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.Oil slips below $79 amid stronger US dollar.
Associated Press Writer Pablo Gorondi, 23 mins ago
Oil prices dropped below $79 a barrel Friday amid a strengthening U.S. dollar and weak crude demand in developed countries.

By early afternoon in Europe, benchmark crude for February delivery was down 77 cents to $78.62 a barrel in electronic trading on the New York Mercantile Exchange. On Thursday, the contract fell 26 cents to settle at $79.39.

The euro was down to $1.4371 Friday from $1.4500 on Thursday, while the British pound dipped to $1.6273 from $1.6332. Investors often buy commodities such as oil as a hedge against inflation when the dollar weakens and sell when it strengthens.

Crude prices also fell on concerns demand from the U.S. and Europe remains weak.

Retail sales in the United States fell 0.3 percent in December, while economists had been expected an increase.

"The U.S. retail sales data ... was not as good as expected and put a cap on the global markets," said Olivier Jakob of Petromatrix in Switzerland.

Some analysts expect growth in demand from developing countries such as China will help make up for sluggish economic recoveries in rich nations.

Francisco Blanch, head of global commodities research for Bank of America Merrill Lynch, said 75 percent of the 2.3 percent growth in global crude demand this year will likely come from developing economies.

"I'm not saying demand from OECD countries is going back to the previous highs, but we've fallen very sharply and now we're stabilizing and coming up a little bit," Blanch told reporters in Singapore.

He expects crude to average $78 a barrel in the first half, $92 in the second.

A monthly report from the Paris-based International Energy Agency on Friday held steady its forecast for world oil demand this year, predicting a slight rebound in consumption led largely by developing economies in Asia.

"Oil demand recovery in the OECD is likely to remain sluggish, despite a bout of recent cold weather," the IEA said, predicting average global demand of 86.3 million barrels a day this year, or 1.4 million barrels a day more than in 2009.

In other Nymex trading in February contracts, heating oil fell 2.22 cents to $2.0607 a gallon and gasoline slid 1.28 cents to $2.0610 a gallon. Natural gas futures lost 5.6 cents to $5.532 per 1,000 cubic feet.

In London, Brent crude for February delivery fell 91 cents to $77.66 a barrel on the ICE Futures exchange.

Long read, but found the analysis useful:
Investing Specialists: Core Stock Investing
Have We Reached Peak Oil?
A look at the supply and demand side and what's likely to happen with prices.
Remember the summer of 2008, when oil was approaching $150 per barrel and topping the headlines? The oil story quickly faded to the background when the financial crisis hit full-steam that September; we had bigger things to worry about in terms of the potential collapse of the worldwide financial system. Meanwhile, the deepening recession greatly reduced demand for oil. The price per barrel fell precipitously.

About the AuthorPaul Larson is an equities strategist with Morningstar and editor of Morningstar StockInvestor, which seeks to purchase shares of quality companies at a discount to their intrinsic values. StockInvestor features two market-beating portfolios: the Tortoise and the Hare. Paul joined Morningstar in 2002, and he was the lead writer and editor for Morningstar's educational series of stock-investing books.Contact Author | Meet other investing specialists
But while the world is awash in an excess supply of oil at the moment, I am convinced that the supply/demand balance of oil over the longer term is a critical issue that bears watching.


Oil is so important because it is, at the moment, the primary source of transportation fuel, and transport costs affect the entire economy. Low oil prices cut the cost of doing business and help reduce geographic barriers, while high oil prices act as a "tax" on the entire system and force us to act more locally.


I recently sat down with a group of Morningstar's energy analysts to discuss the idea of "peak oil." In this article, I will define the issue and share the group's insights.


Peak Oil Defined
At its core, peak oil is the idea that we will reach a point at which the rate of oil production cannot be increased because of geologic limits such as the size of the planet's resource base and the impact of natural decline rates. There are other limits to the rate of production, including above-ground factors such as investment rates and geopolitics, that further constrain production levels. To use an analogy, when thinking about the maximum amount of milkshake one can drink in a certain amount of time, the size of the straw and the ability to suck matters just as much as the amount of liquid in the cup.


The idea behind peak oil is credited to a geoscientist named M. King Hubbert, who worked for Shell (RDS.A



Sponsored by:
RDS.A) back in the 1950s. In 1956 he published a paper that detailed a statistical method he developed suggesting that the rate of fossil-fuel production tends to follow a bell-shaped curve. The idea behind this is that after fossil-fuel reserves are discovered, production begins to increase exponentially until a peak production rate is reached; after that it begins to decline as depletion overcomes new discoveries.


When you look at the history of discoveries, it's pretty clear that we've already found most of the obvious oil fields. In terms of oil reserves, discoveries peaked in the 1960s, and the rate of discovery dropped below our annual consumption in the late 1980s. Today, we're using more oil each year than we find.


2009 was a banner year for oil discoveries, with a lot of headlines being generated by finds in Brazil and the deep waters of the Gulf of Mexico. In fact, we saw discoveries on the order of 10 billion barrels of reserves, the highest rate since 2000 when the giant Kashagan field in Kazakhstan was discovered. However, the world is consuming around 83 million barrels a day, which equates to 31 billion barrels a year. So even in this banner year, we are barely replacing one third of the oil we consume.


