November 2008 Archives

OPEC's Cairo meeting was over before it began. Saudi Arabian oil minister Ali Naimi had spoken, and what he said was that a decision on whether or not to cut crude production further would be taken at a meeting scheduled for December 17 in Oran, western Algeria, not in the Egyptian capital.

So what was the point of the Cairo meeting? Quite a significant one, as it happens, because it threw up an important piece of information that reporters, analysts, oil companies and producing and consuming countries have been puzzling over for some time--where Saudi Arabia, the world's most influential oil producer would like to see the price of oil.

In the thick of rising unemployment, unending billions-dollar bailouts to maverick bankers, and deep recessionary prospects, one of the industry's most intransigent oil and natural gas bears has morphed into a bull.

Quote-machine, long-time industry skeptic, contrarian analyst, and occasional TV talking head Fadel Gheit, of Oppenheimer, has reversed his long-held mantra of an overheated and oversold crude oil price world saying: "We believe energy prices will remain volatile, but fluctuate in narrower ranges than in the last 18 months when they were driven primarily by excessive speculation by financial players who created the oil bubble as well as the global financial crisis" in a November 24 report.

Once again, it's time to look south for the latest supply problems in the market.

We're not talking about Mexico and its continuing woes. For the second year in a row, there may be problems with Bolivia's natural gas supply to Brazil, and it may have a knock-on effect in the still raging diesel market.

In a quietly released, densely worded statement to the Hong Kong stock exchange, Air China took a brave step late Friday night and warned its shareholders that it was sitting on a paper loss of almost half a billion dollars because oil prices are falling dramatically. Anyone holding shares in companies like these is entitled to ask: what is going on here? After years of pain from high oil prices, the balance sheets of these kinds of companies should be getting better now that oil has fallen by 65%. But they are not, and in some cases they are only going to go disastrously wrong from here.

Benchmarking is fun. You find two or more items, and you find some way to compare them to each other, to make sense of what seems to be incomprehensible relationships. You always need to answer the question: "compared to what?"

The US Thanksgiving Holiday is right around the corner. It's a special time for most Americans. We gather with our families, think about what we're grateful for, eat ourselves silly and watch the hapless Detroit Lions lose their annual holiday football game. Detroit hasn't won a game all year. On Thursday they will face the undefeated Tennessee Titans. That Detroit will lose to the Titans is almost a sure bet.

But thanks to the state of oil market, we're losing faith in "sure bets."

Just some random but not particularly incisive thoughts today, the day when the NYMEX' RBOB contract slid below $1/gallon for the first time since 2004.

Ready or not - and there is no excuse for industry to be blindsided- with the incoming Obama administration aligned with the expanded Democratic majorities in the House and Senate, controls on US greenhouse gas emissions are not a matter of if, but when.

No one can predict with any certainty, but by this time next year Congress may have passed a greenhouse gas cap-and-trade program; California and other states could be regulating motor vehicle emissions of carbon dioxide; and the federal Environmental Protection Agency may be preparing to regulate greenhouse gas emissions under the Clean Air Act.

"Cash is king" -- that's the new industry buzzword that began to circulate ad nauseum as credit markets seemingly vanished before our eyes last month, although the ghostly transformation had been brewing for some time as US lenders struggled to stay afloat in a sea of bad mortgages.

With the final votes tallied two weeks after the election, Senator Ted Stevens, Alaska, the longest-serving Republican in Senate history (40 years), and a recently convicted felon, lost his reelection bid to Anchorage Democratic Mayor Mark Begich.

Begich, like Stevens, supports expanded domestic oil and gas production, including in the Arctic National Wildlife Refuge. What will be missed, should the issue come up again in Congress, is Stevens' going-into-battle Incredible Hulk tie, which he wore when ANWR was debated on the Senate floor. The political wounds are probably too raw for Stevens to bequeath the tie to Begich.

News that pirates had taken over a supertanker carrying crude from Saudi Arabia to the US suprised markets, despite the rise of piracy off Somalia and the Malacca Straits over the years.

This was seen as highly ambitious, seeing as the cargo is worth around $100 million, even in these depressed times.

The significant decline in US gasoline consumption by the middle of this year ended any latent suggestion that there is zero elasticity of demand relative to the price of gasoline. And now, it is being proved again by the falling price of the fuel.

Out at SIGMA's annual meeting in San Francisco, on Saturday John Melo, CEO of Amyris, gave a talk about the future of Bio-refining.

Now, naturally, as head of a company that is a bio-refiner, he sees a great future for biofuels. There were a couple of interesting points he had that make more sense following the election season.

Every trade organization in the US is taking a look at the incoming President and Congress to see what the impact will be on their members' legislative interests. The Society of Independent Gasoline Marketers of America is no different.

Here at SIGMA's 50th anniversary meeting in San Francisco, the group's Legislative Committee discussed the impact of a Democratic executive branch and a more heavily Democratic Congress.

President-elect Barack Obama's secretary of state could be New Mexico Governor Bill Richardson. No, make that Senator Richard Lugar, Republican-Indiana. Sorry, how about Senator John Kerry, Democrat-Massachusetts? Or, possibly it's going to be former Senator Sam Nunn, Democrat-Georgia.

Alright then, maybe it will be Obama's vanquished primary opponent, Senator Hillary Clinton, Democrat-New York, who has just emerged as a possible pick (she met with Obama in Chicago).

Finally, it appears that the weak market is showing up in the forward curve for oil prices, and credit crunch or not, stocks are starting to rebuild.

Never mind today's weekly Energy Information Agency report that showed crude inventories largely flat week-on-week. Total US petroleum inventories -- crude and products combined -- have risen to 999.1 million barrels from 964.8 million barrels in early October, and crude has risen to 302.5 million barrels from 311.9 million barrels.

A day after its World Energy Outlook looked ahead to the global oil market balance in 2030, The International Energy Agency's focus switched to more immediate concerns on Thursday with the publication of its latest monthly report.

I'm participating in a webcast with some of my Standard & Poor's colleagues later this week. As I was preparing slides for it, I wanted to highlight some of the large-scale capital projects that have been delayed because of the combination of lower prices, weaker refining margins and the credit crunch.

I figured I had enough for the slide when I got to five. To find five, I had to go back all of...one week.

Distillates have been holding up the petroleum complex, with the NYMEX December heating oil crack spread sitting above $20/b this week.

But with global markets entering a recession, and natural gas significantly cheaper than distillate fuel, how long until distillate spreads tumble and leave refiners with no choice but to cut runs?

A few random questions and thoughts on day one of the Obama transition, much of it coming from the work of Platts' Washington team:

Yes, the $10 barrel has reappeared...in Russia. That's where government policies are slashing prices for local refiners and all but guaranteeing that the country's extensive reserves of oil are not going to be developed to their fullest.