Well someone out there’s benefitting from all this;
Oil prices have climbed to fresh two-year highs as Washington continues to be bullish about winning a United Nations vote to attack Iraq.
The price of Brent crude marked posted a new two-year high after gaining of 27 cents to $34.37 a barrel at 1010 GMT. (It’s actually around 34.93 and rising-Thap)
US reserves are at their lowest levels since the 1970s Arab oil embargo.
35.15
Would it not be in the interest of the oil companies to have this uncertain situation when oil prices are rising?
In some respects yes, but the analysts don't like uncertainty, the analysts influence the share price and the oil companies are accountable to the shareholders.
Russia is currently flooded with cash…
MOSCOW – While many countries are beginning to feel the pinch of high oil prices, Russia is suffering from a very different problem – too much money.
Russia’s economy is awash in oil dollars. The combination of rising proceeds from exports and the heavy borrowing that Russian oil companies have done abroad has cash flowing into the country faster than the economy can absorb it. The central bank’s currency reserves have risen by $4.8 billion, or more than 10 percent, since mid-January.
At the same time, the flow of cash out of the country is slower than it has been in years. Russians’ faith in their currency, the ruble, has been rising, and they are not as quick to stash cash aboard.
Their in violation of the Nuclear Non-Proliferation Treaty.
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*Originally posted by khan_sahib: *
Would it not be in the interest of the oil companies to have this uncertain situation when oil prices are rising?
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I think it is just the opposite. The oil companies need to have long term stability in order to decide long term policy respecting new exploration and development. Higher oil prices do change the landscape in terms of what can be profitably extracted. However, you can't make a long term commitment to explore and extract expensive oil unless you believe the long term price will stabilize at a certain higher level.
Thus, the uncertain situation now merely gives oil companies a chance to gouge the public in the short term but does not enable them to make long term plans. I doubt too much new development and exploration will occur until after everyone knows what will happen with the Iraqi oil fields. Prices will stabalize based upon that answer and everyone will start planning around that event.
Most oil companies decide exploration budgets and all the way through to downstream tech on around a $15 dollar/bbl tag. High prices are always good news, but instability is not.
In November 2002, the President of the Conference Organization of the Petroleum Exporting Countries and Presidential Adviser on Petroleum and Energy Nigeria gave an interesting analysis on the effect of oil prices on the oil industry. Relevant excerpts:
“Over the years, it has been proven time and time again that an unstable
market and fluctuating oil prices benefit no one. Price volatility spells strong
negative effects for the world economy as a whole, and for the national economies of both producing and consuming countries, especially in the case of the poorest nations.”
“A market that offers price equilibrium will in itself encourage more
investment in the industry. It simply makes business sense. No potential investor will take the risk if oil prices continue to swing wildly. Therefore, an equitable price level that can sustain investment is essential for both producers and investors. Attaining an appropriate price for oil remains one of the challenges facing the oil market.”
“After many years of professing the advantages of a fair and stable oil market, OPEC has now identified an oil price range of between 22 dollars and 28 dollars a barrel as being consistent with this stability. In fact, the mid price of 25 dollars a barrel for our OPEC basket is now not far from what is considered, almost unanimously, among producers and consumers alike as
being a fair and equitable price level. OPEC is determined to strive to maintain
this equilibrium, since, as we have learned to our cost in the past, failure to
effectively manage the oil industry can have devastating consequences for all
concerned.”
www.deloitte.com/dtt/cda/doc/content/ Lukman.Keynote(2).pdf
Thus, higher is not always welcome or better for oil producers. From OPEC’s perspective, it certainly would not welcome oil prices that are so high that it makes offshore exploration and development more economically feasible. Such offshore development is substantially more expensive than onshore exploration.
The Iraq war and any subsequent occupation will have a direct financial benefit for Dick Cheney…
Cheney is still paid by Pentagon contractor
Halliburton, the Texas company which has been awarded the Pentagon’s contract to put out potential oil-field fires in Iraq and which is bidding for postwar construction contracts, is still making annual payments to its former chief executive, the vice-president Dick Cheney. The payments, which appear on Mr Cheney’s 2001 financial disclosure statement, are in the form of “deferred compensation” of up to $1m (£600,000) a year. When he left Halliburton in 2000 to become George Bush’s running mate, he opted not to receive his leaving payment in a lump sum but instead have it paid to him over five years, possibly for tax reasons. The vice-president’s office said yesterday it had nothing to do with the award of Pentagon contracts, and said it would look into the details of the Halliburton payments. The company would not say how much the payments are. The obligatory disclosure statement filled by all top government officials says only that they are in the range of $100,000 and $1m. Nor is it clear how they are calculated.
Halliburton is one of five large US corporations - the others are the Bechtel Group, Fluor Corp, Parsons Corp, and the Louis Berger Group - invited to bid for contracts in what may turn out to be the biggest reconstruction project since the second world war. It is estimated to be worth up to $900m for the preliminary work alone, such as rebuilding Iraq’s hospitals, ports, airports and schools. The contract winners will be able to establish a presence in post-Saddam Iraq that should give them an invaluable edge in winning future contracts. The defence department contract awarded to the Halliburton subsidiary, Kellog, Brown & Root (KBR), to control oil fires if Saddam Hussein sets the well heads alight, will put the company in an excellent position to bid for huge contracts when Iraq’s oil industry is rehabilitated. KBR has already benefited considerably from the “war on terror”. It has so far been awarded contracts worth nearly $33m to build the detention camp at Guantanamo Bay in Cuba for al-Qaida suspects.
