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By Steve LeVine

Oil has returned to the role it held before last year's price collapsea sanctuary of choice for investors fleeing the dollar. At least for now, that is.

Over the past week, crude surged through the $80-a-barrel barrier for the first time since September 2008. (The benchmark price of a barrel of crude oil ended Friday, Oct. 23, at $80.50.) This follows a breathtaking, yearlong bout of volatility. Since the summer of last year, oil has rocketed to $147, plunged to $32, and just a week ago traded below $70.

Yet many analysts say oil-market fundamentals are so weak that prices won't rise much higher, and may in fact retreat. "This is a dollar-led rally and unsustainable," says Phil Flynn, an oil analyst with PFGBest Research, a futures brokerage.

Another Safe Haven, Gold, Soars by 20%
The dollar is the main driver behind a 15% increase in oil prices over the past week, analysts say. Since March the dollar has fallen 15% in inflation-adjusted value compared with a basket of currencies of its major trading partners. Traders have sought to cushion the fall in the value of the dollars they are holding by buying futures in traditional safe havens. Mirroring crude's climb, gold has soared this year to more than $1,000 an ounce, or by about 20%. "The steady increase in oil prices means that traders want to hold hard assets," said Lawrence Goldstein, a director at the Energy Policy Research Foundation in Washington.

Few experts are predicting a sudden strengthening of the dollar, so oil prices could stay where they are. But the fundamentals are so weak, analysts say, that the price could rapidly fall back below $80 and even further.

When oil prices rocketed past $140 in 2008, the causes lay mostly with the supply-demand balance: There was virtually no spare production capacity anywhere in the world, so that any supply disruption, such as hurricanes in the Gulf of Mexico and the routine militant attacks in Nigeria, pushed prices up.

Plenty of Production Capacity, Oil in Storage
Observers predicting a price spike have pointed to a drop in global oil exploration and production, saying that when economies rebound there will be a shortage. In the U.S., for instance, exploration is down 27.8% from a year ago, with 309 rigs actively drilling, compared with 428 at this time in 2008, according to the Baker Hughes Rig Count. Abroad, there are 8% fewer rigs drilling than there were a year ago764, down from 831. Major oil companies such as ExxonMobil (XOM), Chevron (CVX), and BP (BP) continue to spend on exploration, while smaller companies have cut back substantially.

But that is just part of the picture, analysts say. For starters, spare production capacity currently runs about 6.7 million barrels a day, according to the International Energy Agency, with Saudi Arabia accounting for 3.8 million barrels, or 56%, of the total.

In addition, oil storage tanks around the world are overflowing and would have to be drawn down before any big price spike takes place. U.S. crude inventories stand at 339 million barrels, up 27.7% from a year ago, reports the U.S. Energy Information Administration. In addition, since mid-September the Strategic Petroleum Reserve has exceeded 725 million barrels, a 27-year record. In fact, there is such a global glut that there is almost no place on land to put all the oil. An estimated 125 million barrels' worth are floating around on tankers scattered over the globe, according to OPEC. Normally, a negligible amount of oil is being stored offshore in ships.

Refineries, too, can ramp up and produce oil products, analysts say. U.S. refineries are operating at around 80% of capacity, among their lowest rates in two decades. "High inventories and weak market fundamentals might eventually weigh on markets" and push prices lower, said Edward Morse, managing director at Louis Capital Markets, a London-based brokerage. So it's possible that crude isn't such a safe haven after all.

Inverse bullish head and shoulders on the ETF wheat chart.

the other side of the issue was put in a very long article, primarily about BP, in yesterday's Sunday Times.
the nub of it was that regardless of the short term issues as set out by BB above, known oil reserves are being depleted far quicker than new are being found.
of course this does not necessarily mean that crude will rise - it almost certainly will over time, but it is driven by other factors - but that second tier and smaller companies with proven reserves of both quality and quantity, will become ever more tempting morsels

Just to balance that bearish point up re- wheat/oil

well worth a read.......http://sharecrazy.com/beta/Tips/2733/where-will-oil-go-next

By BARRY HATTON, Associated Press Writer Barry Hatton, Associated Press Writer Tue Nov 24, 6:44 am ET
Oil slipped towards $77 a barrel Tuesday as markets awaited data expected to show that the pace of U.S. economic recovery is slower than previously estimated.

By early afternoon in Europe, benchmark crude for December delivery was down 12 cents to $77.44 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 9 cents to settle at $77.56 on Monday.

The U.S. government was due to report Tuesday on gross domestic product and consumer confidence. Investors expected the data to show the economy is still growing, but at a slower pace than initially calculated.

