Big Taxes Big Oil

Oil Settles Above $72 on Surprise Drop in US Crude Supplies

By: Reuters | 19 Aug 2009 | 02:51 PM ET
Oil prices surged nearly 5 percent to settle above $72 Wednesday after U.S. government data showed a steep drop in crude imports and inventories in top consumer the United States.

U.S. crude stockpiles plunged by 8.4 million barrels in the week to Aug. 14 — against analysts' forecasts for a build — as imports dropped to the lowest level since September 2008 and refiners hiked runs, according to data released by the U.S. Energy Information Administration.

Gasoline inventories also showed a bigger-than-expected drop, while distillate stockpiles showed a surprise drop.

"The data is being viewed as bullish as all stock categories fell more than expected," said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois.

The data helped push U.S. light, sweet crude [US@CL.1 72.23 3.04 (+4.39%)] up $3.23, or 4.67 percent, to settle at $72.42 a barrel. London Brent crude [GB@IB.1 74.37 2.00 (+2.76%)] rose $2.22 to settle at $74.59 a barrel.

"When WTI is so much weaker than Brent, it closes the arbitrage. Even ships that are already loaded up with crude can be rerouted to other markets where prices are looking more attractive," said Addison Armstrong, director of Research for Tradition Energy in Stamford, Connecticut.

Further the American Petroleum Institute (API) said U.S. oil demand in July showed signs of improvement, with demand down 3 percent year-on-year last month compared with an average drop of around 6 percent in the first half of 2009.

"I think these (demand) changes are reflective of an improving economy, but one must be cautious because these changes are versus year ago weak numbers," said API chief economist John Felmy.

Slumping demand due to the global economic crisis sent crude oil prices off record high prices near $150 a barrel hit in July 2008 to below $33 a barrel in December. Expectations for a potential rebound in the economy could increase fuel consumption and have helped lift prices.

Oil prices had fallen earlier on Wednesday, hitting a low of $68.05 after a near 5 percent slump in Chinese shares sent doubts rippling through global markets about the strength of the world economic recovery.

U.S. stocks rose as energy shares jumped following the EIA data, while the dollar fell.

Traders also watched for storms in the Atlantic Basin but there was no immediate threat seen to U.S. oil installations in the Gulf of Mexico.

Powerful Hurricane Bill, a dangerous Category 4 storm with 135 mph (215 kph) winds, raged across the open Atlantic on Wednesday, days from land but on a path that could menace Canada's eastern province next week.

Crude Oil May Climb to $95 in Early 2010: Technical Analysis

By Mark Shenk

Aug. 7 (Bloomberg) -- Crude oil may reach $95 a barrel by early next year after rising to a seven-week high this week, according to technical analysis by Auerbach Grayson.

Oil is set to reach $83 a barrel, which corresponds with the 38.2 percent Fibonacci retracement of the range generated by the September contract’s high of $145.96 on July 14, 2008, and the low of $44.28 touched on Feb. 18. The next target of $95 would be a 50 percent retracement.

“The oil market is in a strong position for a further move to the upside,” Richard Ross, a technical analyst at Auerbach Grayson, a brokerage in New York, said in a telephone interview. “There was a 70 percent pullback from the peak last summer to the trough. A 50 percent retracement brings you right to $95.”

Crude oil for September delivery fell 3 cents to $71.94 a barrel yesterday on the New York Mercantile Exchange. Futures topped $70 on Aug. 3 for the first time since July 1, which was a breakout from a ‘symmetrical triangle formation,’ Ross said.

“We were able to break out on the upside Monday and more significantly, we broke out and held those gains,” Ross said. “This shows the ability of the oil market, along with equities, to shrug off bad news and focus in the good news. This is a good sign for technicians.”

The Fibonacci sequence was identified by Italian mathematician Leonardo Fibonacci in the 13th century. The ratio between the numbers, about 0.618, is known as the golden mean, and is also used by technical analysts to find levels of resistance and support.

Oil Rises Above $71 on US, China Factory Output

By: Reuters | 03 Aug 2009 | 12:06 PM ET
Oil rose more than $1 after hitting a one-month high near $72 Monday as positive manufacturing data in the U.S. and China raised optimism for an economic recovery that could bolster energy demand.

U.S. light, sweet crude [US@CL.1 71.45 2.00 (+2.88%)] rose more than $1 to above $71 a barrel after earlier hitting $71.95, the highest since June 30. London Brent crude [GB@IB.1 73.67 1.97 (+2.75%)] also rose.

