Oil prices may finally be getting acquainted with reality. After clipping an eight-month high earlier today, crude prices tumbled more than 2% to close below $70 a barrel.
Given the shaky consumer-confidence reading this morning, primarily attributed to higher gasoline prices, a drop in oil prices would be welcome. And it may be in the offing following a 41% gain in prices during the second quarter.
The oil market has not exactly focused on fundamental supply and demand issues during the past couple of years. The price spike to $147 a barrel one year ago looks bizarre in retrospect. The lows of $35 a barrel earlier this year reflected the post-Lehman uber-pessimism.
More recently, the surge in oil prices — up 68% in the last five months — has similarly ignored reality. Oil supplies are rising, global demand is down and inflation fears remain highly theoretical.
Oil bulls have focused on two notions: a weaker dollar and rising demand from China. When the dollar declines, commodity prices tend to rise since they are priced in dollars. Need more of the weak buck to buy the same amount of crude, all things being equal. There is something to this idea, because the dollar has struggled and many expect it to have a rough go amid soaring fiscal deficits.
The China demand notion, however, is far weaker. Even if China demand is rising, the wilting economies of Europe, Japan and the U.S. more than compensate for that demand. Given the still uncertain prospects for these large economies, it’s hard to see how demand will drive oil prices higher.
Intriguingly, Chevron and ExxonMobil started retreating from recent highs earlier in June even as oil prices pressed higher. Maybe those stock moves foreshadowed coming weakness in the oil market. We could see a broader retreat in oil prices, especially if the Green Shoots don’t start blossoming into something more than a hope.
Source
Saturday, July 4, 2009
Friday, July 3, 2009
Oil Tumbles From 8-Month High as Consumer Confidence Slumps
Crude oil tumbled from an eight- month high and gasoline fell as U.S. consumer confidence declined in June, indicating lower fuel demand.
Oil dropped 2.2 percent after the Conference Board’s sentiment index unexpectedly weakened and delinquencies on the least risky U.S. mortgages more than doubled. The U.K. economy shrank the most since 1958, a government report showed. Oil also retreated on forecasts that U.S. fuel supplies rose last week.
“The consumer confidence number is raining on the bulls’ parade,” said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. “We were moving higher earlier today but concerns about the economy are now pulling the market lower.”
Crude oil for August delivery fell $1.60 to settle at $69.89 a barrel at 2:53 p.m. on the New York Mercantile Exchange. Prices are up 57 percent this year. Futures touched $73.38 a barrel earlier today, the highest since Oct. 21, as militant attacks curbed supply from Africa’s largest producer.
Prices pared losses in electronic trading after the American Petroleum Institute reported that U.S. crude-oil supplies dropped 6.82 million barrels to 349.7 million last week, the biggest decline since September. Futures were down 92 cents, or 1.3 percent, at $70.57 a barrel at 4:46 p.m.
Oil in New York posted a 41 percent quarterly gain, the biggest since 1990. Prices have rallied as rebounding world equity markets and a weaker dollar encouraged investors to buy the commodity as an alternative investment.
‘Significant Volatility’
“I’m expecting significant volatility this week as fund managers position themselves for the end of the quarter and because it’s a short trading week,” said Stephen Schork, president of the Schork Group Inc. of Villanova, Pennsylvania. “I don’t think this is the death-knell of the market.”
There will be no floor trading in New York on July 3 because of the Independence Day holiday.
“Once we come back from the holiday on Monday, it will be a whole new game,” Schork said. “Price is high and demand is low. Attention may shift to the fundamentals.”
Gasoline for July delivery declined 3.86 cents, or 2 percent, to end the session at $1.8972 a gallon in New York. The July contract expired today. The more-active August contract declined 3.34 cents, or 1.7 percent, to settle at $1.902.
The Conference Board’s consumer sentiment index fell to 49.3 from a revised 54.8 in May, the New York-based research group said. Prime mortgages 60 days or more past due climbed to 2.9 percent of such loans through March 31 from 1.1 percent at the same point in 2008, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said today.
U.K. Economy
Gross domestic product in the U.K. decreased 2.4 percent in the first quarter from the final three months of 2008, the Office for National Statistics said today in London. The economy was forecast to slip 2.1 percent, according to the median of 28 economists surveyed by Bloomberg News.
“Oil moved above $73 overnight, but then had to face some sobering headlines,” said John Kilduff, senior vice president of energy at MF Global in New York. “The U.K. GDP numbers were quite dour, which took the momentum right out of the market.”
