Oil extends losses as high price erodes demand - MSN - Money
Oil fell slightly on Tuesday, extending a slide sparked by evidence that high prices were starting to slow global economic growth and curb U.S. fuel demand. Losses were checked by worries that the U.S. oil industry's recovery from Hurricane Katrina two weeks ago had stalled, leaving 5 percent of the country's refining capacity and nearly half its Gulf of Mexico oil production offline. U.S. light crude settled down 23 cents to $63.11 a barrel, after dropping 74 cents in New York on Monday. Prices are more than $7 below record highs hit two weeks ago. London Brent crude was off 19 cents to $61.61 a barrel, after falling more than $1 on Monday. Crude oil spiked to $70.85 a barrel and U.S. retail gasoline shot above $3 a gallon after Hurricane Katrina slammed into the U.S. Gulf Coast in late August, cutting nearly all offshore production and shutting eight refineries. But for consumers, the worst may be over. "The recent run up in prices should be enough to start demand retardation and to grind down prices over the next few years," said Credit Suisse First Boston. Prices have been marching higher for the past two years as the world struggles to pump and refine enough oil to satisfy thirsty consumers in the United States and Asia. U.S. crude, up 46 percent since the start of the year, has been supported by investors piling into energy and out of low performing bond and equities markets. Analysts say the economic shock from the disaster and ensuing oil rally may curb the rapid growth in oil consumption that has doubled crude prices in the past two years. "While we do see signs of demand slowing, we still do not anticipate a 'crash,"' said a JP Morgan report. "There are, however, some chinks in the armor." Fears of a gasoline-supply crunch in the world's top oil consumer following Hurricane Katrina's rampage into the U.S. Gulf Coast have eased after the post-summer drop in demand and emergency imports. Also taming fears, U.S. Interior Secretary Gale Norton said Tuesday about 90 percent of U.S. offshore oil and gas platforms in the gulf should be capable of producing by the end of September, even though some will be constrained by lack of onshore processing capacity. As of Tuesday, about 43 percent of the region's crude oil output was operating, according to the U.S. Minerals Management Service. The Gulf of Mexico is home to a quarter of U.S. oil production. The head of the International Energy Agency (IEA) said on Tuesday the group's 30-day oil rescue plan, for now, had prevented a global fuel crisis and that an extension of the release was unnecessary. "My proposal, if it were made today, would be to stay with the present decision so far -- and of course to let it work," IEA Executive Director Claude Mandil told Reuters. The IEA board of governors meets on Thursday to review the volume and timescale of its release, which includes 1.3 million barrels per day of crude and just under 700,000 bpd of products. Despite bearish market signs, dealers remained worried that a drawn-out recovery from Katrina will stretch supplies ahead of the peak demand during the Northern Hemisphere winter. European governments, struggling to head off protests over soaring fuel prices, have asked companies in some countries to cut petrol prices and have called on OPEC to boost production. But this time round, the supply problem is on refined products -- not crude. Three of the four refineries in the U.S. still shut in Katrina's wake could remain down for months, U.S. Energy Secretary Sam Bodman said Tuesday. For its part, the OPEC oil cartel has raised crude output sharply over the past years, up more than four million bpd to about 30 million bpd, and is now operating close to full capacity. OPEC members are likely to consider a supply increase of up to one million bpd when it meets on September 19 in Vienna. "I think that is part of the answer," said the IEA's Mandil. "But what I expect most is a clear time table for when they will bring on more capacity of light sweet crude in the coming months."