Are We Running Out of Oil?
In a word, no. Yet we have essentially found all of the cheap oil. Since Colonel Drake first drilled for oil in Pennsylvania in 1859, the world has used about a trillion barrels of oil. Estimates vary widely, but there are at least another trillion barrels of conventional crude oil reserves and perhaps two or three times that much if you consider unconventional (and higher-cost) sources, such as oil sands and oil shale. We're not going to run out of oil overnight, but it's fair to say that the first trillion barrels we consumed were the cheapest, easiest-to-access reserves.


When you look back at the East Texas oil boom early last century, oil wells were being drilled a few hundred feet deep. In the deserts of Saudi Arabia and Iraq, giant oil fields are so close to the surface that you could practically stick a straw in the ground and strike oil. These big, easy finds were relatively inexpensive to develop.


But check out where we're looking now: The latest Gulf of Mexico discovery, Tiber, is a well drilled to a depth of 35,000 feet and lies beneath 4,000 feet of water. Think about that; the well is a mile deeper than Mount Everest is tall. It will likely take 710 years before this discovery produces anything. While this is a significant discovery, it certainly isn't cheap oil.


We have established that cheap oil might be a thing of the past, and it is clear that we are using more oil than we find each year. Yet how does this fit into the notion that oil production is peaking? The key thing to consider is that an oil well's rate of production declines over time.


As oil is pumped from a reservoir, the pressure in the well begins to drop and the rate of flow decreases. This process is called a decline rate. One can drill new wells in a field to balance the impact of declines, but as an oil field is developed and drained from multiple wells, it reaches a point at which the whole field goes into decline. We saw this play out with Alaska's Prudhoe Bay, in the North Sea, and in the Cantarell field in Mexico. Now we can aggregate oil fields and look at production curves for countries in the same way, and we see that 40 of the 54 oil-producing nations are past their peak oil production. In the United States, oil production peaked in 1970 around 9.5 mb/d, but today our production is about 5 mb/d.


Let's put oil-field declines in context. World oil production is roughly 83 million barrels per day. Various estimates place the underlying global decline rate somewhere between 4% and 8% per year. That means that each year we have to add about five million barrels of new production to keep production flat. Step five years out, and we have to replace 25 mb/d of production, or about three times Saudi Arabia's current production. That's a lot of new wells that need to be started just to offset declines.


Plus, this does not account for any growth in oil consumption. Absent global recessions, underlying oil demand is increasing by about 1% per year. This means that five years out we'd need another 5 million barrels of oil per day just to keep the current equilibrium. Frankly, we're not certain that we'll be able to reach that level of production.


Have We Reached Peak Oil?
It is hard to tell, and we do not know. No one will know for certain except by looking in the rear-view mirror. A couple of our analysts attended a conference in Denver put on by the Association for the Study of Peak Oil and Gas a few weeks back, and the precise timing of peak oil is of considerable debate. In our minds, the exact timing is less meaningful than the fact that oil production will begin to decline at some point within the next five to 10 years.

One enlightening analysis at the conference was presented by Rembrandt Koppelaar based on tracking announced oil megaprojects and layering anticipated production gains on top of existing world production. His analysis provides a best-case outlook that shows we can bring about 25 mb/d of new production online by 2016, assuming announced projects are completed on time and result in expected new production. His analysis suggests that we will get to roughly 90 mb/d in 2014. Incidentally, this is roughly the level of production an increasing number of oil executives are discussing as a production peak.


The Demand Side
We've talked a lot about supply issues, but demand is just as critical. Over the past five years we've seen China and other emerging economies bidding barrels away from industrialized countries. In fact, demand from the developed world (defined as the OECD countries) is down by about 4% since 2000, while China's demand is up 60% and India's is up 40%. On a net basis, world demand is up about 8%. In a very real way, the OECD countries have become one of the larger "suppliers" of oil to the market by reducing consumption.


Looking forward, we see this trend continuing, especially if fuel-efficiency measures as well as hybrid and electric vehicles gain traction here. Gasoline consumption in the United States accounts for about 12% of total world demand for oil, and any sizable reduction in gasoline use will free up barrels for the rest of the world. Our efforts to boost efficiency and reduce consumption will certainly affect the supply/demand balance. As Benjamin Franklin might have said, a barrel saved is a barrel earned.


China: The Wild Card
On the other side of the coin, most of the demand story is China. Formerly an exporter, China became a net importer of oil in 2000. It produces about 4 mb/d but now consumes roughly 8 mb/d. China has been responsible for 4 mb/d of new demand since 2000, about half of incremental demand over that period.


One item worth looking at is the rapid growth in China's car ownership. In March, car sales in China overtook those in the U.S. for the first time, and sales are averaging 1.1 million new units a month. This is roughly twice the level of 2005 car sales. A big driver here was massive government subsidies that make "cash for clunkers" look downright stingy. But the core story of increased affluence, increased urbanization, and the availability of consumer financing seems to give real legs to Chinese auto demand. Just think, here in the United States we have a little less than one car per person in the country, but China's ratio is a little over one in 10. It makes sense that both ratios will get closer to one another in the coming years.


Another component here is the fact that China subsidizes fuel prices, so Chinese drivers, who pay even less per gallon than we do in the States, are not very exposed to price increases. If oil prices spike, the price of gasoline goes up in the U.S., and there's a demand response (witness 2008). But this impact is muted in China. As long as China can maintain a measure of economic stability, auto demand there is likely to continue its upward trek.


