabia and other OPEC countries, "American consumers remain at the mercy of OPEC nations in how much they pay to fill up their tanks."

The NOPEC provision is part of the House Democratic leadership's Gas Price Relief for Consumers Act, which also proposes a new Department of Justice Petroleum Industry Antitrust Task Force. The division would probe for price gouging in the gasoline markets, potential anti-competitive price discrimination by petroleum refiners, and market manipulation.

The White House said the task force provision "is duplicative and unnecessary," pointing to the Justice Department and Federal Trade Commission's current powers. While the DOJ has sufficient enforcement authority, "The FTC has a strong record in analyzing competition and enforcing the antitrust laws in petroleum industry markets, and that mission could be undermined by the creation of a Task Force with overlapping authority."

[Musicwhiz]

An article from BT on oil and gas. Take note of the BOLD sections - it now costs oil majors a lot more to produce than before !

Business Times - 20 May 2008

Oil majors mired in supply squeeze

(NEW YORK) Never have so many oil and gas companies spent so much to produce so little.

That is the challenge facing ExxonMobil, Royal Dutch Shell, BP plc, Chevron, Total and ConocoPhillips, which will spend a record US$98.7 billion this year on exploration and production, Lehman Brothers estimates. Costs have more than quadrupled since 2000 as explorers targeted more challenging reservoirs and demand rose for labour and materials.

New supply from outside the Organisation of Petroleum Exporting Countries (Opec) nations will meet about 20 per cent of the growth in world demand over the next four years, data from the International Energy Agency (IEA) show. The lack of supply has traders betting that oil will remain at about US$120 a barrel for at least eight years, according to futures on the New York Mercantile Exchange.

The wagers are buttressed by delays at fields including Kashagan, a Kazakh deposit where the budget has more than doubled to US$136 billion and the first production is eight years behind schedule. Waters frozen for half the year have forced contractors to build artificial islands, while care must be taken to protect workers from deadly hydrogen sulphide fumes emitted by the wells.

'The future is going to be very trying for the international oil companies,' said Robert Ebel, chairman of the energy programme at the Centre for Strategic and International Studies in Washington. 'There's no more easy oil for them. Kashagan is a shining example of the problems they face bringing new oil into play.'

Options contracts that allow buyers to lock in crude at US$200 a barrel and expire in December on Nymex have soared more than ninefold since January.

Oil companies are turning to more technically challenging fields as oil-rich nations limit access. Russia is taking control of BP's stake in the Kovykta gas field, a deposit in east Siberia big enough to supply Asia for five years. Algeria has imposed a profits tax, and Venezuela seized four oil ventures from companies including ExxonMobil and ConocoPhillips a year ago.

Drillers could access only 7 per cent of known world reserves in 2005, down from 85 per cent in 1970, according to a July report by the National Petroleum Council in Washington. The 13 members of Opec held 919 billion barrels of oil as of 2006, or 76 per cent of proved global reserves, according to BP. Add Russia and the total rises to 83 per cent.

'Normally, high prices would mean higher supply,' said Fadhil Chalabi, executive director at the Centre for Global Energy Studies in London. 'What is happening is something different. The international companies are denied access to areas of abundant oil within Opec, and it's getting costlier in other areas.' The cost to find and develop a barrel of crude between 2000 and 2007 more than quadrupled to US$18 from US$4, said Andrew Latham, vice-president of exploration services at Wood Mackenzie Consultants in Edinburgh. Demand in the period climbed 11 per cent, or 8.8 million barrels a day, according to the IEA. Consumption will jump another 8.5 per cent to 95.8 million barrels a day by 2012, the figures show.

Even as countries reclaim their reserves, many are relying on high oil prices rather than increased production to meet government budgets. Output in Russia is expected to fall for the first time in a decade, and Saudi Arabia's decision this month to increase output by 300,000 barrels a day still won't offset a 390,000 barrel-a-day drop in monthly Opec production last month.

Shell chief executive officer Jeroen van der Veer said in January that the company has to deal with state-run companies demanding better terms when negotiating energy deals and that this trend will continue.

BP chief financial officer Byron Grote said on April 29 that production will be little changed this year if oil stays at US$100 a barrel because governments will take a larger share of the output.

During the Arab oil embargo of 1973 to 1974, soaring oil prices cut consumption by about 2 per cent, IEA chief economist Fatih Birol said. This is not happening today because of demand in emerging economies, where subsidies blunt the effect of soaring oil prices, he said.