Asked whether the payments to Mr Cheney represented a conflict of interest, Halliburton’s spokeswoman, Wendy Hall, said: “We have been working as a government contractor since the 1940s. Since this time, KBR has become the premier provider of logistics and support services to all branches of the military.” In the five years Mr Cheney was at the helm, Halliburton nearly doubled the amount of business it did with the government to $2.3bn. The company also more than doubled its political contributions to $1.2m, overwhelmingly to Republican candidates. Mr Cheney sold most of his Halliburton shares when he left the company, but retained stock options worth about $8m. He arranged to pay any profits to charity.
myvoice, the excerpts might be true in general but you have to look at the indivdual case. Countries with economy predominantly depending on oil will prosper. Investment in the oil sector according to my knowledge is based on the profit that company would make in the long term which makes a business sense and not on the price equilibrium.
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*Originally posted by khan_sahib: *
Investment in the oil sector according to my knowledge is based on the profit that company would make in the long term which makes a business sense and not on the price equilibrium.
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You are correct that investment relates to anticipated profit. You are wrong discounting the influence of price equilibrium on the analysis related to anticipated profit. Without price equilibrium, as noted by the OPEC guy, investment dollars will simply not be there. It's similar to investing in the stock market. People don't like to invest in highly volatile markets. Volatility plays into the hands of short term traders not long term investors. Stability (which may be reflected in established long term trends) is required.
Even if oil rose short term to $40 per barrel, you would not get a lot of companies invest in new exploration and development which can only be profitable with oil at $30 per barrel. You would only be guaranteeing yourself losses in a scenario where the market is so volatile that oil might be back at $25 per barrel in the near term. A stable trading range is required to make long term plans. Although there is an ideal range (which OPEC has estimated to be $22 to $28) which maximizes investment, the actual range is less important than the existence of a stable range. Market forces can adjust to any stable range.
myvoice,
As I said before as long as the markets are there (and they will be in yours and my lifetimes) and the price of oil is above $15/bbl, oil exploration will always be profitable.
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*Originally posted by Thap: *
myvoice,
As I said before as long as the markets are there (and they will be in yours and my lifetimes) and the price of oil is above $15/bbl, oil exploration will always be profitable.
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Thap: I'm reasonably sure that SOME oil can be extracted profitably at $15 per barrel. It is my understanding that the cheapest oil to extract is Middle Eastern oil. But there are significant differences in exploration, development and extraction costs based upon geography. Offshore oil is the most expensive. I do not believe you would find many people or companies at all conduct new offshore exploration, development and extraction of off-shore reserves if the price per barrel stabalized at $15 per barrel. You'd have to supply some sources for me to accept that.
Even OPEC has determined that a $22 to $28 per barrel price is the range required to sustain required investment.
This is sick.
Oil firms ‘discuss Iraqi stake’, BBC, 12 March 2003
Oil firms BP and Shell have confirmed they would be interested in developing oil fields in Iraq, in the aftermath of any potential war in the area.
The two groups said suggestions that they had actually sought discussions with the government on the issue were misleading. But both told BBC News Online that they would expect to be involved in any opportunities in the area following a conflict. “Shell, like most oil majors, aspires to have commercial activities in the major resource holding countries of the Middle East,” a spokesman for Shell said.
Shell said a report in the Financial Times newspaper - suggesting that both groups had held talks with Downing Street and Whitehall officials on the subject - was “highly inaccurate”. “The subject has only come up in normal conversations that we have,” Shell said.
But the group has repeatedly argued for what it calls a “level playing field” in the event of post-war development of Iraq’s oil fields. “Shell believes that the management of the Iraqi energy industry and the involvement of foreign oil companies in the aftermath of any conflict with be a matter for whichever authority is in place,” the group added.
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*Originally posted by Nadia_H: *
This is sick.
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Why?
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*Originally posted by myvoice: *Why?
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i probably view it extremely differently than yourself - in terms of talking about aspiring to engage in "commercial activities" in "major resource holding countries"; specifically in terms of Iraq, it's just reaping profits off the dead.
Sorry, perhaps this is wrong, but, it just bothers me that we can talk about profitability and shares and future stakes in a country in which we have killed half a million of its children. Far from acknowledging any responsibilities whatsoever of our part in a genocide, we are vastly more interested in ensuring we get a piece of Iraq's pie. It's totally sick. But then that's just my opinion.
The quicker these companies get in Nadia the quicker the money starts flowing into Iraq.
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*Originally posted by Nadia_H: *
i probably view it extremely differently than yourself - in terms of talking about aspiring to engage in "commercial activities" in "major resource holding countries"; specifically in terms of Iraq, it's just reaping profits off the dead.
Sorry, perhaps this is wrong, but, it just bothers me that we can talk about profitability and shares and future stakes in a country in which we have killed half a million of its children. Far from acknowledging any responsibilities whatsoever of our part in a genocide, we are vastly more interested in ensuring we get a piece of Iraq's pie. It's totally sick. But then that's just my opinion.
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Well Nadia, at some point even the anti-war and/or anti-American crowd will need to objectively look at what is best for the Iraqi people on a forward looking basis. Were you not complaining last week that you couldn't find any plans for reconstructing Iraq after the war? Part of reconstruction is finding people and resources to accomplish the inevitable tasks that must be done. The quickest way for Iraqis to find themselves living in a thriving economy is developing and exploiting its natural resources. If Saddam sets fire to the wells, the first step is putting them out. The second step is redeveloping the oil infrastructure after years of decline. That's what oil companies do.
I don't believe we ought to have an extended period of mourning for the dead before we worry about improving the lot of the living. The thing that will most honor the dead in Iraq is establishing a free and economically strong society for the living.
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*Originally posted by underthedome: *
The quicker these companies get in Nadia the quicker the money starts flowing into Iraq.
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Right, and quicker the oil flows OUT of Iraq.