Strong Dubai, weak oil price put Saudi in dilemma

Oil holds as traders search for floor to rout; Brent above $50 Thu, Jan 08 12:48 PM EST image By Barani Krishnan NEW YORK (Reuters) - Global oil prices were little changed on Thursday, with better-than-expected U.S. jobs and other data helping the market hold steady after recovering from a four-day losing streak a day earlier. But support for the market was likely to be short-lived as oil bears continue hunting a bottom for the second-biggest price rout in crude's history, traders said. Some traders think oil prices could be at a crossroads after losing over half their value from June highs, and that could explain benchmark Brent crude's stalling at above $50 since Wednesday. Others think the market has just been handed a reprieve before moving another leg lower. "I think there is selling fatigue and that's why you're seeing some short covering," said John Kilduff, partner at New York energy hedge fund Again Capital. "There are lots of folks out there still looking for a bottom. This thing is not over yet. Not by a long shot." Brent LCOc1 slipped by 22 cents to $50.93 a barrel by 12:35 p.m. ET (1735 GMT). It had dropped to $49.66 on Wednesday, its lowest since May 2009. U.S. crude CLc1 was up a cent at $48.66, after plumbing a 5-1/2-year low of $46.83 in the previous session. Weekly jobless claims in the United States showed the smallest layoffs in 17 years, a report by the U.S. Labor Department said. Monthly payrolls data for December, due on Friday, is expected to show the 11th consecutive month of job gains above 200,000, the longest such stretch since 1994. Expectations that the European Central Bank could resort to stimulus measures after a rash of weak economic data and record crude imports by China in December, possibly due to attractive pricing, also helped sentiment, traders said. But the world's largest oil traders have also started hiring supertankers to store crude at sea, marking a milestone in the build-up of the global glut of supplies, freight brokers and shipping sources said.((Glut: To flood (a market) with an excess of goods so that supply exceeds demand.)) Trading firms, including Vitol VITOLV.UL, Trafigura TRAFGF.UL and energy major Shell (RDSa.L) are among those that have booked crude tankers for up to 12 months, the sources told Reuters. (Additional reporting by Florence Tan in Singapore; Editing by Dale Hudson, William Hardy and Meredith Mazzilli) ========================= Oil down almost 10 percent in two days as hunt for bottom continues Tue, Jan 06 17:18 PM EST image By Barani Krishnan and Samantha Sunne NEW YORK (Reuters) - Global oil markets on Tuesday slumped for a fourth straight session as mounting worries about a supply glut pressured crude prices, which have fallen almost 10 percent this week to their lowest since spring 2009. Traders said the trend for crude seemed lower but that prices could bounce up whenever there is a break in market sentiment. One such moment occurred on Tuesday when weaker-than-expected U.S. economic data briefly pushed the dollar lower. This brought crude off session lows but only for an about an hour, as the downward path resumed. Refined products such as gasoline RBc1 and heating oil HOc1 also bounced up briefly in morning trade, rallying as investors took profits on short positions. But products later succumbed to the trend, and gasoline settled 2 percent down. Crude oil prices have plunged more than 55 percent since June, when benchmark Brent traded above $115 a barrel and U.S. crude above $107. In Tuesday's session, Brent LCOc1 settled down $2.01 at $51.10 a barrel. It earlier fell to $50.52, its lowest since May 2009, and less than a dollar away from breaking below the $50 support. In the first two days of this week, Brent has dropped $5.32, or almost 10 percent. U.S. crude CLc1 finished down $2.11, or 4.2 percent, at $47.93, after plumbing an April 2009 low of $47.55. Brent and U.S. crude extended losses in post-settlement trade after the American Petroleum Institute, an industry group, reported builds in gasoline and distillate stocks last week despite a 4 million-barrel drop in crude stocks. [API/S]. The government's Energy Information Administration will issue official inventory data for last week at 10:30 a.m. ET (1530 GMT) on Wednesday. [EIA/S]

"I think the likelihood of seeing $46 to $45 is quite likely," said Phillip Streible, senior market strategist at RJO Futures in Chicago. "People, I think, are further understanding that the U.S. is becoming a powerhouse in creating crude oil and that's not going to change anytime soon."

The sell-off in oil began six months ago on concerns of an oversupply of high quality U.S. shale crude. It accelerated after a meeting of the Organization of Petroleum Exporting Countries in November, when Saudi Arabia ruled out production cuts as a means of boosting prices. On Tuesday, Saudi Arabia's King Abdullah said in a speech read for him that the country would deal with the challenge posed by lower oil prices "with a firm will," giving no signs the No. 1 crude exporter will cut supplies. On Monday, the kingdom's announcement of further oil price discounts for its European and U.S. buyers added to the bearish state of oil markets already staggering from Russian output at post-Soviet-era highs and Iraqi oil shipments near 35-year highs. (Additional reporting by Libby George in London and Florence Tan in Singapore; Editing by William Hardy, Louise Heavens, David Gregorio and Andrew Hay) ============== Oil slump deepens as supply glut shows no sign of easing Tue, Jan 06 09:50 AM EST image By Libby George LONDON (Reuters) - Oil prices fell to fresh 5-1/2 year lows on Tuesday, extending a 5 percent plunge in the previous session as worries over a global supply glut intensified. Brent crude fell close to $51 a barrel, its lowest since 2009, with cuts to Saudi Arabia's official selling prices to Europe this week adding more pressure to the 55 percent price rout since June. Saudi Arabia's King Abdullah said in a speech read for him on Tuesday the country would deal with the challenge posed by lower oil prices "with a firm will" but gave no sign the world's top exporter was considering changing its policy of maintaining production in the face of fast-growing U.S. shale supplies. "We would need an indication that Saudi Arabia is considering output cuts," said Carsten Fritsch, a commodities analyst with Commerzbank. The Saudi official price cuts on Monday added to bearish data over the weekend showing that Russia's 2014 oil output hit a post-Soviet-era high and December exports from Iraq, OPEC's second-largest producer, reached their highest since 1980. Brent crude LCOc1 fell as low as $51.23 a barrel on Tuesday, its lowest level since May 2009. It recovered slightly to $51.96 at 0930 ET, down $1.15 on the day. U.S. crude CLc1 was at $48.94, down $1.10, after falling to $48.47, its lowest since April 2009. Fritsch at Commerzbank said other countries including Iraq, Iran and Kuwait are likely to cut their official selling prices in the coming days. The United Arab Emirate cut its prices on Tuesday. Jitters over political uncertainty in Greece, and a downward revision on Tuesday to Europe's December Composite Purchasing Managers' Index (PMI), raised questions about energy demand in Europe and compounded the bearish sentiment. A slew of factors was keeping up the downward pressure on prices, analysts said, pointing to concerns about the Greek economy, high oil output from Russia, Iraq and the United States, and a stronger dollar. [GLOB/MKT] In the face of official price cuts and a continued supply overhang, markets shrugged off news about rising hostilities and lower oil production in Libya, as well as data showing the number of rigs drilling for oil in the United States fell for a fourth straight week. U.S. commercial crude oil and products stockpiles were forecast to have risen in the week ending Jan. 2, a preliminary Reuters survey showed on Monday. [EIA/S] Despite this, some analysts said oil prices could recover this year. "The longer prices remain below $60, the bigger the eventual output response is likely to be," Julian Jessop, head of commodities research at Capital Economics, said in a note. (Additionall reporting by Florence Tan in Singapore; editing by William Hardy and Louise Heavens)

Unhelpful dramas

Edward Hadas: The oil price is just plain wrong

05 January 2015 | By Edward Hadas

The oil price is still too high, often too low and much too volatile. In other words, this is a market that doesn’t work well for anyone.

The excessive volatility is glaringly obvious. The 50 percent price fall since June is extreme, but the market is only occasionally calm. Since 2000 the daily price has been on average 18 percent higher or lower than six months earlier.

Such variation is uncalled for, especially given the fairly modest shifts in demand. Since 1990, the annual change has never been higher than 3 percent. On the other side, the average cost of supply moves very slowly. Only modest adjustments in inventory and production rates are required to keep the price stable, as the market showed from mid-2011 to mid-2014.

The sharp shifts are as harmful as they are unnecessary. The world can handle any fairly stable price but rapid dramatic changes turn good investments bad. For example, if the oil price stays below $60 a barrel, much of the money spent on developing U.S. shale oil will have been wasted. Conversely, the sharp rise in the mid-2000s devalued energy-inefficient investments which made good sense when oil was cheap.

Of course, the actual price matters. The behaviour of producers of both oil and rival sources of energy should change along with the cost of crude. So should the spending patterns of industrial and household customers. In a world of cheap crude, high-cost oil wells remain untouched and gas guzzlers are economical. When oil is costly, electric cars look better and deep sea drilling makes sense.

