Tuesday, December 30, 2008

Crude Oil Poised for First Annual Decline in Seven Years

With consumers tightening their wallets over economic concerns, crude oil will suffer its first annual decline in seven years, as supplies rise over decreasing demand.

On the New York Mercantile Exchange, prices fell 99 cents for February delivery of crude oil, settling at $39.03 a barrel. Earlier in the day it fell below $38 a barrel. So far this year oil prices are down by 59 percent.

Crude-oil inventory fell last week by 1.45 million barrels, while on the other hand, according to analysts' estimates, gasoline stockpiles are rising, with projections of an extra 1.7 million barrels added for the week ending December 26.

Also increasing were heating oil, diesel, and other distillate fuel supplies, adding 1.5 million barrels to the inventory.

On London's ICE Futures Europe exchange, Brent crude oil fell by 40 cents to end the session at $40.15 a barrel.

I don't see anything changing the primary fundamental of declining oil demand changing any time soon, and that should be the key element to watch with oil, barring any geopolitical problems that may unfold.

Tuesday, December 23, 2008

Warren Buffett Investing Heavily in ConocoPhillips

Regulatory filings show that Warren Buffett has been buying up shares of ConocoPhillips (COP) since the end of March. At that time Berkshire Hathaway (BRK-B) owned 17.5 million shares, while now they've acquired over 83 million shares.

That move by Buffett and Berkshire Hathaway make it the largest shareholder in Conoco at this time.

Other major investment managers have been making large share acquisitions of Conoco as well, including Chris Davis and Ken Feinberg's Davis New York Venture (NYVTX) fund. They believe investment in commodities will be a big part of increasing returns in the years ahead, even though they are temporarily out of favor.

"As developing nations add to worldwide incremental demand for commodities like oil and natural resources, we believe the long-term average price ranges for such resources could climb, notwithstanding the recent pullback in certain commodity prices. Consistent with our energy and natural resource-related investments to date, we will remain on the lookout for disciplined capital allocators who can generate attractive profits for shareholders given a stable price environment and windfall profits under more bullish scenarios."

For a good look at what differentiates ConocoPhillips from its competitors, Morningstar analyst Allen Good gives an indepth analysis of the company.

Monday, December 22, 2008

Governor Palin Disappointed by Shell Decision to Cancel Drilling Activities in the OCS

December 18, 2008, Anchorage, Alaska – Governor Sarah Palin today expressed her disappointment in Shell Oil Company’s decision to cancel drilling activities in the Outer Continental Shelf (OCS) of Alaska’s Beaufort Sea for 2009.

The decision comes on the heels of a ruling by a three-judge panel of the Ninth Circuit Court of Appeals on November 20. “Alaska’s economic past and future are tied directly to the development of our abundant natural resources," the governor said. “The loss of this exploration activity will cost our state’s families hundreds of jobs next year.”

The governor also announced today that the state of Alaska intends to support Shell’s petition to the Ninth Circuit Court of Appeals for a rehearing in front of the full court.

Thursday, December 18, 2008

Oil Plunges to Lowest Level in Four Years

Today on the New York Mercantile Exchange, oil fell to its lowest level in four years, dropping to $36.22 at the end of the trading day. That was a 9.6 percent or $3.84 plunge per barrel for January delivery.

While trading volume was higher for February, it still fell $2.94 to finish the session at $41.67 a barrel on the NYMEX.

OPEC is of course panicking at the potential unrest that will inevitably come if prices continue to fall, and so cut production by another 4.2 billion more barrels a day on Wednesday, but that hasn't impressed traders much, as assertions and practical cooperation are two different things. Many countries say they'll participate in cutbacks historically, but full cooperation rarely, if ever, happens.

Price is the driving force behind the decline, as economic weakness is causing consumers to cut back on driving. If prices were to go higher at this time, consumers would simply cut back more. It's not a good time for OPEC, and it could become an even more dangerous situation going forward in a number of the countries that are part of the organization.

It'll be difficult to develop a supply/demand balance going forward, as economic uncertainty and the unknown continue to hamper stability. Whenever that becomes stable, the price range is expected to flucuate by around $15 a barrel.

January gasoline on Globex also moved down with oil, as prices drooped 5 cents to finish at 92 cents a gallon. Heating oil followed suit, ending down by 7 cents to $1.37 a gallon.