An Energy Department report tomorrow will probably show that U.S. fuel inventories rose last week. Gasoline supplies climbed 2 million barrels, according to the median of 15 estimates in a Bloomberg News survey. Stockpiles of distillate fuel, a category that includes heating oil and diesel, increased 1.5 million barrels.
Crude-oil supplies declined 2 million barrels, according to the survey. The Energy Department is scheduled to release its weekly report on July 1 at 10:30 a.m. in Washington. The industry-funded API released its weekly supply data at 4:40 p.m. today, 10 minutes later than usual.
Possible Outcomes
“Just about any possible outcome tomorrow will be bearish,” said Peter Beutel, president of Cameron Hanover Inc., an energy consulting company in New Canaan, Connecticut. “We are expecting the fuel stocks to increase and there will be plenty of crude oil available even if there is a drop.”
Total U.S. daily fuel demand in the four weeks ended June 19 was down 6.6 percent from a year earlier, the Energy Department said last week.
The International Energy Agency, an adviser to 28 developed nations, yesterday lowered its five-year forecast for global crude demand because of the economic slump. The Paris-based agency cut its oil-consumption estimates for every year through 2013 by about 3 million barrels a day.
Declining crude oil and gasoline prices helped send the Reuters/Jefferies CRB Index of 19 raw materials lower. The index dropped 1.7 percent to 249.96. The measure is up 13 percent for the quarter.
Brent Oil
Brent crude oil for August settlement fell $1.69, or 2.4 percent, to end the session at $69.30 a barrel on London’s ICE Futures Europe exchange.
Crude oil volume in electronic trading on the Nymex was 456,723 contracts as of 3:06 p.m. in New York. Volume totaled 371,435 contracts yesterday, 25 percent less than the average over the past three months. Open interest was 1.15 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.
Source
Oil dropped 2.2 percent after the Conference Board’s sentiment index unexpectedly weakened and delinquencies on the least risky U.S. mortgages more than doubled. The U.K. economy shrank the most since 1958, a government report showed. Oil also retreated on forecasts that U.S. fuel supplies rose last week.
“The consumer confidence number is raining on the bulls’ parade,” said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. “We were moving higher earlier today but concerns about the economy are now pulling the market lower.”
Crude oil for August delivery fell $1.60 to settle at $69.89 a barrel at 2:53 p.m. on the New York Mercantile Exchange. Prices are up 57 percent this year. Futures touched $73.38 a barrel earlier today, the highest since Oct. 21, as militant attacks curbed supply from Africa’s largest producer.
Prices pared losses in electronic trading after the American Petroleum Institute reported that U.S. crude-oil supplies dropped 6.82 million barrels to 349.7 million last week, the biggest decline since September. Futures were down 92 cents, or 1.3 percent, at $70.57 a barrel at 4:46 p.m.
Oil in New York posted a 41 percent quarterly gain, the biggest since 1990. Prices have rallied as rebounding world equity markets and a weaker dollar encouraged investors to buy the commodity as an alternative investment.
‘Significant Volatility’
“I’m expecting significant volatility this week as fund managers position themselves for the end of the quarter and because it’s a short trading week,” said Stephen Schork, president of the Schork Group Inc. of Villanova, Pennsylvania. “I don’t think this is the death-knell of the market.”
There will be no floor trading in New York on July 3 because of the Independence Day holiday.
“Once we come back from the holiday on Monday, it will be a whole new game,” Schork said. “Price is high and demand is low. Attention may shift to the fundamentals.”
Gasoline for July delivery declined 3.86 cents, or 2 percent, to end the session at $1.8972 a gallon in New York. The July contract expired today. The more-active August contract declined 3.34 cents, or 1.7 percent, to settle at $1.902.
The Conference Board’s consumer sentiment index fell to 49.3 from a revised 54.8 in May, the New York-based research group said. Prime mortgages 60 days or more past due climbed to 2.9 percent of such loans through March 31 from 1.1 percent at the same point in 2008, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said today.
U.K. Economy
Gross domestic product in the U.K. decreased 2.4 percent in the first quarter from the final three months of 2008, the Office for National Statistics said today in London. The economy was forecast to slip 2.1 percent, according to the median of 28 economists surveyed by Bloomberg News.
“Oil moved above $73 overnight, but then had to face some sobering headlines,” said John Kilduff, senior vice president of energy at MF Global in New York. “The U.K. GDP numbers were quite dour, which took the momentum right out of the market.”