Of course, the big question mark is whether China can maintain its scalding-hot economic growth in the face of much slower growth in the U.S., given that China is still export-driven. If China runs out of steam and its GDP drops to, say, 3%5% annual growth instead of the nearly 9% so far this year, quite a bit of oil demand would come off. China is the wild card.


What Happens to Oil Prices?
Whether or not prices keep escalating to ration tight supply remains the $64 billion question. We do think oil prices are likely to increase as oil supply begins to tighten again, but oil prices are tricky. To some extent, they reflect the state of the dollar. But, perhaps more importantly, high oil prices act as a tax on economies. When oil purchases begin to account for a material level of GDP, say, 4%6% like we saw in 2008, economies cannot really bear that tax, and demand responds strongly. We don't think that we're likely to see oil shooting past $200 a barrel. Instead, we tend to think that high prices will cure high prices and lead to reduced demand. Some analyses we've seen suggest that $100 oil is enough to trigger another recession in the U.S. So high prices are likely to throw countries back into recession and reduce demand that way, which will result in a lower oil price.


The trick is this: Companies need oil to be above $60 or so to bring new production online. So we're on a narrow plank between the price required to bring on new production and the price that throws us back into a recession. And as we continue to push the frontier and supply tightens, the price to bring new production online begins to increase and the plank narrows. What do we do when Houston requires $80 oil to add new production, but oil prices that high keep us at recession's edge? We're certainly in a box that will be painful, but not impossible, to get out of.

Crude Oil Falls as China May Curb Credit, U.S. Supplies to Rise.
By Ann Koh and Ben Sharples

Jan. 20 (Bloomberg) -- Crude oil fell in New York on concern China may step up efforts to curb credit growth and on a forecast stockpiles in the U.S. will increase.

Oil also pared some of yesterdays gains as the dollar strengthened against the euro, reducing the appeal of commodities as investments. Chinese regulators asked some of the nations banks to limit lending after banks lent a record 9.59 trillion yuan last year and stocks surged. U.S. crude inventories probably climbed for a third week through Jan. 15, according to a Bloomberg News survey before an Energy Department report tomorrow.

The speculation in stocks spooked the Chinese government, they dont want to create a bubble, said Gordon Kwan, head of regional energy research at Mirae Asset Securities Ltd. in Hong Kong. Oil price will drift between $78 and $82. If the dollar continues to rise, it will have an impact on oil in the second quarter.

Crude oil for February delivery fell as much as 82 cents, or 1 percent, to $78.20 a barrel on the New York Mercantile Exchange, and traded at $78.32 at 3:04 p.m. Singapore time. February futures expire today. The more-active March contract declined 72 cents, or 0.9 percent, to $78.60.

Yesterday, the February contract gained $1.02, or 1.3 percent, to settle at $79.02 a barrel. Trades were combined with those from Jan. 18 because of the Martin Luther King Jr. holiday in the U.S.

The dollar climbed to $1.4196 per euro as of 6:42 a.m. in London from $1.4288 yesterday in New York. It earlier strengthened to $1.4167, the highest level since Aug. 19.

Stockpiles Gain

An Energy Department report tomorrow will probably show that crude oil stockpiles climbed 2.5 million barrels in the week ended Jan. 15 from 331 million the prior week, according to the median of 11 analyst responses in a Bloomberg News survey. Gasoline supplies probably increased 2 million barrels, the survey showed.

Futures dropped 5.7 percent last week, the first weekly decline in five, after U.S. fuel supplies rose. Oil surged to $83.95 a barrel on Jan. 11 as cold weather in the eastern U.S. bolstered consumption of heating fuels and the dollar declined against the euro.

The market appears to have fully priced in the cold snap in the U.S., suggesting any improvement in weather conditions, likely off a cold base, will trigger selling, Mark Pervan, senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne, said in a note.

OPEC Forecast

The Organization of Petroleum Exporting Countries raised its forecast for global oil demand this year by 20,000 barrels to 85.15 million barrels a day. Consumption will expand 820,000 barrels a day, or 1 percent, from 2009, according to the monthly report from OPECs Vienna-based secretariat released yesterday.

A surge in Chinas bank lending last month prompted the central bank to ask lenders to set aside more money as reserves. The government will probably continue tweaking the system this year, said Arjuna Mahendran, the chief investment strategist for Asia at HSBC Private Bank.

With the prospect of inflation starting to rear its ugly head, central bankers are now trying to tighten policy, Mahendran said in a Bloomberg Television interview from Tokyo. Monetary tightening is having the desired effect, which is to see that the stock market doesnt get too exuberant.

Brent crude oil for March settlement declined as much as 81 cents, or 1 percent, to $76.82 a barrel on the London-based ICE Futures Europe exchange. It was at $76.94 at 3:07 p.m. Singapore time. Yesterday, the contract rose 53 cents, or 0.7 percent, to end the session at $77.63.

It's my understanding that circa $78 puts petrol @ 1 a litre. At present pump prices, does that means BP/Shell are coining it?

I've noticed that the price at the pumps has risen whilst crude has been dropping.