Tuesday, December 9, 2008

Platts Survey: November OPEC Oil Output Fell to 31.38 Mil. Barrels Per Day

LONDON, Dec 09, 2008 /PRNewswire via COMTEX/ -- Platts -- The 13 members of the Organization of the Petroleum Exporting Countries (OPEC) pumped an average 31.38 million barrels per day (b/d) of crude oil in November, according to a Platts survey of OPEC and oil industry officials just released. This is a decline of 880,000 from the October level of 32.26 million b/d.

Excluding Indonesia, which will leave OPEC at the end of this year, and Iraq, production from the 11 members bound by output agreements fell by 950,000 b/d to 28.16 million b/d from 29.11 million b/d, the survey showed.

This leaves the OPEC-11 with an additional 852,000 b/d of supply to remove if they are to reduce output to the level of the 27.308 million b/d output limit which came into effect at the beginning of November after the group agreed to slash production by 1.5 million b/d at emergency talks in Vienna on October 24.

"These cuts are nowhere near what analysts estimate is needed for OPEC to slash simply to catch up with rapidly receding demand," said Platts Global Director of Oil John Kingston. "Even if the full 1.5 million b/d cut was implemented, few now think even that would be enough to stave off tremendous increases in inventories, which will push prices down further. OPEC will have its work cut out for it at its upcoming meeting, with two main agenda items: how do we get to the cuts we agreed upon in October, and how much further do we cut from there?"

OPEC powerhouse Saudi Arabia accounted for the biggest single reduction, cutting its output to 8.9 million b/d from 9.4 million b/d in October. This leaves the kingdom still pumping more than 400,000 b/d in excess of its new 8.477 million b/d quota.
Kuwait and the United Arab Emirates (UAE) reduced output by 100,000 b/d and 150,000 b/d respectively, UAE output had been expected to decline as a result of field maintenance. Nigerian output fell by 50,000 b/d to 1.9 million b/d after new attacks on oil installations by rebels in the Niger Delta. Other smaller reductions came from Iran, Libya, Qatar and Venezuela.

Output from Angola, Ecuador and Indonesia was unchanged from October levels.
Iraqi volumes increased to 2.37 million b/d, reflecting largely higher exports from the south as well as an increase in internal consumption.

OPEC ministers are scheduled to meet on December 17 in Oran, in western Algeria, where several ministers have said an additional output cut will be on the table for serious consideration.

Oil prices have plunged by more than $100 per barrel in just five months, falling from record highs of more than $147/b in early July to under $40 per barrel last week.

Although some forecasters, including the International Energy Agency and OPEC, still see some growth in world oil demand next year, others, such as the Centre for Global Energy Studies in London and Wood Mackenzie in Edinburgh, see demand contracting in 2009.

* From November 1. Indonesia, which will leave OPEC at the end of the year, is not part of the October 24 decision to reduce the target by 1.5 million b/d to 27.308 million b/d. Previous totals have been recalculated as OPEC-11 totals to exclude Indonesia.

For production numbers by country, a table is available at http://www.platts.com/Oil/Resources/News%20Features/opec/prod_table.xml.
More information on OPEC is available via "Platts Guide to OPEC" at http://www.opec.platts.com.

About Platts:

Platts, a division of The McGraw-Hill Companies (MHP) , is a leading global provider of energy and commodities information. With nearly a century of business experience, Platts serves customers across more than 150 countries. From 17 offices worldwide, Platts serves the oil, natural gas, electricity, nuclear power, coal, emissions, petrochemical, shipping and metals markets. Platts' real time news, pricing, analytical services, and conferences help markets operate with transparency and efficiency. Traders, risk managers, analysts, and industry leaders depend upon Platts to help them make better trading and investment decisions. Additional information is available at http://www.platts.com.

About The McGraw-Hill Companies:

Founded in 1888, The McGraw-Hill Companies (MHP) is a leading global information services provider meeting worldwide needs in the financial services, education and business information markets through leading brands such as Standard & Poor's, McGraw-Hill Education, BusinessWeek and J.D. Power and Associates. The Corporation has more than 280 offices in 40 countries. Sales in 2007 were $6.8 billion. Additional information is available at http://www.mcgraw-hill.com.

SOURCE Platts

http://www.mcgraw-hill.com

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