The overall global economy gains from having oil as cheap as possible. Anything else is a waste of resources. From that perspective, the current price is still far too high. The production of unnecessarily expensive oil wastes skilled labour and sophisticated equipment. Oil-importing nations end up paying more than they need to for crude. The financial world is troubled by the cross-border cash flow. Exporters gain cash, but high oil revenue often leads to poor governments and weak non-oil economies.

The price could be much lower if more production came from the most efficient fields. No one really knows how much lower, because Saudi Arabia and some other producers with ultra-low cost unused resources have decided not to exploit or explore them aggressively. Still, there is no good reason to think that more than $30 a barrel is needed. That was the annual average in the 1990s, adjusted for inflation, following the calculations of the U.S. Energy Information Administration.

The price for producers is one thing; the cost for consumers is something else. There are good reasons to charge far more than the cost of production. Oil is a non-renewable resource which pollutes as it is used up, and dependency on imports, however cheap, brings political risk.

The correct price for users should be just low enough to keep cars on the road but high enough to restrain usage and to encourage the development of currently more expensive but ultimately more attractive alternative sources of energy. There is no way to calculate the precise optimal price, but the policies in Europe and Japan – taxes account for about 60 percent of the petrol price at the pump – are on the right track.

The United States is an outlier with its low 15 percent tax rate on gasoline. That is clearly too low to give strong incentives for conservation and investment in renewable alternatives. The U.S. government does have many regulations to prod industry in desired directions, but higher taxes speak particularly clearly.

In an ideal world, the price of oil for producers would be lower and more stable than today, while the average price for consumers would be higher and more stable. The world will never be ideal, but oil pricing can be improved.

The best way to get an appropriate producer price is through a weak cartel. Producers should be just disciplined enough to keep the price stable, but too ambitious for market share to allow prices to rise enough to draw in frivolous investments and destructive overproduction. Happily, something like that may be on the way. The recent decision by Saudi Arabia to hold onto its market share, cost what it may in oil revenue, is a step in the right direction.

The best way to keep consumer prices at a sufficiently high level is to let the tax rate on oil vary along with the producers’ price for crude. The recent oil price drop provides an excellent opportunity. Consumers would hardly notice if the price of fuel did not fall, and most governments would welcome the additional tax take.

Unfortunately, governments are more anxious for short-term stimulus to consumer demand than for a sensible long-term approach to energy pricing. The opportunity will almost certainly be wasted.