Consumers are paying for the failure to find more crude. Petrol costs an average of US$3.794 a gallon (a gallon is 4.546 litres) at the pump in the US yesterday, a record according to the American Automobile Association. It takes US$220,000 to fill a Boeing 747 with jet fuel, about double the price a year ago, Bloomberg calculations show. -- Bloomberg

[winston]

By David Galland
May 19, 2008

The #3 Source of Oil to the US Is About to Go Offline

Mexico provides about 14% of the oil the US imports. On any given day that makes it either the #2 or #3 leading source for US oil imports after Canada and Saudi Arabia. Given that the US currently imports close to 70% of its oil needs, the Mexican oil is critical.

But here's the thing. Using straightforward ELM calculations, Jeffrey Brown is confident that Mexico will ship its last barrel of oil to the United States -- or anywhere else, for that matter -- about 6 years from now, in 2014. In a recent interview with Brown, I asked about this forecast.

"Mexico was consuming half of their production at peak in 2004. And if you look at the '05, '06, '07 data, they're basically on track, on average, to approach zero net oil exports no later than 2014," he confirmed.

Of course, the US is completely unprepared to replace this source of oil, especially considering the growing stresses on global oil supplies causing by ballooning demand from emerging markets. That means the international competition for available supplies is only going to get more desperate in the months and years ahead.

What will this mean to oil prices, according to Brown?

"From this point out I think we'll see a geometric progression in prices ... you know, $50, $100, $200, $400, whatever. The only question now is how short the periods will be between prices doubling again."

Coincidentally, while this report was in preparation, on April 30, 2008, PEMEX, Mexico's national oil company, announced it would be unable to fulfill this year's scheduled oil export obligations to the United States ... falling short by about 11%, or 184,000 barrels a day.

(As an aside, I also have to believe that Mexico's coming transition to a net importer and the loss of almost 6% of the country's GDP, now earned from exporting oil, will trigger serious social issues in that country. But that is another story for another day.)

[winston]

Energy equities make more sense

In the current environment, with fast-rising oil prices, there are downside risks in investing in a commodities fund. Better alternatives are available, reports GENEVIEVE CUA

AS THE price of oil scales new heights, investors fret - with some justification - that investing in a commodities fund today poses some downside risks.

'Oil needs to rise to a level that demand is destroyed. Reducing demand will give supply a chance to catch up...I have no idea what that price is.'
- Robin Batchelor, BlackRock MD

Consider equities instead - specifically, energy equities. BlackRock managing director and portfolio manager Robin Batchelor believes the structural supply/demand imbalance that besets oil and other energy resources is set to continue. But the next leg of appreciation, he says, will centre on energy equities, which are currently undervalued.

'Oil price can go up further over the long term. However, it has moved up quite quickly and equities haven't. The opportunity lies in equities catching up with the oil price today . . . I think people should be invested in energy.

'The (energy equities) sector is so undervalued with so much earnings and positive earnings momentum going for it, against other sectors with negative earnings momentum.'

Oil and gas majors are generally trading at a price-earnings multiple of nine to 10 times. Price-to-book value multiples are also fairly low.

The energy sector comprises 13 per cent of the S&P 500, and contributes 23 per cent of the index's earnings.

The strength of oil this year has generally taken the market by surprise. The conventional view had been that with a weaker US economy, and a consequently weaker global economy, oil and other commodities' prices should begin to moderate; that has not happened so far.

'Right now is usually a weaker period of seasonal demand for oil. As we move through May and June, that seasonal weakness ends and typically demand picks up. Any window for a seasonal pullback is disappearing quickly,' says Mr Batchelor.

Based on 2003 projections by the International Energy Agency (IEA), an annual 1.7 per cent increase in energy use translates to the need for 11 million barrels per day (bpd) of extra oil by 2010, or a total of 88 million bpd. Lost production as a result of declines in mature reservoirs adds the need for another 33 million bpd of oil. IEA's latest data shows that global oil demand in 2008 stood at about 87 million barrels daily, with supply roughly matching that level.

BlackRock believes that fresh supply by Opec and 'demand destruction' are needed to balance the market. Says Mr Batchelor: 'Oil needs to rise to a level that demand is destroyed. Reducing demand will give supply a chance to catch up . . . I have no idea what that price is.' Goldman Sachs analysts forecasted in March that oil could hit US$200 a barrel if there was a 'major disruption'.

