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Oil Trades Near 1-Week Low as Record Fuel Prices to Cut Demand

By Christian Schmollinger

May 28 (Bloomberg) -- Crude oil traded near a one-week low in New York after plunging yesterday on speculation record fuel prices will cut demand at the height of the U.S. driving season.

Gasoline futures fell for a second day after a report yesterday showed U.S. consumer confidence dropped to the lowest level since October 1992. The average U.S. gasoline pump price reached an all-time high May 26, crimping demand from motorists.

``The litmus test over the next couple of weeks will be how the U.S. driving season pans out and it looks like the risk is to the downside,'' said Mark Pervan, the senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne, who forecasts oil will trade between $120 and $135 in the next 18 months. ``The market is saying the driving season is going to disappoint.''

Crude oil for July delivery was at $128.81 a barrel, down 4 cents, on the New York Mercantile Exchange at 2:07 p.m. in Singapore. The contract earlier fell as much as 75 cents, or 0.6 percent, to $128.10, the lowest intraday price since May 20.

Yesterday, oil dropped more than $3 a barrel in the biggest one-day drop since April 29 to close at $128.85. Futures reached $135.09 on May 22, the highest since trading began in 1983, and have doubled in the past year.

``People realize that there is a point where high prices are going to start affecting demand and consumers will start revolting,'' said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp. in Tokyo. ``The market is easy to push up until we have a collapse in demand and that's what it's going to take to get this thing into a downtrend.''

Brent crude oil for July settlement was at $128.23 a barrel, down 8 cents, on London's ICE Futures Europe exchange at 2:07 p.m. Singapore time. It declined $4.06, or 3.1 percent, to settle yesterday at $128.31 a barrel, the biggest decline since March 31. The contract touched a record $135.14 on May 22.

British PM calls for global action on oil price
Reuters, London

British Prime Minister Gordon Brown warned on Wednesday that the world was facing an oil "shock" and would find there was no easy answer to price rises without coordinated global action. Brown, who saw hundreds of protesting British truck drivers cause road chaos in the capital on Tuesday as they demanded government help over rising fuel prices, said he understood the impact on families across the country, but only a comprehensive international strategy would work in bringing oil prices down.
"A global shock on this scale requires global solutions," Brown wrote in The Guardian newspaper. He pledged to put global action on oil price rises at the top of the agenda at the Group of Eight (G8) summit in Japan in July and promised to propose more international work on "a better dialogue on supply possibilities and trends in demand."
Brown was due on Wednesday to meet oil industry executives in Scotland to discuss the high price of oil. According to The Guardian, he was expected to try to secure increased output from Britain's dwindling North Sea oil fields. But Brown said in the long term, oil dependency had to be reduced and other sources of energy explored and exploited.
"If we are to ensure a better deal for consumers, energy security and lower greenhouse gas emissions, Britain, Europe and the world will have to change how we use energy and the type of energy we use," he wrote. "We need to accelerate the development and deployment of alternative sources of energy, reducing global dependence on oil.
Brown's comments come a day after truckers from across Britain converged on London in a vast convoy, closing a busy artery and causing traffic chaos.
Similar protests took place in Wales, causing fresh trouble for Brown, whose leadership is under pressure after poor showings in recent local elections and a parliamentary byelection.
This latest wave of fuel protests, which echo similar protests in 2000, began in France, where fishermen have blockaded ports to demand cheaper fuel.
French truckers have also threatened to take action across France if the government fails to respond to their demands that industry diesel prices should fall back to average levels seen in January this year.
Diesel is about 130 pence ($2.57) a liter in Britain, more than double the price in the United States. Hauliers want a cut in fuel duty of 20 to 25 pence (40-50 cents) a liter.