Iraq-EU energy deal could bolster capacity, feed European consumers

Iraq-EU energy deal could bolster capacity, feed European consumers
By Ben Lando of Iraq Oil Report
Published January 21, 2010
Iraqi and European energy officials this week signed an agreement to develop Iraq's energy sector into an efficiently managed and producing mechanism which, in turn, could be a reliable source of natural gas to Europe.

"Iraq promises and pledges to be a dependable partner to provide EU countries with Iraqi gas and oil," said Iraqi Oil Minister Hussain al-Shahristani after the agreement was signed.

'Iraq promises and pledges' how much credence should be given to them? May be better to ask PET management.
2517

Iraq-EU energy deal could bolster capacity, feed European consumers
By Ben Lando of Iraq Oil Report
Published January 21, 2010
Iraqi and European energy officials this week signed an agreement to develop Iraq's energy sector into an efficiently managed and producing mechanism which, in turn, could be a reliable source of natural gas to Europe.

"Iraq promises and pledges to be a dependable partner to provide EU countries with Iraqi gas and oil," said Iraqi Oil Minister Hussain al-Shahristani after the agreement was signed.

Gas prices slow to follow oil lower,
Writer Mark Williams, Ap Energy Writer 39 mins ago
When oil prices jumped last month, retail prices were slow to follow. Now that crude prices are tumbling, the same thing is happening in the opposite direction.

Gasoline prices have fallen less than a nickel per gallon from their 15-month peak, even though oil prices have dropped nearly 10 percent in the last two weeks.

Gasoline hit $2.7543 per gallon on Jan. 14. On Monday, the national average was $2.709, a drop of 0.4 cents from Sunday, according to AAA, Wright Express and Oil Price Information Service.

The Energy Information Administration will release its weekly retail gasoline price report later Monday. Gasoline prices are 86.4 cents higher than year-ago figures.

Retail gasoline prices should have topped $2.80 when oil got to nearly $83 a barrel earlier this month, said OPIS' Tom Kloza. Now that crude is below $75, prices should continue to drop toward $2.60, he said.

"We'll get there," he said.

Without any catalyst to push oil prices higher, gasoline prices should remain stable through February, Kloza said.

Economic signals have been mixed on whether gasoline and oil consumption are picking up from the depths of the recession a year ago. Signs of strengthening demand could send prices of both higher.

Auto and steel production, for example, show signs of life, but unemployment remains above 10 percent. Wal-Mart Stores Inc. said Sunday that it is cutting about 11,200 jobs at Sam's Club warehouses.

More information on the nation's economic health will arrive Friday when the government releases GDP numbers for the fourth quarter.

Oil prices were about flat Monday. Benchmark crude for March delivery rose 12 cents to $74.66 a barrel on the New York Mercantile Exchange. The contract lost $1.54 to settle at $74.54 on Friday.

In other Nymex trading in March contracts, heating oil added 0.97 cent at $1.9513 a gallon. For February contracts, gasoline added 1.21 cents at $1.9778 a gallon, while natural gas futures gained 1.3 cents at $5.832 per 1,000 cubic feet.

In London, Brent crude for March delivery rose 29 cents to $73.12 a barrel on the ICE Futures exchange.

___

Associated Press writers Pablo Gorondi in Budapest and Eileen Ng in Kuala Lumpur, Malaysia, contributed to this report.

Iraqi oil deals headed to court
Published: Jan. 25, 2010 at 11:29 AM
Share BAGHDAD, Jan. 25 (UPI) -- A deal struck with the Iraqi government, BP and the China National Petroleum Corp. violates the terms of the Iraqi Constitution, a Shiite lawmaker said.

BP and CNPC became the first companies to land long-term oil contracts in postwar Iraq during a June auction for the 17 billion-barrel Rumalia oil field, signing off on the agreement in November.

Security kept most investors away during June auctions, but a second round in December prompted Baghdad to express optimism for its emerging oil sector.

Shatha al-Musawi, a member of the Iraqi Parliament, complains that any deal between Baghdad and foreign oil companies may be illegal without the consent of lawmakers, London's Telegraph newspaper reports.

Italian energy giant Eni and its consortium partners announced Friday they signed an agreement to redevelop the Zubair oil field in southern Iraq. Musawi's complaint filed against the Iraqi premier and the oil minister could derail all of the contracts doled out to international oil companies in 2009, including contracts with Russia's Gazprom and LUKoil as well as Exxon Mobil.

BP officials said they are "aware of the case," noting it is a matter of internal affairs, the newspaper said.

Court proceedings on the case begin Feb. 1.

Heritage shareholders back $1.5bn Uganda sale
Date: Tuesday 26 Jan 2010


Heritage Oil shareholders have approved the sale of the companys 50% stake in Blocks 1 and 3A in Uganda to either Tullow Oil or Italys Eni.

Eni agreed in November to buy Heritages Ugandan interests for $1.35bn in cash and a deferred consideration of $150m.

But Tullow Oil gatecrashed the deal last week, exercising a pre-emption right to snap up the holding for the same price.

The principal outstanding condition to the sale of the disposed assets is the formal approval by the Ugandan government who will decide, in their role as final arbiter, which of the proposed purchasers to accept, read a statement from Heritage.

The company said it will apply for formal approval as soon as possible and expects the transaction to complete in the first quarter.

These results prove the overwhelming support for this transaction and the board's strategy, said boss Tony Buckingham.

