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David Seaton's
Energy Links® Editorial As
the situation in the Middle East deteriorates the effectiveness and prestige
of international institutions and alliances is also deteriorating. The United
States went out of its way in the Israel/Palestine conflict to prove that the
European Union was useless, went out of its way in invading Afghanistan to
prove that NATO was useless and out of its way in invading Iraq to prove that
the United Nations was useless. Now we all know that these institutions are
useless. However in occupying and pacifying Iraq, the United States has
proven itself to be useless too! Now the idea is for all the useless
together to somehow manage to "civilize" Islam. Of course,
being dumb is a great part of what being useless is all about. Under this
management we are steadily moving toward an era of globally interdependent,
anarcho-autism. David Seaton's Energy Links®
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World economies could buckle if market delivers new oil shock - Agence
France Presse. The global economy has
withstood more than a year of high oil prices since the Iraq war preparations
began, but analysts warn another price shock would slam on the brakes. Danger
signals would flash if prices breached 40 dollars a barrel, economists said, though
the Organization of Petroleum Exporting Countries was unlikely to let things
deteriorate so far. Freezing US winter conditions, lower US commercial crude
oil inventories and supply interruptions sent prices of light sweet crude
above 36 dollars a barrel last month -- the highest since President George W.
Bush geared up for war in Iraq. After falling back, supply concerns again
pushed New York's benchmark contract upwards Friday, sending light sweet
crude for delivery in March up 58 cents to 34.56 dollars a barrel. "It
does not look like the oil price will go down any time soon and that is in
part because of the dollar depreciation -- OPEC wants to maintain their
purchasing power," said Wells Fargo Banks chief economist Sung Won Sohn.
OPEC members agreed Tuesday to cut output by about 10 percent by April 1,
supporting world crude prices despite scepticism in the market about the
cartel's ability to carry out its decision. The impact of the high oil prices
on the economy had been muted so far, Sohn said. "It is like a tax
increase, but we have had a tax cut so the effect of the higher price of oil
has not been really severe," Sohn said. Higher oil prices had not
repeated the cycle of the 1970s and 1980s, when they accelerated a wage price
spiral, leading to higher inflation, the economist said. But "the worst
possible combination is that the price of oil goes up to 40 or 45 dollars a
barrel -- that could really break down the US and global economies,"
Sohn said. "I don't expect that, but that is one thing that we worry
about," he added. "Hopefully, OPEC is smart enough to understand
that if we go into recession it does not help them." Oil prices were
higher now than most analysts had expected a year ago, but the impact on the
US and global economies had been mild, said Wachovia Securities global
economist Jay Bryson. "If it were to spike from here, if it were to go
up to say 40 dollars and remain at 40 or so it could have a pretty marked
slowing effect on the global economy going forward," he said. "But
I don't look for that to happen. I think if it were to go up to those sorts
of levels you would see OPEC starting to increase production somewhat,"
Bryson added. "They realize that would put the US and potentially the
global economy into a sharp slowdown, which would then lead to a pretty
significant decline in prices because of lower demand going forward." Oppenheimer
energy market analyst Fadel Gheit said oil prices would eventually bite,
however. "There is no way that the economy will continue to grow at the
current rate while we have oil prices at this level," he said. Gheit
said he believed higher prices were in the short-term interests of the US
administration because they boosted oil income for Saudi Arabia, enabling the
kingdom to repel terrorism and maintain stability, and bolstered Iraqi export
income. "But in my view there is absolutely no justification whatever
for oil prices -- I truly believe that there are absolutely no supply
shortages and demand is not as strong to justify the current price," he said.