Also, many analysts predict the economy will weaken again next year as the effect of stimulus packages wears off and the jobless rate dampens consumer spending.

Crude has bounced between $76 a barrel and $82 for more than a month as a weakening dollar offsets concerns about tepid consumer demand. Oil often trades inversely to the strength of the dollar as investors buy commodities as a hedge against inflation.

"The ceiling has been set by weak refining margins, lackluster demand and a global economic recovery that is expected to be sluggish," Societe Generale said in a report.

Investor optimism was buoyed by a report Monday from the National Association of Realtors that October home sales rose more than 10 percent, suggesting strength in the U.S. economy. On the other hand, crude refiner Valero Energy said it shut down a plant last week because demand for oil products such as gasoline has been weak.

In other Nymex trading, heating oil was up 0.81 cent to $1.9880 a gallon. Gasoline for December delivery rose 0.84 cent to $1.9878 a gallon. Natural gas for December delivery was 0.4 cents higher at $4.477 per 1,000 cubic feet.

In London, Brent crude for January delivery rose 23 cents to $77.69 on the ICE Futures exchange.

____

Crude Oil Buyers Risk Bull Trap Near $80: Technical Analysis

Crude oil buyers may misinterpret the markets climb this week as a signal for further gains, exposing themselves to a potential price reversal, according to Cameron Hanover Inc.

Oil, rising for a third week in four, will face stronger resistance the closer it gets to $82 a barrel, a one-year high reached on Oct. 21, said Peter Beutel, president of the trading adviser in New Canaan, Connecticut. Buyers should watch for the market to settle higher each day before stepping in, rather than take their cues from intraday price swings, he said.

We need to be careful of bull traps, Beutel said in an e-mail. We should probably look for two closes with a second day higher than the first breakout day to confirm that a real breakout has occurred.

Crude oil touched a one-week high above $79 a barrel on Dec. 1 as the dollars decline against the euro bolstered the investment appeal of commodities including gold. The contract for January delivery on the New York Mercantile Exchange was at $76.93 a barrel in electronic trading, up 33 cents, at 11:23 a.m. Singapore time. Futures, which lost 54 percent in 2008, have gained 73 percent this year.

Oil remains in a downtrend channel that goes back about six weeks and should a breakout occur, a rally may have a long-term swing objective to $93.50 a barrel, Beutel said. Prices last traded at that level on Oct. 3, 2008.

Beutel identified five levels of resistance before $82 a barrel, starting with $78.90. On the downside, the first line of support is near $75.65, followed by about $72.40.

Decisive breakouts would be bullish and would suggest fresh legs higher, he said. Of course, these resistance levels have turned back many earlier attempts.

Kosmos Energy, Tullow Oil's operating partner on the West Cape Three Points Block, offshore Ghana, has reported another encouraging test drilling.

Round 2 of the Iraq oil bidding battle begins
By Ben Lando of Iraq Oil Report
Published December 10, 2009
BAGHDAD - Asian, European and Turkish oil executives exchanged handshakes and smiles Thursday, awaiting an early morning flight to Baghdad. They represented three of 44 competitors angling for 10 of Iraqs best untapped oil projects on offer this Friday and Saturday in an auction at the Iraqi Oil Ministry.

The companies are also comrades of sorts, of a fraternity of foreign oil companies desperately trying to return to the worlds most prospective oil patch. After years of isolation, companies are willing to settle on 20-year service contracts rather than the production sharing agreements that have become the industrys preference.

Companies pre-qualified to bid come from 24 countries. Seven are based in the United States.

This is Iraqs second auction the first on June 30 that eventually saw awarded three of the six oil fields offered as part of the ministrys efforts to boost production from 2.4 million barrels per day (bpd) to 6 million within seven years and as much as 10 million within 10-15 years, rivaling Saudi Arabia.

In the two auctions Iraq offered up 84 billion of its 115 billion barrels in proven reserves.

Iraq wants to eventually be a net exporter of oil, natural gas, fuel and electricity, all which require hundreds of billions of dollars of investment over a timeframe of two decades.

Even the mid-term goal is optimistic, with many challenges, both foreign and domestic, investors must face.

Last Tuesdays quintuple car bombs not only killed and injured around 600 people throughout Baghdad, but served as a reminder to Iraqis, politicians, security officials and foreign oil companies that Iraq remains a very dangerous place.

But companies say they will be in attendance. And security will be tight, says the head of Iraqs Oil Police, who has long been planning for the conference.