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Airlines' mayday over oil cash grab - The Australian
INTERNATIONAL airlines have slammed an oil industry "cash grab" that they say is helping push the industry's global losses up 23 per cent to an estimated $US7.4billion ($9.6 billion). The International Air Transport Association joined angry motoring organisations yesterday in a scathing attack on oil refiners for almost tripling margins on jet fuel from $US6 in 2003 to $US17 now. The IATA, representing 265 airlines in 130 countries, called for urgent changes to oil-industry charges and warned that carriers were now in "emergency mode". "We fully understand the principles of supply and demand," IATA director general Giovanni Bisignani said. "But it is difficult to see this as anything other than a $US14billion cash grab by the oil industry that is pouring salt into the wounds of global crisis. "Moreover, the impact of Hurricane Katrina on fuel supplies will only ensure that relief will not come soon." While profitable carriers such as Qantas and Singapore Airlines will help put the Asia-Pacific region about $US1 billion in the black, IATA's latest forecast warns that North American carriers are expected to bleed another $US8 billion. It says European airlines are expected to break even. The IATA's global estimate assumes an average oil price in 2005 of $US57 a barrel for Brent crude and puts the global damage bill $US1.4 billion ahead of a $US6 billion estimate made in May. Ailing US carriers remain the industry's millstone, accounting for $US32 billion of the $US36billion lost by airlines between 2001 and 2004. IATA estimates that the industry fuel bill will hit $US97 billion this year -- 25 per cent of total costs -- after skyrocketing from $US44 billion in 2003. "Oil is once again robbing the industry of a return to profitability," Mr Bisignani said. "Each dollar added to the price of a barrel adds $US1 billion in costs to the industry." In Australia, Qantas and Virgin Blue have both warned their bottom lines are being eroded by high oil prices. Virgin recently admitted the impact of high fuel prices would be significantly worse than first forecast and said it would reduce its profit for the year to September 30 to as little as $90 million, down from $159 million year ago. Qantas said high fuel costs meant it would not be as profitable in the current financial year. * Virgin Blue's international arm, Pacific Blue, will launch direct flights from Australia and New Zealand to Tonga from October 31. The airline will initially offer two direct flights a week from Sydney to Tonga, with a launch fare of $299 one-way, and three direct flights between Auckland and Tonga.
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End of oil era in sight, Rifkin warns - EU Observer
Controversial US thinker Jeremy Rifkin told the EU on Monday (12 September) that the world will witness the end of the oil era in the present generation's lifetime, as MEPs launched a new initiative to promote hydrogen fuel. The chief of the Washington-based NGO Foundation on Economic Trends indicated that the world will have used up over half its oil reserves by 2027 at the latest or between 2010 and 2020 at the earliest. "Let's hope and pray that we don't peak in the next two to three years, or we are going to be in trouble like we have never been before in human history", he said. Mr Rifkin urged world leaders to focus research and investment on developing renewable energy over the next 25 years in order to usher in a third industrial revolution after steam and oil power. He predicted that oil might soon cost over $90 dollars a barrel, blaming hurricane Katrina on global warming and the consumption of fossil fuels and contrasted the positive response of European politicians to relative inertia at the highest levels of the US government. "I truly believe Europe will lead the way to a new energy era", he added. MEPs from the conservative, socialist, green and liberal groups who launched a new EU hydrogen manifesto on Monday echoed Mr Rifkin's arguments. Under the scheme, the European Parliament hopes to raise money for hydrogen research by selling eurobonds to European investors, as well as pushing through energy-saving directives on higher car taxation, public transport use and home insulation. MEPs also aim to produce a roadmap for investments in late October under the EU's long-term scientific research fund, called the Seventh Framework Programme and to hold an energy conference with progressive Californian authorities in the next few months. "We hope this report will be picked up by those in the EU with the power of action", European Parliament president Josep Borrell stated. Meanwhile, Greek environment commissioner Stavros Dimas said Brussels "should do more" to alter energy consumption and supply patterns. He added that Nordic countries, including Iceland, which are already leaders in hydroelectric power have so far shown the most interest in EU energy reform. Industry experts painted a less alarming picture however, saying that proven world oil resources continue to increase as technology improves in terms of deep water drilling and conversion of non-oil hydrocarbons such as tar sands into oil-type products. Yields from the Middle East, Canada, Venezuela, Nigeria, Angola and the former Soviet republics are set to ramp up in the next five to ten years even as resources dwindle in the North Sea. Proven world oil reserves currently stand at some 1.18 trillion barrels, compared to 761 billion 20 years ago, and are not expected to run dry until 2045 at the earliest, British Petroleum (BP) said. "Based on BP's work and statistics, the world is not facing a shortage of hydrocarbon resources", a spokesman said. International Energy Association (IEA) chief economist Fatih Birol told EUosberver that world oil resources will not reach the half way mark until 2030 if investments are made quickly in the Middle East, adding that today's high oil prices are helping industry fund research into maximising yields. But Dr Birol added that hydrogen fuel cells could become financially viable in the next few decades and that world leaders should not become complacent over oil. "Even if Mr Rifkin's figures are wrong, it is true that one day we will run out of oil", he said. "We must leave oil before it leaves us". IEA oil markets analyst Lawrence Eagles also warned that things could get worse before they get better. "We are still at the beginning of the hurricane season", he pointed out, adding that European consumers are beginning to slow spending in other areas, as high petrol prices bite. Renewable hydrogen fuel works by using wind or solar-generated electricity to split water into hydrogen and oxygen, and then generating fresh electricity by recombining them within a fuel cell.