============================== Oil extends crash into new year as glut fears deepen Mon, Jan 05 16:05 PM EST By Barani Krishnan NEW YORK (Reuters) - The selloff in global oil markets showed little signs of slowing in the new year, with prices down as much as 6 percent on Monday, the lowest since spring 2009, as fears deepened a supply glut that has vexed the market for six months would continue. U.S crude crashed below $50 a barrel while benchmark Brent tumbled under $53 after data showed Russian oil output at post-Soviet era highs and Iraqi oil exports near 35-year peaks. U.S. driller ConocoPhillips (COP.N) added to the bearish mood by announcing it struck first oil at a Norwegian North Sea project. Top crude exporter Saudi Arabia revealed it made deep cuts to its monthly oil prices for European buyers ARM-OSP-E, the sixth time since June it has slashed prices, corresponding with the rout in crude futures markets over the period. Analysts read the latest cut as reflecting Saudi Arabia's fierce defence of its market share. The Organization of the Petroleum Exporting Countries kingpin also trimmed its prices for U.S. refiners ARM-OSP-N for a sixth straight month, while raising rates for Asia. The euro's tumble to 2006 lows, and slower-than-expected growth in U.S. manufacturing, completed the perfect storm for the oil markets. "There's no doubt that we have a combination of supplies hitting their zenith at a time when demand is weakening," said Phil Flynn, an analyst at Price Futures Group in Chicago. U.S. crude CLc1 settled down $2.65, or 5 percent, at $50.04 a barrel, and was at a post-settlement low of $49.77 by 3:15 p.m. ET (2015 GMT). The last time U.S. crude traded below $50 was in April 2009. Front-month Brent LCOc1 closed down $3.31, or almost 6 percent, at $53.11 a barrel. It dropped earlier to $52.66, its lowest since May 2009. Oil has plunged nearly 55 percent in value since June, when Brent traded above $117 a barrel and U.S. crude above $107. The selloff, which began on concerns of oversupply in high quality U.S. shale crude, accelerated after the OPEC meeting in November, when Saudi Arabia ruled out production cuts as a means of boosting prices. The kingdom reasoned that reducing output will hurt its market share instead. Some traders seem certain that U.S. crude will be trading in the $40 region later in the week if weekly oil inventory numbers for the United States on Wednesday show another supply build. "We're headed for a four-handle," said Tariq Zahir, managing member at Tyche Capital Advisors in Laurel Hollow in New York. "Maybe not today, but I’m sure when you get the inventory numbers that come out this week, we definitely will." Open interest for $40-$50 strike puts in U.S. crude have risen several fold since the start of December, while $20-$30 puts for June 2015 have traded, said Stephen Schork, editor of Pennsylvania-based The Schork Report. Russia's oil output hit a post-Soviet high last year, averaging 10.58 million barrels per day (bpd), up 0.7 percent thanks to small non-state producers, Energy Ministry data showed. Iraq's oil exports were at their highest since 1980 in December, an oil ministry spokesman said, with record sales from the country's southern terminals. The Russian and Iraqi data overshadowed reports of drops in Libya's oil output because of conflict in that country. Libya's oil output has fallen to around 380,000 bpd after the closure of the OPEC producer's biggest oil port, Es Sider, along with another oil port, Ras Lanuf. (Additional reporting by Christopher Johnson in London; Editing by Marguerita Choy and Andre Grenon) ================= Revamped U.S. oil hedges may test OPEC's patience Mon, Jan 05 01:10 AM EST By Lucas Iberico Lozada NEW YORK (Reuters) - As a war of nerves between U.S. shale producers and Gulf powerhouses intensifies, OPEC's biggest members are counting down the months until their upstart rivals lose the one thing shielding them from crashing oil prices - hedges. They may need much more patience than they reckon, however, because those hedges are a moving target. Rather than wait for their price insurance to run out, many companies are racing to revamp their policies, cashing in well-placed hedges to increase the number of future barrels hedged, according to industry consultants, bankers and analysts familiar with the deals. OPEC officials hope that once U.S. oil companies get fully exposed to the impact of an over 50 percent slide in crude prices since last June, they will have to drill fewer new wells, causing U.S. production growth to stall and putting a floor under oil prices now testing $50 a barrel. "There are companies which are hedged until the beginning of the year or until the end of the year, so we need to wait at least until the first quarter to see what is going to happen," United Arab Emirates Energy Minister Suhail Bin Mohammed al-Mazroui told Reuters and one other news agency last month. Yet that hope is based largely on quarterly company reports from several months ago, when drillers last made their hedging portfolios public. In the meantime, with the price rout showing no sign of reversing, at least some firms have put on new hedges that will help prevent their revenues from falling further - and allow them to drill far longer this year than earlier expected. "OPEC should not expect to see any impact on U.S. shale growth in the first half of the year and the impact in the second half is being attenuated significantly by producer hedging," says Ed Morse, global head of commodities research at Citigroup, one of the biggest U.S. banks involved hedging. CAPTURING THE UPSIDE For the moment, it is unclear which companies are involved in the effort. New hedging strategies are only likely to get disclosed in quarterly earnings reports in late January. "It's a hot topic of discussion that everyone is thinking about and looking at," said Craig Breslau, who heads the energy derivatives marketing desk at Societe Generale in Houston, which has been involved in some restructuring transactions. While the proportion of oil companies actually executing those deals is not that high, the deals thus far have been large in terms of volume and dollars, he said. According to their last filings, oil companies such as EOG Resources Inc, Anadarko Petroleum Corp, Devon Energy Corp and Noble Energy Inc had hedged some of their 2015 production at prices of $90 a barrel or more. The net short position of oil producers and other non-financial companies in U.S. crude oil futures and options markets -- used as a rough gauge of hedging activity -- has grown from 15 million barrels in August to more than 77 million barrels last week. For many companies that set up "in the money" hedges prior to the slump, the downturn offers a chance to cash in or extend their protection. For example, a company that had sold swap contracts to hedge a part of its 2015 production at $90 a barrel - essentially shorting forward oil prices to guard against a drop - could buy them now back at around $57 for a profit of about $33 a barrel. Instead of just pocketing the cash, some companies are using the funds to shield themselves against a further market slide by buying swaps and options pegged closer to current prices. With the December 2015 put option for $60 a barrel now trading at around $9 a barrel, swaps cashed in now could buy a producer nearly four times more protection at that price. PROFITS OR SURVIVAL Most of the half-dozen companies contacted by Reuters - those with sizeable hedges in place - declined to comment or did not reply to requests for comment. A spokeswoman for EOG said that it was not selling off its hedges. Devon Energy declined to say whether the company was restructuring is large hedge book, but said it had not 'monetized' any of its position. So far only two companies have publicly confirmed winding down their profitable hedge books. Bakken shale oil pioneer Continental Resources pocketed $433 million by liquidating its hedges in September - a move that left the firm exposed to a further $20 slump, though it is not clear whether it has set up new hedges since. On Tuesday, tiny firm American Eagle Energy announced that it sold off its 414,000 barrels of oil hedged at $89.59 a barrel through last December for a profit of $13 million to improve its liquidity - even as the firm said it would have to stop drilling until prices improved. That appears to be the effect that OPEC is looking for, although thus far it is the exception rather than the rule. "The companies' situation is strong," said an OPEC delegate from a Gulf producer. "All this will delay the impact of the lower oil prices." (Additional reporting by Rania El Gamal in Dubai; Editing by Jonathan Leff and Tomasz Janowski) ============== Oil prices hits fresh five-and-a-half-year lows; Brent below $56 Sun, Jan 04 22:25 PM EST image By Florence Tan SINGAPORE (Reuters) - U.S. crude and Brent futures dropped to fresh 5-1/2-year lows on Monday as worries about a surplus of global supplies amid weak demand continued to drag on oil markets. OPEC's decision in November to maintain output had accelerated oil's losses earlier, while record-high Russian production and the highest Iraqi exports since 1980 added to the concerns about oversupply. The two oil benchmarks, Brent and West Texas Intermediate, have now lost more than half of their value from peaks hit in the middle of last year. U.S. crude slid as low as $51.40 a barrel, its lowest since May 2009, and at 0312 GMT was just a tick above that at $51.59 a barrel, still down $1.10. February Brent crude dropped as low as $55.36 a barrel, also its lowest since May 2009, before edging back to $55.42, still down a dollar. "Trying to pick a bottom could be deadly," said a crude oil trader who declined to be named due to company policy. Lackluster economic data from the United States on Friday fueled worries about the state of the global economy and the strength of oil demand. "Oil demand is unlikely be robust this year when we look at the state of economies in China, Japan and Europe," said Yusuke Seta, a commodity sales manager at Newedge Japan. A weak euro may also have contributed to further oil losses as it reduces the purchasing power of euro holders for dollar-denominated oil. [MKTS/GLOB] "Theoretically speaking, a weaker euro puts downward pressure on Brent, although quantitative easing in the euro zone could possibly put more liquidity in the region, which may subsequently flow into Brent," Seta said. Conflicts in Libya has reduced the OPEC producer's crude output to around 380,000 barrels a day, state-run National Oil Corp (NOC) has said. Fighting was reported near the country's biggest oil export port Es Sider in the east even as a week-long fire at the port's storage tanks was extinguished on Friday. (Editing by Tom Hogue) ========================= Kuwait and Saudi in new row over energy November 03, 2014 - 12:08:09 am KUWAIT CITY: Kuwait and Saudi Arabia are locked in a new energy row, this time over a jointly operated offshore natural gas field also shared with Iran, a newspaper reported yesterday. Citing Kuwaiti sources, Al-Rai newspaper said work at the Dorra field had been halted due to differences between the two countries over the routing of the gas they extract. The report said Saudi Arabia wants any Dorra gas to be pumped through Khafji and then divided between the two countries, and that Kuwait insists it should take its share