- Commodity Corner: Oil Falls Amid Softer Demand Outlook
Friday, September 02, 2011
Rigzone Staff
by Matthew V. Veazey
Light sweet crude oil for October delivery lost nearly three percent Friday after the U.S. Department of Labor announced that the U.S. economy added zero jobs last month.
The WTI settled at $86.45 a barrel, a $2.48 day-on-day decline, after the Labor Department reported that the loss of 17,000 government jobs in August offset the addition of the same number of private-sector jobs during the period. According to media outlet MSNBC, the government last reported zero job growth 66 years ago. The Labor Department also announced that the unemployment rate held steady at 9.1 percent.
The unimpressive employment figures support the view that the U.S. economy is experiencing a double-dip recession, lowering expectations for oil demand.
Brent futures also ended the day lower, losing 1.7 percent to settle at $112.33 a barrel. The benchmark traded within a range from $111.57 to $113.51. The WTI peaked at $88.99 and bottomed out at $85.42.
By noon Friday, one-third of Gulf of Mexico natural gas production had been shut-in as Tropical Storm Lee ambled toward the Louisiana coastline. That was not enough to counter the aforementioned dismal economic prospects, however; October natural gas lost more than four percent Friday to settle at $3.87 per thousand cubic feet.
Front-month natural gas fluctuated from $3.85 to $4.065 during floor trading. Reformulated gasoline for October delivery lost a nickel to end the day at $2.84 a gallon after trading within a range from $2.795 to $2.90.
- Oil-Drilling Safety Bill Stalls Amid Fight over Oil Royalties
Friday, July 22, 2011
Dow Jones Newswires
WASHINGTON
by Tennille Tracy
A group of mostly Republican lawmakers blocked a key vote on legislation to strengthen oil-drilling safety Thursday after efforts to use the bill to steer billions of dollars of oil royalties to coastal states like Alaska and Louisiana appeared likely to fail.
The move postpones an important committee-level vote on offshore safety legislation that has been in the works for more than a year, following the Deepwater Horizon oil spill in 2010.
The delay gives more time to behind-the-scenes deal makers to work out a compromise on so-called revenue-sharing proposals, which would direct nearly 40% of royalty revenue away from the federal government and to the coastal states.
But the delay also raises questions about the fate of the offshore drilling safety legislation and the ability of lawmakers to move that bill to the floor of the Senate.
Events unfolded Thursday at the Senate Energy and Natural Resources Committee, which was scheduled to hold a much-anticipated vote on legislation that steps up enforcement of drilling safety standards and strengthens drilling safety provisions.
Heading into the vote, two coastal senators--Sens. Mary Landrieu (D., La.) and Lisa Murkowski (R., Alaska)--were actively recruiting support for an amendment that would steer 37.5% of oil royalties, which are currently collected by the federal government, to coastal states.
With the federal government reporting more than $5 billion in offshore royalty revenue in 2010, such a move would be a big win for coastal state governments. Landrieu has supported such a proposal for years, arguing that coastal states are entitled to some of the royalty revenue that comes from all production off their shores.
An existing law allows Gulf Coast states to collect 37.5% of royalty revenue on some leases, starting in 2017.
Because Landrieu and Murkowski need the support of at least some Democrats to attach the revenue-sharing amendment to the drilling safety bill, they decided in 11th-hour deal-making to create a fund to promote clean energy. In doing so, they hoped to attract the support of some Democrats, a Republican aide said.
But when a measure to create such a fund failed in the committee Thursday, the chance of success for the revenue-sharing plan decreased substantially. Several Republicans then walked out of the committee room, leaving the committee without enough members to hold a vote and effectively blocking any further action.
The fate of the offshore-drilling safety legislation is now uncertain, said Sen. Jeff Bingaman, a Democrat from New Mexico who chairs the energy committee. When asked by a reporter whether the bill could be revived, Bingaman shook his head and said, "I don't know."
- Commodity Corner: Oil Falls Amid Sluggish Manufacturing Data
Friday, July 01, 2011
Rigzone Staff
by Matthew V. Veazey
The price of a barrel of light sweet crude oil fell 48 cents Friday on reports of weaker demand in China and Europe.
The August WTI contract ended the day at $94.94 after the China Federation of Logistics and Purchasing reported a 1.1-percent drop in its Purchasing Managers Index (PMI) for June. The latest PMI figure of 50.9 percent marks the slowest rate of manufacturing expansion in the Chinese economy in 28 months, according to China's official news agency Xinhua.
