High oil price shrinks Japan's trade surplus - International Herald Tribune
Japan's trade surplus fell steeply in May, the government said Wednesday, as record oil prices depressed demand for exports and raised the cost of fuel imports, sapping a recovery in the Japanese economy. The surplus fell 68 percent from a year earlier to ¥297 billion, or $2.7 billion, the Ministry of Finance said. That was the sharpest contraction, in percentage terms, since January 2002. Exports rose 1.4 percent, the smallest gain since November 2003, while imports rose 18.6 percent. Rising oil prices are leaving consumers in the United States, Japan's largest overseas market, with less to spend on non-oil imports. At the same time, oil costs are trimming profit at Japanese manufacturers and threaten to curb investment in machinery and equipment, which represented a third of the nation's economic expansion in the first quarter. "Export growth continues to be subdued, and we're not seeing evidence that that trend is going to be reversed," said Taro Saito, a senior economist at NLI Research Institute in Tokyo. "Oil prices at record levels are also a concern because companies that can't pass on costs are going to see profitability suffer." Crude oil rose above $59 a barrel in New York for the first time on June 20. The cost of Dubai crude, a benchmark for Asian refiners, rose to a record $53.14 a barrel last week. Japan depends on overseas sources for almost all of its oil needs. Japan is relying on demand from the United States and China, its two largest export markets, to maintain a recovery from its fourth recession since 1991. "Exports are ultimately the key to Japan being able to enjoy sustainable growth," Junichi Makino, senior economist at Daiwa Research Institute in Tokyo, said before the report was released. "With rising oil prices cooling global demand, we're not seeing any evidence that demand is going to recover." Seasonally adjusted, the surplus shrank to ¥690 billion, down 1 percent from a month earlier. Exports fell 0.1 percent, and imports were unchanged. U.S. consumer confidence fell for a fifth straight month in May, the longest period of decline since 2002. The U.S. economy expanded at a 3.5 percent annual rate in the first quarter, its slowest pace in two years. China's economy expanded 9.4 percent in the first quarter compared with 9.5 percent in the previous three months. Japan's economy expanded at a 4.9 percent annual pace in the first quarter as consumer and capital spending accelerated. Exports fell for the first time in more than three years, resulting in net exports - the difference between exports and imports - curbing growth for a third consecutive quarter. Olympus, the world's fourth-largest seller of digital cameras, and other companies in Japan have been hit by falling prices and weak demand for electronics products, including flat-screen panels and digital cameras. Olympus, which reported its first annual loss in May, is shedding workers to return to profit. "We have to cut production costs to make up for the 15 percent to 20 percent price declines" in digital cameras this year, the president of Olympus, Tsuyoshi Kikukawa, said in an interview this month. "We're already losing money as it is."
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Oil scales new peaks, eyes $60 - Reuters
Oil prices soared to a record high above $59 a barrel on Monday, extending last week's surge as a threat against Western consulates in OPEC-member Nigeria jolted traders already worried about tight supplies. Oil climbed more than 9 percent, or nearly $5, last week, drawing buying interest from trend-following hedge funds as prices surpassed the previous early April high. U.S. light crude for July delivery hit a front-month record $59.18 per barrel, before paring gains to stand up 59 cents at $59.06 at 0439 GMT. The August contract rose 62 cents to $59.80 a barrel and contracts for the last four months of the year, when oil demand picks up in the northern hemisphere, were all trading above $60. London Brent crude for August jumped 71 cents to $58.47 a barrel, also a front-month peak. Market anxiety over oil exports from producer nations resurfaced on Friday after the United States, Britain and Germany closed their consulates in Nigeria's largest city Lagos due to a threat from foreign Islamic militants. "The market continues to suspect there might be supply disruptions resulting from these issues in Nigeria," said Daniel Hynes, resource analyst at ANZ Institutional Banking. "When you get that occurring during an extremely tight period of strong demand, then prices naturally are going to react very strongly." Nigeria, the world's eighth-largest oil exporter and supplier of about 10 percent of U.S. crude imports, has been named a candidate for "liberation" by Osama bin Laden, who has also threatened Middle