Ratification of the deal may not be clear cut though as there have been reports of concerns that Tullow is controlling too much of the countrys oil reserves.

Cairn India Net Beats Estimates on Higher Crude Oil Output By Rakteem Katakey

Jan. 28 (Bloomberg) -- Cairn India Ltd., operator of the nations biggest onshore crude oil field, reported a 23 percent increase in third-quarter profit, beating estimates, after boosting production.

Net income, including that of units, was 2.91 billion rupees ($63 million) in the three months ended Dec. 31 compared with 2.36 billion rupees a year earlier, the explorer based in Gurgaon near New Delhi said in an e-mailed statement today. The median estimate of 17 analysts surveyed by Bloomberg was a profit of 2.13 billion rupees.

Cairn Indias Rajasthan field, which started in August, is expected to account for 20 percent of Indias current output when production peaks by 2011. The explorer benefits from selling crude at near-market prices, unlike state-run rivals Oil & Natural Gas Corp. and Oil India Ltd., which give discounts to refiners to help curb inflation.

The start of production from the Rajasthan field is driving profits, said Rohit Nagraj, a Mumbai-based analyst with Prabhudas Lilladher Pvt. Crude prices have increased and that pushes up profits.

Shares of Cairn India rose 1.2 percent to 270.65 rupees in Mumbai trading. The stock has advanced 57 percent in the past year compared with a 76 percent increase in the benchmark Sensitive Index. The earnings were announced after the market closed.

Sales more than doubled to 4.95 billion rupees. The explorers production increased 48 percent to the equivalent of 24,599 barrels of oil a day in the quarter. Output at the Mangala field in Rajasthan was an average 15,430 barrels a day, according to the statement.

Rajasthan Output

Cairn India, a unit of U.K.-based Cairn Energy Plc, may produce 2.4 million metric tons of crude oil, or 48,000 barrels a day, from the field in Rajasthan in the year ending March and more than double output to 6.8 million tons the following year, the oil ministry said in November. India produced 33.5 million tons of crude oil in the year ended March 2009.

Cairn India sells oil from the Rajasthan field to Mangalore Refinery & Petrochemicals Ltd. and Reliance Industries Ltd., operator of the worlds largest refining complex.

The company sold oil and gas at $66.90 a barrel in the quarter compared with $47.10 a barrel a year earlier. The price at which Cairn Indias oil is sold represents an average 10 to 15 percent discount to Brent crude for the 12 months to December, the company said.

Crude oil prices in New York increased 76 percent in the past year as demand rose with economies emerging from a recession. Prices rose 12 percent in the three months ended Dec. 31 compared with a 56 percent decline a year earlier.

To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net.

Last Updated: January 28, 2010 05:48 EST

Oil hovers below $74 as traders eye dollar, stocks
Associated Press Writer Alex Kennedy, Associated Press Writer Fri Jan 29, 12:14 am ET
SINGAPORE Oil prices hovered near a six-week low below $74 a barrel Friday in Asia amid a strengthening U.S. dollar and a pullback in global stock markets.

Benchmark crude for March delivery was up 10 cents to $73.74 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. The contract fell 3 cents to settle at $73.64 on Thursday, the lowest since Dec. 14 when crude dropped to $73.46.

Oil has skidded about 12 percent since reaching $84 a barrel earlier this month as investors eye a stronger dollar and slumping equities. Traders often buy commodities such as oil as a hedge against inflation and a weaker dollar and sell them when the U.S. currency rises.

The euro fell to $1.3930 on Friday in Asia from $1.3972 on Thursday while the dollar little changed near 90 yen.

The Dow Jones industrial average fell 1.1 percent Thursday while most Asian stock markets fell in early Friday trading.

Investors are also looking at U.S. crude demand, which has so far not rebounded strongly from a slide last year.

"A clear turning point in the U.S. demand cycle is yet to be reached, still waiting for distillate demand to kick in," Barclays Capital said in a report.

In other Nymex trading in February contracts, heating oil rose 0.47 cent to $1.92 a gallon, while gasoline gained 0.90 cent to $1.93 a gallon.

In London, Brent crude for March delivery rose 11 cents to $72.24 a barrel on the ICE Futures exchange.

Energy prices fall so far in 2010

NEW YORK For the past several months, oil prices have soared on the expectation that China would soon lead a new race for natural resources.

But government data released so far this year has told a different story, and oil has tumbled nearly $10 a barrel in the first month of 2010.

Americans are burning less gasoline than they did a year ago, according to a report this week from the Energy Information Administration. The EIA says the country's appetite for petroleum products has dropped every week this month. And while China should expand petroleum consumption this year, a decision to rein in risky bank loans and cool down its economy may curb China's energy appetite.

"What's been driving oil prices is the promise of Chinese economic growth," said Phil Flynn, an analyst with PFGBest. "But its demand numbers are very suspect right now."

All of this means consumers could enjoy cheaper gasoline and lower heating bills, though it usually takes an extended turn in energy futures prices for the discount to trickle down to the retail level.

Since the start of the year, benchmark crude prices have sunk 11 percent. The contract for March delivery gave up another 75 cents Friday to settle at $72.89 a barrel on the New York Mercantile Exchange.

