About Oil Prices

Daniel Jones asked:


The continued weakness in the Oil markets is playing havoc across the commodity exporting nations. Russia’s recent emergency measures have confirmed the problems.

With memories of Russia’s effective wiping out of state debt back in 1998 very much to the fore, the chances of anyone coming to their aid is slim. The same can be said for Venezuela, Argentina, Iran etc.

Crude Oil is now pushing to a two year low and, if anything, the outlook looks ever more painful.

Not only this but Airlines and others who hedged their fuel costs earlier this year at $100, $120 per barrel or even higher will now be asked for cash margin on these forward purchased contracts. In the current poor economic situation who would lend to an airline to make a margin call? This could lead to enforced liquidation, if indeed this has not already happened to some. That may well drive the markets much lower. This is not a prospect that leads to a happy prognosis on individual state security.

BA has managed to confound analysts by reporting much higher Turnover than expected but in the same breathe reported a loss of £49m. A £65m profit was expected. Obviously the higher fuel costs were not being offset by the BA surcharges. With Crude Oil now down at around $50 (I would recommend a bit of hedging at these levels) the cut in costs is running against the fall in current passenger numbers. Octobers passenger numbers were down 4.4% on last year. Not exactly surprising. Nevertheless the reported loss can truly be said to be a sign of the past rather than any indication at all of the future. BA is likely to be a last-man-standing airline so selling out at this stage would not appear to be on the cards.

Many complained that the high oil prices were due to speculators pushing the price up. I wonder if those same commentators will cheer the speculators who are supposedly spread betting on crude oil to fall in price.

FinancialSpreads.com and paddypowertrader have both reported a surge in clients selling oil. The latter has confirmed a 25% increase in the number of accounts shorting crude (betting on oil to go down).

Crude prices have slumped more than 60% in value since hitting record highs of $147 per barrel in July 2008. They are now at their lowest levels since January 2007.

So whilst Russia et al may be experiencing problems, individual investors seem to be on the side of the consumer and driving down the price of oil.

So far OPEC has failed to control the market and the speculators have been winning.

If Russia continues to experience financial difficulties they may have little choice but to continue producing at the same rates and OPEC will have more problems controlling the price.

Is it time to join the speculators or just enjoy cheaper petrol?

NB. Financial spread betting carries a high level of risk and may not be suitable for all classes of investor. Only trade with money that you can afford to lose. Make sure you fully understand the risks involved. If necessary, seek independent financial advice.



James

dylan asked:


As the United States considers attacking Iraq, pushing the oil prices higher, China has again focused on the stabilization of its oil supply. Its plans to prevent disruptions to its oil reserve, according to a recent report by China Daily. Analysts said China pulled out to encourage the Russian Government - which does not want to see foreigners take over the firm - to push through a 2,200 kilometer Russia-China oil pipeline. The oil link could allow China to tap into its neighbor’s rich oil reserves to make sure the China’s oil reserve.

In recent years, China has experienced an increasingly volatile situation in terms of oil reserve, as demand continuously outpaces domestic output. According to Han, China’s annual domestic consumption will hit 300 million tons by 2010, while the IEA expects it to reach 523 million tons. By then, Han said, the net imports will reach 150 million tons. In other words, half of China’s oil reserve will be imported.To help secure its oil reserve, the government is scrutinizing its plans for strategic oil reserves, and “strives to implement them soon,” Han said. Some officials have also been calling for a special committee to direct the programme. Still, several uncertainties may slow down implementation of the plan, insiders have said. High prices, however, will not curb China’s appetite for overseas oil reserves, since the country has been a net importer since 1993, especially the oil reserve.

The government has listed Central Asia and Russia, the Middle East and North Africa, and South America as “three strategic regions” for domestic companies to access. Zhu Xingshan, an oil analyst with the Energy Research Institute of the SDPC, said Central Asian countries and Russia are first priorities for the expansion plan. “These countries see the oil industry as vital for the revival of their economies, but they need foreign companies to help tap their rich oil reserves, or the domestic oil reserve won’t be satisfied.” said Zhu.

“China has been developing friendly relations with these countries, not only to regulate the oil reserve but to help Chinese companies compete favorably with Western companies,” Zhu said. “In the long run, the Middle East region is still our most important import source. But we need to diversify,” Zhu added.

“Overseas operations make up 60-70 per cent of the total business of a global giant like ExxonMobil,” said Ma Fucai in a recent news briefing. “Over the long-term, we are working towards that goal.” It is aslo hoped that bilateral oil reserve will be met.In this issue of the construction oil reserve Han said China should also actively take part in energy co-operation in the region, especially with neighboring countries like Japan and South Korea which are big oil consumers. Officials said the government is developing financial and taxation policies, including a State special fund, to encourage the companies’ overseas exploration. With the various help, it is hoped that the oil reserves will be harmonized.



Donald