Not so, says one energy trader. "Oil can be a factor in righting the markets and the U.S. economy," Energy Trader Jim Dietz told BloggingStocks Monday afternoon.
How so? "A substantially lower oil price will increase disposable income, help put a lid on rising business costs for transportation and heating, and lower the U.S. trade deficit. These are all good things, shots in the arm for the U.S. economy," Dietz said. "And right now we'll take any shot in the arm we can get." Dietz added that he was currently short oil, with a monthly contract.
Oil Monday afternoon was down $4.25 to $96.93 per barrel, continuing a two-month trend of lower oil prices. Oil hit a record high of $147.27 per barrel in July 12.
Saudi Arabia is the senior member of OPEC because it is the largest oil producer in the group. It sat by and watched the cartel say it would cut daily production by 550,000 barrels. The argument is that demand for oil has been dropping, leading to "oversupply"
The Kingdom said the rationale was hog wash. According toThe New York Times, "Saudi Arabian officials assured world markets on Wednesday that they would ignore the wishes of other cartel members and continue to pump plenty of oil."
So much for OPEC's threat. Having its largest member break ranks takes away most of the leverage that the organization has if it wants to convince consuming nations that they face tight demand. So much for the idea that oil prices can be pushed up by OPEC refusing to keep oil flowing in the case of a cold winter or rising demand from China and India.
If oil prices are going to move back toward $120, it would take an extraordinary increase in consumption in the U.S. With fewer people driving and airline travel down, that is not likely to happen. The Saudis have taken care of the supply-side leverage.
Oil is going to stay near $100.
Douglas A. McIntyre is an editor at 247wallst.com.
OPEC nations had their most profitable half-a-year ever. According to the FT, "Members of the Saudi Arabia-led oil exporters' cartel took home $645bn (£335bn, €430bn) between January and June." That number could get even better in the second half.
OPEC may be doing exceedingly well and it may be building huge sovereign funds to invest in crippled financial companies in the US and EU, but it is taking on a substantial risk.
OPEC has kept is production fairly flat. The organization has done very little to abate the run-up in oil prices. That run-up has been the one of the two or three largest contributors to a slowdown of economies in the West.
A full-blown and deep economic recession is likely to spread from the West to China and India. If the US consumer cannot afford much beyond his mortgage, gas, and food, imports will suffer, perhaps substantially. Falling demand for imports in the US could spread to the energy-hungry countries of the developing world. In other words, demand for crude could collapse as demand for exports falters.
A sharp drop in oil demand could do terrific harm to the pace at which OPEC takes in cash. Record income may seem good for now, but it could drive very unpleasant and unintended consequences.
Douglas A. McIntyre is an editor at 247wallst.com.
Consumers and analysts are beginning to fear that $130 oil is being driven as much by shortages of supply as by rising demand. But, supply may not be the issue, at least for some OPEC countries.
Saudi Arabia recently said it would up production by 300,000 barrels a day, but that did not seem to thwart oil's march higher. Now the United Arab Emirates Oil Minister Mohammed al-Hamli says he can offer a little more black gold, if the circumstances are right. According toReuters "We are always happy to put more oil in the market if the market needs more," Hamli said when asked if the UAE would raise supply with the Saudis.
The fight between OPEC and the US turns on that word "if." The US says that increased demand in China, India, and other developing countries has pushed the need for crude sharply higher, and with it, the price. OPEC points to the weak dollar and financial speculation as the culprits.
For now, the West can only continue to suspect that OPEC is not offering more product because it makes too much money at current prices. Nothing the cartel can say will change that view.
Douglas A. McIntyre is an editor at 247wallst.com.
Saudi Arabia will increase oil production by 300,000 barrels a day, a modest jump. The price of crude may drop some on the news.
According to the FT, "Analysts said it was likely that Kuwait and the United Arab Emirates, which have spare production capacity, would follow the Saudi lead and raise output." If other OPEC members follow, oil could be pressured back down as supply increases and speculators move out of the market and cover bets on prices moving above $130.
The leading OPEC members are almost certainly worried about the incredible run oil has had to reach over $127 a barrel. At some point, and that point may be now, the price of crude will throttle the economies of the West and emerging markets like India and China. A sharp drop in demand would leave most producing nations with expensive oil-producing infrastructures running well below capacity.
The supply battle for oil may be nearing an end, at least for now.
Large emerging market countries will use more crude oil than the US for the first time ever. According toBloomberg, "China, India, Russia and the Middle East for the first time will consume more crude oil than the U.S., burning 20.67 million barrels a day this year."