Other energy prices have also slumped in January. Heating oil and natural gas prices have fallen 13 percent each this year, while gasoline futures dropped 10 percent.

Prices continued falling Friday even after the Commerce Department reported a 5.7 percent annual growth rate in the fourth quarter, the fastest pace since 2003.

The expansion, which was driven by rising exports and business spending on equipment and software, may suggest that an increase in energy consumption is around the corner. But analysts said investors need to see more concrete evidence that it's going to happen.

"This could be more of a warning signal," Michael Lynch, president of Strategic Energy & Economic Research, said of the EIA report. The economic growth rate is expected to cool later this year, Lynch said, and "it's scary to think where oil demand will be then."

The dollar also strengthened for a fourth straight day as financial troubles in Greece, Spain, Portugal and Ireland pushed the euro lower. Crude, priced in U.S. currency, tends to fall as the dollar rises and makes oil barrels more expensive to buy for investors holding foreign currency.

At the pump, retail gasoline prices continued to slide as well, giving up a half penny overnight to a new national average of $2.685 a gallon, according to AAA, Wright Express and Oil Price Information Service. Gasoline has been falling for more than two weeks, but a gallon of regular unleaded is still 6.2 cents more expensive than it was a month ago and 84.2 cents higher than the same time last year.

In other Nymex trading in February contracts, heating oil fell 1.62 cents to settle at $1.9029 a gallon and gasoline lost 1.43 cents to settle at $1.9031 a gallon. The March contract for natural gas fell less than a penny to settle at $5.131 per 1,000 cubic feet.

In London, Brent crude for March delivery dropped 67 cents to settle at $71.46 a barrel on the ICE Futures exchange.

Nigerian oil militants warn ceasefire in jeopardy
Jan 29, 2010, 12:55 GMT


Nairobi/Abuja - Nigeria's main militant group on Friday said that it may end a ceasefire declared last October and resume attacks on oil facilities in the Niger Delta.

Attacks by the Movement for the Emancipation of the Niger Delta (MEND) had slashed the West African nation's oil production by around a quarter and helped drive up global oil prices when MEND responded to a government amnesty and laid down its arms.

However, MEND spokesman Jomo Gbomo said his group had become disillusioned by the government's failure to create real dialogue.

'The government has no plan to address the injustice in the Niger Delta,' Gbomo said in an email to the German Press Agency dpa. 'There is a likelihood that the ceasefire will be called off January 30.'

'We have been appraising the situation on the ground to determine the direction our future military campaign will take,' he added.

MEND says it is fighting for a share of oil revenue for Niger Delta residents, who complain that multinational oil companies have ruined their agriculture and fishing livelihoods and caused major environmental damage in the delta's creeks.

The government claimed 15,000 fighters took advantage of the amnesty to lay down their arms and sign up for training programmes, which have yet to get off the ground.

However, analysts say the ranks of supposed militants were bloated by criminals trying to escape justice and unemployed looking for a chance at work.

President Umaru Yar'Adua has been in undergoing treatment for a heart problem in a Saudi hospital since November, creating a political crisis in Nigeria and leading many opposition activists to say the country is rudderless.

Gbomo said that Yar'Adua's illness had 'negatively affected hopes of dialogue'.

'It appears President Yar'Adua did not delegate this very serious, peace-threatening issue to anyone in his absence,' he said.

Iraq heads for OPEC clash over quota
Published: Feb. 5, 2010 at 5:38 PM
BAGHDAD, Feb. 5 (UPI) -- The government seems set to clash with the Organization of Petroleum Exporting Countries after declaring it will not participate in the cartel's production quota system as Iraq drives to quadruple its output.

Falah al-Amiri, head of the State Oil Marketing Organization, said Thursday that Iraq was not interested in discussing quotas until its production has hit 4.5 million barrels per day. That's more or less double the current level.

Oil Minister Hussain al-Shahristani wants to boost output to 10 million to 12 million bpd over the next decade or so to finance national reconstruction after four decades of war, international sanctions and neglect.

Iraq, a founding member of OPEC, has not had a production quota since 1998, when it was pegged at 1.3 million bpd to allow Saddam Hussein's regime to sell oil for food during U.N. sanctions imposed in 1990.

Clearly such a quota would be out of the question now for a country that has the fourth-largest oil reserves after Saudi Arabia, Canada and Iran.

These are currently estimated at 115 billion barrels, but that could double once untapped reserves are added.

The production target of 10 million to 12 million bpd would rival the current levels of Saudi Arabia and Russia, the world top energy producers, and would necessitate an OPEC quota for Iraq -- if it chose to remain in the cartel.

According to the U.S. security consultancy Stratfor, "Oil is Iraq's primary revenue source and Baghdad has no intention of cutting itself off from any potential income for the greater good of the oil cartel.

"At the same time, OPEC member states are eager to see Iraq join the quota system because of the threat its energy potential poses to the group's ability to limit world oil supply."

Iraq's production plans have been bolstered by the recent awarding of 20-year production contracts to some of the world's largest energy companies for 10 of the country's major oil fields.

The companies were selected on the basis of the production increase targets they submitted to the Oil Ministry.

More contracts are likely to follow, although not necessarily through two auctions held in Baghdad in June and December.

These companies, including Exxon Mobil, BP, PetroChina and Royal Dutch Shell, will be investing tens of billions of dollars in rebuilding Iraq's rundown oil industry.