Combined with past wars, sanctions and mismanagement by Saddam Hussein, an increase in production and thus exports, which Iraq relies on for nearly all its state income, more than $34 billion this year so far first requires a major facelift of infrastructure from the field to the pipelines to storage tanks to export routes.

In exchange Iraq is offering super-giant fields Majnoon and West Qurna-Phase 2, along with eight other oil projects. Companies will place bids on two weighted criteria: to what level production of the fields will be raised, and how much per barrel produced will they get paid.

The latter will be weighted more heavily 80 percent to 20 percent when the ministry judges the bids, so as not to encourage companies to inflate their production targets.

Bids in the first round in June did just that, says Thamir Ghadhban, top oil adviser to Prime Minister Nouri al-Maliki and twice minister since 2003.

On June 30 only the massive Rumaila field was awarded, to BP and the Chinese National Petroleum Corp. Companies felt the ministry was being too stingy with the fee they were willing to pay for each barrel of increased oil flow.

But realizing there was much more to gain Iraq has at least the worlds third largest reserves, with much more to find companies resubmitted their offers. Last month Exxon Mobil with junior partner Shell and Eni with partners Kogas and Occidental Petroleum both were given initial awards to the West Qurna-Phase 1 and Zubair fields, respectively.

Even after this, however, companies have a ways to go. A new government will be formed after Marchs national elections, and there is a sentiment, though now minority, that contracts must have Parliaments approval. Some say they are illegal outright without a new oil law stuck in political fighting for years. And although there is recognition that foreign expertise, training and technology is needed in Iraqs struggling oil sector, theres no agreement as to how big a role and for how long foreigners should play in a sector popularly nationalized for the past three decades.

* The fields being offered are Najmah, Qaiyarah, North and Central East Baghdad, Eastern Fields (Gilabat, Kashem al-Ahmar, Nau Doman, Qumar), Badra, Middle Furat (Kifl, West Kifl, Merjan), Halfaya, Garraf, Majnoon and West Qurna-Phase 2.

* Qualifying Firms (alphabetical by country):
Algeria: Sonatrach
Angola: Sonangol
Australia: BHP Billiton; Woodside.
Canada: Nexen.
China: CNOOC; CNPC; Sinochem.
Denmark: Maersk.
France: Total.
Germany: Wintershall BASF Group.
India: Oil India; ONGC.
Indonesia: Pertamina.
Italy: Edison; Eni.
Japan: Inpex; Japex; JOGMEC; Mitsubishi Corp.; Nippon.
Kazakhstan: KazMunaiGas
Korea: Kogas.
Malaysia: Petronas.
Netherlands: Shell.
Norway: StatoilHydro.
Pakistan Petroleum
Russia: Gazprom; Lukoil; Tatneft.
Spain: Repsol.
Turkish Petroleum Corp.
United Kingdom: British: BG Group; BP; Cairn.
United States: Anadarko; Chevron; ConocoPhillips; ExxonMobil; Hess Corp.; Marathon; Occidental Petroleum.
Petrovietnam

Iraqs Second Oil Auction Qaiyarah
By Staff of Iraq Oil Report
Published December 11, 2009
BAGHDAD - UPDATE TIME: 12:42 PM

The Qaiyarah oil field is small with only 8 million barrels per day, compared to the super-giants that went on auction earlier in the day. Its located in Nineveh province, only 70 km south of Mosul, where al-Qaida and other insurgent groups dominate on any given day.

The field was found in 1928. Eighty six wells have been drilled since then. Production started in 1936 but geography and geology plague it.

12:42:PM: Sonangol offer $12.50 remuneration per barrel and a production plateau target of 120,000 barrels per day for Qaiyarah. The offer is rejected. Iraqs Oil Ministry states that the maximum remuneration fee is $5 per barrel.

Iraqs Second Oil Auction Halfaya
By Staff of Iraq Oil Report
Published December 11, 2009
BAGHDAD - UPDATE TIME:11:52 AM

With 4.1 billion barrels of reserves, Halfaya is located in Missan province, southeast of Amara, the capital. Oil was first found in 1976 and seven wells have been drilled, four of which have had limited production.

11:52: AM: Taking 50 percent of the oil field, China National Petroleum and Consortium was the big winner in Halfaya. Junior partners Total and Petronas each took 25 percent. The Chinese major beat off bids from Eni Oil and Gas, Sonangol, Kogas, Occidental and China National Offshore Oil Corporation, ONGC, TPAO and Oil India.