Separately, JPMorgan and London-based Markit Economics reported Friday that PMIs throughout the eurozone fell last month. In addition, JPMorgan's Global Manufacturing PMI reportedly slipped from 53.0 in May to 52.3 in June. The new statistic represents the lowest Global PMI number—and the slowest rate of manufacturing expansion—in 23 months.
The August WTI fluctuated between $93.45 and $95.39 during pre-Independence Day trading. The Brent futures price settled at $111.77 a barrel after peaking at $111.85 and bottoming out at $109.94.
Natural gas for August delivery lost six cents to settle at $4.31 per thousand cubic feet. The intraday high and low prices were $4.39 and $4.30, respectively.
Front-month gasoline also fell by six cents, ending the day at $2.97 a gallon. The August contract traded within a range from $2.91 to $2.98
- Cairn Energy CEO Steps Down amid Sweeping Board Changes
Thursday, June 16, 2011
Dow Jones Newswires
LONDON
by Alexis Flynn
Cairn announced a sweeping overhaul of its senior management team, as the company looks to strengthen its exploration emphasis following the expected completion of a delayed transaction in India.
Cairn said its founder and long-standing chief executive, Sir Bill Gammell, will relinquish his position at the helm of the Edinburgh-based oil and gas explorer in favor of Legal and Commercial Director Simon Thomson. Gammell will in turn replace Norman Murray as chairman, who leaves to take up the same position at oil and gas services company Petrofac Ltd. (PFC.LN).
Two other board members will also step down. The company will retain some other figures, including Deputy Chief Executive Mike Watts, a leader in its exploration venture.
The changes come amid expectations that Cairn will soon close a deal to sell a majority stake in its India unit to Vedanta Resources. The time-frame of the Vedanta deal, worth about $9.6 billion in cash, has been delayed amid a royalty dispute with the Indian government. Indian Oil Minister Jaipal Reddy said recently the matter could be discussed at a cabinet meeting later this month.
Following the reorganization, Gammell, 58, will retain his position as chairman of Cairn India, tasked with overseeing the successful conclusion of the company's India deal.
In addition to the change to the firm's top leadership, Cairn said two other board members would be stepping down. Chief Operating Officer Malcolm Thoms and Engineering and Operations Director Philip Tracy will also depart, said Cairn.
Finance Director Jann Brown will take up the position of managing director, reporting to new CEO Thomson.
"Cairn's key strength of entrepreneurial exploration remains the focus, offering investors significant growth potential in combination with underlying asset value and balance sheet strength," said Thomson.
Cairn shares were lower in line with other U.K. oil producers following the announcement. At 1107 GMT, they were down 8 pence, or 1.9%, at 403p, underperforming the broader FTSE 100 index, which was down 1.1%.
Deutsche Bank said it viewed the changes "to be a constructive step forward that is focused on energizing the group for its next steps of growth."
Deutsche highlighted the fact that Watts will remain as a positive. Watts has been the architect of Cairn's Greenland operations, where the company is currently drilling exploratory offshore wells.
Wednesday, May 04, 2011
Knight Ridder/Tribune Business News
Reliance Industries drew flak from the oil ministry and its regulatory arm for exploration activities, Directorate General of Hydrocarbons, for not doing enough to ramp up gas production to the level projected by the company from its Andhra offshore fields.
At a meeting to vet investments into the fields made in the nine months of 2010-11, the two sides differed on measures to increase production. The government side insisted Reliance drill two more wells and operationalize two others that it has drilled but not connected to the pumping grid.
Reliance countered by saying more wells would only drain the same reservoir and not solve the problem of falling pressure in the existing wells. The company has drilled 20 wells against 22 approved in the field's development plan. Two of the wells have not been put into operation.
Production from the fields has dropped to some 41 mcmd, forcing the government to curtail supplies to non-essential industries such as petrochemicals and refineries and ensure earmarked quantities of gas to priority sectors like power and fertilizer units.
Director general of hydrocarbons S K Srivastava said Reliance and its Canadian partner Niko Resources had in the FDP (field development plan) committed to drill 31 wells in D1 and D3 fields in the KG-D6 acreage by April 2012 to raise output to 80 mcmd (million cubic metres per day).
"We have suggested that they meet whatever commitment (they made) in the approved FDP," Srivastava said. "They will come back with a proposal (on drilling more wells)."
Another meeting will be held in 2-3 weeks, Srivastava said. Sources said that DGH at the meeting tried to push a proposal that Reliance be disallowed to recover part of its $9 billion investment proposed in the fields but it had to back off when it was pointed out that the contract with the government did not have such a provision.