Russia's oil major Lukoil said Feb. 1 that it alone plans to invest $30 billion in developing the huge West Qurna Phase 2 field in southern Iraq, one of the big prizes it won with Statoil of Norway.

Overall Iraqi production is not likely to increase significantly for two or three years. But this depends to some extent on how committed the foreign companies are to making the substantial investment required if they wish to have long-term access to Iraqi oil.

This means that to a large extent the Iraqi government will have to depend on these companies to achieve its production goal.

Despite the success of the 2009 auctions, problems remain -- mounting violence in the run-up to March 7 parliamentary elections, uncertainty over their outcome, and, probably more importantly, the absence of a long-delayed oil law that will define revenue-sharing and regulation of the industry.

The revenue-sharing question will become more acute as production increases and oil earnings swell.

A collision with OPEC, headed by Saudi Arabia, seems inevitable if Iraq succeeds in significantly boosting its oil production because the cartel is not likely to tolerate an Iraq that sees untrammeled oil exports as its salvation and vital to its survival.

Amiri, the marketing chief, was at pains to stress that when it comes to discussing Iraq's quota again, OPEC would have to factor in the size of Iraq's reserves -- which are widely expected to increase substantially as exploration resumes -- and its wide reconstruction requirements.

"Regardless of the pace at which its output capacity picks up, Iraq's oil fields, which are large, close to the surface and easy to develop, will ensure that the country is free to produce as much as it wants for the next few years," Stratfor observed.

"That statement from the State Oil Marketing Organization is an indication that Baghdad is bound to resist any attempts to cap its production level."

An interesting view of future Iraq..

Friday, February 05, 2010
Michael Schwartz, Will Iraq's Oil Ever Flow?

Sociologist Michael Schwartz, a sharp Iraq-watcher and author of a provocative book on the Iraq War, surveys the travails of Iraq's oil industry since the 2003 Bush-Cheney invasion and points to the continued difficulties of the Iraq petroleum industry.

My own guess is that eventually the security situation will settle down enough to allow the foreign petroleum companies now signing bids to develop specific fields to press forward. It will be a long slow haul, but Iraqi petroleum will likely come online over time. When that expansion of production happens,it will have a big impact on Iraq. There will be massive internal migration of labor to the Basra and other oil-rich areas, mixing up Sunni Arabs and Kurds with regional labor migrants from e.g. Egypt, India and Pakistan.

The Neoconservative dreams that Iraq would rival or replace Saudi Arabia as swing producer, and that it would recognize and perhaps supply petroleum to Israel, however, are both unlikely developments. Moreover, as China, India and other Asian giants begin growing more rapidly and depending on automobiles, demand for petroleum could well grow so fast over the next twenty years that any new big fields' production is just slurped up, with the world demanding more. That is, Rupert Murdoch's notion that Iraq production could plunge prices down to $14 a barrel for the long term, helping industrialized economies, was always stupid, since it did not take account of rapidly growing demand from Asia.

The emergence of Iraq as a petroleum state (or rather a bigger, wealthier petroleum state) will also further upset the geopolitical balance in the Middle East. With a Shiite majority, it will offset Saudi Arabia in the Sunni-Shiite culture wars. It seems likely to have a big, well-trained and effective army, which cannot always be depended on to be allied with the interests of Washington. A military coup down the road cannot be ruled out (there are few democratic oil states, where petroleum supplies more than a third of the national income). And, it likely will be a friendly and supportive big brother to movements like Hizbullah in Lebanon. While it won't always be on the same page as Iran, it will likely be an ally of and support for Tehran. One possibility is that a rich Iraq 20 or 25 years from now will be in a position to promote Twelver Shiism in the region, picking up some of the Alevis in Turkey, the Nusairis in Syria and the Zaidis in Yemen. With its possession of the Shiite holy cities of Najaf and Karbala, with the enormously influential chief cleric of Najaf as among its more prominent residents, Iraq's soft power among Afghan, Pakistani and Indian Shiites has the potential for being greater than that of Iran.

In the end, an oil-rich, Shiite-dominated Iraq is far more likely to be a victory for the Shiite revival kicked off in 1979 by Imam Ruhollah Khomeini than a triumph for Richard Perle, Paul Wolfowitz, Daniel Pipes and the other hard line warmongers who advocated for a revolution-by-invasion in Iraq.

But Schwartz is correct that all these developments are likely a decade or more off.

GE Oil & Gas Says Iraqi Market Wont Boom This Year

Feb. 4 (Bloomberg) -- GE Oil & Gas, the General Electric Co. unit that provides equipment to oil companies, said Iraq is a challenging market and theres no prospect of a boom for suppliers for at least a year.

Iraq is a potentially interesting market for us, Claudi Santiago, head of GE Oil & Gas, said in an interview in Florence, Italy. Its very fragile and over time we know that there are opportunities. It wont be a booming market in the next 12 months because of political and security concerns.

Iraq, holder of the worlds third-largest crude reserves, faces technical and labor challenges to raise oil output to a target of at least 11 million barrels a day in the next decade. While the worlds largest energy companies have agreed to develop fields in the country, they must first rebuild infrastructure thats been destroyed by years of war.