East oil installations. An industry survey in Boston last week showed that more than half the respondents considered "political upheaval in a strategic country" as the most likely cause for disruption to oil supply. In Iran, the world's fourth-biggest producer, hard-liner Mahmoud Ahmadinejad made a surprisingly strong showing in presidential elections, pitting him against pragmatic cleric and former president Akbar Hashemi Rafsanjani in Friday's run-off. Reformists urged supporters to back Rafsanjani, while hard-liners called for conservatives to support the Tehran mayor. Both received about a fifth of the first-round vote. Below-average U.S. inventories of distillates -- which includes diesel, heating oil and jet fuel -- coupled with robust consumption has heightened worries that refiners will not be able to keep up with demand in the second half of the year. Prices are up 36 percent since January as speculative funds bet strong global economic growth will strain supplies, especially if there are any unexpected disruptions, such as last week's shutdown by Royal Dutch/Shell of a gasoline unit at it's Deer Park, Texas, refinery. The unit may be shut for up to two weeks. U.S. distillate demand over the past four weeks was 6.5 percent higher than a year earlier, more than twice the growth in gasoline, while Chinese demand should pick up soon as business owners fire up diesel-fueled generators to overcome a power crunch on regional grids. The Organization of the Petroleum Exporting Countries (OPEC) last week raised its production ceiling by 500,000 bpd and pledged to put another 500,000 bpd on the market soon if prices remained high, but officials admitted it was unlikely to help. "The fundamental problems with the conditions of the market are related to refinery capacity," Iran's OPEC governor Hossein Kazempour Ardebili said on Saturday. "Because the demand for jet fuel and gasoline has been spurred by the travel season, increasing the OPEC ceiling will not solve any problems."
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Rumors Put Oil Traders on Edge - New York Times
A hint of a terrorist threat in Nigeria, a major supplier of crude oil to the United States, and worries about a lack of refining capacity drove energy markets into a frenzy on Friday, pushing oil over $58 a barrel, a record. Crude oil for July delivery climbed to $58.60 a barrel before settling at $58.47, up $1.89. Some traders said oil might reach $70 a barrel, driven primarily by demand in China and the United States. Fears over what might affect the supply, rather than what is actually affecting it, appeared to inject anxiety into the market. "In this environment, we cannot afford to have any disruptions," said Thomas Bentz, senior energy analyst at BNP Paribas Commodity Futures. "We are still in the uptrend." The closing on Friday of the consulates of the United States, Britain and Germany in Lagos, Nigeria's largest city, because of reports of threats from Islamic militants put traders on edge. Nigeria supplied the United States with more than 1.1 million barrels of oil a day in April. The possibility of a terrorist attack in Nigeria was enough to tap the oil market's fear that demand-driven pressure on prices might evolve into a full-blown supply-driven crisis. A sudden restriction of supplies led to the oil shocks of the 1970's, and the lack of spare production capacity, particularly of the types of crude oil easy to refine into gasoline, has made the markets vulnerable to whispers of any potential disruption. So do the opinions that oil is still relatively cheap. Adjusted for inflation, oil is less expensive than it was in 1981, when Iran choked off oil exports. The average cost of oil used by American refineries at that time was $35.24 a barrel, or $75.44 in current dollars, according to Bloomberg. One of OPEC's concerns is that oil prices will quickly climb to a level where many car owners decide to switch from sport utility vehicles to compact cars, or possibly, to public transportation or carpooling. Such a change in driving habits, while still considered unlikely, might produce a scary outcome for oil-producing countries: a crash in oil prices. "When I go to neighborhood parties, people are always asking me when gasoline prices are coming down," said David Pursell, a principal with Pickering Energy Partners, an energy investment firm in Houston. "Well, I always reply, 'When are you going to start riding the bus?' There's lots of angst, but not enough to keep us from $60 oil." Not everyone is convinced oil prices will continue to soar. Andy Xie, the greater China economist for Morgan Stanley in Hong Kong, predicted a sharp decline in prices, citing signs of softer demand in China, the second-largest petroleum consumer after America; Chinese oil imports fell 1.2 percent in the first five months of this year.