An Energy Department report tomorrow will probably show that U.S. fuel inventories rose last week. Gasoline supplies climbed 2 million barrels, according to the median of 15 estimates in a Bloomberg News survey. Stockpiles of distillate fuel, a category that includes heating oil and diesel, increased 1.5 million barrels.
Crude-oil supplies declined 2 million barrels, according to the survey. The Energy Department is scheduled to release its weekly report on July 1 at 10:30 a.m. in Washington. The industry-funded API released its weekly supply data at 4:40 p.m. today, 10 minutes later than usual.
Possible Outcomes
“Just about any possible outcome tomorrow will be bearish,” said Peter Beutel, president of Cameron Hanover Inc., an energy consulting company in New Canaan, Connecticut. “We are expecting the fuel stocks to increase and there will be plenty of crude oil available even if there is a drop.”
Total U.S. daily fuel demand in the four weeks ended June 19 was down 6.6 percent from a year earlier, the Energy Department said last week.
The International Energy Agency, an adviser to 28 developed nations, yesterday lowered its five-year forecast for global crude demand because of the economic slump. The Paris-based agency cut its oil-consumption estimates for every year through 2013 by about 3 million barrels a day.
Declining crude oil and gasoline prices helped send the Reuters/Jefferies CRB Index of 19 raw materials lower. The index dropped 1.7 percent to 249.96. The measure is up 13 percent for the quarter.
Brent Oil
Brent crude oil for August settlement fell $1.69, or 2.4 percent, to end the session at $69.30 a barrel on London’s ICE Futures Europe exchange.
Crude oil volume in electronic trading on the Nymex was 456,723 contracts as of 3:06 p.m. in New York. Volume totaled 371,435 contracts yesterday, 25 percent less than the average over the past three months. Open interest was 1.15 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.
Source
Wednesday, July 1, 2009
Iraq awards BP-led consortium a contract to develop oil field
Reporting from Baghdad -- A much ballyhooed effort by Iraq to lure foreign investment and expertise to help its battered oil industry fizzled Tuesday after it became clear that the government is not prepared to pay the prices international oil companies are asking for their services.
Iraq was seeking bids for the development of eight of its existing oil and gas fields, but only one contract to work one oil field was awarded at a public auction televised live from Baghdad's Rashid Hotel in the heavily fortified Green Zone.
The disappointing outcome to the widely anticipated event, which was planned a year ago, suggested that international oil firms aren't as eager to invest in Iraq as the government had hoped and that there will be no quick fix for the nation's looming financial problems.
"It's pretty much a total disaster," said Peter Kemp of the New York-based Energy Intelligence publishing group. "It seems the Iraqis totally miscalculated the commercial realities of this process."
The sole contract was awarded to a consortium led by Britain's BP and including China's CNPC International Ltd., marking the first time foreign companies have been permitted to invest in Iraqi oil since 1972, when the country's oil industry was nationalized. Iraqi Oil Minister Hussein Shahristani called it a "historic day" that coincided with the withdrawal of U.S. troops from Iraq's cities.
The auction drew dozens of executives from the world's top oil firms and was being closely watched for signs of how the new Iraq is likely to go about developing its vast proven oil reserves, the third-largest in the Middle East after Saudi Arabia and Iran.
But as the bids were unsealed, it quickly became clear that there was a wide gulf between the maximum price the Iraqi government was prepared to pay investors to develop the oil fields and the minimum price oil companies were prepared to accept.
A Chinese consortium sought 10 times the price offered by the Iraqi government to develop the Maysan field in southern Iraq, and a consortium led by U.S. oil giant ConocoPhillips sought five times more than the Iraqi offer to develop the Bai Hassan field in the north.
Under such contracts, oil companies would be paid a fixed fee per unit of oil or gas produced, above a certain threshold, in return for much-needed technical expertise and investment in infrastructure to increase production.
Four of the eight fields on offer received only one bid each, and a gas field in troubled Diyala province received no bids, indicating that oil companies are less keen to enter the potential quagmire of Iraq than had been anticipated, despite recent security improvements.
Shahristani acknowledged that oil companies investing in Iraq will need to pay hefty fees to security companies to ensure the safety of employees, which may explain why their prices were so high.
"Some of the oil companies are not very comfortable with the security situation, and this is why they didn't offer acceptable bids," he said.
The process also has been bitterly opposed by some Iraqi politicians, who believe that the fee structure being offered to foreign oil companies represents a surrender of national interests. Shahristani was under intense pressure not to concede too much, said Ruba Husari, founder of the Iraq Oil Forum website.
"In political terms, he can say it wasn't a sellout, that we did not give our oil fields to the international companies at any price," she said.