The U.S. manufacturing sector continued to shrink in July, but at a slower pace than in June and at a lesser rate than expected, according to figures released by the Institute for Supply management on Monday.

The July index of national factory activity rose to 48.9 from 44.8 in June, the highest reading since August 2008.

In China, a surge in domestic investment spurred factory activity, with Brokerage CLSA's China Purchasing Managers' Index (PMI) rising to a one-year high of 52.8 in July from 51.8 in June.

"The weak dollar and the manufacturing data are big boosts to the energy markets today"' said Phil Flynn, analyst at PFGBest Research, Chicago.

Oil Barrels

Analysts said a weak dollar, which slid to its lowest point this year on Monday against a basket of currencies amid increased risk appetite, would offer support to oil. Global shares were boosted by the news, with Wall Street opening higher and the S&P 500 Index advancing briefly above the 1,000 level to its highest level in 9 months.

European shares hit a new high for 2009, led by banks. The latest gain in oil prices brings oil within sight of the 2009 high of $73.38 set in June, though some see resistance that prices could struggle to rally beyond.

"I feel that the market has gathered so much momentum and crude may be overpriced at this point," Flynn said. On Friday, crude rallied almost 4 percent as data showed the U.S. economy shrank at a smaller-than-expected 1 percent annualized pace in the second quarter, raising hopes the recession was easing.

The market climbed about 2 percent last week — the third straight week of gains — which helped to reverse steep losses in the middle of the month and brought July's monthly decline to a marginal 0.6 percent.

China's crude stockpiles in June, including both state strategic and commercial reserves, declined 2.7 percent from a month earlier, the first fall in four months, China OGP, a newsletter run by Xinhua, reported.

Supply curbs by the Organization of the Petroleum Exporting Countries since last year in response to falling demand have helped crude rally from below $33 in December.

However, output from 11 members from the OPEC rose slightly in July, lowering its compliance rate to its agreed supply curb to 71 percent from 72 percent in June, a Reuters survey showed.

Link to Oil Decline Website

http://www.oildecline.com/

IEA Sees Global Oil Demand Bouncing Back in 2010

Reuters | 10 Jul 2009 | 06:06 AM ET
Global oil demand will bounce back by 1.7 percent, or 1.4 million barrels per day (bpd), year-on-year in 2010, led by rising consumption in emerging economies, the International Energy Agency said on Friday.

Making its first 2010 forecast in a monthly report, the adviser to 28 industrialized countries predicted oil demand next year would reach 85.2 million bpd next year, from 83.8 million bpd this year.

It said the demand outlook for this year was "effectively unchanged" — down 2.9 percent, or 2.5 million bpd compared with last year.

David Fyfe, head of the IEA's oil industry and market division, said the extent of recovery in world oil demand would rest on the performance of the global economy and prices.

"It's highly dependent on economic recovery materializing and the expectation (oil) prices will remain in a relatively moderate range," he said.

He said a small upward revision in the estimate for oil demand this year "should not be interpreted as green shoots."

The 11 members of the Organization of the Petroleum Exporting Countries subject to output curbs pumped 75,000 bpd more in June, compared with the previous month — taking their compliance with promised cuts down to 68 percent from a revised estimate of around 69 percent in May.

The latest Reuters survey pegged OPEC compliance at 72 percent.

Not Much for OPEC

OPEC members have promised to reduce their oil output by 4.2 million bpd from the level they produced last September in response to a sharp decline in oil demand triggered by the global economic downturn.

AP

But as oil prices have risen, several OPEC members have begun to produce more oil than their implied output quotas.

Oil prices have been volatile over the last year, peaking at an all-time record of more than $147 per barrel a year ago, plunging to below $40 in December and then recovering to more than $70 in June.

The benchmark U.S. light crude oil [US@CL.1 59.46 -0.95 (-1.57%)] was trading around $60.00 per barrel, down on the day. Earlier, oil hit a session low below $60, and prices rose slightly following the IEA report.

"It is not a report that is going to add to the downside," said Petromatrix analyst Olivier Jakob. "It is slightly positive and won't add to the weak trend of recent days."

The IEA said demand for OPEC crude was expected to remain limited following a 330,000 bpd upward revision to non-OPEC supply, mostly because of higher-than-expected Russian output.

It saw demand for OPEC crude in 2009 at 27.7 million bpd and said it would edge up only slightly to 27.9 million bpd in 2010. This is in line with OPEC's own view.

The producer group said this week that world demand for its oil would not recover to levels seen before the global economic slump until 2013.