The winning bid offered a $1.40 per barrel remuneration fee and a production plateau target of 535, 000 barrels per day (bpd). Eni Oil and Gas with partners Sonangol, Kogas, Occidental and China National Offshore Oil Corporation lost out with an offer of $12.90 remuneration per barrel and a production plateau target of 400,000 bpd. Other bids included ONGC, TPAO and Oil Indias offer of $1.40 remuneration per barrel and a production plateau target of 535,000 bpd. Also offered was a 50:50 split between Statoil and Lukoil at $1.40 remuneration per barrel and a production plateau target of 535,000 bpd.

The winning bids remuneration fee was lower than the Ministry of Oils maximum, so the figure was not disclosed.

Iraqs Second Oil Auction The Eastern Fields
By Staff of Iraq Oil Report
Published December 11, 2009
BAGHDAD - UPDATE TIME: 12:40: PM

The four fields that make up the Eastern Fields project are located in Diyala province, between Kirkuk and Baghdad. Gilabat, Khashem al-Ahmar, Nau Doman and Qumar are all undeveloped. Well tests have confirmed oil and gas in all four. Khashem al-Ahmar was discovered first, in 1927, then Gilabat in 1958, Nau Doman in 1976 and Qumar in 1979.

Al-Qaida and other insurgent groups have been active in the area around the fields, and pose an added risk to investors and workers. They are also grouped in disputed territories fought over between Iraqs Arabs and Kurds.

12:40:PM: Sonangol offer $12.50 remuneration per barrel and a production plateau target of 120,000 barrels per day. The offer is rejected. Iraqs Oil Ministry states that the maximum remuneration fee is $5 per barrel.

Iraqs Second Oil Auction Majnoon
By Staff of Iraq Oil Report
Published December 11, 2009
BAGHDAD - UPDATE TIME: 11:09 AM

The 12.6 billion barrel super-giant Majnoon oil field is in Basra province, 60 km northwest of Basra city, and extends toward Missan province. According to Iraqs Petroleum Contracts & Licensing Directorate, Majnoon was discovered in 1976. Twenty four wells have been drilled and it has been partially developed. Work stopped in the 1980s during the Iran-Iraq war, and restarted in 2002.

French major Total had a preliminary agreement with Saddam Hussein to develop the field, but work stopped because of sanctions. Total with partner Chevron is expected to make a strong bid for the field, along with other majors including Exxon Mobil and Shell.

11:09: AM: Shell wins a 60 percent of share of Majnoon oil field with junior partner Petronas. The oil giants beat off bids from Total, China National Petroleum and Consortium. Petronas took 40 percent of the field as Shells junior partner. Shell offered a $1.39 remuneration fee per barrel and a production plateau target of 1.8 million barrels per day. Total offered $1.75 remuneration and 1.405 million bpd. Both remuneration fees were lower than the maximum Iraqs Ministry of Oil was willing to pay.

Iraqs Second Oil Auction East Baghdad
By Staff of Iraq Oil Report
Published December 11, 2009
BAGHDAD - UPDATE TIME: 12:01 PM

The East Baghdad oil field holds 8.1 billion barrels, stretching from Baghdad and into Salahadin province. It is, however, next to and possibly runs below Sadr City, the often volatile poor section of Baghdad that is under full control of those loyal to cleric Moqtada Sadr.

Only the central and north parts of the field are up for auction, northwest of Diyala river. The southern part is allegedly being negotiated with a Japanese oil company. East Baghdad was discovered in 1976 and 64 of the 80 wells are in the contract area. Limited production began in 1980.

12:01 PM: So far, no bids have been placed on offer for East Baghdad oil field.

Complete Round 2 results
By Ben Lando of Iraq Oil Report
Published December 13, 2009

A smiling Oil Minister Shahristani, in one of the many photos he took with celebratory ministry, security and political staff after the Dec. 12 auction. (STAFF/Iraq Oil Report)
BAGHDAD - The highly anticipated second licensing round is over, with Iraq awarding seven of 10 fields to foreign oil companies with the best bid.

Heres what went down:


Iraqi oil fields offered in the second licensing round. (Source: www.pcld-iraq.com)
MAJNOON
Winning bid: Shell (60 percent) with Petronas (40 percent)
Remuneration fee: $1.39/barrel
Production Plateau Target: 1.8 million barrels per day (bpd)

Competing bids:
Total (57 percent) with CNPC (43 percent)
Remuneration Fee: $1.75/barrel
Production Plateau Target: 1.405 million bpd

Project details:
First Commercial Production Rate: 175,000 bpd
Plateau Production Duration: 10 years
Non-recoverable Signing Bonus: $150 million
Minimum Expenditure Obligation: $300 million

WEST QURNA PHASE-2

Winning bid: Lukoil (85 percent) with Statoil (15 percent)
Remuneration fee: $1.15/barrel
Production Plateau Target: 1.8 million bpd