Dealers had been unnerved by the Department of Energy's announcement Friday
that it had awarded five contracts to deliver 104,000 barrels per day to the
US strategic petroleum reserve, he said. The reserve, an emergency supply
stored in huge underground salt caverns along the coastline of the Gulf of
Mexico, already stands at 641.3 million barrels. Bush announced in November
2001 a plan to fill the reserve to its 700 million barrel capacity. The size
of the contracts to fill the SPR was too small to make or break the market,
Gheit said. But "it sends unfortunately the wrong message to the
market," he said. "It tells the market that the US government
thinks something ominous is going to happen and therefore we are increasing
our strategic petroleum reserve purchase." In February 2003, the price
of the New York oil contract broke above 36 dollars a barrel for the first
time since September 2000. Click here to read more |
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OPEC attempts to retain control over the global oil market by cutting
production - Beirut Daily Star. With a
bold move, not generally expected by most oil market analysts, OPEC not only
decided at its special meeting in Algiers on Feb. 10 to tighten up on quota
violations in March but, to cut the production ceiling of OPEC-10 (Iraq is
not currently subjected to quotas) in April by another million barrels per
day (mbd) to 23.5 mbd. Oil prices, which had been falling in anticipation of
weak global spring demand, firmed immediately following the announcement of
further production cuts. On the NYMEX (New York Mercantile Exchange) futures
market, producers can now lock in oil prices above $30 per barrel until
November of 2004. Most oil analysts and traders had expected OPEC to postpone
any production decisions until late March when the oil ministers will meet
again. But, in a move reminiscent of OPEC action taken in September 2003 in
anticipation of potential significant price weakening, OPEC took the bull by
the horns and announced the intention to more closely observe quotas in March
and to make further production cuts in April. OPEC intends to keep oil prices
close to the high end of their preferred price range of $22 to $28 per barrel
where prices have been for most of the past four years. The OPEC decision was
made at a time when commercial oil stocks in the OECD countries and in
particular in the United States are low and need to be replenished in the
spring. Western economists are concerned that if oil prices remain
considerably above the OPEC price range, the global economy may be adversely
affected later this year. OPEC, on the other hand, is worried that
maintaining production at the current rate of about 28 million barrels per
day could lead to a major cut in prices in the spring. Unfortunately
predicting global oil demand and supply is not an exact science and minor
fluctuations of demand, supply and commercial oil stocks can have a major
impact on oil prices, up or down. OPEC’s recent action in Algiers is meant to
play it safe. OPEC members are fully aware of the difficulty in projecting
the demand for their oil but, by aiming at a conservative production ceiling,
they hope that inevitable overproduction by some will not result in lower
prices. Individual OPEC countries are concerned that unless most members cut
production close to the agreed quotas, prices will weaken and all will suffer
the consequences. Even under the best of circumstances the system is not
perfect due to market uncertainties related to global oil demand and non-OPEC
production, in particular from Russia. It is an open secret with OPEC that
not all members will hold close to the agreed quotas. At least two members
may not have the capacity to produce at their full quota while two other
members are almost certainly going to exceed their quotas by a considerable
margin. To complicate matters further is the uncertainty surrounding Iraqi
oil production, which for the time being is not subjected to quotas. In
January Iraq produced an estimated 2.1 mbd (considerably below pre-war
production) but, production and exports are expected to rise steadily to
perhaps an average of 2.5 mbd for the year. If there are no further Iraqi oil
export disruptions this year, OPEC-10 may have to keep production down by
some 5-10 percent from the actual January level to maintain oil prices close
to the middle of the OPEC price range or higher. This is achievable but will
require a considerable effort of cooperation among member states. OPEC has
done a remarkable job in supply management in recent years. Despite weak
global oil demand growth and robust non-OPEC production growth, OPEC supply
management kept oil prices since 2000 some 40 percent above the average oil
price level of the 1990’s. There is no doubt that the cold winter in the US
in 2002/2003, coupled with nuclear problems in Japan and oil supply disruptions
in Venezuela and Iraq, helped OPEC-10 keep prices high in 2003. These factors
are slowly disappearing, and developments in the oil market later this year
will determine how successful OPEC’s effort in supply management will be
without special conditions. If OPEC succeeds in keeping average oil prices in
2004 at or above the middle of the OPEC price range, it will be the fifth
consecutive year of high oil prices (some 40 percent above the 1990s average)
and, petroleum analysts are beginning to wonder if we have arrived at a new,
higher oil-price environment. Perhaps the long term equilibrium price of oil
has shifted upward a notch. Higher exploration and production costs, the
decline of the dollar, slower non-OPEC production growth (outside of Russia
and the Caspian), recent oil-related political developments in Russia, a
directional shift within OPEC from optimizing income rather than market share
and, the inability of some OPEC countries to produce anywhere near the
allotted quota, all suggest we may indeed have arrived at a new, higher oil
price environment. Time will tell if it this is indeed the case. The
advantages of a higher oil price environment for the Gulf oil producers and
the region as a whole are obvious. OPEC net oil export revenues have more than
doubled since the price collapse of 1998 and reached close to $250 billion in
2003. OPEC and Middle East net oil export revenues since 2000 are at the
highest level since the mid-1980’s. Some Gulf oil exporting countries with
spare production capacity benefited further from the supply disruptions
elsewhere and were able to raise production along with prices, further adding
to oil export income. Others have increased exports of natural gas and
natural gas liquids. Instead of a projected 2003 budget deficit of $10
billion, Saudi Arabia experienced a budget surplus (the second only in 20
years) of an estimated $12 billion. Saudi Arabia and most other oil exporting
countries in the Middle East will need high prices to meet higher health
care, educational and other costs associated a rapidly rising population. Higher
oil prices along with programs of privatization, will also allow governments
to make the necessary investments to diversify their economies away from oil.