Do you think there will be a retrace back to $100 when it hit's $140'ish

Oil price likely to hit $200 a barrel
BBC Onlone 30/05/2008

Global demand for oil has been fuelled by China and India
The price of crude oil could soar to $200 a barrel in as little as six months, as supply continues to struggle to meet demand, a report has warned.
Goldman Sachs energy strategist Argun Murti made the warning as benchmark US light crude passed the $123 mark for the first time. Surging demand was increasingly likely to create a "super-spike" past $200 in six months-to-two years' time, he said. Oil prices have now risen by 25% in the last four months and 400% since 2001.
US sweet, light crude hit an all-time peak of $123.53 (63.25) on Wednesday, while London Brent crude jumped to $122.32.
Mr Murti correctly predicted three years ago - when oil was about $55 a barrel - that it would pass $100, which it reached for the first time in January of this year. Soaring global demand for oil is being led by China's continuing economic boom and, to a lesser extent, by India's rapid economic expansion.
Both are now increasingly competing with the US, the European Union and Japan for the lion's share of global oil production.
This additional demand comes at a time of continuing production problems in a number of oil-producing nations.
Production is down in Nigeria after the latest attacks on pipelines this week by anti-government militants, while Iraqi exports through the north of the country have been hit by renewed cross-border raids by Turkish forces against Kurdish insurgents. Oil prices are also rising as the key US summer driving season approaches.
Economists warn that continuing high oil prices will impact on the global economy, hitting growth and fuelling inflation.


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Brent trading at a 60 point premium to US at the moment! Arb opportunity perhaps

Oil will moderate but not below US$100 a barrel
By Leonora Walters

The oil price will remain relatively high for some time to come and not dip below US$100 a barrel, predicts Nicholas Brooks, head of research and investment strategy at ETF Securities.


Brooks acknowledges that speculation has helped to drive oil to its recent highs, hitting a record US$135.09 a barrel on 22 May, while investors are keen to move out of equities into alternative investments. Oil and other commodities are also being used as a hedge against rising inflation.

This has led to more extreme predictions of oil hitting US$200 a barrel.

But Brooks said that when equities and credit markets stabilise there will be outflows from oil investments and falls in commodity prices. However he said the other fundamentals driving up prices remain in place, and this will them not far from current levels.

Yesterday oil was down 2% at US$128.45 a barrel in New York, and down 1.9% at US$128.51 a barrel in London.

Oil supply is being outstripped by demand and Organisation of Petroleum Exporting Countries (OPEC) are failing to make up the short fall. Although these countries have reserves they face capacity constraints because they do not have the infrastructure in place to pump more oil.

All OPEC members are currently producing oil at full capacity with the exception of Saudi Arabia, Kuwait and the United Arab Emirates. Although OPEC secretary general Salem el-Badri said the organisation would invest US$160bn (80bn) on increasing production capacity, this would take place over the next four years meaning it would not have a short-term effect.

Non OPEC members are also failing to help meet the supply, with the UK, Mexico and Norway expecting oil production declines, while Russia warned last month that its output may have reached its peak.

Another effect of this is that as capacity utilisation increases countries tend to build up their oil inventories so plentiful reserves do not mean a fall in price, said Brooks.

The rise in demand for oil is being driven by emerging economies such as China and the Middle East states, with China accounting for 34% of the growth in oil demand between 2004 to 2006, and the Middle East accounting for 26%. Middle East growth in demand has been helped by subsidised oil prices.

Brooks does not believe that many states will stop subsidising oil as this could be politically difficult. For example when Indonesia cut subsidies a few days ago increasing prices by 30%, protests erupted.

Key drivers in growing emerging market oil consumption include the increase in cars with vehicle sales rising 53% in China between 2005 and 2007, and 34% in India. Although car ownership in these states is low by world standards it is increasing quickly with per capita incomes, and China car sales may surpass US levels by 2010

I will have to get me one of those battery Bikes !

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/05/30/cnoil130.xml&CMP=ILC-mostviewedbox

There is nothing any one can do the market decides the price, you cannot probe airlines or any other company doing deals with the oil companies that is also speculation from the airlines and those companies as well as market speculators so its all hot air from the US regulator CFTC. I.M.O

smiler

Believe it or not this is called a smiler ride. Battery-Powered

Found another one also called a smiler ride, that's not you is it smiler.

If that pic is 39 years old could be ! :))

OIL: Oil jumped following a Morgan Stanley analyst's forecast of $150 oil by July 4, and in response to a drop in the dollar and fresh tensions in the Middle East.

Interesting angle on Oil News today in the Middle East.