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Mexico and Norway Can't Help on Oil Prices - Associated Press
The top oil officials from Mexico and Norway on Thursday said they do not have any spare capacity to help ease crude oil prices with increased supply. The two non-OPEC members met the day after the oil cartel resolved to raise its oil production target by 500,000 barrels per day, a move that did little to ease crude prices of more than $55 per barrel. Norway is the world's third largest oil exporter after Saudi Arabia and Russia, and is already producing at its full capacity of about 3 million barrels per day. Mexico is the third largest non-OPEC exporter, with most of its sales going to the United States. "I'm not sure there is so much extra capacity in OPEC. But if there is any increased capacity, it has to be from OPEC," Norwegian Oil Minister Thorhild Widvey said at a news conference with her Mexican counterpart Fernando Elizondo Barragan. Barragan said he hoped oil prices would stabilize at or a little below current levels, so the cost of crude does not harm the world economy. Both countries have state-controlled oil companies, Statoil ASA in Norway and Petroleos Mexicanos, or Pemex, in Mexico. Unlike Mexico, which has retained a government monopoly on its oil reserves, Norway welcomes private oil companies to its continental shelf and began the partial privatization of Statoil in 2001, now owning just over 70 percent. Barragan said Mexico is also looking at ways of increasing cooperation with private oil companies, especially in the promising deep waters of the Gulf of Mexico, to provide capital and technology. But Mexicans are concerned about loss of control and legal amendments would be needed to open the industry, the Mexican minister said. Barragan, who was on a three-day visit to Norway, noted that Statoil has experience with deep water fields. "In Mexico, we are evolving rapidly and we are looking for successful models for exploration and production," he said.
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OPEC ceiling hike greeted with scepticism by oil market analysts - Forbes
Oil futures prices remained little changed at high levels despite OPEC's announcement today of an increase in its production ceiling by 500,000 barrels per day to 28 mln bpd, as analysts said the move would provide little relief to oil prices. 'Where is OPEC going to get this extra oil from?' asked Investec analyst Bruce Evers, referring to a lack of OPEC spare capacity. Analysts said any additional OPEC oil coming onto the market may be too little, too late, and of the wrong kind. With the majority of the increase expected to come from Saudi Arabia, there is concern that 'there will not be many takers,' for the Saudi sulphur-heavy oil, which is more difficult to refine, Evers said. The July increase will not actually hit the markets until August, and if the September increase of a further 500,000 bpd goes ahead then that will not appear until mid-November, Evers added. 'There may be some additional barrels from OPEC in coming months, but the initial reaction from the market is that this will not be the case,' said Fimat Futures analyst Mike Fitzpatrick. Societe Generale analyst Deborah White said before the announcement, 'There could very well be an extra 500,000 barrels on the market, mostly from Saudi Arabia, but customers have to take it for it to happen,'. The last time there was a similar output hike by OPEC, of which Saudi Arabia was supposed to offer the additional supplies, only 50,000 barrels were taken of the 500,000, she said. It is unclear if the market will buy the additional crude without substantial (price) discounts from the Saudis, she added. Saudi Arabia has recently reduced these discounts, however. Analysts said oil prices therefore look set to remain high for the foreseeable future. 'The situation now is not if oil prices hit 60 usd a barrel, but when,' Evers said, adding that today's move by OPEC is little more than a delaying tactic, putting a smokescreen over the lack of available OPEC spare capacity. Fimat's Fitzpatrick said the 'OPEC decision is not important as the market is not convinced. There has been no real effect in prices, they are at 55.50 usd a barrel. Dealers are voting with their dollars,' he said. The International Energy Agency in its latest report said that OPEC spare capacity is expected to rise to 32.2 mln bpd, but not until the year end. Pushing OPEC production too far too soon runs the risk of damaging its spare capacity margins, Fitzpatrick noted. Analysts said although the IEA's annual average forecast of 84.3 mln bpd has not changed, as second quarter demand was lower than anticipated, it revised up demand in the latter half of the year. Bumper demand has been predicted for the second half. The forecast for demand has now been raised by 200,000 bpd to 84 mln bpd in the third quarter and to 86.4 mln bpd in the fourth. A substantial upswing in demand between now and the end of the year would increase the chances of a supply squeeze, analysts said. The global shortfall is expected to be met by OPEC producers. The IEA said expected production for OPEC crude has been revised up by 300,000 bpd to 29.6 mln bpd, for the fourth quarter. However, analysts are concerned about supplies in the coming months. OPEC supplies fell by 55,000 bpd during May due to supply constraints in the UAE and Venezuela. Iraqi production, which is not included in OPEC's production ceiling, has also declined. Iraqi production has fallen from 2.5 mln bpd last year to 2.2 mln bpd, amid ongoing security problems in the country and a lack of foreign investment.
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