The Financial Times (UK) reported Monday that worries about crude supply and lack of global refining capacity, in spite of an increase in production quota by the members of the Organization of the Petroleum Exporting Countries last week, pushed crude oil prices nearly to $60. -- The rise in oil prices caused equity markets to fall. -- FT reporter Tony Tassel quoted Paul Niven, investment strategist at F&C Asset Management: High oil prices have taken the markets by surprise. . . . He said oil prices had been largely in the background while markets focused on other issues but had now crept up to a point where they were reining in growth expectations. -- In a commentary published last week FTs Lex dismissed OPECs assurances that it could control the situation: With members producing flat out, the quota is about as relevant as the weather forecast for the Arabian desert. -- The day before, Lex had opined: The only certainty about the oil price is the inability of forecasters to predict it, and characterized the situation as one of confusion. -- Not a word is breathed in any of these articles about that elephant sitting over there in the corner: Peak Oil. -- (Type Peak Oil into the UFPPC search function for about 50 articles on the significance of Peak Oil.) ...
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CRUDE HURDLES PAST $59 AMID SUPPLY FEARS
By Javier Blas and Darryl Thomson
Financial Times (UK)
June 20, 2005
Crude oil inched to $60 a barrel on Monday on worries about crude supply and lack of global refining capacity, in spite of an increase in production quota by the members of the Organization of the Petroleum Exporting Countries last week.
The benchmark U.S. crude, Nymex West Texas Intermediate for July delivery, climbed 58 cents to $59.05 a barrel, having hit $59.23 at one point in Asian trade.
Nymex WTI for August delivery, that will become the market benchmark on Wednesday, hit $60, while other contracts for delivery later in the year trade from $60 to $61 in New York.
The price spike forced OPEC to consider adding more oil to the market. The cartel last week increased its quota by 500,000 barrels a day to 28m b/d -- a largely symbolic move to put official production in line with real activity -- and authorized its president to call for another increase of 500,000 if prices remain above $50.
If prices will continue to increase as it is now, by the end of this week . . . I will start consultation with my colleagues to release the 500,000 bpd, Sheikh Ahmad al-Fahd al-Sabah, OPEC president and Kuwaits oil minister, said today.
Analysts and traders said this second increase, if approved, would not stop prices rising as the new crude would be heavy and sour, for which there is not enough refining capacity.
The bottleneck that is pushing prices up again this month is not a lack of crude supply but a shortage or refining capacity to process, according to a report by the Center for Global Energy Studies, the London-based oil consultancy founded by the former Saudi oil minister Sheikh Yamani. Demand for middle distillates -- jet fuel, diesel and heating oil -- is oustripping the ability of the refining system to produce it, the report said.
Brent crude for August delivery, the European benchmark, was 59 cents higher at $58.35.
The July contract settled up $1.89 or 3.3 per cent at $58.47. That broke the previous settlement record of $57.27 set on April 1. The previous intra-day high of $58.28 was also breached as the front-month contract hit $58.60.
On Friday, the U.S. Commodity Futures Trading Commission said Nymex crude oil speculators on the New York Mercantile Exchange increased their net long positions sharply in the week ending June 14 from the previous week. Long positions are bets on rising prices, so increasing positions reflects greater confidence prices will climb.
Non-commercial crude oil speculators boosted their positions to 12,563 net longs from 1,375 in the previous week, with a total of 99,237 longs and 86,674 shorts, the CFTCs weekly report showed.
The U.S., Germany and Britain closed their diplomatic missions on Friday in Nigeria due to threats by Islamic militants.
Gold hit a three-month high of $440 a troy ounce on Monday as investment buying and technicals are buoying the price. Now the euro is seen as damaged goods after the political failures in the European Union in recent days, the mantle of anti-dollar currency has moved to bullion. The yellow metal is now close to its high of the year of $446.70. Gold was up $2.30 to $440.30/1.00.
Copper hit record highs in London and Shanghai as stocks fell to three decade lows. Stockpiles monitored by the London Metal Exchange fell 1,650 tons, or 4.6 per cent, to 34,500 tons, the LME said, the lowest since July 1974. That is less than one day of global consumption. Copper was up $14 to $3,408 having hit $3,435 a ton in early trade.
OIL GAINS TAKE TOLL ON EQUITIES MARKETS
By Tony Tassel
Financial Times (UK)
June 20, 2005
http://news.ft.com/cms/s/8454fade-e1a9-11d9-9460-00000e2511c8.html (subscribers only)
A fresh surge in crude prices to record levels above $59 a barrel and concerns over the impact of a strong dollar on U.S. corporate earnings prompted profit-taking on world equity markets on Monday.
High oil prices have ebbed and flowed as a concern for equity markets over the last year but the latest spike pushed them to the forefront of investor minds yesterday.
Security concerns in Nigeria and threats of strike by oil workers in Norway heightened worries over the ability of crude producers to keep up with demand.
Robert Laughlin, senior energy trader at Man Financial, said the rise in oil prices had been "slightly over-hyped." But he said that until there were signs of easing demand, there was still upward momentum behind oil prices given the shortage of supply in the refining market.