directly from the field. Kuwait shares separately with Iran and Saudi Arabia the Dorra gas field, whose recoverable reserves are estimated at some 220 billion cubic metres (seven trillion cubic feet). Development of the part jointly owned with the Saudis has been frozen for a year, according to Al-Rai. The row comes a month after production at the offshore Khafji oilfield in a neutral zone between the two Arab states was halted last month, with Kuwaiti officials saying it was due to technical issues. However, trade unions and media outlets in Kuwait said that Saudi Arabia stopped production unilaterally because of differences between the two countries. Khafji is capable of producing 311,000 barrels of oil per day. Kuwait and Iran have been involved in unsuccessful talks for more than 10 years to demarcate their maritime border in the area. Dorra has long been a bone of contention between Kuwait and Iran, which also lays claim to part of the field. Kuwait agreed with Riyadh in 2000 to jointly develop the field they desperately need to satisfy their growing gas need. The Gulf emirate is rich in oil but needs the Dorra field because it lacks sufficient supplies of natural gas. ================== Does the US really need all the oil stashed in the Strategic Petroleum Reserve? October 27, 2014 Brian Scheid and Herman Wang On this week’s Capitol Crude podcast, Platts senior editors Herman Wang and Brian Scheid ask if the hundreds of millions of barrels of crude oil stashed away by the US government may indicate a hoarding problem. The Strategic Petroleum Reserve, hidden away in Louisiana and Texas, was born of an era of oil embargoes and shortages. But the Department of Energy is now reevaluating the SPR’s role in light of prolific domestic shale oil production. Find out how even the location of the reserves and type of oil in the SPR are being called into question ======================== Such a dramatic fall in the price of crude oil has global consequences. Who wins, who loses? http://econ.st/10LObTb pic.twitter.com/f6uM31fYaP Cheaper oil Winners and losers America and its friends benefit from falling oil prices; its most strident critics don’t Oct 25th 2014 | CAIRO, CARACAS, MOSCOW AND WASHINGTON | From the print edition IN EARLY October the IMF looked at what might happen to the world economy if conflict in Iraq caused an oil-price shock. Fighters from Islamic State (IS) were pushing into the country’s north and the fund worried about a sharp price rise, of 20% in a year. Global GDP would fall by 0.5-1.5%, it concluded. Equity prices in rich countries would decline by 3-7%, and inflation would be at least half a point higher. IS is still advancing. Russia, the world’s third-biggest producer, is embroiled in Ukraine. Iraq, Syria, Nigeria and Libya, oil producers all, are in turmoil. But the price of Brent crude fell over 25% from $115 a barrel in mid-June to under $85 in mid-October, before recovering a little (see chart). Such a shift has global consequences. Who are the winners and losers? The first winner is the world economy itself. A 10% change in the oil price is associated with around a 0.2% change in global GDP, says Tom Helbling of the IMF. A price fall normally boosts GDP by shifting resources from producers to consumers, who are more likely to spend their gains than wealthy sheikhdoms. If increased supply is the driving force, the effect is likely to be bigger—as in America, where shale gas drove prices down relative to Europe and, says the IMF, boosted manufactured exports by 6% compared with the rest of the world. But if it reflects weak demand, consumers may save the windfall. Today’s falling prices are caused by shifts in both supply and demand. The world’s slowing economy, and stalled recoveries in Europe and Japan, are reining back the demand for oil. But there has been a big supply shock, too. Thanks largely to America, oil production since early 2013 has been running at 1m-2m barrels per day (b/d) higher than the year before. Other influences are acting as a brake on the world economy (see article). But a price cut of 25% for oil, if maintained, should mean that global GDP will be roughly 0.5% higher than it would be otherwise. Some countries stand to gain a lot more than that average, and others, to lose out. The world produces just over 90m b/d of oil. At $115 a barrel, that is worth roughly $3.8 trillion a year; at $85, just $2.8 trillion. Any country or group that consumes more than it produces gains from the $1 trillion transfer—importers, most of all. China is the world’s second-largest net importer of oil. Based on 2013 figures, every $1 drop in the oil price saves it an annual $2.1 billion. The recent fall, if sustained, lowers its import bill by $60 billion, or 3%. Most of its exports are manufactured goods whose prices have not fallen. Unless weak demand changes that, its foreign currency will go further, and living standards should rise. Cheaper oil will also help the government clean up China’s filthy air by phasing out dirty vehicle fuels, such as diesel. Lighter fuels are dearer and, under current plans, drivers could pay up to 70% of the extra; lower prices will soften that blow. More generally, says Lin Boqiang of Xiamen University, lower prices should support the government’s efforts to reduce subsidies (it has already freed some gas prices, and electricity prices are expected to follow next year). The impact on America will be mixed because the country is simultaneously the world’s largest consumer, importer and producer of oil. On balance cheaper oil will help, but not as much as it used to. Analysts at Goldman Sachs reckon that cheaper oil and lower interest rates should add about 0.1 percentage points to growth in 2015. But that will be more than offset by a stronger dollar, slower global growth and weaker stockmarkets. Extracting oil from shale is expensive. So when the oil price drops, America is one of the places most likely to pull back (Arctic and Canadian tar-sands producers are even more vulnerable). According to Michael Cohen of Barclays, a bank, a $20 drop in the world oil price reduces American producers’ earnings before interest by 20%, and only four-fifths of shale reserves are economic to extract using current technology with Brent around $85. How quickly production will fall as a result, though, is unclear, since producers’ costs vary and some have locked in prices via hedging. The impact will also vary by region. “If I’m in California, it’s pretty clear-cut that this is a good-news story,” says Michael Levi of the Council on Foreign Relations, a think-tank. “If I were in North Dakota [the biggest shale-oil state], I would be a lot more nervous.” America is a net importer, so lower prices mean Americans get to keep more of their money and spend it at home. But the stimulative impact is less than it used to be, since imports are becoming less important, and oil is shrinking as a share of the economy. The Energy Information Administration, an independent government agency, expects net oil imports to drop to 20% of total consumption next year, the lowest share since 1968. In the early 1980s, when oil accounted for over 4% of GDP, a 1% price drop would boost output by 0.04%, says Stephen Brown of the University of Nevada, Las Vegas. That had fallen to 0.018% by 2008, and he reckons it is now about 0.01%. Cheaper oil could make more of a difference to monetary policy. Inflation expectations have become more stable since the 1980s, which means that the Fed feels less need to act when oil prices shift. But with inflation below its 2% target, it will fret that falling oil prices could be pushing expectations down, making it harder to keep inflation on target. It could decide to keep interest rates at zero for longer, or even extend its bond-buying programme (“quantitative easing”). Fears of deflation apply with greater force in Europe. Energy imports into the European Union cost $500 billion in 2013, of which 75% was oil. So if oil prices stay at $85, the overall import bill could fall to under $400 billion a year. But the benefits would be muted twice over. First, inflation in the euro zone is even lower than in America. Mario Draghi, the head of the European Central Bank, claims that 80% of its decline between 2011 and September 2014 was caused by lower oil and food prices. Oil at $85 could lead to deflation, provoking consumers to rein in spending further. Second, European energy policy is only partly to do with price and efficiency. Europeans are also trying to reduce dependence on Russia and to cut carbon emissions by turning away from fossil fuels. Cheaper oil makes these aims slightly harder to achieve. Reaping the benefits But one group of countries gains unambiguously: those most dependent on agriculture. Agriculture is more energy-intensive than manufacturing. Energy is the main input into fertilisers, and in many countries farmers use huge amounts of electricity to pump water from aquifers far below, or depleted rivers far away. A dollar of farm output takes four or five times as much energy to produce as a dollar of manufactured goods, says John Baffes of the World Bank. Farmers benefit from cheaper oil. And since most of the world’s farmers are poor, cheaper oil is, on balance, good for poor countries. Take India, home to about a third of the world’s population living on under $1.25 a day. Cheaper oil is a threefold boon. First, as in China, imports become cheaper relative to exports. Oil accounts for about a third of India’s imports, but its exports are diverse (everything from food to computing services), so they are not seeing across-the-board price declines. Second, cheaper energy moderates inflation, which has already fallen from over 10% in early 2013 to 6.5%, bringing it within the central bank’s informal target range. This should lead to lower interest rates, boosting investment. Third, cheaper oil cuts India’s budget deficit, now 4.5% of GDP, by reducing fuel and fertiliser subsidies. These are huge: along with food subsidies, the total is 2.5 trillion rupees ($41 billion) in the year ending March 2015—14% of public spending and 2.5% of GDP. The government controls the price of diesel and compensates sellers for their losses. But, for the first time in years, sellers are making a profit. As in China, cheaper oil should reduce the pain of cutting subsidies—and on October 19th Narendra Modi, India’s prime minister, said he would finally end diesel subsidies, free diesel prices and raise natural-gas prices. The International Energy Agency, an oil consumers’ club, reckons that the global cost of subsidising energy consumption (mostly in developing countries) is $550 billion a year. The fall in the oil price should reduce that, all else being equal, to about $400 billion. That means many countries face a choice: seize the moment to dismantle subsidies, or keep on handing out goodies that now cost less? Either way, they will benefit—by ending an economic distortion (though with some risk of a consumer backlash), or by reducing its fiscal cost for a while. The choice is particularly stark for oil importers in the Middle East (see chart). Energy subsidies cost Egypt 6.5% of GDP in 2014, Jordan 4.5%, and Morocco and Tunisia 3-4%. A 20% fall in the oil price would improve the fiscal balances of Egypt and Jordan by almost 1% of GDP, says the IMF. But, fears Mr Baffes, the efficiency gains may not be enough to persuade regimes, especially