"Potentially, there is not an awful lot there for OPEC," said Fyfe.

The IEA said oil inventories had increased worldwide in May, particularly in North America, Europe and the Pacific, taking stocks to the equivalent of 62.5 days of forward cover at the end of May, 7.2 days more than a year ago and up from 62 days at the end of April.

Oil Tops $71 on Nigeria Attacks

By: Reuters | 29 Jun 2009 | 12:23 PM ET
Oil rose about $2 to top $71 a barrel Monday, lifted by word of fresh rebel attacks on oil installations in Nigeria and gains in equity markets.

Nigeria's main militant group said its fighters had attacked an oil facility belonging to Royal Dutch Shell in the Niger Delta on Monday, days after President Umaru Yar'Adua proposed an amnesty.
Further support came as U.S. stocks opened higher on signs of life in the global economy, which kept investors optimistic over the prospect of a recovery.

"Equities are a little bit stronger and that has been helping the market," said Peter Beutel, president of Cameron Hanover in New Canaan, Conn., adding that buying by funds had been strong.

"Anytime that we see the Dow Jones higher, the funds take that as a sign that the economy is going to strengthen and that oil demand will strengthen along with that," he added.

Signs of a turnaround in the global economy have helped lift crude prices up from below $40 a barrel in February. The economic crisis has battered global fuel demand, knocking crude off record highs set above $147 a barrel last year.

The U.S. Energy Information Administration revised up April U.S. oil demand by 1.18 percent from its early estimate of 18.255 million barrels per day, suggesting a potential turnaround in the U.S. economy.

The EIA revision came after a bullish International Energy Agency mid-term oil demand forecast Monday, which said that there was a chance of an extended contraction and that the threat of a supply crunch had only receded, not gone away.

Based on a higher economic growth scenario, the IEA predicted Monday product demand would grow by 0.6 percent, or 540,000 bpd on average, between 2008 and 2014, taking demand from 85.8 million bpd to 89 million bpd.

Number 2 oil consumer China unexpectedly increased gasoline and diesel prices Monday by nearly 9 percent and 10 percent respectively.

Nigeria

Crude was bolstered by militant activity in Nigeria as fighters forced production outages in the West African country.

The Movement for the Emancipation of the Niger Delta (MEND) said its fighters struck the Shell Forcados platform in the Delta state at about 0230 GMT.

There was no immediate independent confirmation but Shell said it shut in some oil production at its western operations in the Delta while it investigated reports of attacks.

"The Nigerian situation is the main factor in the market," said Mike Wittner, global head of oil research at Societe Generale. "The attacks appear to be removing some oil production capacity from the market."

Friday, four militant Nigerian factions said they would accept in principle an amnesty offer from President Umaru Yar'Adua, raising hopes Africa's top oil producer would halt a battle with rebels.

Pipeline bombings, attacks on oil and gas installations and kidnapping of industry workers over the past three years have prevented Nigeria from pumping much above two-thirds of its installed oil output capacity of 3 million barrels per day (bpd).

Algerian Energy and Mines Minister Chakib Khelil said Monday oil demand was still weak due to the weakness of the U.S. and European economies and world oil stocks remained high.

Khelil said an increase in OPEC oil production was hard to envisage, despite rising crude prices.

Oil analysts say OPEC can help tighten the oil market significantly later this year if it continues to implement its promise to cut oil production by 4.2 million bpd from its September output levels.

Oil Rises Above $69 on Nigeria Attack

By: Reuters | 25 Jun 2009 | 10:11 AM ET
Oil rose above $69 a barrel on Thursday after Nigeria's main militant group shut down one of Royal Dutch Shell's pipeline junction points, heightening concerns about supplies from the region.
In the latest in a string of attacks in Nigeria, Africa's biggest oil producer, the Movement for the Emancipation of the Niger Delta (MEND), said it had sabotaged the Billie-Krakama pipeline in Rivers State, which supplies one of the country's main export terminals.

Attacks from MEND have forced foreign oil companies, including U.S. oil major Chevron [CVX 67.11 1.39 (+2.12%)] and Italy's Agip, to shut at least 133,000 barrels per day of oil production in the last month.

Shell said it had shut down one of its pipeline junction points on Thursday but declined to say whether any oil production had been affected.

Analysts said the effect on prices had been subdued with plenty of spare supply capacity available around the world, as the global recession has cut demand for oil.

"The Nigerian attacks have definitely been supportive, but the impact is less in the current economic environment as there's plenty of spare capacity in the oil industry right now," Andrey Kryuchenkov, an analyst at VTB Capital in London, said.