'Kuwait MP's seek to cut oil output and limit production to one percent of proven reserves'. - Kuwait Arab Times 16.06.08.

The 'officially' stated reserves has been around 100 Billion barrels for several years. There are noises, probably with some truth, that the 'proven' reserves are materially less. There is some belief it could be as low as 25 Billion.

The current production is around 2.5 million barrels per day. The 'master plan' was/is to increase to 4 million barrels per day.

Clearly there are some political agendas being 'spun' by the new Kuwaiti MP's. Whatever the agenda, it all adds to the uncertainty of future oil supply.

This story will probably run a while as events unfold. I'll keep posting the news as it comes out.

Thanks Darradev (gcm still going well !)

Aye, the story has a fair bit to go.

I sold gcm a few weeks back but it is definitely on my watchlist.

Page last updated at 15:22 GMT, Monday, 16 June 2008 16:22 UK


Oil at record near $140 a barrel

There have been calls for increased global oil output
The price of crude oil has hit a new high of close to $140 a barrel in New York trade, despite Saudi Arabia agreeing to increase output in July.

US light crude rose to a record high of $139.89 a barrel, surpassing the previous high of $139.12 set on 6 June. The price later fell back slightly to trade up $4 at $138.86 a barrel.

On Sunday, Saudi Arabia had said it would increase its oil production by 200,000 barrels a day next month in a move to meet growing world demand.

That would make a total rise of 550,000 barrels a day, or over 6%, since May and would take Saudi output to its highest monthly rate since August 1981.

The news was announced after UN Secretary General Ban Ki-Moon met Saudi Oil Minister Ali al-Naimi in Jeddah for talks on the high oil price.

The market has got it in its head that we are about to run out of oil, and is looking for negative news

John Hall, oil analyst


Q&A: Record oil prices

Last month, Saudi Arabia increased its production by 300,000 barrels a day.

The country is thought to be the only oil producer with the ability to pump substantially more crude.

It argues that the current high prices are caused by speculators rather than any shortage of crude oil.

Oil prices had fallen by almost $2 on Friday after reports that Saudi Arabia might boost oil production but many believe that this pledge is too little too late to bring down oil prices.

Extremely volatile

"If they'd have said this six months ago, it might have had some effect," said oil industry expert John Hall.

"But the market has got it in its head that we are about to run out of oil, and is looking for negative news."

"The market is extremely volatile at the moment," he added. "Any disruption to supply is immediately jumped on."

Speculation about the future of oil prices has been rife recently, with some analysts predicting oil could jump to as much as $200 a barrel during the next 18 months.

Israeli threats to strike Iran over its nuclear programme have also helped fan the flames.

Movements in the currency markets on Monday also triggered the latest price spike, with the dollar weakening against the euro and subsequently making oil cheaper for investors dealing in other currencies.

Meanwhile, Norwegian oil firm StatoilHydro saw oil and gas production temporarily abandoned when a fire broke out on the 90,000 barrel a day North Sea platform.

Oil companies return to IraqBy Henk Sjoerd Oosterhoff*

20-06-2008

International oil companies are negotiating their return to Iraq 36 years after their expulsion from the country by former dictator Saddam Hussein. On 30 June, Royal Dutch Shell, Total, BP and ExxonMobil will sign agreements with Baghdad about providing maintenance work and technical support for Iraqi oil facilities over the next two years.

The oil companies have offered all sorts of enticements to secure the favour of the Iraqi government. They are offering the use of the most modern technologies, they have made countless analyses of the country's oil supplies, and during the past two years their experts have been touring Iraq offering free advice and training. Of course, they did this in the hope of securing contracts and huge profits at a later date.
According to Lucia van Geuns, an energy expert at the Clingendael Institute's International Energy Programme:

"It's a win-win situation. As a result of the events of the past years the Iraqi companies have not been able to maintain the same level as international companies. These companies can look forward to a bright future."