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Global majors must dance to producers' tune for oil - Reuters
Oil majors such as BP and Exxon Mobil Corp. are by most accounts the most efficient, effective and experienced producers of crude in the world. But that does not seem to be enough anymore. Oil-rich countries reasserting control over their prized possessions now demand much more than competency or finance. They want an investor to help build their nation, a company whose corporate personality they warm to, or a partner of choice that can help realize their global ambitions, analysts say. Those are tall orders to fill, even for some of the biggest companies in the world, part of the reason many of the majors have opted to return cash to shareholders rather than invest. But with competition hotting up, their reluctance to pursue new projects at any cost risks ceding prime assets to oil-thirsty Asian nations and smaller, more aggressive independent companies. "Even small companies are investing from upstream to downstream nowadays," said Thuy Dam, regional head of natural resources and structured finance for Australia and New Zealand Banking Group (ANZ). "Majors also have to offer more." Part of the solution could be for the majors to abandon their core competency and embrace lower-margin, high-risk infrastructure projects, say analysts and officials. OPEC-member Nigeria made this clear last month by giving South Korea's and Taiwan's state oil firms preferential rights over five highly prospective oil exploration zones in return for investment in pipelines, railways and ports. For other nations such as Saudi Arabia, state-owned national oil companies (NOCs) -- flush with cash from oil prices above $60 a barrel -- are seen as able enough to pursue most projects on their own, threatening to leave oil majors in the cold. While oil majors have complained loud and long about the lack of access to reserves in many OPEC nations, diverting blame about their limited investment at a time of $70-crude, they are also beginning to acknowledge the need to better woo host governments. "We have to tell NOCs we can help you in the power sector, refining, marketing, in matters where there is not always the same enthusiasm from companies that are keener on exploration and production," said Christophe de Margerie, head of oil major Total's exploration and production division earlier this year. "You need to take into account what a country needs." There is a limit to what a company can offer though. Saudi Arabia canceled plans to open a $15 billion gas project to international companies two years ago after participants balked at downstream investments such as gas-powered electricity, petrochemical and desalination plants. With rising prices lifting the whole sector, oil majors are differentiating themselves by emphasizing the softer side of their businesses, hoping to align themselves with like-minded national firms to facilitate access to reserves. "Becoming a partner of choice for a major NOC has a lot to do with the NOC's perception of your company -- your corporate identity, the attitude of your staff and how empowered those staff are to make local decisions," said Noel Tomnay, principal consultant at Wood Mackenzie Singapore. State-owned Kuwait Petroleum International (KPI) signed deals this year with Royal Dutch/Shell and BP to pursue investments in Asia. But that has not helped spur the OPEC mem While oil majors fiddle with their upstream plans, oil-thirsty Asian companies are using their political or industrial power to leverage deals of their own to secure oil supplies for their fast-growing economies. Asia consumes about a third of the oil produced worldwide, imports some 60 percent of it and is widely seen as a mature region when it comes to oil reserves, meaning that its imports are set to increase strongly as it develops. Though they might be less advanced technologically, these powerful consumers appear to have a better grasp of what producers want from the relationship, analysts say. They also offer their own access in return -- to dynamic markets whose growth is expected to outpace gains in more developed countries -- and the risk of being excluded from these markets. "The Chinese are very much willing to pay pretty high costs. They will do a lot to get access and get things to happen," John Vautrain, vice president of Texas-based consultancy Purvin and Gertz in Singapore. "And they have lower cost-to-capital than the majors."
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