Competing bids:
Petronas (60 percent) with Pertamina (20 percent), PetroVietnam (20 percent)
Remuneration Fee: $1.25/barrel
Production Plateau Target: 1.2 million bpd

Total (100 percent)
Remuneration Fee: $1.72/barrel
Production Plateau Target: 1.43 million bpd

BP (51 percent) with CNPC (49 percent)
Remuneration Fee: $1.65/barrel
Production Plateau Target: 888,000 bpd

Project details:
First Commercial Production Rate: 120,000 bpd
Plateau Production Duration: 13 years
Non-recoverable Signing Bonus: $150 million
Minimum Expenditure Obligation: $250 million

HALFAYA

Winning bid: CNPC (50 percent) with Petronas (25 percent), Total (25 percent)
Remuneration Fee: $1.4/barrel
Production Plateau Target: 535,000 bpd

Competing bids:
Statoil (50 percent) with Lukoil (50 percent)
Remuneration Fee: $1.53/barrel
Production Plateau Target: 600,000

ONGC (50 percent) with TPAO (30 percent), Oil India (20 percent)
Remuneration Fee: $1.76/barrel
Production Plateau Target: 550,000 bpd

Eni (30 percent) with Sonangol (15 percent), CNOOC (15 percent), Kogas (20 percent), Occidental (20 percent)
Remuneration Fee: $12.90/barrel
Production Plateau Target: 400,000

Project details:
First Commercial Production Rate: 70,000 bpd
Plateau Production Duration: 13 years
Non-recoverable Signing Bonus: $150 million
Minimum Expenditure Obligation: $200 million

GARRAF

Winning bid: Petronas (60 percent) with Japex (40 percent)
Remuneration Fee: $1.49/barrel
Production Plateau Target: 230,000 bpd

Competing bids:
KazMunaiGas (45 percent) with Kogas (45 percent), Edison (10 percent)
Remuneration Fee: $2.55/barrel
Production Plateau Target: 185,000 bpd

TPAO (60 percent), ONGC (40 percent)
Remuneration Fee: $2.76/barrel
Production Plateau Target: 200,000 bpd

Pertamina (100 percent)
Remuneration Fee: $7.50
Production Plateau Target: 150,000

Project details:
First Commercial Production Rate: 35,000 bpd
Plateau Production Duration: 13 years
Non-recoverable Signing Bonus: $100 million
Minimum Expenditure Obligation: $150 million

BADRA

Winning bid: Gazprom (40 percent) with TPAO (10 percent), Kogas (30 percent), Petronas (20 percent)
Remuneration Fee: $5.50/barrel (The consortium initially bid for $6/barrel, which was more than the ministry was willing to pay. The consortium then agreed to the ministrys fee.)
Production Plateau Target: 170,000 bpd

Competing bids: NONE

Project details:
First Commercial Production Rate: 15,000 bpd
Plateau Production Duration: 7 years
Non-recoverable Signing Bonus: $100 million
Minimum Expenditure Obligation: $100 million

QAIYARAH

Winning bid: Sonangol (100 percent)
Remuneration Fee: $5/barrel (The company initially bid for $$12/barrel, which was more than the ministry was willing to pay. The consortium then agreed to the ministrys fee.)
Production Plateau Target: 120,000 bpd

Competing bids: NONE

Project details:
First Commercial Production Rate: 30,000 bpd
Plateau Production Duration: 9 years
Non-recoverable Signing Bonus: $100 million
Minimum Expenditure Obligation: $150 million

NAJMAH

Winning bid: Sonangol (100 percent)
Remuneration Fee: $6/barrel (The company initially bid for $8.50/barrel, which was more than the ministry was willing to pay. The consortium then agreed to the ministrys fee.)
Production Plateau Target: 110,000 bpd

Competing bids: NONE

Project details:
First Commercial Production Rate: 20,000 bpd
Plateau Production Duration: 9 years
Non-recoverable Signing Bonus: $100 million
Minimum Expenditure Obligation: $100 million

There were no bidders on the fields or projects: East Baghdad (north and central); Middle Furat (Kifl, West Kifl, Merjan); and Eastern Fields (Gilabat, Khashem Al-Ahmar, Nau Doman, Qumar).

From Irqa oi news, 14/12/009

Iraqs Kurds, who favor heavy decentralization, and nationalist Arabs, who want strong state control, have both questioned Shahristanis oil deals. Some have called them illegal.