shaky ones, to cut subsidies that mostly benefit the politically influential middle classes. Many other countries are also wrestling with energy subsidies. Indonesia spends about a fifth of its budget on them. Gulf oil exporters are even more profligate: Bahrain spends 12.5% of GDP and Kuwait, 9%. Brazil wants a high oil price to attract investment to its ultra-deep offshore (pré-sal) oil reserves. But cheap oil is a boon to its farmers, and in the short term to Petrobras, its state-controlled oil firm, which has been forced to import at world prices and sell at a government-capped rate in order to keep inflation artificially low. For the first time in years, it is no longer making a loss on the imports it sells. Contrasting futures It might seem that the country which is the world’s largest exporter must lose out. With oil at $115 a barrel, Saudi Arabia earns $360 billion in net exports a year; at $85, $270 billion. Its budget has almost certainly gone into the red. Prince Alwaleed bin Talal, an influential businessman, called lower prices a “catastrophe” and expressed astonishment that the government was not trying to push them back up. But Saudi Arabia’s long-term interest may in fact be served by a period of cheaper oil. It can afford one, unlike most other exporters. Though public spending has risen in recent years, its foreign reserves have risen more. Net foreign assets were 2.8 trillion riyals ($737 billion) in August—over three years’ current spending. It could finance decades of deficits by borrowing from itself even if oil were cheaper than it is now. Over the past year production by non-OPEC countries, such as Russia and America, has risen from 55m b/d to 57m b/d. The Saudis might conclude that the main beneficiaries of dear oil have been non-OPEC members. Some of the new output is high-cost, unlike the Saudis’. A period of cheaper oil could drive some high-cost operators to the wall, discourage investment in others and let the Saudis regain market share. In the mid-1980s Saudi Arabia cut its output by almost three-quarters in an attempt to sustain prices. It worked and other countries cashed in—but the Saudis themselves suffered a big loss of revenues and markets. They see little reason to make such a sacrifice again. Blowing windfalls Saudi Arabia can survive low prices because, when oil was $100 a barrel, it saved more of the windfall than it spent. The biggest losers are countries that didn’t. Notable among these are three vitriolic critics of America: Venezuela, Iran and Russia. “However low the oil price falls,” Nicolás Maduro, Venezuela’s president, declared on October 16th, “we will always guarantee...the social rights of our people.” The reality is quite different. Hugo Chávez, his predecessor, dismantled a fund intended to squirrel away windfall oil profits, spent the money and ran up tens of billions of dollars in debt. That debt is now coming due. Earlier this month a hefty service payment took Venezuela’s foreign reserves below $20 billion for the first time in a decade. Every dollar off the price of a barrel cuts roughly $450m-500m off export earnings. By Deutsche Bank’s calculation, the government needs oil at $120 a barrel to finance its spending plans—higher than before the recent tumble. So, unlike other oil exporters’ budgets, Venezuela’s was already in trouble. Last year’s fiscal deficit was a reckless 17% of GDP. In response, the government printed bolívares, pushing inflation (even on official measures) over 60%. Industrial production is grinding to a halt and Standard & Poor’s, a ratings agency, downgraded Venezuela’s debt to CCC+ last month. Analysts have long thought it would move heaven and earth to avoid default—not least because it has overseas assets that creditors could seize and depends heavily on financial markets. But the “d” word is increasingly often heard. The impact of Venezuela’s oil-related travails may be felt beyond its borders. The country runs a programme called PetroCaribe, which provides countries in the Caribbean with cheap financing to buy Venezuelan oil. For Guyana, Haiti, Jamaica and Nicaragua annual deferred payments under PetroCaribe are worth around 4% of GDP. But it costs Venezuela’s government $2.3 billion a year. So if Venezuela decides to cut back on its largesse, the shock waves will be felt throughout the Caribbean. Iran is even more vulnerable than Venezuela. It needs oil at $136 a barrel to finance its spending plans, most of them inherited from the profligate and inefficient government of Mahmoud Ahmadinejad. Last year it spent $100 billion on consumer subsidies, about 25% of GDP. Sanctions mean it cannot borrow its way out of trouble. Hassan Rouhani, who took office last year, has re-established a degree of macroeconomic stability. The central bank said the economy grew in the second quarter of 2014 for the first time in two years. But he was elected on the promise of improving living standards. It is not yet clear whether lower oil prices will force further reforms, and increase pressure for a deal with America over Iran’s nuclear programme, or whether falling revenues will boost support for conservatives who are already making trouble for him. For Russia the impact will be less dramatic, at least at first. Its draft budget for 2015 assumes oil at $100 a barrel; below that, it will be harder for Vladimir Putin, the president, to keep his spending promises. Something similar happened when the oil price fell in the mid-1980s, leaving the indebted Soviet Union cash-strapped. But Russia now has reserves of $454 billion to cushion against oil-price fluctuations. More important, the rouble has fallen. Next year’s budget assumes a dollar is worth 37 roubles, so it balances with oil at 3,700 roubles. A barrel currently costs 3,600 roubles (a much smaller fall than the dollar price), because the currency has plunged 20% this year. With oil at $80-85 a barrel Russia would probably run a budget deficit of only about 1% of GDP next year. All the same, the country will suffer a slowdown. For years, real incomes rose, thanks to wage increases in the state sector. The increased spending went on imports made cheaper by a strong currency. So the slide in the rouble is cutting living standards by making imports dearer. Western sanctions have closed capital markets to Russian firms, even private ones. Business activity is waning. A senior finance-ministry official says the share of non-oil-and-gas revenues in the budget is shrinking, making Russia more dependent on oil. Some analysts think growth in 2015 will be just 0.5-2%, compared with about 4% a year in 2010-12. Inflation is 8%. Russia, it seems, is headed towards stagflation. For most governments—Venezuela’s is a possible exception—cheaper oil is likely to have a modest impact at first. Even Mr Putin may be able to ride out stagflation for a while. But over time, the consequences are likely to grow. The years of $100-a-barrel oil also saw the rise of a “Beijing consensus” towards more economic interventionism. Perhaps a period of $85 oil—if that were to happen—might usher in another shift in attitudes, assumptions and policies. Corrections: In an earlier version of this article we said that the oil price has fallen from $115 a barrel in mid-July. We should have said mid-June. This was corrected on October 23rd 2014. We also said that a $20 drop in the world oil price reduces American producers' profits by 20%. We should have said "earnings before interest". This was corrected on October 28th 2014. Sorry. ========== Strong Dubai, weak oil price put Saudi in dilemma November 01, 2014 - 7:19:46 am SINGAPORE: A strong Dubai price in a weak oil market has created a dilemma for top oil exporter Saudi Arabia as it works out official monthly selling prices for December. The largest Opec producer is expected to raise the December prices for most of the crude grades it sells to Asia when it notifies customers early next week. A hike would be in line with a strong Dubai market, but traders said that benchmark is not reflecting weak demand and poor refining margins in Asia. “It’s a tricky one this month,” said a trader with a Western firm. “They will go up, but by how much, I’m not sure, particularly as they have been very aggressive on securing market share.” Members of the Organisation of Petroleum Exporting Countries (Opec) — in no hurry to cut output despite global benchmarks at multi-year lows — have been competing on their official selling prices as they fight for market share, analysts said. Saudi Arabia slashed November prices last month, sparking talk of an emerging price war. For December, the kingdom could raise official selling prices (OSPs) across the board by at least $1 a barrel if it adheres to an informal formula typically used as a guide, a survey of five refiners and traders in Asia showed. The formula is loosely based on the average monthly changes in the spread between the first and third month Dubai cash prices and refining margins for oil products. “It’s a special situation. If you just call it, there should be a big jump,” a trader said. Cash Dubai flipped into what traders called an “artificial backwardation” supported solely by strong demand from China oil in a market assessment process in Singapore, even as Brent was in contango and has lost a quarter of its value since June. Prompt prices are higher than those in future months in a backwardated market, indicating strong spot demand. The reverse is true in a contango market. But Saudi Arabia may raise prices by a smaller than expected margin for December, traders said, as the producer could take into account weak spot demand in Asia, especially after the strength in Dubai snubbed out refining margin gains seen in September. A slump in naphtha cracks could also cap price hikes for light grades such as Arab Super Light and Arab Extra Light, traders said. “Refiners hope Saudi will consider not to reflect the distorted window market,” a trader with a North Asian refiner said, referring to deals revealed during pricing agency Platts’ market assessment process. Saudi crude OSPs are usually released by the fifth of each month, and set the trend for Iranian, Kuwaiti and Iraqi prices. ========================================= 5 Biggest Risks Faced By Oil And Gas Companies By Andrew Beattie AAA | Whenever an investor approaches a new industry, it is good to know what the risks are that a company in that sector must face to be successful. General risks apply to every stock, such as management risk, but there are also more concentrated risks that affect that specific industry. In this article, we'll look at the biggest risks that oil and gas companies face. SEE: Measuring And Managing Investment Risk Political Risk The primary way that politics can affect oil is in the regulatory sense, but it's not necessarily the only way. Typically, an oil and gas company is covered by a range of regulations that limit where, when and how extraction is done. This interpretation of laws and regulations can also differ from state to state. That said, political risk generally increases when oil and gas companies are working on deposits abroad. Oil and gas companies tend to prefer countries with stable political systems and a history of granting and enforcing long-term leases. However, some companies simply go where the oil and gas is, even if a particular country doesn't quite match their preferences. Numerous issues may arise from