In the past the kingdom would have been concerned about adverse reactions
from Washington following OPEC decisions leading to higher prices. Today,
domestic economic considerations receive clear priority over US and global
economic concerns. The post Sept. 11, 2001 Washington-Riyadh alliance is not
what it used to be. Following Riyadh’s decision last week to sign major
downstream natural gas agreements with European, Russian and Chinese oil
companies, this week’s action on oil pricing is a cause for concern in
Washington. Click here to read more |
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Oil field pact aided by M.E. change - Yomiuri Shimbun.
A sudden change in the international situation surrounding the Middle East,
particularly in relation to Iran and Iraq, was the driving force behind the
basic agreement reached Wednesday by Japan and Iran on a major oil field
development in Azadegan, Iran. The project, undertaken by a Japanese
consortium, is expected to help provide a steady supply of crude oil to
Japan, especially after Japanese mining rights for the Khafji oil field in
Saudi Arabia expired in February 2000. Negotiations on the Azadegan oil field
had been stalled, partly because of pressure from the United States to delay
any deal on oil field development that would economically benefit Iran, which
was believed to have a nuclear weapons development program. Preferential
negotiating rights for the oil field, which the Japanese consortium had
acquired in November 2000, expired last June, and it was feared that
consortium would not be able to reach an agreement with Iran. However, the
hard-line stance the United States adopted against nations it perceived to be
supporting terrorists eased somewhat after Iran agreed to accept inspections
of its nuclear facilities by the International Atomic Energy Agency and Libya
said it would abandon plans to develop weapons of mass destruction. In
addition, the Japanese government's decision to dispatch Self-Defense Forces
personnel and to provide financial support and assistance for Iraq's
reconstruction helped soften Washington's position concerning Japanese
negotiations with Iran. Some observers contended that the government felt
that if it accepted U.S. demands to abandon negotiations on the Azadegan oil
field, public sentiment against Washington would mount in Japan, impairing
the bilateral relationship. With reserves of about 26 billion barrels, the
Azadegan oil field is one of the largest in the world. As Japan has limited
natural resources, it decided to acquire the rights to the oil field so that
it could diversify its sources of crude oil imports and ensure a stable
supply of energy. As the Japanese-operated Arabian Oil Co. lost its mining
rights for the Khafji oil field about four years ago, the nation is pinning
high hopes on the development of the Azadegan oil field as a new
"Japanese-flag" crude oil supplier. Click here to read more |
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Japan Ups Security Against Possible Terror Attack - Reuters.
Japan tightened security on Friday at 650 vital facilities around the
country, including nuclear power plants, government offices and U.S.
facilities, to guard against a possible terrorist attack, a National Police
Agency official said. The official said the heightened alert was due to such
factors as Japan's recent dispatch of a main contingent of ground forces to
help rebuild Iraq. But he declined to say whether there had been any fresh
information concerning a possible attack. There were two late-night
explosions near the Defense Ministry in Tokyo this week, which police said
could have been carried out in a protest against the dispatch of Japanese
troops to Iraq. The dollar rose sharply against the yen in late afternoon
trade in Europe following the report that Japan's security level had been
raised. The National Police Agency said in December that Japan's close ties
with the United States and the many U.S. facilities in the country could make
it a target for attacks by Islamic militants. Japan approved the
controversial dispatch of its main army contingent to help rebuild Iraq in
late January, and now has some 100 troops establishing a base in Samawa in
southern Iraq, where they will help with humanitarian work and
reconstruction. Nudged by the United States, Japan plans to send up to 600
ground troops to Iraq as part of a total deployment of around 1,000 military
personnel. It will be Japan's biggest and riskiest overseas mission since
World War II. Japan is one of the United States' closest allies in Asia and
is host to about half the approximately 100,000 U.S. military personnel in
the region. Many U.S. companies have a substantial presence in the country. No
damage or injuries were caused by Tuesday's explosions. A leftist group
calling itself "Kakumeigun" (Revolutionary Army) has sent letters
to Japanese media claiming responsibility, Kyodo news agency said on Friday. The
group said it was resorting to violence to prevent the deployment of Japanese
troops to Iraq, Kyodo said. Click here to read more |
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Iraq 2004 oil revenues may hit $20 billion-Carroll - Reuters - Forbes.