In press conferences and speeches before the auction, both Prime Minister Nouri al-Maliki and Oil Minister Shahristani, reiterated the governments pledge that the deals would remain valid no matter what happens in the March 7 national election.

Legal cover has been as much of a concern to foreign oil companies as physical security. Three days before the first field was put on the block, five bombs killed more than 120 people. Iraqs northern export pipeline was offline for a week, during both October and November, due to sabotage.

The contract specifies very clearly the responsibilities of the companies and the security for the fields is the responsibility of the Iraqi government but if the oil companies require specific security for their personnel or their activities, that is their responsibility, said Shahristani.

We will make necessary precautions to deal with it, said Torgeir Kydland, the senior vice president for Iraq at Statoil, the Norwegian firm which partnered with Russias Lukoil to increase production at the West Qurna-Phase 2 project from nearly nothing now to 1.8 million bpd.

That additional crude, however, now needs somewhere to go. And throughout the value chain, there are missing links. Iraq needs to upgrade refineries, build more storage units, and create a larger capacity transport infrastructure. Following wars and sanctions, everything needs repair and modern technology.

Iraq cannot export much more than it does already; depending on which segment of the pipeline system, either repairs have not been made or an increase in oil flow risks all-out rupture.

The amount of work required for the infrastructure to handle such a massive production and to transport it and to export it is huge, said Shahristani. He said a pipeline and export master plan will be completed soon after assessing the needs of the fields awarded for development.

There will be another port there and also a network of pipelines extended from the north of Iraq to the south and from the east to the west of Iraq to export oil from different areas, he said. Such a move will diversify recipients, increase delivery to those already served, and allow it to separate the different qualities of crude instead of selling it as a concoction of one.

And when it makes significant gains in production, it will have to find its place within OPECs quota system, which Iraq a founding member has been excused from because capacity was cut by wars and sanctions. Shahristani said the 12 million bpd target will merely be Iraqs capacity, and that actual output will be based on market demands and aligned with OPEC. There is language in the contracts that compensates foreign companies if production is reduced, he said.

Iraq is considered by Transparency International as one of the most corrupt countries in the world. And the influx of potentially hundreds of billion dollars of foreign investment into an as yet unproven government of struggling institutions is a volatile concoction producing in other developing yet resource-rich nations what has come to be known as the resource curse.

That is, when oil revenues arent used to benefit the citizens of the producing country but, rather, the elite. Investor companies are often enablers if not complicit, and their home nations approving.

The result is a populace lacking basic services and a polluted environment that soon turns into violence, destabilizing both oil operations and government. The resource curse in Iraq, however, is not inevitable. And although history is a bad indicator, in Iraq and in most oil producers, such a trend can be slowed and reversed.

Thats why were glad its not coming on line all in one day, said a senior U.S. official. The ministrys Inspector Generals office is considered to be both progressive and aggressive.

The companies are expected to reach an initial agreement with the ministry by the end of the year.

They will give us a work plan about the numbers of the fields to be developed, the expected costs, the invested money, and the number of the workers, said Shahristani.

This is then followed by Cabinet approval and the final signing. Thirty days later the companies must pay the signature bonus, which is no less than $100 million, depending on the field. And its non-recoverable, as opposed to the first round where the much larger signing bonus was given as a loan.

Oil prices hovered below $70 a barrel on Tuesday, held down by high inventories and weak demand while investors awaited new data about the U.S. economy.

By early afternoon in Europe, benchmark crude for January delivery was up 10 cents at $69.61 in electronic trading on the New York Mercantile Exchange. On Monday, the contract fell 36 cents to settle at $69.51.

Prices have dropped over the previous nine days the longest slide since 2001 on investor doubts about a recovery in U.S. crude demand and as the dollar strengthened.

Crude is down about 13 percent since reaching its 2009 high of $82 a barrel in October.

Analysts at Petromatrix Research said Tuesday that "the negative momentum is not over."

And Galena Illinois-based Ritterbusch and Associates said in a report said a further slide to the $65 to $66 area is "looking increasingly likely."

Later Tuesday, the U.S. is due to publish its weekly oil inventory report. Other economic data, including November industrial output figures, are also expected to offer some clues about the health of the world's largest economy.

While some encouraging signs for the U.S. economy have appeared lately, the Federal Reserve forecasts unemployment will remain high because companies won't start rehiring until they are confident the recovery will last.

Investors are also watching closely the U.S. dollar, which has reversed a yearlong slide this month. Traders had been buying crude and other commodities as a hedge against inflation and a weaker currency.

The euro fell to $1.4556 on Tuesday from $1.4656 on Monday while the dollar rose to 89.24 yen from 88.55. The British pound fell to $1.6261 from $1.6304.