this, including sudden nationalization and/or shifting political winds that change the regulatory environment. Depending on what country the oil is being extracted from, the deal a company starts with is not always the deal it ends up with, as the government may change its mind after the capital is invested, in order to take more profit for itself. Political risk can be obvious, such as developing in countries with an unstable dictatorship and a history of sudden nationalization - or more subtle - as found in nations that adjust foreign ownership rules to guarantee that domestic corporations gain an interest. An important approach that a company takes in mitigating this risk is careful analysis and building sustainable relationships with its international oil and gas partners, if it hopes to remain in there for the long run. SEE: Understanding Oil Industry Terminology Geological Risk Many of the easy-to-get oil and gas is already tapped out, or in the process of being tapped out. Exploration has moved on to areas that involve drilling in less friendly environments - like on a platform in the middle of an undulating ocean. There is a wide variety of unconventional oil and gas extraction techniques that have helped squeeze out resources in areas where it would have otherwise been impossible. Geological risk refers to both the difficulty of extraction and the possibility that the accessible reserves in any deposit will be smaller than estimated. Oil and gas geologists work hard to minimize geological risk by testing frequently, so it is rare that estimates are way off. In fact, they use the terms "proven," "probable" and "possible" before reserve estimates, to express their level of confidence in the findings. Price Risk Beyond the geological risk, the price of oil and gas is the primary factor in deciding whether a reserve is economically feasible. Basically, the higher the geological barriers to easy extraction, the more price risk a given project faces. This is because unconventional extraction usually costs more than a vertical drill down to a deposit. This doesn't mean that oil and gas companies automatically mothball a project that becomes unprofitable due to a price dip. Often, these projects can't be quickly shut down and then restarted. Instead, O&G companies attempt to forecast the likely prices over the term of the project in order to decide whether to begin. Once a project has begun, price risk is a constant companion. SEE: Uncovering Oil And Gas Futures Supply and Demand Risks Supply and demand shocks are a very real risk for oil and gas companies. As mentioned, operations take a lot of capital and time to get going, and they are not easy to mothball when prices go south, or ramp up when they go north. The uneven nature of production is part of what makes the price of oil and gas so volatile. Other economic factors also play into this, as financial crises and macroeconomic factors can dry up capital or otherwise affect the industry independently of the usual price risks. Cost Risks All of these preceding risks feed into the biggest of them all - operational costs. The more onerous the regulation and the more difficult the drill, the more expensive a project becomes. Couple this with uncertain prices due to worldwide production beyond any one company's control, and you have some real cost concerns. This is not the end, however, as many oil and gas companies struggle to find and retain the qualified workers that they need during boom times, so payroll can quickly rise to add another cost to the overall picture. These costs, in turn, have made oil and gas a very capital-intensive industry, with fewer and fewer players all the time. The Bottom Line Oil and gas investing isn't going anywhere. Despite the risks, there is still a very real demand for energy, and oil and gas fills part of that demand. Investors can still find rewards in oil and gas, but it helps to know the potential risks that go along with those potential rewards. SEE: 5 Common Trading Multiples Used In Oil And Gas Valuation Trade Like a Top Hedge Fund What can technical traders see that you don’t? Investopedia presents Five Chart Patterns You Need to Know, your guide to technical trading like the pros. Click here to get started, and learn how to read charts like an industry veteran. TAGS: Commodities Fundamental Analysis Microeconomics Oil & Gas Drilling & Exploration Risk Management Supply & Demand ============================================================== Saudi Arabia is not declaring a volume war (yet): Kemp Tue, Nov 04 20:13 PM EST By John Kemp LONDON (Reuters) - Saudi Aramco cut the price of December crude deliveries to U.S. refiners on Monday in order to protect its competitiveness amid an erosion of its U.S. market share by rival exporters such as Canada and Iraq. In August, U.S. crude imports from Saudi Arabia slipped below 900,000 barrels per day, according to the U.S. Energy Information Administration. With the exception of a brief period in 2009 and early 2010, Saudi exports to the United States fell to the lowest level since 1988 (http://link.reuters.com/jez33w). U.S. imports from Saudi Arabia in August were just 70 percent of the average level for the past ten years which has been around 1.3 million barrels per day. Saudi oil, which is priced at a differential to a U.S. sour crude marker, had become too expensive compared with alternatives available to U.S. refiners. So Saudi Aramco has been forced to cut the differentials for U.S. refiners by between 45 and 50 cents (depending on grade) per barrel even as it raised differentials for refiners in Europe and Asia. RIVAL EXPORTERS Some commentators have interpreted the U.S. price cuts as a signal the kingdom is initiating a deliberate price-war targeting U.S. shale producers. The reality is more complex. Most Saudi exports to the United States are much heavier and certainly sourer than the light sweet oils being produced from shale formations like North Dakota’s Bakken and Texas’ Eagle Ford. Aramco has therefore been spared head-to-head competition from rising U.S. shale output, which has mostly fallen on U.S. imports from West Africa. However, the company’s market share over the summer was hit by competition from Iraq, Venezuela, Brazil and Canada, so Aramco has cut its prices in the region to stabilize sales and buy back some of its lost share. OFFICIAL PRICES Saudi Aramco prices its crude sales against different benchmarks in the United States, Europe and Asia and applies a different set of differentials in each region to reach a final selling price . Past experience suggests differentials are primarily used to offset variations between the regional benchmarks to ensure Aramco’s crude sells at broadly the same price in each region. Final selling prices vary much less between the regions than the differentials themselves. For example, the differentials for Arab Medium grade delivered in December range by more than $4 per barrel from a discount of $5.00 in Europe and $1.60 in Asia to a discount of just 65 cents in the United States. But the outright prices (benchmark plus or minus the differential) currently range just over $2 between the most expensive region (Asia) and the cheapest (the United States). For Arab Light, the differentials vary by $4.95 per barrel, but outright sales prices currently vary by just $1.78. MARKETING STRATEGY Traders and refiners need liquid benchmarks to hedge their exposure to fluctuations in crude. But none of the benchmarks closely resembles the grades of oil marketed by Saudi Aramco, which is why the company has to apply large and variable monthly adjustments to its selling prices via the differentials. Saudi Aramco’s marketers attempt to ensure (1) refiners buy all the cargoes which the company has on offer and (2) sales prices in the three regions are broadly equalized. The first point is obvious. Saudi oil has to be priced competitively with other similar grades or refiners will buy something else instead. The second is more subtle. Saudi exports are protected against inter-regional arbitrage by destination clauses: oil sold to a refiner in the United States cannot be diverted and resold to a refiner in Asia. But other crudes can be arbitraged between the regions and so can the final products produced from refined oil. Refiners are all, to some extent, competing against one another in both the market for buying crude and in the sale of refined products. Aramco must price its crude to ensure its customers are not put at a competitive disadvantage in either market. While most Saudi oil is sold on long term contracts (with market-linked pricing) Aramco would rapidly lose customers if its oil proved to be expensive compared with other grades. The potential for arbitrage in both crude and product markets ensures that inter-regional differences in final selling prices are ordinarily no more than $2-3 per barrel. ARAMCO IS REACTIVE Changes in official selling prices are often interpreted as evidence of a “grand strategy” for market management by senior policymakers in Riyadh and Dhahran. For the most part, however, Saudi Aramco’s pricing strategy is reactive rather than proactive. The company adjusts differentials in response to current and forecast market conditions to maintain the competitiveness of its oil sales. At the margin, Saudi Aramco can adjust differentials to push slightly more oil into the market or hold sales back, as well as to alter the balance of sales between regions. But most of the changes in differentials are driven by the need to react to external events (such as refining demand and the availability of competing crudes) rather than Saudi strategy. The distribution of Saudi sales to the three regions displays a high degree of stability over time (in contrast to the differentials themselves). In the case of the United States, Aramco’s crude was too expensive in June, July and August, and export volumes slumped by almost 700,000 barrels per day. Like any other marketer, to reverse some of those losses, Aramco has cut its differentials to make its oil more attractive. The price cuts will intensify the competitive pressure on U.S. shale producers, but that is an indirect consequence of the policy, not its primary objective, which is to maintain market share. In any event, the Americas accounted for less than 20 percent of Saudi exports in 2013, according to the U.S. Energy Information Administration. In the much larger Asian market, which accounted for almost 70 percent of sales in 2013, where Aramco’s oil has been competitive, the company has actually boosted differentials for December sales by around $1 per barrel. Changes in differentials in the U.S. market are not a sign that Saudi Aramco is declaring a volume war on U.S. shale producers or other oil exporters (any more than differential increases in Asia signal the opposite). But that might be the unintended consequence if everyone tries to defend their market share. Sooner or later someone somewhere has to cut: whether it is the Saudis and OPEC, non-OPEC suppliers like Canada, U.S. shale producers, or all of them. (Editing by Clara Ferreira Marques) =============== Companies to benefit from low oil prices By Lee Wild | Fri, 14th November 2014 - 17:09 Falling oil prices have been bad news for the oil majors and junior explorers alike. Shares prices have tumbled and, according to a new article written by Interactive Investor's Harriet Mann, the immediate future