He also takes issue with the expectation that a US slowdown will cause the oil price to soften, as emerging markets will 'overwhelm' demand. 'People don't understand the scale of what we're talking about. A large part of the world population is starting to consume and trying to catch up with the Western world. China is using more oil but people don't realise how much further China has to go.'

If China and India were to reach US levels of oil consumption, the two countries alone will require 160 million bpd - about double today's global supply.

On oil equities, Mr Batchelor says analysts' projections of earnings have been based on lower expectations of oil prices. Analysts are factoring an oil price of US$70 in their valuations when oil futures are trading at over US$100 out to 2015. This suggests that a re-rating is in the offing.

'If you factor in an oil price of US$105, you'll see an undervaluation of between 15 and 25 per cent or more on this year's earnings . . . There is significant upside if oil price maintains at higher levels. Oil will be volatile but the supply/demand balance looks tight,' he says.

Apart from attractive valuations, Mr Batchelor sifts for companies with strong reserves of oil. 'We believe that reserves of oil, gas and coal will become more valued over time. As soon as you look at companies on that basis, the world splits between the 'haves' who have a good reserve base to raise production, and the 'have nots' who don't. If the haves kept their costs under control, and the oil prices stayed flat, they'd still show an increase in earnings.

'If the oil price rises, you get a double whammy: an increase in earnings as production rises, and also as the oil price rises,' he says.

[HengHeng]

hmmm i'm pretty amazed at how good Ben Bernerke is when he wants market to "move". LOL usually when he says something market takes it positively and gold/oil spikes.

[winston]

Blame Wall Street for $135 Oil on Wrong-Way Betting (Update1)
By Alexander Kwiatkowski and Grant Smith

May 22 (Bloomberg) -- Oil's rally to a record above $135 a barrel came as traders bought crude to cover wrong-way bets that prices would decline, according to data from the New York Mercantile Exchange.

The number of outstanding futures contracts, known as open interest, fell 8.1 percent in a week to 1.36 million at the same time that prices rose 2.6 percent, the data show. Falling open interest and rising prices are signs that traders are buying to exit so-called short positions that would profit if oil fell, and lose money as they rose.

``In a market like today, which is trending higher while open interest is falling, it's a sign that money is moving out of the market,'' said Stephen Schork, president of Schork Group Inc. in Villanova, Pennsylvania. Open interest in Nymex crude futures peaked this year at 1.5 million on March 13.

Crude futures yesterday gained 3.3 percent to $133.17 a barrel for July delivery, the largest advance since May 2 on the Nymex, and touched a record $135.04 today. Oil rose after a government report showed U.S. inventories unexpectedly declined last week. Oil has more than doubled in the past year.

Open interest has been sliding for months, after the number of outstanding crude futures reached a record 1.58 million on July 16, 2007.

``It is not a growing market, it is a shrinking market in terms of open interest,'' said Olivier Jakob, managing director of Petromatrix Gmbh in Zug, Swizterland. ``It is also facilitating the move upward.''

Shell's View

Oil prices have closed at record highs on 27 days so far this year, prompting OPEC oil ministers including Saudi Arabia's Ali al-Naimi to declare that the rally is led by investors, rather than a shortage of supply.

Crude for delivery in December 2016 ended yesterday at $142.09 a barrel, signaling investors anticipate prices will gain for years. Some traders speculate oil will reach $200 this year. The price of a December 2008 option contract that allows the holder to buy 1,000 barrels of crude at $200 each jumped 67 percent in three days to $1.72 a barrel yesterday on the Nymex.

U.S. oil executives told Congress yesterday that prices should be between $35 and $90 a barrel. John Hofmeister, president of Shell Oil Co., the Houston-based subsidiary of Royal Dutch Shell Plc, pegged the proper range ``somewhere between $35 and $65 a barrel.''

Saudi minister al-Naimi said in March when oil was trading near $100 that prices were unlikely to fall below $60 or $70, representing the cost of producing alternatives such as biofuels or tar sands.

Biofuels such as ethanol are the only alternative to crude oil, Sun Microsystems Inc. co-founder Vinod Khosla said in an interview on Bloomberg Radio yesterday.

``The only realistic option that we have, and there is none other, is to use biofuels,'' said Khosla, an investor in ethanol makers. ``There is only one choice.''

[HengHeng]

Just use a straddle/strangle option strategy to gain from volatilty lor. Doesn't matter whether up or down so long as move you earn money.

Another way to apply VIX to trading.