In other Nymex trading in January contracts, heating oil was down 0.11 cent at $1.9071 while gasoline was up 0.48 at $1.8315. Natural gas rose 7.3 cents to $5.405 per 1,000 cubic feet.

In London, Brent crude for January delivery lost 5 cents to $71.84 on the ICE Futures exchange.

By TAREK EL-TABLAWY
AP Business Writer


INO.com Headlines
OPEC revises up 2010 world oil demand
13 minutes ago

(AP:CAIRO) OPEC nudged its 2010 forecast for global oil demand slightly higher Tuesday, a week before it's due to meet, but cautioned that the pace of the global recovery may affect consumer appetite for its chief export.

The 12-nation Organization of the Petroleum Exporting Countries said in its December Monthly Oil Market Report that world oil demand was expected to increase by 800,000 barrels per day to 85.13 million barrels per day, largely from developing countries. That's a 70,000 barrel per day upward revision from its November forecast.

The group, which supplies about 35 percent of the world's crude, said the market still faced some risks linked in part to the pace of the world's ability to rebound from its worst recession in over six decades.

OPEC noted that oil inventories remain exceedingly high in developed nations and ample stocks of refined petroleum products could continue to affect demand and, as a result, oil prices.

"A more detailed look at the supply/demand balance indicates that fundamentals will continue to be weak in the first half of the year before improving in the second half, as reflected in the demand for OPEC crude," OPEC said.

"Despite the low base in world oil demand in 2009, which suggests a strong increase in 2010 oil demand growth, the possibility of a weak and slow economic recovery could adversely affect oil demand growth," it said.

The report is generally optimistic about the rebound in demand in 2010 after what OPEC described as "one of the worst years" for global oil demand. But it also offers group members a sobering reminder of the challenges they face in trying to support prices for their chief export.

Oil prices hovered below $70 a barrel Tuesday in Asia after dropping the last nine days on investor doubts about a recovery in U.S. crude demand and amid a strengthening dollar.

OPEC ministers meet in Luanda, Angola, on Dec. 22, but several of the bloc's biggest producers have indicated that a change in member quotas was not likely.

Saudi Arabia's oil minister, whose country sits atop the world's largest proven crude reserves and is considered OPEC's kingpin, earlier this month described oil prices as "perfect."

The group has said oil at between $75 to $80 per barrel was a fair price for producers and consumers. But crude has fallen by about $7 per barrel in the past few weeks, in part because of fluctuations in the U.S. dollar and instability in equity markets.

OPEC has left its members' production quotas unchanged since last December, when it announced the last of a series of cuts aimed at bringing their output down by 4.2 million barrels per day. The cuts helped engineer a rebound in crude prices, which had collapsed to the low $30s from a mid-2008 high of almost $150 per barrel.

OPEC said in its report that the demand for its crude was expected to increase 100,000 barrels per day, or 30,000 barrels a day more than its previous month's forecast. It attributed the slight increase to more crude from countries outside the producer bloc.

It also said production from 11 members _ not including Iraq which is currently exempt from the quotas _ averaged 26.61 million barrels per day in November. That increase of 44,000 barrels per day from the previous month showed more erosion in compliance with output levels from the members.

The group is currently producing about 600,000 barrels per day more than it said it should when it announced the December cuts.

By CHRIS KAHN, AP Energy Writer Chris Kahn, Ap Energy Writer 1 hr 29 mins ago
NEW YORK Oil prices rose sharply Wednesday, wiping out a week's worth of declines after the government said supplies of oil and petroleum products dropped much more than expected.

Benchmark crude for January delivery surged by $2.23, more than 3 percent, to $72.92 a barrel on the New York Mercantile Exchange. In London, Brent crude for January delivery added $1 to $73.05 a barrel on the ICE Futures exchange.

The Energy Information Administration said that crude supplies fell by 3.7 million barrels last week and distillate fuels including heating oil dropped by 2.9 million barrels. Analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., expected more moderate draws of 2 million barrels of crude and 750,000 barrels of distillates.

Refineries tend to try to get rid of as much crude as possible toward the end of the year to avoid paying higher taxes. But heating oil supplies also dropped as frigid temperatures blanketed the Midwest and Northeast.

"The cold weather has really been pushing prices right now," analyst Peter Beutel said.

At the pump, retail gas prices fell by less than a penny overnight to a new national average of $2.594 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of regular unleaded is 3.7 cents cheaper than it was last month, but it's 93.3 cents more expensive than the same time last year.