looks bleak. But concerns about a deflationary spiral look wide of the mark, and outside of the oil industry, the drop in energy costs has been welcomed. In fact, JPMorgan reckons it equates to a tax cut for most of the world. Both West Texas Intermediate (WTI) and Brent Crude are down 25-30% from their June highs, and JPMorgan's commodity analysts reckon the price could slump further. Watch out for lows of $72 for WTI and $75 for Brent during the first quarter of 2015, they say, and do not expect any rebound in the average price in either 2015 - expected to be $77 and $82, respectively - or 2016. So, that's great for the consumer. Drivers are already paying less for petrol at the pump, and ongoing weakness in oil prices will boost real disposable incomes and purchasing power. Says JPM: Many may see the falling oil price as a "risk-off" indicator, a signal that demand is weakening. We note that this time around, however, the key driver of lower oil prices appears to be the spike in supply in addition to a strengthening US dollar index. This contrasts with '01 and '08, when poor oil demand drove the downside. Historically, a sharp fall in oil price tended not to be a precursor to a slowdown in activity, on the contrary. It's clear that cheap fuel is a tailwind for transport, airlines, automotive, retail, travel and leisure sectors, with disposable incomes likely to increase and transportation costs fall. JPM comes up with plenty of names it expects to do well from the slump. Its top dozen are: FirstGroup (FGP) - effective employment of fuel surcharges and active hedging activities mean net exposure of the sector to lower commodity prices is somewhat limited International Airlines Group (IAG) - Lower fuel prices provide significant expense savings for all airlines GKN (GKN) - From a longer-term view, lower oil prices could lead to higher demand for cars. Thomas Cook (TCG) - Fuel costs represent approximately 10% of the Tour Operators' cost base and hence lower oil prices should have a positive impact on the sector The rest are all European names - Electrolux, Inditex, Kuehne & Nagel International, Daimler, BMW, Lufthansa and DP World. Other potential stock beneficiaries JPM analysts also screened for the stocks, in oil sensitive sectors, which displayed the most negative correlation to oil prices. Of those, there are another dozen which JPM rates as 'overweight'. They are: British American Tobacco (BATS), EasyJet (EZJ), Persimmon (PSN), Inditex, Zodiac Aerospace, Safran (SAF), Bouygues, LVMH, Anheuser-Busch Inbev, Airbus, L'Oreal and ASML Holding. As you can see from the table below, other UK-listed companies which should do well out of cheap oil include Carnival (CCL), Reckitt Benckiser (RB.), Imperial Tobacco (IMT), BAE Systems (BA.), Next (NXT), Ryanair, (RYA) Bunzl (BNZL), Sainsbury's (SBRY), Dixons Carphone (DCC) and Marks and Sepncer (MKS). JPM's sector experts add ASOS (ASC) and SABMiller (SAB) to the list. This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. ------- Oil price crash has silver lining for Norway Fri Nov 14, 2014 7:07am EST inShare Share this Email Print RELATED NEWS Dollar rallies on U.S. data, stocks trade flat PRECIOUS-Gold down on drop in oil prices, bright US outlook IMF warns Russia's economy to suffer from falling oil prices Europe shares inch up; oil slump hits energy sector U.S. stocks slip from records; oil falls ANALYSIS & OPINION Time for a ‘melt-up’: the coming global boom Marginal oil producers, gold investors heed caution ahead of OPEC meeting RELATED TOPICS Stocks » Markets » Energy » * GDP may shed 1-2 pct over 2 years from low oil price * Non-oil sector benefits from currency fall * Labour market tension also eases * Budget does not rely on oil revenue By Balazs Koranyi and Ole Petter Skonnord OSLO, Nov 14 (Reuters) - Norway, Western Europe's top crude producer, looks set actually to benefit from the oil price crash as its energy sector is forced to relax its stranglehold over much of the economy and non-oil firms profit from more favourable business conditions. Although it generates almost a quarter of its GDP from oil and gas, about the same as Russia or Venezuela, Norway's economy remains surprisingly resilient, and even its oil industry has begun a readjustment towards lower costs that could extend the sector's lifetime. While Russia faces recession and Saudi Arabia a budget deficit if crude prices hold at four-year lows of $78 per barrel, the impact on Norway will be limited as it benefits from a weaker currency, which will ease conditions in the labour market, slow down wage growth, and halt offshore cost inflation. Norway is better placed than almost any other producer to deal with the current state of the oil market, cushioned against the crash by a mammoth fund of accumulated oil wealth worth $860 billion, or $170,000 per man, woman and child. That means its budget, which only spends the investment returns on the accrued oil wealth, is unaffected, and the government could even increase spending without running up debt. The low oil price could cut 1 to 2 percent from GDP over two years, economists say, but much of that will be made up by the rest of the economy. WIPED OUT "The silver lining is not even hidden, it's quite obvious," says Harald Magnus Andreassen, an economist at Swedbank. "The currency's fall has wiped out seven years of extra wage inflation." "This was a very convenient way for Norway to adjust the cost level," Andreassen said. "Had we done it the Greek way, with domestic devaluation like cutting wages, that would have been devastating for unemployment and consumption." <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a graphic on GDP vs oil price, click: link.reuters.com/rur43w For a graphic on unit labour cost in Europe, click: link.reuters.com/tym98v ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Norway's trade weighted currency has fallen more than 12 percent over the past two years, helping exporters without eating into consumption or seriously pushing up inflation. Norway's GDP excluding the offshore sector is seen growing nearly three times as fast as the euro zone this year and its unemployment rate is less than 3 percent, a quarter of Europe's. If people are worried about oil prices, it doesn't show. House prices are at record highs and Tesla's luxury Model S is one of the country's top-selling cars. And neither is the government holding back with subsidies -- aid to dairy farmers in the Arctic is running at five times the European Union level. OIL BOOM The oil boom has been blamed for hijacking the economy, pushing Norway's unit labour costs to twice the EU average. The booming oil sector has sucked the labour market dry, leaving many firms unable to find workers. That could now change as oil prices fall and workers are no longer attracted into the energy sector. "The cooling of the labour market will give us access to good and clever people and that's not a negative," says Arne Moegster, the CEO of fish farmer Austevoll. The oil price crash may also revive some energy projects that have lain dormant due to rising costs. "This is actually a good crisis to have," SAID Karl Johnny Hersvik, CEO of oil producer Det Norske. "We have seen immense increases in costs ... and the challenge is to be very rapid and proactive bringing them down again." Statoil, Norway's top producer, has taken the lead, cutting engineering costs by telling contractors to combine work on projects. Costs in the oil and gas sector, which only last year were expected to rise by a fifth over the next five years, are now seen as broadly flat over the period, according to the industry's lobby group. The biggest drawback for the economy may be the lack of pressure on the government to rein in the budget, where spending of saved-up oil money will be $20 billion more than in 2007. The government says some welfare spending is unsustainable and Norway must follow Sweden and Denmark in trimming the welfare state. It has even a proposed a timid cut for next year but that has caused public uproar and hurt the government in opinion polls, possibly halting its reform efforts. (Additional reporting by Stine Jacobsen, Alister Doyle, and Joachim Dagenborg; Editing by Giles Elgood) FILED UNDER: STOCKSMARKETSENERGY Tweet this Link this Share this Digg this Email Print Reprints Sponsored Links by Taboola From The Web SHOCKING: New Snoring Research My Snoring Solution How People are Paying Next To Nothing For New iPads Swoggi The 3 Most Effective Hand Gestures in Public Speaking Prezi BHP Deal Adds Pressure To U.S. Crude Oil Export Ban Investors.com Tortilla Brunch Bake Recipe Kraft Recipes Is There A Natural Way To Reduce the Symptoms of Herpes? The Ultimate Herpes Protocol #1 University in the World Universities.AC Is It Possible That Alzheimer's Can Be Reversed? The Brain Stimulator ===================== At the Wellhead: A drop in the price of oil is not all good news for China By Yen Ling Song | November 17, 2014 12:01 AM Comments (0) Conventional wisdom is that China, with its growing import dependence, would be nothing but “thumbs up” for the recent decline in oil prices. But as Song Yen Ling notes in this week’s Oilgram News column, At the Wellhead, conventional wisdom might not have the whole story. ————————– Low oil prices are bullish for a large energy consumer like China—end-users at the pump are enjoying fuel prices that are at four-year lows—but Chinese state oil companies that have sizeable upstream and downstream operations are not entirely happy. On the one hand, refineries are getting squeezed as they process crude purchased months ago at closer to $100/b, but sell oil products at regulated prices that are being continuously adjusted downward in line with a pricing formula introduced in March 2013 wherein oil product prices in the country track international crude prices. On the other hand in the upstream segment, the companies are suffering even more as margins erode, production gains face hurdles and M&A activity wanes. Bernstein Research projects that if the price of Brent crude averages $80/barrel next year, PetroChina, the listed subsidiary of largest upstream company China National Petroleum Corp., would see its profit decline by some 54% compared with profits at a Brent price of $105/b. China National Offshore Oil Corp., the country’s monopoly offshore producer, would likely see a 45% fall in profit while Sinopec’s income would decline by 37% under the same conditions. Although China’s appetite for imported crude has long dominated headlines, the country also has sizeable domestic production—currently stable at just a little over 4 million b/d—making it the world’s fourth largest oil producer behind Russia, Saudi Arabia, and the US. Bernstein estimates China’s domestic crude output would fall by 1.5% at a 2015 Brent price of $80/b because state-owned companies’ cash flows from their upstream operations would be insufficient to cover the cost of developing and replacing reserves. PetroChina expects its output to grow 1.3% next year, but persistent oil price weakness could pose significant challenges in hitting that target, Nomura Research noted last week, after an update from the company at an investor briefing. A sustained drop in oil prices would risk current production, as many of China’s oilfields are aging and require more investment for enhanced recovery, while others are geologically complex, such as tight oil basins, and