Iraqi oil production has recovered faster than expected and should bring the
country $15 billion to $20 billion in sales this year, the former U.S. head
of the Iraqi oil industry reconstruction effort said Thursday. Phil Carroll,
who recently left his Iraqi duties to return to Houston, also praised
oft-criticized Halliburton Co. for its work in easing Iraq's fuel crisis
immediately after the war to topple Saddam Hussein last spring. Carroll told
the Greater Houston Partnership that Iraq, as of Jan. 1, was producing 2.5
million barrels per day, which was six months ahead of targets set after the
U.S.-led invasion. The plan is to return Iraqi oil production to the pre-war
level of 3 million bpd, said Carroll, who once headed Shell Oil Co. but was
retired when the Bush administration pulled him into the Iraqi reconstruction
effort. Oil export revenues, which are considered critical to rebuilding
Iraq's economy, totaled $5 billion in 2003 and should go much higher due to
rising production, Carroll said. "I expect this year the total will be
between $15 (billion) and $20 billion," he said. Carroll said Iraq will
have to invest heavily to rebuild an oil industry that even before the war
had become "extremely dilapidated." "By my estimate, something
in the neighborhood of $1.5 billion a year for the next three or four years
(will be needed) -- and that won't get them anything over and above the 3
million bpd capacity that I reckon they have now," he said. At a Houston
energy conference this week, former Iraqi oil minister Issam Al-Chalabi said
his country should be producing no more than 2 million bpd at present because
the oilfields have been damaged by years of neglect and need restoration. Carroll
disagreed, saying, "Right now, I don't think serious damage is being
done to any of the reservoirs." Carroll strongly defended Houston-based
oil services giant Halliburton, which has been targeted by congressional
critics for overcharging for its work with the U.S. military in Iraq. He said
Halliburton's Kellogg Brown and Root unit did "marvelous work" in
bringing desperately-needed fuel to Iraq when the country's oil industry,
crippled by looting and power shortages, could not provide it. Gasoline lines
were miles long and civil unrest was brewing as the fuel crisis deepened, Carroll
said. "I didn't want to stand there and say, 'look, get me the gas and
don't spend more than $1.10 a gallon.' I said 'I need 700 trucks at the
border in two days and we have to be able to keep that up in a running circle
between Kuwait and Baghdad for the next month,"' Carroll said. "And
they went out and did it. And of course in some cases they paid prices that
were somewhat higher than you could have gotten if you could step away and
say 'I'm not going to pay that much," he said. "The idea that there
was any dishonesty or incompetence I simply disagree with strongly,"
said Carroll. Click
here to read more. |
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China May Start Oil Forward Contracts Trading 2004-Report - Dow Jones.
Chinese oil companies may start the trading of oil forward contracts for
refined oil products, including gasoline, diesel oil, kerosene and fuel oil,
in Shanghai this year, state media said Monday. A trading center to be
established in Shanghai has received approval from the Shanghai Municipal
government and National Development & Reform Commission, or NDRC, but it
still needs the approval of the State Council, China's highest governing
body, the China Daily reported. The report said major shareholders in the
center, including China's four largest oil companies - PetroChina Co. (PTR),
Sinopec Corp. (SNP), Sinochem Corp. and China National Offshore Oil Corp. (CEO),
will hold a shareholders meeting this month to prepare for operations. The
center requires a registered capital of about 100 million yuan ($1=CNY8.28),
which will be split evenly between the four companies. In the initial phase,
the center hopes to attract about 100 members, including oil producers, users
and traders, to participate in trading. The forward contracts, which allow
traders to buy and sell contracts at a fixed price on a set date, help
traders avoid price fluctuations. Unlike previous futures exchanges, the new
trading center in Shanghai won't involve oil futures contracts, which are more
standardized and strictly regulated. To avoid speculation, most deals will be
done over the counter, requiring participants to trade their forward
contracts only when they hold real products. Short selling and buying will be
prohibited. The daily trading volume is expected to reach 80,000-100,000
metric tons a day, the report said. China opened oil futures exchanges in
1993 in Beijing and Shanghai, trading crude oil, gasoline, diesel and fuel
oil. They were closed two years later due to an industry overhaul and partly
because of rampant speculation. The report said the trading center will help
the market, rather than the government, decide the price of oil products. Currently,
the National Development Reform Commission, or NDRC, China's top planner,
sets up the benchmark prices for gasoline and diesel oil based on the average
rates on the three markets in Singapore, Rotterdam and New York. China is
expected to fully open up its retail oil market by the end of this year and
the wholesale market by 2007. A manager with Sinochem's Shanghai branch said
the center will also help users cushion the risks of the price fluctuations. Part
of the rationale for establishing the trading center is the hope that China
will be able to influence regional and even global oil prices given its huge
oil consumption. "It could increase China's say in deciding the
international oil prices with its increasing oil consumption," the
manager said. Last year, China surpassed Japan to become the second-largest
consumer of oil in the world after the U.S. Click here to read more. |
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