"The psychological level of $60 a barrel looks a question of when not if," he said. Mr. Laughlin added that any repeat of last year's hurricane disruption to U.S. refining capacity this year could push oil prices higher.
Analysts said the oil price rise had coincided with concern in equity markets over the U.S. corporate earnings outlook ahead of second-quarter results.
"High oil prices have taken the markets by surprise," said Paul Niven, investment strategist at F&C Asset Management. He said oil prices had been largely in the background while markets focused on other issues but had now crept up to a point where they were reining in growth expectations."
At midsession, the S&P 500 index was down 0.3 per cent at 1,213.83 while the Dow Jones Industrial Average was 0.3 per cent lower at 10,588.16. The Nasdaq Composite Index fell 0.2 per cent to 2,86.57.
Wall Street was also hit by concerns that a strong dollar would affect earnings of U.S.-based multinationals. The dollar rose against the euro yesterday, rising as high as $1.2239, after European Union leaders failed to agree on a seven-year budget.
Bobby Rakhit, vice-president at FactSet JCF, said consensus expectations for earnings growth for the S&P 500 for 2005 had risen since the start of the year to 12.7 per cent from 10.6 per cent after a strong first-quarter.
Earnings growth for the first-quarter exceeded expectations at 14 per cent. However, expectations for the second-quarter have been scaled back to 5 per cent, from the 7 per cent forecast at the start of year.
David Rosenberg, chief North American economist for Merrill Lynch, warned that if the dollar stays near its current level, earnings growth for S&P 500 companies may fall to 7.6 per cent this year instead of the 10 per cent previously expected.
In Europe, markets also retreated with the FTSE Eurofirst Index losing 0.1 per cent to 1,139.13 with the French market leading the major market fallers.
On bond markets, U.S. treasury yields continued to rise as Gary Stern, Federal Reserve Bank of Minneapolis President, said there was "no reason" for rises in U.S. interest rates to be stopped. Eurozone bond yields also rose as some traders said worries over the European economy after the French and Dutch rejection of a planned EU constitution had been overstated.
"The net effect of Europe's referendums was the single most economically bullish development of the past 12 months," said Barclays Capital.
"The TWI (trade weighted) euro has fallen 5 per cent from the average of the first-quarter which is almost equivalent to a 1 per cent interest rate cut. The votes also force the political establishments to confront the unfamiliar topic of economic reform."
Financial Times (UK)
June 15, 2005
http://news.ft.com/cms/s/e2f13a3c-dd79-11d9-a42f-00000e2511c8.html (subscribers only)
Symbolic gestures do not move markets. By its own admission, Wednesday's increase in the Organization of the Petroleum Exporting Countries' output quota will have little impact on crude prices.
With members producing flat out, the quota is about as relevant as the weather forecast for the Arabian desert.
But, while OPEC is happy to appear supportive of moderation, its behavior suggests it is targeting higher price levels than six months ago. Last December, when falling New York futures prices approached $40 a barrel, OPEC promised production cuts, not merely quota adjustments.
In May, rumblings from OPEC about output reductions emerged when futures prices fell to $47. The cartel could not claim it was facing sharper price declines for its own grades of oil. The discount for Middle Eastern crude relative to futures quality oil has narrowed sharply since December.
To be fair, OPEC is concerned about how far prices could rise. The cartel produced at full stretch in the second quarter, the lowest period of demand, in an attempt to build stockpiles. But it also appears to want a price floor of about $45 in New York futures terms.
To gauge OPEC's intentions investors should watch its reaction when prices are falling, not rising. Meanwhile, with the U.S. oil product markets tight, China growing strongly, Russian supply growth falling and the U.S. hurricane season under way, it will take more than OPEC rhetoric to prevent futures prices from hitting $60.
Financial Times (UK)
June 14, 2005
The only certainty about the oil price is the inability of forecasters to predict it. Ask a New York futures trader what the long-term oil price is and the current answer will be $54 a barrel for 2011. Analysis by Goldman Sachs suggests that European oil sector equity valuations discount a longer-term forward Brent crude price of $30. Integrated oil companies, however, are still using prices of $20-$25 to assess investment projects.
Faced with such confusion, investors are taking a very short-term view. Citigroup highlights the close correlation this year between European sector performance and daily movements in one-month forward Brent crude prices. With the industry returning cash, investors, understandably, are focusing on near-term cash flows. The macroeconomic picture for the oil market looks bullish for the latter half of the year. On recent trends, this suggests further sector upside.
Meanwhile, there are signs that sustained crude strength is filtering through to oil company forecasts. Last week Lord Browne, BP chief executive, said prices could remain above $40 for three to four years. On Monday, Jeroen van der Veer, Royal Dutch/Shell chief executive, said sustained heavy investment in costly projects would require higher long-term prices than in recent years. As the oil majors accept a stronger for longer view, it can only be a matter of time before, implicitly or explicitly, they use higher prices for investment decisions.