While OPEC says that higher oil prices are the result of a weak dollar and speculation, that viewpoint is clearly wrong. Demand for oil is moving up and moving up quickly. At the same time there is evidence that supply may drop. Saudi Arabia has indicated that it will soon stop investing in more oil production facilities. The Wall Street Journal says that "After 2009, the kingdom is putting a brake on new projects, because it fears rising output and consumption of biofuels and other non-fossil fuels will erode crude-oil demand."
Anyone who believes the Saudi excuse for cutting investment is a oil production is a fool. By dropping capital expenditures on new facilities, the country can increase the tens of billions of dollars in profits it makes on $116 oil.
The war between consuming nations and producing nations is entering a new and more dangerous phase. Oil needs to rise 30% to hit $150. Based on the price increase over the last year, that number is not beyond the realm of possibility. Nor is the idea that gas prices could top $5 a gallon.
Oil. More consumption and less supply. Ugly results.
Douglas A. McIntyre is an editor at 247wallst.com.
With oil prices recently breaking through the $100 barrier, Bush pleaded his case that unless OPEC decides to lift production that high oil prices will create slowdowns in all consuming countries this year. The administration is praying for a cut at this week's meeting, but according to the Wall Street Journal(subscription required). the oil cartel is more likely to cut production this spring if demand start to diminish.
It is a tough situation in which the cartel finds itself. With recession fears starting to spread regarding the U.S. economy, OPEC has to worry that a slowing American economy will crimp global demand. On the other hand, if they do not boost output then the impact could even worsen a potential recession and reduce demand even more.
The World Bank entered the increasingly-divided debate on where oil prices are headed Wednesday by announcing in its Global Economic Prospects 2008 report that oil prices will fall gradually through 2009 to about $75, then fall toward $50 per barrel, in the longer-term.
"In the longer term, the oil market balance is expected to loosen and prices are projected to fall toward $50 per barrel," the World Bank wrote in its report.Oil closed Wednesday down 74 cents to $95.59.
The bank said that because OPEC has limited spare capacity and is holding down production, oil prices will likely remain quite elevated and volatile. However, high prices and increasing environmental concerns should continue to moderate growth in demand.
The Washington, D.C.-based international bank said it sees finely balanced markets in 2008-2009, then rising upstream investment in oil producing countries (OPEC and non-OPEC) should result in new supplies that exceed the growth in demand.
George W. Bush has weakened America's economic and political standing while strengthening the hand of our enemies. As Iowans caucus today, it remains to be seen whether a leader will emerge this year who can reverse the forces Bush set in motion before America loses its leadership position in the world.
What forces did Bush set in motion? Bush created an enormous federal budget deficit through his $1.6 trillion tax cut. He increased government borrowing to a record $9.1 trillion. His wars in Afghanistan and Iraq have contributed to global instability which has helped drive the price of oil up four-fold from $24 a barrel to nearly $100. The dollar has lost 60% of its value -- for example, the Euro has climbed from 92 cents to to $1.47. And his drive to increase home ownership -- supported by subprime mortgage lenders like Ameriquest -- has contributed to tens of billions of write-downs by banks that bought securities backed by those liar loans.
This is not the first time global leadership has changed hands in world history. According to Niall Ferguson, in the 1870s, the Ottoman empire lost its lead in the world as its over-extended empire sought to cope with an external debt crisis by selling off revenue streams to foreign investors. Then, the Ottoman empire sold off its shares of the Suez Canal as well as its tax revenues to pay off the debts it incurred to finance the Crimean War, railway and canal construction and conspicuous consumption. Back then the beneficiaries of those cheap asset sales were western Europeans.
There has been rising concern that countries like Mexico which export vast quantities of oil will begin to use more crude for internal needs like gasoline and manufacturing.
Now Saudi Arabia can be added to that list. According toThe Wall Street Journal, "in the works are new seaports, an extended railroad system, a series of new industrial cities and a score of refineries, power stations and smelters." All of that building means that more oil will stay inside the Arab nation. For every 100 barrels of oil produced by Saudi Arabia, 22 are used there. That is up from 16 barrels just seven years ago.
This need for oil to build local economies accompanies a growing need for oil in large developing countries such as China. It is unlikely that this demand will drop any time over the next few years. Alternative energy sources are just not developed far enough.
A number of arguments have been made that oil is trading around $90 a barrel because of market speculation by investors like hedge funds. But the truth is more basic. Less oil will be coming from exporters and the need at importers is spiking up.
Who says $100 oil in not part of the future?
Douglas A. McIntyre is an editor at 247wallst.com.