are relatively more costly to develop. ————————– Reminder of Japan's dire situation which I posted last week. Govt-to-GDP debt at 227%, total debt ¥1.197 Quadrillion ============= At the Wellhead: A drop in the price of oil is not all good news for China By Yen Ling Song | November 17, 2014 12:01 AM Following the government’s exhortations for reform of state-owned enterprises, Sinopec and PetroChina cut their capital expenditures early this year to prove they were serious about change. The idea is to move the focus away from revenue and concentrate more on profitability and return on investment. The focus on value over volume and capex cuts meant Chinese oil majors’ M&A activity fell off this year. PetroChina’s total capital expenditure from January to September slipped 6.3% year on year to Yuan 188.9 billion ($30.9 billion) and the company in March said that it aims to reduce its 2014 capex by 7% to Yuan 296.5 billion. Rival Sinopec, Asia’s largest refiner, has pegged spending at Yuan 161.6 billion this year, a 4.2% decrease from 2013. Sinopec’s total capex over January-September fell 20% from a year ago to Yuan 69.4 billion, slightly more than half of which was devoted to the upstream segment. According to government sources, China’s total equity oil and gas production from overseas assets now exceeds 2 million b/d of oil equivalent—a direct consequence of its prior heavy investments. But many acquisitions that were executed when oil was at $110/b, may appear less attractive now that oil prices are near $80/b and reflect poorly on the buyers. Overseas oil and gas acquisitions this year have also dried up significantly despite the lower oil prices pulling down the cost of assets. The only major deal to be disclosed was Sinopec’s buyout of its joint venture partner Lukoil’s 50% stake in Kazakhstan’s Caspian Investment Resources for $1.2 billion in April. CNPC in September acquired a 10% interest in the Rosneft-operated Vankor oilfield in East Siberia, although no transaction value has been released. In stark contrast, China’s overseas oil and gas deals last year amounted to at least $19 billion, while in 2012 CNOOC’s $15.1 billion purchase of Canada’s Nexen pushed M&A values to some $23 billion. CNOOC is now in consolidation mode following the acquisition. Unlike its compatriots, the company’s capital expenditure has risen 24.4% this year to Yuan 74.4 billion, largely because it has numerous upstream development projects in the pipeline. While Nexen provided significant inorganic growth, CNOOC’s average operating expenditure has also risen and analysts say margins will continue to be squeezed, particularly if development of unconventional resources, such as oil sands, is accelerated. — Song Yen Ling in Singapore ===================== Saudis block OPEC output cut, sending oil price plunging Thu, Nov 27 15:53 PM EST image 1 of 2 By Alex Lawler, David Sheppard and Rania El Gamal VIENNA (Reuters) - Saudi Arabia blocked calls on Thursday from poorer members of the OPEC oil exporter group for production cuts to arrest a slide in global prices, sending benchmark crude plunging to a fresh four-year low. Brent oil fell more than $6 to $71.25 a barrel after OPEC ministers meeting in Vienna left the group's output ceiling unchanged despite huge global oversupply, marking a major shift away from its long-standing policy of defending prices. This outcome set the stage for a battle for market share between OPEC and non-OPEC countries, as a boom in U.S. shale oil production and weaker economic growth in China and Europe have already sent crude prices down by about a third since June. "It was a great decision," Saudi Oil Minister Ali al-Naimi said as he emerged smiling after around five hours of talks. OPEC said in a statement that members had agreed to roll over the ceiling of 30 million barrels per day, at least 1 million above OPEC's own estimates of demand for its oil next year. "It is a new world for OPEC because they simply cannot manage the market anymore. It is now the market’s turn to dictate prices and they will certainly go lower," said Dr. Gary Ross, chief executive of PIRA Energy Group. The wealthy Gulf states have made clear they are ready to ride out the weak prices that have hurt the likes of Venezuela and Iran - OPEC members which face big budget pressures, but cannot afford to make cuts themselves. Venezuela and Algeria had calling for output cuts of as much as 2 million bpd. Venezuelan Foreign Minister Rafael Ramirez said he accepted the decision as a collective one and hoped that lower prices would help drive some of the higher-cost U.S. shale oil production out of the market. "In the market, some producers are too expensive," he said. The OPEC statement made no mention of any need for members to stop overproducing, nor of any extraordinary meeting to reconsider the ceiling before a regular session next June. BATTLE OVER MARKET SHARE The Organization of the Petroleum Exporting Countries accounts for a third of global oil output. Gulf producers could withstand for some time a battle over market share that would drive down prices further, thanks to their large foreign-currency reserves. Members without such a cushion would find it much more difficult, as would a number of producers outside the group. Russia's rouble, which has been sliding for much of this year, extended losses on Thursday to trade more than 2 percent lower than the previous close against the U.S. dollar. Russia is already suffering from Western sanctions over its actions in Ukraine and needs oil prices of $100 per barrel to balance its budget. A price war might make some future U.S. shale oil projects uncompetitive due to high production costs, easing competitive pressures on OPEC in the longer term. "Why would Saudi cut production in the current environment? Why would they want to support Iran, Russia or U.S. shale producers? So they must have decided: let the market establish the price. Once the market goes to a new equilibrium, prices will go higher," PIRA Energy's Ross said. Kuwaiti Oil Minister Ali Saleh al-Omair said OPEC would have to accept any market price of oil, whether it were $60, $80 or $100 a barrel. Iraq's oil minister, Adel Abdel Mehdi, said he saw a floor at $65-70 per barrel. "We interpret this as Saudi Arabia selling the idea that oil prices in the short term need to go lower, with a floor set at $60 per barrel, in order to have more stability in years ahead at $80 plus," said Olivier Jakob from Petromatrix consultancy. "In other words, it should be in the interest of OPEC to live with lower prices for a little while in order to slow down development projects in the United States." (Additional reporting by Amena Bakr and Shadia Nasralla; Writing by Dmitry Zhdannikov; Editing by Dale Hudson, David Stamp and Robin Pomeroy) ==EDITION:U.S. SIGN INREGISTER HOME BUSINESS MARKETS WORLD POLITICS TECH OPINION BREAKINGVIEWS MONEY LIFE PICTURES VIDEO HAPPENING NOW: Black Friday live coverage Some fund managers see oil falling to $60 without OPEC cut BY CLAIRE MILHENCH LONDON Mon Nov 24, 2014 7:30pm EST inShare 22 Share this Email Print A OPEC flag is seen during the presentation of OPEC's 2013 World Oil Outlook in Vienna , November 7, 2013. CREDIT: REUTERS/LEONHARD FOEGER RELATED VIDEO OPEC ministers vs. themselves OPEC will keep production targets-Platt's Bambino RELATED NEWS UAE says OPEC will take 'appropriate decision': WAM ANALYSIS & OPINION The first cut may not be the deepest India Markets Weekahead: Ride the bull with a finger on the ejector button RELATED TOPICS Money » (Reuters) - Some commodity fund managers believe oil prices could slide to $60 per barrel if OPEC does not agree a significant output cut when it meets in Vienna this week. Brent crude futures LCOc1 have fallen by a third since June, touching a four-year low of $76.76 a barrel on Nov. 14. They could tumble further if OPEC does not agree to cut at least one million barrels per day (bpd), according to some commodity fund managers' forecasts. "The market would question the credibility of OPEC and its influence on global oil markets if there was no cut," said Daniel Bathe, of Lupus Alpha Commodity Invest Fund. That could send Brent down to around $60, Bathe said. "Herding behaviour and a shift to net negative speculative positions should accelerate the price plunge," he said. Yet fund managers and brokerage analysts are divided over whether OPEC will reach an agreement on cutting output. Bathe put the likelihood at no more than 50 percent. Oil prices have been falling since the summer due to abundant supply, partly from U.S. shale oil, and because of low demand growth, particularly in Europe and Asia. As a result, some investors believe a small cut of around 500,000 bpd would not be enough to calm the markets. Doug King, chief investment officer of RCMA Capital, sees Brent falling to $70 per barrel even with a cut of one million bpd. "With this, I would expect lower prices in the first half of 2015," he said. If OPEC fails to agree a cut, prices will drop "further and quite quickly", with U.S. crude CLc1 possibly sliding to $60, he said. U.S. crude closed at $76.51 on Friday, with Brent just above $80. 'OIL WAR' With member states struggling to balance budgets, many OPEC countries will be pushing for an output cut when OPEC meets in Vienna on Nov. 27. "Prices below $80 are putting significant strain on the cartel's weakest members such as Venezuela," said Nicolas Robin, a commodities fund manager at Threadneedle. He said a bigger cut, of one million bpd or more, was an "outlier scenario" but said such a move could rapidly push prices above $85. "A move higher would likely be accelerated by the lack of liquidity owing to the U.S. (Thanksgiving) holiday next week," Robin added. Doug Hepworth of Gresham Investment Management said bigger cut was needed to lift prices. "A surprise significant cut, say of 2 million bpd, is needed to push prices back up to $80. And that would have to be accompanied by some newfound discipline in the non-Saudi members," Hepworth said. The market has been awash with conspiracy theories as to why Saudi Arabia has not already intervened. New York Times columnist Thomas Friedman hinted at "a global oil war under way pitting the United States and Saudi Arabia on one side against Russia and Iran on the other". Hepworth argued that Saudi Arabia appeared pretty happy with current pricing levels and suggested they were waiting to see where the cut-off point for U.S. production was. "Time is on their side, they can afford to wait," he said, stressing he was talking months, not years, but added if oil fell below $70 that waiting time "shrinks to weeks". Tom Nelson, of Investec Global Energy Fund, said he believed Saudi Arabia had allowed the price to fall to incentivise smaller OPEC producers, which often rely on the biggest producer to intervene, to join Riyadh in cutting output. "They (the Saudis) want to cut but they don't want to cut alone," Nelson said, adding that a cut of between one million and 1.5 million bpd should be sufficient to balance the market. "The market really wants to see that OPEC is still functioning ... if there is a small cut, with an accompanying statement of coherence from OPEC that presents a united front, and talks about seeing demand recovery, and some moderation of supply growth, then Brent could move up to $80-$90." (Additional reporting by Eric Onstad; editing by Robin Pomeroy and Jason Neely)