New exploitation law
For the time being only short-term contracts for maintenance and repair work will be agreed. The international firms will be paid as contractors who are delivering services ("service agreements"). Nothing has been agreed concerning the exploration and exploitation of new fields. The Iraqi parliament has been unable to agree to a new law regulating mining and exploitation.
The director of the Cambridge Energy Research Associates' Middle East and Africa Department, Leila Benali, says the move is an important first step. The provision of service agreements is the only creative way of circumventing the deadlocked talks in parliament. By negotiating agreements with a limited number of companies for at most one or two years, it will be possible to increase production from the current level of 2.5 million barrels a day to up to 3 million barrels. The Iraqis are hoping to produce 6 million barrels five years from now.

Big prize
The Saddam era and the US-led invasion of Iraq have left their marks on the country's oil fields. Ms Benali dos not think it will be easy to renew production at fields which are no longer operating. And, because of the security situation, insurance fees are enormous. However, the companies are willing to take the risk since, as Leila Benali puts it:

"Everybody is waiting for the big prize - the giant fields in the south. There have been a lot of talks between the authorities and the companies about whether they will receive contracts once their service agreements have ended, or if they will still have to compete with other companies. So of course it's an attempt to gain a foothold in an effort to win the big prize everybody is hoping for."

Effect on oil prices
Would increased Iraqi production lower oil prices? Ms Benali says it would take another few years to answer this question. The price of oil wouldn't be affected by a mere half a million barrels from Iraq. The Clingendael Institute's energy expert Van Geuns also does not expect an immediate reduction in oil prices:

"Maybe in five years when Iraq is producing more and heading towards six million barrels a day, which is what they are hoping to produce within five years. Surely those extra 3.5 million barrels would have an effect. But I doubt that oil prices will drop dramatically."


http://www.radionetherlands.nl/currentaffairs/region/middleeast/080620-oil-iraq

Oil 'would create budget surplus' Friday, 20 June 2008 15:21 UK


The SNP believes the figures back the economic case for independence
Scotland would be in budget surplus to the tune of more than 800m with a "geographical share" of North Sea revenues, government figures suggest.

However, if the country was to receive its per capita share of North Sea revenues in line with the rest of the UK, it would have a deficit of 6bn.

Excluding North Sea revenues entirely would leave deficit of 6.7bn.

The figures are contained in the Government Expenditure and Revenue in Scotland (Gers) report.

The report compares government spending with the amount of money raised.

Experts from Aberdeen University said a geographical share of North Sea oil revenues would give Scotland 83% of the revenues.

That would give the country a budget surplus of 837m (0.7% of GDP) in 2006/07 - compared with a UK deficit of 4.3bn. Finance Secretary John Swinney said the report showed Scotland was in surplus.

"The flow of resources from Scotland to the rest of the UK is some 1.2bn," he said.

"This year's Gers publication has been informed by an updated and detailed analysis of North Sea revenues by Aberdeen University, enabling a geographical share to be allocated to Scotland's accounts.

"Indeed, as North Sea oil revenues soar, city accountancy firm Grant Thornton estimates that Scotland's surplus would now stand at some 4.4bn."

Total non-North Sea public sector revenue in Scotland was estimated at 42.4bn in 2006/07, compared with expenditure of 49.9bn.

The figures were produced by government officials, but ministers were not involved in the process.

Officials said the figures were the most accurate picture yet of Scotland's fiscal position, with more than 3,000 budget lines having been queried with the Treasury since the last figures were produced.


http://news.bbc.co.uk/2/hi/uk_news/scotland/7465840.stm

Treasury is one of the few UK winners from the surge in oil prices
By Roger Bootle
Last Updated: 12:43am BST 23/06/2008

The rise in international commodity and oil prices is evidently having a serious impact on our economy. But unlike corn or rice, we are substantial producers of oil. Given this, why aren't we made better off by higher oil prices? And if the country as a whole is made better off, then given that most of us are clearly worse off, who are the gainers?

Over the past three-and-a-half decades, the UK's oil position has gone through a transformation. When the first oil shock occurred in 1973, the UK produced virtually no oil. But by the time of the second oil shock, which roughly coincided with Mrs Thatcher's election in 1979 (although, so far as I can tell, there was no causal connection) production had soared. At the peak, oil production was worth about 20bn per annum, or roughly 6pc of GDP. Moreover, the UK became a substantial net exporter of oil, with the oil surplus worth 8bn, or more than 2pc of GDP.