In other Nymex trading in January contracts, heating oil climbed 6.59 cents to $1.9692 a gallon while gasoline gained 4.75 cents to $1.8926 a gallon. Natural gas lost 3.7 cents to $5.486 per 1,000 cubic feet.

15/12/2009
Oil gains on OPEC consumption forecastStory link: Oil gains on OPEC consumption forecast by Elaine Frei
With about half an hour left in the floor trade session in New York on Tuesday, the price of January contracts for West Texas Intermediate crude oil had risen $1.14 to $70.65 per barrel on the New York Mercantile Exchanbge, aftter an upwardly revised estimate of 2010 consumption from the Organization of Petroleum Exporting Countires.
OPEC [...]

The Iranian invasion
By Ben Lando of Iraq Oil Report
Published December 18, 2009
BAGHDAD - Iraqi Prime Minister Nouri al-Maliki convened a meeting of the National Security Council Friday to discuss the Iranian occupation of a well in Missan provinces Fauqi oil field, one of a number of Iraqs border fields, which was offered to investors in a June 30 auction.

The incursion and at least temporary occupation of the Iraqi field has angered security and political officials, all of whom spoke on condition of anonymity because of the sensitivity of situation. Few top officials have spoken to the media.

Critics question why such border crossings have continued since 2003 and a resolution on the disputed border has not been finalized.

The politicians very well know this is an unsolved problem since 2003 until now, said a high ranking Iraqi official who earlier this month visited the Fauqi field (which is often referred to as Fakka). On either side of the well Iraqi and Iranian forces have guard posts at an often passive standoff.

Such a violation could have been expected a long time ago, the official said. Security forces are still maintaining a presence at those posts, witnesses said.

Workers at the Iraqi state Missan Oil Company said crews were working on well number four, which is 100 meters from the Iranian border, when Iranian forces stormed the field, shot warning shots chasing off the Iraqi workers, lowered the Iraqi flag and raised the Iranian flag.

The Missan Provincial Council is also holding an emergency high security meeting a provincial council leader said from Amara, the capital of the province.

The U.S. military directed queries to the Iraqi government because U.S. forces dont operate in that area, according to a spokesperson. The U.S. Embassy also had no comment.

Iran didnt take any Iraqi lands, said an Iranian official here. We think that this is a part of the media propoganda against the Iranian Islamic Republic.

The incursion happened days before Iraqi and Iranian oil officials will be together at the quarterly OPEC meeting, taking place in Angola. Last week Iraq awarded seven oil contracts that could see the country dwarf Iranian output within six years. The two countries have long been arch rivals in oil production.

Numerous sources confirmed Iraqi oil workers were sent to the well last week and earlier this week, which may have sparked the response from Iran. There is an unofficial agreement on these border fields that work is halted without a development agreement between the two countries. There are concerns one side will siphon crude across the subterranean border, or extraction of oil from one side will cause the other side to leak over.

There are more than a dozen oil fields on or near the border with Iraqs neighbors, including Iran and Kuwait, both of which fought wars over, among other reasons, the rights to the oil fields. Fauqi is 25 kilometers long and 1.5 kilometers wide.

Fauqi is producing, though well number four, which is the one nearest the Iranian border, is dormant. It was first discovered in 1973 and first started producing in 1979. It holds between 1.5 billion and 2 billion of Iraqs 115 billion barrels of proven reserves.

Every day there are problems with Iran, said a security official with the Missan Oil Company. He said it has gone as far as warning shots being fired when Iraqis stray too close to the border near the field. He also expressed frustration that Baghdad is not confronting Tehran.

Earlier in the day Interior Minister Jawad Bolani played down the potential confrontation on al-Arabiya, the Dubai-based/Saudi-funded TV network, but confirmed that the incident did take place.

He said that the situation would be resolved soon. A committee was formed years ago to deal with unresolved border disputes and its not clear if this committee will also quickly respond to it. It will be a huge test for the diplomatic capacity of the new Iraqi government, which has strong ties to Iran.

It is also a reminder of tough discussions waiting to be had. Iraq has not yet resolved border disputes with its neighbors, including Iran and Kuwait, both of whom have common oil fields.

In the past, the unilateral production of oil from joint fields has led to war between these countries. And there have been numerous reports of Iraqi oil workers fending-off Iranian oil incursions before.

There was one bidder for the group of fields that Fauqi was part of in the June 30 auction, though Chinas CNOOC and Sinochem consortium wouldnt accept the maximum remuneration fee the ministry was willing to pay.
In an auction Dec. 11 and 12, the Badra field was awarded to a Gazprom-led consortium. Badra is in Wasit province and bleeds into Iranian territory.