Shahristani said he thought the prices offered by the government were realistic but he also hinted at the political pressure, saying that his government had sought to balance a fair price for the oil companies with the need "to have a fair deal for the Iraqi people."
But Iraq is equally under pressure to do something to bolster its oil production, which has been sagging as the country's antiquated oil infrastructure erodes after decades of neglect. The government, which is running an $18-billion deficit this year, is being funded by surpluses accumulated in previous years, but it could face difficulties next year, officials say.
Shahristani said he was confident that the contract awarded would be enough to generate an extra $1.7 trillion over the next 30 years from southern Iraq's vast Rumaila oil field. But Husari said she thought the production targets set for the field were "overambitious."
Companies whose bids were rejected by the government were invited to resubmit their offers, which would then be considered by the Iraqi Cabinet. But it was unclear what the time frame would be, or whether a middle ground could be found given the differences that emerged.
The Oil Ministry also plans a second public auction by the end of the year, seeking investments in previously undeveloped oil fields.
Source
Iraq was seeking bids for the development of eight of its existing oil and gas fields, but only one contract to work one oil field was awarded at a public auction televised live from Baghdad's Rashid Hotel in the heavily fortified Green Zone.
The disappointing outcome to the widely anticipated event, which was planned a year ago, suggested that international oil firms aren't as eager to invest in Iraq as the government had hoped and that there will be no quick fix for the nation's looming financial problems.
"It's pretty much a total disaster," said Peter Kemp of the New York-based Energy Intelligence publishing group. "It seems the Iraqis totally miscalculated the commercial realities of this process."
The sole contract was awarded to a consortium led by Britain's BP and including China's CNPC International Ltd., marking the first time foreign companies have been permitted to invest in Iraqi oil since 1972, when the country's oil industry was nationalized. Iraqi Oil Minister Hussein Shahristani called it a "historic day" that coincided with the withdrawal of U.S. troops from Iraq's cities.
The auction drew dozens of executives from the world's top oil firms and was being closely watched for signs of how the new Iraq is likely to go about developing its vast proven oil reserves, the third-largest in the Middle East after Saudi Arabia and Iran.
But as the bids were unsealed, it quickly became clear that there was a wide gulf between the maximum price the Iraqi government was prepared to pay investors to develop the oil fields and the minimum price oil companies were prepared to accept.
A Chinese consortium sought 10 times the price offered by the Iraqi government to develop the Maysan field in southern Iraq, and a consortium led by U.S. oil giant ConocoPhillips sought five times more than the Iraqi offer to develop the Bai Hassan field in the north.
Under such contracts, oil companies would be paid a fixed fee per unit of oil or gas produced, above a certain threshold, in return for much-needed technical expertise and investment in infrastructure to increase production.
Four of the eight fields on offer received only one bid each, and a gas field in troubled Diyala province received no bids, indicating that oil companies are less keen to enter the potential quagmire of Iraq than had been anticipated, despite recent security improvements.
Shahristani acknowledged that oil companies investing in Iraq will need to pay hefty fees to security companies to ensure the safety of employees, which may explain why their prices were so high.
"Some of the oil companies are not very comfortable with the security situation, and this is why they didn't offer acceptable bids," he said.
The process also has been bitterly opposed by some Iraqi politicians, who believe that the fee structure being offered to foreign oil companies represents a surrender of national interests. Shahristani was under intense pressure not to concede too much, said Ruba Husari, founder of the Iraq Oil Forum website.
"In political terms, he can say it wasn't a sellout, that we did not give our oil fields to the international companies at any price," she said.
Shahristani said he thought the prices offered by the government were realistic but he also hinted at the political pressure, saying that his government had sought to balance a fair price for the oil companies with the need "to have a fair deal for the Iraqi people."
But Iraq is equally under pressure to do something to bolster its oil production, which has been sagging as the country's antiquated oil infrastructure erodes after decades of neglect. The government, which is running an $18-billion deficit this year, is being funded by surpluses accumulated in previous years, but it could face difficulties next year, officials say.
Shahristani said he was confident that the contract awarded would be enough to generate an extra $1.7 trillion over the next 30 years from southern Iraq's vast Rumaila oil field. But Husari said she thought the production targets set for the field were "overambitious."
Companies whose bids were rejected by the government were invited to resubmit their offers, which would then be considered by the Iraqi Cabinet. But it was unclear what the time frame would be, or whether a middle ground could be found given the differences that emerged.
The Oil Ministry also plans a second public auction by the end of the year, seeking investments in previously undeveloped oil fields.
Source
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