"When we were rallying towards $150 a barrel last summer a small sneeze in Nigeria would send the market rallying at least $2 a barrel. There's less of a geopolitical premium in prices now," Kryuchenkov added.

Falling demand for oil sent oil prices crashing from record highs close to $150 a barrel last July towards $30 a barrel at the turn of the year.

Since mid-April, however, prices have risen sharply on prospects for an economic recovery.

A Reuters poll of industry analysts showed oil prices are expected to average more than $70 a barrel in 2010, compared with the latest forecast average of $56.59 for this year.

Rising Inventories

On Wednesday, U.S. government data showed stockpiles of gasoline in the world's largest energy consumer rose 3.9 million barrels last week, exceeding analysts' predictions.

Stockpiles of distillates — such as diesel and heating oil — have risen to 10-year highs due to the recession. But prices took support from a large drop in stockpiles of crude oil, which declined by 3.8 million barrels last week.

The U.S. economy shrank slightly less in early 2009 than previously thought, the government reported on Thursday, though there was widespread weakness in activity and demand was soft. Gross domestic product dropped 5.5 percent in the first quarter, from 6.3 percent in the last quarter of 2008.

Separately, the Labor Department said the number of workers filing new claims for jobless benefits unexpectedly rose last week by 15,000 to a seasonally adjusted 627,000 — a measure of the strain still faced by hard-pressed consumers.

Oil pulled back slightly falling the jobless claims report, with the dollar strengthening as investors' appetite for risk was curbed.

A stronger dollar makes commodities priced in the greenback more expensive for holders of other currencies.

Why oil is on the rise again

Prices have doubled since February, but that's probably not the end of it. Asia's recovery is igniting demand.

NEW YORK (Fortune) -- Ask a group of oil analysts about the recent surge in crude costs and here's the consensus answer you'll get: Prices have run up too far, too fast and they aren't supported by the fundamentals.

Ask them about where prices will be two years from now, however, and the majority will offer this prediction: A lot higher.

"We're concerned about oil prices rising so rapidly in the near-term," says Hussein Allidina, head of commodities research at Morgan Stanley. "But the bet in the long-term is one way, and that's just up."

Oil shot past $70 a barrel last week, meaning the cost per barrel has doubled since hitting a low in mid-February. And the swiftness of that move has plenty of observers wondering if we're headed toward another period of even more dramatic price gains.

Among the oil insiders worried about such a scenario is Royal Dutch Shell CEO Jeroen van der Veer, a 38-year veteran of the energy giant, who is scheduled to retire June 30. "If the oil prices stay volatile I'm afraid there will be too much slowdown in investment," he said at an energy conference in Abu Dhabi in early June, according to Reuters, while reiterating that Shell would follow through on its spending plans for this year. "I think too low capacity means the next price spike is to come."

The last spike, of course, was a year ago at this time, when oil zoomed all the way up to $147 per barrel and Congress began holding hearings to discuss whether speculators were manipulating prices. Then a market correction that began in the middle of last summer was accelerated by the global financial crisis. Oil plunged to multi-year lows, with the price of benchmark West Texas Intermediate crude dropping under $35 in December and again in February.

To understand the odds of oil moving back above $100, it helps to first examine the reasons that the price has rebounded so strongly in recent weeks.

Much of the recent rally actually has nothing to do with the oil market's current supply-and-demand situation. The latest estimate from the International Energy Agency (IEA) projects that worldwide oil use will be almost 2.5 million barrels a day lower on average this year than in 2008. And despite the fact that OPEC has been cutting back on production since last September to boost prices, oil inventories around the world are still high compared to historical levels.

"Considering that supply seems ample and demand is weak, the fact that oil is going up looks kind of weird," says Adam Sieminski, chief energy economist at Deutsche Bank. "But those factors are being overwhelmed by a huge sigh of relief that we're not going to have the Great Depression. A lot of money is coming out of mattresses."

That inflow is lifting stocks and commodities alike. Research by Morgan Stanley found the correlation between crude oil prices and equities has recently been at a record high -- with both rising strongly on the hope that the economic cycle has already bottomed.

"Historically, equities have been a leading indicator of economic growth and commodities have been a coincident indicator," says Morgan Stanley's Allidina. "Right now you're seeing commodities and equities move up together as money comes back in at the same time."