Reliance had built production facilities to support 80 mcmd of production. So, DGH wanted cost-recovery of only two-third of the capital spent in building those facilities.
PSC allows operator to recover investment made in developing a field before sharing profits among the stakeholders, including the government. But any move to change cost recovery norm would be possible only through an amendment to the contract, which can be done only with the approval of Parliament.
Copyright (c) 2011, The Times of India. Distributed by McClatchy-Tribune Information Services.
The King Abdullah Financial District takes shape in the centre of Riyadh. Waseem Obaidi / Bloomberg News
Recent events in the Middle East have caused concern in some quarters about increased risks to Saudi Arabia's economic outlook.
While apprehensions in the region may dampen confidence in the next few months, Credit Suisse forecasts that Saudi Arabia will enjoy robust real GDP growth in the next two years.
Fuelled by surging oil prices, higher crude output and increases in government and consumer spending, Credit Suisse expects Saudi Arabia's real GDP to grow 5.7 per cent this year and 4.9 per cent next year.
After the impact of the Libyan turmoil on oil markets, crude prices surged towards US$120 a barrel, prompting Saudi Arabia to offer reassurances that it would step in to replace the loss of Libyan exports.
The rise in global oil prices and increased crude output will clearly benefit the Saudi economy. We see Saudi oil output posting large gains this year, with production rising 10.4 per cent to 9 million barrels per day (bpd).
Consequently, the oil sector will make a greater contribution to the kingdom's overall economic growth. According to our forecast, Saudi Arabia's oil GDP will grow 7.1 per cent this year and 4.6 per cent next year.
We also expect public sector spending to grow more strongly this year as authorities further boost social payments. The government's $36 billion (Dh132.22bn) social support package, announced in February, includes the first unemployment benefits, as well as investment in housing and extensions of salary increases for public sector workers.
Last month, King Abdullah announced another package of social spending, worth $133.32bn.
These packages complement the kingdom's ninth five-year development plan, a $385bn investment that targets key industrial and infrastructure projects such as the economic and industrial cities.
Moreover, development projects are aimed at drawing in private investment to fuel the expansion of non-crude activities to try to diversify away from oil, while also creating jobs to meet the needs of the kingdom's fast-growing young population.
This huge spending push by the Saudi Arabian government will further bolster activity in the non-oil sector of the economy. In our view, non-crude GDP growth will accelerate to 5.3 per cent this year and hold at nearly 5 per cent next year.
The kingdom's fiscal balance will be given a lift from surging crude prices. Based on an average Brent oil price assumption of $110 a barrel, our baseline forecast, we see government revenues leaping 47.9 per cent this year to 1.15 trillion riyals (Dh1.12tn), 53.2 per cent of GDP.
Based on our projection of an average crude output of 9 million bpd, we expect oil revenues to climb 51.5 per cent this year to 1.05tn riyals. We also expect non-oil revenues to increase by 17.7 per cent, given the pick-up in economic activity in the kingdom.
Robust revenue collections, particularly from oil, will help Saudi Arabia to offset the added burden of increased government spending from the social support packages and the continuation of the kingdom's five-year development plan.
According to our projection, government expenditure will grow 25.2 per cent this year to 811.1bn riyals (37.5 per cent of GDP).
Saudi Arabia is likely to tap its huge foreign-asset holdings to cover part of the near-term spending increases this year. Based on this, we forecast the fiscal surplus to increase to 339bn riyals. If oil prices average a higher $120 a barrel, this will result in a fiscal surplus of 410.8bn riyals.
We see Saudi Arabia's fiscal balance posting another large surplus next year of 276.8bn riyals, provided oil prices remain at $110 a barrel on average.
We see headline inflation edging up to an average annual rate of 6 per cent this year. Although annualised consumer price index inflation edged down for the third straight month in January, to 5.3 per cent, price pressures will continue, fuelled by higher prices for food and housing as well as a pickup in domestic demand.
The government's social support package is likely to add to inflation by bolstering demand. However, Saudi Arabian authorities are likely to implement subsidies and other price control measures if inflation begins to climb significantly higher.
In our view, monetary policy will remain accommodative to help the recovery gain further momentum and boost lending, with the Saudi Arabian Monetary Authority awaiting a cue from the US Federal Reserve before raising rates.
Berna Bayazitoglu is the head of macroeconomic research for emerging markets in eastern Europe, the Middle East and Africa at Credit Suisse, and Sergei Voloboev the director within the bank's emerging market economics research group