Explorers need time to decide what equipment they need before placing orders, Santiago said. A huge amount of equipment that GE installed in Iraq before conflict and sanctions halted investment now needs upgrading, he said.

Exxon Mobil Corp., PetroChina Co., BP Plc and Royal Dutch Shell Plc have agreed to work at fields in Iraq, which has said it needs $200 billion in investment to increase oil output from the current 2.32 million barrels a day.

Shell Seeks Contractors

We are procuring contractors who can come with us into Iraq in order to start to deliver, Shell Chief Executive Officer Peter Voser said today. It will take a few years before production growth really kicks in.

Oil majors production contracts with Iraq include targets for higher output. BP and China National Petroleum Corp. agreed in December to invest about $15 billion over 20 years to boost output at Rumaila, Iraqs largest field, to 2.85 million barrels a day from 1.07 million barrels a day.

Equipment on the ground in Iraq needs to be expanded and improved, Andy Inglis, head of exploration and production at BP, said yesterday in an interview in London. This is going to be a period of build-up; its about mobilization of our equipment, creating effective use of it. But its not an immediate ramp-up.

Oil Prices Sink

Oil-service providers suffered a drop in demand last year as the financial crisis restricted funds for production ventures and the economic slowdown sapped energy demand. Crude prices tumbled from a record $147.27 a barrel in July 2008 to a low of $32.40 a barrel in December that year, forcing producers to postpone projects.

For GE Oil & Gas, this year could be another year of single-digit growth for our business, Santiago said. It will take another nine months to confirm that the world is moving to truly healthful economic recovery, though this is going to be bumpy for a while.

GE Oil & Gas reported sales of $2.3 billion in the fourth quarter. Thats 5.6 percent of General Electrics total and 9.7 percent higher than in 2008, according to financial statements on Bloomberg.

Oil prices rebounded 78 percent last year, prompting producers such as Shell and BP to consider bringing on new capacity. Drilling and workover investment in the Middle East and North Africa may rise by almost a third to $27.9 billion by 2014, according to Douglas-Westwood Ltd., an energy consultant.

Sustained Growth

The outlook for sustained growth is largely dependent on crude prices, but several markets will be key, namely Mexico, Iraq, Russia, and the deepwater, Scott Gruber, an analyst at Sanford C. Bernstein & Co., said Jan. 29. Oil-service markets are mixed, but are broadly in the process of bottoming.

Oil-service providers and manufacturers doubled fees between 2004 and 2008. After oil prices plunged, crude producers were able to renegotiate contracts. BP chief Tony Hayward this week pledged to push the industry hard to cut costs further.

Theres still quite a lot of overcapacity in the supply chain in most sectors, he said. I would expect to see continued deflation in the supply chain.

Among projects that were delayed last year, the Sunrise oil-sands project in Canada is now set to proceed after BP and Husky Energy Inc. completed an engineering study.

Meanwhile, Shell is developing projects in Qatar and Malaysia to revive production growth. The company plans to increase output from existing reserves through 2020 by starting new projects that can pump more than 1 million barrels a day.

We see a certain flattening out on the cost side in the market, Shells Voser said. Contractors prices have come down, allowing Shell to make investment decisions on projects, he said.

12:49 GMT, Wednesday, 10 February 2010


Bank of England warns inflation will exceed 3%

Mervyn King: "The UK economy has continued to bump along the bottom"
The UK's inflation rate will rise above 3% in the coming weeks, the governor of the Bank of England, Mervyn King, has predicted.

Presenting the Bank's quarterly inflation report, Mr King said the increase in VAT and higher petrol costs would push up prices.

Crude Oil Trades Above $77, Pares Gains Before Inventory Report


Crude oil was little changed in New York, trading above $77 a barrel and paring earlier gains before a report likely to show U.S. crude inventories rose last week.

Futures retreated from their highest in two weeks, after posting their biggest gain in more than four months yesterday, when Greek Finance Minister George Papaconstantinou said his country is ahead of its deficit-reduction targets and wont require a bailout from the European Union.

Oil for March delivery traded at $77.28 a barrel, up 27 cents, in electronic trading on the New York Mercantile Exchange at 10:26 a.m. London time. The contract earlier rose as much as 81 cents, or 1.1 percent, to $77.82 a barrel, the highest since Feb. 3. Yesterday, futures rose 3.9 percent, their biggest gain since Sept. 30.

U.S. stockpiles of crude oil probably rose last week as delayed cargoes arrived at ports on the Gulf of Mexico, a Bloomberg News survey of analysts showed.

Stockpiles climbed 1.6 million barrels in the week ended Feb. 12 from 331.4 million the prior week, according to the median estimate. The U.S. Energy Department is scheduled to release its weekly inventory report at 11 a.m. tomorrow in Washington, a day later than usual because of the Presidents Day holiday.

Inventories of distillate fuel, a category that includes heating oil and diesel, probably fell 1.5 million barrels from 156.2 million the prior week, according to the survey. Gasoline supplies probably climbed 1.5 million barrels from 230.4 million, the survey showed.

The industry-funded American Petroleum Institute publishes its inventory report today.

Brent crude for April delivery was up 17 cents at $75.85 a barrel as of 10:29 a.m. on the ICE Futures Europe exchange in London. Yesterday, the contract increased $3.17, or 4.4 percent, to $75.68.



Last Updated: February 17, 2010 05:38 EST