And oil had a major impact on the public finances. At the peak, the tax revenues from the North Sea amounted to 12bn, or 3.5pc of GDP and 8pc of overall tax revenues.

But the steady decline in North Sea production, set against the continued rise in UK demand for oil, has caused the position to change dramatically. Oil production is still worth about 20bn a year but this amounts to only about 1.5pc of our current GDP. And, as our chart shows, we are no longer net exporters of oil. Last year we were net importers to the tune of about 3bn, or 0.2pc of GDP. The Treasury still gains from tax on North Sea oil and again the nominal revenues are not far off what they were at the peak, but as a share of GDP they are only 0.6pc, and as a share of total tax revenues they are less than 2pc.

The net export position is critical. If a country is a net exporter of oil then, at least in a narrow, direct sense, it will be a net gainer from higher oil prices. This was the UK's position until 2005. Even in the days of high oil surpluses, however, there were adverse indirect effects. For a start, higher oil prices, at least for a time, increase the inflation rate, and if this threatens to become ingrained it could require higher interest rates to restrain it. This would have the effect of reducing output in the non-oil economy.

Second, the fact that a country is a net beneficiary from higher oil prices may tend to strengthen its currency, thereby worsening the country's non-oil trade performance. Moreover, this could be of much greater long-run significance, as the oil will some day run out.

Third, if you trade with other countries which will be made worse off by higher oil prices, then your exports to those countries may suffer.

Fourth, higher oil prices will make some production uneconomic. Offsetting this by shifting resources into other areas takes time and involves heavy costs.

Accordingly, it was never clear, even in the halcyon days of North Sea oil, that the UK was a net gainer from higher oil prices. And some have even argued that we would have been better off without the stuff.

More on oil
Whether that is true is not easy to establish because it demands an analysis of the counter-factual. The advent of North Sea oil was one of the factors which propelled the pound to ludicrous heights in 1979-81. This, in turn, was a major factor in the collapse of British manufacturing. On the other hand, though, much of manufacturing had to go anyway, and the economy derived some benefit from the shock treatment. This also helped inflation to come down quickly.

But where did the oil money go? Some countries have established reserve funds where the oil money is effectively stored. This is what Norway, Russia and some of the oil sheikhdoms have done. But not us. Since 1978, just totting the money up without allowance for inflation or interest, total Treasury revenues from the North Sea have amounted to 130bn. Where is it? It got lost in the general pot.

Yet given that we are still a substantial producer of oil and our trade is roughly in balance, isn't there a case for us pricing our oil more cheaply and thereby avoiding the adverse effects of higher international oil prices? No. While we are on the subject of liquids, because the French produce Chateauneuf-du-Pape, does that mean that they should sell it more cheaply internally than they charge for export? Of course not. It is more beneficial to France to sell much of its fine wine abroad and then use the proceeds to buy the output of other countries - even the liquid bits, for example Guinness. Mind you, we go to the opposite extreme and charge our motorists much more through the imposition of high petrol taxes. But this is a subject for another day.

Suppose, for a moment, that if the effect of higher oil prices on the economy overall were just about neutral, given that most of us lose from higher oil prices, who are the gainers? The answer is partly the UK Treasury, which means all of us at one remove - assuming that it does not just squander the money (pigs might fly).

The result of higher oil revenues is lower taxes, higher spending or lower borrowing than there would otherwise be. The problem is that it is impossible to perceive this benefit because the money gets lost in the general fund.

And, in any case, the amounts are now not huge. This year, North Sea taxes are officially forecast to bring in 10bn, some 2.2bn more than last year. That does not even quite pay for the bail-out of the losers from the abolition of the 10p tax band.

Other gainers are the international oil companies, some of which are UK-owned and hence pay dividends to UK owners, including pension funds. And then there are all those people employed directly and indirectly in the UK oil industry. They will tend to be better off as the demand for their services rises. It is no accident that Aberdeen is the boom town of the UK.

The end result is that, although higher oil prices undoubtedly do make the economy overall worse off, they are not quite the unalloyed disaster for the UK that they are for some countries. The biggest threat from them comes from the danger that what could be a temporary burst of higher inflation gets embedded because of the passage of inflationary pay claims.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/23/ccom123.xml