Just as important, Morgan Stanley found that the inverse correlation between a weakening U.S. dollar and rising crude prices was also closing in on a record high. Because oil is priced in dollars, when the value of the dollar falls it makes oil cheaper in other currencies -- simultaneously boosting consumption outside the U.S. and motivating non-U.S. producers to raise prices to make up for the purchasing power they've lost in the currency conversion.

Concerns about the ballooning deficit in the U.S. have caused investors to begin fleeing the dollar. The U.S. dollar index, which measures the value of the greenback against six major world currencies, has dropped 9% since the beginning of March. As it falls, oil prices are rising. If it falls further, they'll rise higher.

But just how high oil prices go from here -- and how fast they get there -- will ultimately depend on the ability of producers to meet future demand. And any robust rebound in consumption is sure to put a strain on global supply.

The investment cutbacks warned about by Shell's Van der Veer only make that more likely. In its World Energy Outlook 2008, released last November, the IEA warned that production declines from existing supplies would keep the market tight and called for $26 trillion in new infrastructure spending worldwide over the next two decades. Right now, the opposite is happening. In May, the IEA said it expected a 21% drop in oil and gas investment budgets globally in 2009 compared to 2008, or nearly $100 billion less. A cautious OPEC has said that a lot of its member countries' new drilling projects remain on hold.

Meanwhile, there are signs that a demand recovery could be on the way in Asia. China's crude consumption averaged 7.6 million barrels per day in April, according to Allidina, the highest level on record, amid reports that the government was stockpiling commodities. Goldman Sachs was confident enough of a demand rebound to come out in early June with a price target of $85 a barrel for West Texas Intermediate crude by the end of 2009 and $95 by the end of 2010.

Deutsche Bank's Sieminski agrees that prices are going higher over time. "Our forecast has been that oil will be at $100 in 2015 and it could happen faster if the economy recovers," he says. Because oil is generally considered an "inelastic" commodity -- meaning it takes a big increase in price to produce a small change in demand -- the chances of a spike increase once supplies get tight.

"If you get close to the balance, prices can go haywire very quickly and there's very little that can be done about it," says Sieminski. "Something happens on the margin to put pressure on the market and instead of the price adjustment being gradual it's a step change. Last time gasoline had to go to $4 a gallon and crude had to go to $150 a barrel to rebalance things. And that's how we could get there again."

Let's hope we don't get there for a while. To top of page

Oil Rises Above $72 on Weaker Dollar, US Data

Reuters | 16 Jun 2009 | 10:40 AM ET
Oil rose $2 to above $72 a barrel on Tuesday as the dollar slid and U.S housing data showed a jump in new construction starts and permits.
"The housing data was quite good, but stock markets are not shooting away just yet," said trader Robert Montefusco at Sucden Financial. "The dollar is still the main crux of it."

The dollar fell broadly as higher European shares piqued appetite for currencies seen as higher risk, and lost more ground after the U.S. housing data.

A weaker dollar can strengthen commodity markets by improving the purchasing power of buyers using other currencies.

The Commerce Department said on Tuesday U.S. housing starts jumped 17.2 percent to a seasonally adjusted annual rate of 532,000 units, from April's revised 454,000 units, and new building permits rose 4 percent, the biggest advance since June last year.

Iran Priced In

Iran's top legislative body ruled out annulling a disputed presidential election that has prompted the biggest street demonstrations since the 1979 Islamic revolution, but said it was prepared for a partial recount.

The world's fifth-biggest oil exporter has seen three days of the largest and most violent anti-government protests in three decades, though no disruption to Iran's 2.1 million barrels-per-day exports have been felt.

"We've seen a downward spiral over the years in light of sanctions in Iran's ability to bring projects online...it's a slow trend that had pretty much been continuously priced in," said Samuel Ciszuk, analyst at IHS Global Insight in London.

Expectations of an economic recovery drove crude prices to a near eight-month high above $73 a barrel last week.

Traders will look out for weekly U.S. government inventory data on Wednesday, which is expected to show a 1.8-million barrel fall in crude oil stockpiles, a 600,000-barrel rise in gasoline stockpiles and 900,000-barrel rise in distillate stockpiles, based on a preliminary Reuters poll.

The American Petroleum Institute (API) will issue its report later in the day.

With oil rising almost $20 since the end of April, there were concerns that speculation in the market had pushed oil prices up too high, too fast.

OPEC Secretary-General Abdullah al-Badri said too quick a rise in oil prices could harm a global economic recovery, though a price of $80 a barrel would not stem growth.

The head of the International Monetary Fund, Dominique Strauss-Kahn, also sounded a cautious note, saying on Monday the worst of the global crisis was not yet over.