Russia tempered the enthusiasm of oil supply bulls when it announced that it expected oil production to grow only modestly over the next several years.
Russia, the world's no. 2 crude exporter after Saudi Arabia, said production would increase to only about 10.4 million barrels per day, up only 6% from the current 9.8 million barrels per day, The Wall Street Journal reported [Subscription required].
Viktor Khristenko, Russia's oil minister, said Russia has promising oil finds in Eastern Siberia, Arctic North and Sakhalin Island, but that Russia would not duplicate the superior +10% oil production growth the nation has achieved earlier this decade.
Those of you reading this while jammed into a center coach seat might want to move on to another story, one that doesn't deal with a Saudi prince's new ride, the 6,000 square foot 'Flying Palace" custom Airbus A380.
Billionaire Prince Alwaleed bin Talal is paying well over list ($320 million) for his sky limo/air estate. While Airbus would not reveal details of the customization, the possibilities are vast. The cabin is as wide as three Shaquile O'Neils laid end to end, as long as six Weinermobiles, with as much area as 24 rooms at Motel 6. That's plenty of room to pimp it up with a swimming pool, or a go-cart track, bowling alley, IMAX theater, quilt loom, foosball, lawn darts or Frisbee golf course, or sauna complete with its own live birch trees. Think on that the next time you try to prop your laptop on a tray the size of a dollar bill.
This is not the Prince's initial foray into luxury air travel. He is presently the only owner of a private Boeing (NYSE:BA)747, which will probably become his beater plane, the one the kids take to college.
The tipping point has come and GE (NYSE:GE) says that more than 50% of its sales will be international this year. The company, quoted byReuters said "business in emerging markets was growing at more than twice the pace of developed markets and was likely to expand by 20 percent a year for the next several years."
GE is assuming that its sales in the US will actually slow while revenue in India, Russia, China, and other large overseas markets will pick up. Most of these emerging markets are improving their infrastructure which plays in GE's strength in industrial and infrastructure construction and management.
But, the news is double-edged. Governments in many developing countries are much less stable than they are in the . And, in markets such as Russia, Nigeria, Indonesia, China and Saudi Arabia, totalitarian governments may not elect to let companies pursue unlimited growth. Venezuela recently pushed out several international oil companies and there is no reason to believe that this kind of behavior will be isolated to that country
Increasing business in the developing work is as much about diplomacy as it is about products and services. GE may want to hire some people from the State Department.
The Financial Times reported that Congress removed blocks on arms transfer requests by U.K. weapons manufacturer BAE Systems plc (OTC: BAESY), acting after BAE assured them that the transfer requests were unrelated to a defunct British investigation into bribery allegations involving Saudi Arabia and BAE.
According to Barron's Online's "Weekday Trader," Sony Corporation (NYSE: SNE) is climbing its way back to electronic prominence, but more work remains, and it may be time to take profits.
WEBSITES:
LiveMint.com reported that Citigroup Inc's (NYSE: C) emerging markets private-equity investment arm, Citigroup Venture Capital International, will reportedly invest $1.5B in India over the next three years, the largest investment by a single private-equity investor in the Indian markets.
Gasoline inventories dropped below their five-year average and are now 6% below last year's average, according to Joseph Dancy, an adjunct professor at Southern Methodist University, in an essay published in Barron's this weekend.
This means the outlook for investing in energy remains good, Dancy believes, as demand for gasoline will grow 2% with little supply relief in sight. Particularly the lack of new refinery capacity means positive growth prospects for a company like Matrix Service Company (NASDAQ: MTRX) that specializes in repair and maintenance services to the refining, distribution and pipelines sectors.
Dancy wrote the supply and demand balance for energy could mean a sharp escalation of energy prices. Mexico's Cantarell field's output, the second largest in the world as measured by output, declined 17% in March from year-earlier levels, while offset by new production increases at a nearby field, total crude production from Mexico is down 5%. In addition, Venezuela production should get hit at some point as Chavez has taken control of exploring for and producing energy away from the foreign experts. And Nigeria, who sends 1 million barrels per day to the US, is also in a politically tenuous situation.
Add to this, the huge swing producer, Saudi Arabia, announced that is will no longer increase production after 2009, which might indicate the nature of its oil reserves.
Large emerging market countries will use more crude oil than the US for the first time ever. 
As discussed earlier this month, U.S. President George Bush embarked on a Middle Eastern tour to 
George W. Bush has weakened America's economic and political standing while strengthening the hand of our enemies. As Iowans caucus today, it remains to be seen whether a leader will emerge this year who can reverse the forces Bush set in motion before America loses its leadership position in the world.
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