Copy of Article from 10/30/08 Posting

Source: The Korea Herald

Retrieved From: Lexis Nexis

Date: October 30, 2008

Title: Saudi Aramco to Raise Output, Remain in Korean Market

Byline: Kim Yoon-Mi

Length: 410 Words

Link to relevant WorldOilNews blog posting here.

Saudi Aramco, the world's largest oil production company, is committed to increasing oil production, even though the Organization of the Petroleum Exporting Countries recently said it would cut output due to falling oil prices, the company's executives said.

The 11-member OPEC's announcement on Oct. 20 to cut oil production contradicts Saudi Aramco CEO Abdullah Jumah's recent statement that the state-owned oil company of Saudi Arabia will bolster output capacity from the current 9.4 million barrels per day to 12 million per day by the end of next year.

"How do they reconcile? We take long-term views, not short-term, trying to ensure market stability through reliability of supply during the crisis," Omar Saleh Bazuhair, chief engineer of Engineering Services at Saudi Aramco, said in an interview with The Korea Herald in Seoul.

"Our program to go to 12 million barrels per day will continue," he said.

Saudi Arabia's overall oil production quantity is determined not by Saudi Aramco but by the government, he added.

Bazuhair and Aramco's public relations department manager Emad M. Al-Dughaither are in Seoul for the company's Asia Business and Culture program.

It is aimed at helping the company's prospective executives expand their understanding of Korean business practices and cultural backgrounds.

Bazuhair said the Korean market is very important for his company because it accounts for about 10 percent of the company's total exports. The Asian market takes about two thirds of Saudi Aramco's exports.

The company became the largest shareholder of local oil refiner S-Oil in 1991 after it purchased a 35 percent stake through its subsidiary Aramco Overseas Company BV.

There have been media reports that global firms operating in Korea as strategic investors might leave the country or reduce their investments in Korean firms, because of the gloomy outlook of the local economy.

Al-Dughaither dismissed any such possibility, saying that Saudi Aramco is strongly committed to the Korean market, as it was during the Asian 1997 financial crisis.

The biggest threat for Saudi Aramco is the decelerating global demand. However, the company is well prepared for the economic downturn, thanks to its extensive experience in the energy sector, Al-Dughaither said.

"We see long-term growth potential. After 75 years of experience in delivering energy, we know that the cycles exist and we know how we weather the cycles," he said.

Copy of Article from 10/29/08 Posting II

Source: Platts Oilgram Price Report

Retrieved From: Lexis Nexis

Date: October 29, 2008

Title: OPEC Warns Oil Price Fall To Hit Projects

Byline: Margaret McQuaile and Jacinta Moran

Length: 828 Words

Link to relevant WorldOilNews blog posting here.

OPEC and oil officials warned October 28 that the recent sharp fall in world oil prices and the ongoing global financial crisis were likely to deter investment in new oil projects, leading to future supply shortages.

"With this low price I guarantee you we will not be able to invest and there will be a shortage of supply in the future," OPEC Secretary General Abdalla el-Badri told the Oil & Money conference in London. He said that if crude prices were to continue around current levels for some time "alternative energies will be out of the market, Canadian oil sands will be out of the market."

Qatari Oil Minister Abdullah al-Attiyah, speaking at the same conference, said he also thought the economic turmoil would result in expensive projects aimed at adding new production capacity being delayed.

"I am seeing that a lot of projects will be postponed. A lot of projects will not exist because the finance is not there," he said, adding this included new refining projects as well as upstream developments. However, it would not apply to Qatar and its planned LNG projects, he said, which are all under construction.

Attiyah's counterpart from the UAE, Mohammed bin Dhaen al-Hamli, agreed, saying it was "now extremely, extremely difficult to finance these expensive projects."

"We need...a reasonable oil price that will stimulate investment," Hamli said. "Costs are rising; it isn't cheap to continue to invest."

Shokri Ghanem, head of Libya's National Oil Corporation and head of the country's OPEC delegation, said OPEC national oil corporations need to obtain $2.4 trillion to expand OPEC production capacity to meet future demand. "The point is, can the NOCs get this money? And if they can't get the money, where is it going to come from?" he asked. "The problem with NOCs is that they are government companies. They are constrained by the budgets allocated to them" by their governments.

The OPEC officials were speaking on the same conference panel as Nobuo Tanaka, executive director of the Paris-based International Energy Agency, who said failure to invest in new capacity could lead to a new supply crunch.

"We have enough below-ground reserves," Tanaka said. But he warned that because of constraints above ground, "supply may not catch up with demand after this recession. We need...investment now...or a supply crunch may come again but in a much more acute way," Tanaka said.

Paolo Scaroni, CEO of Italian energy group Eni, noted that the oil price, which had been around $70/barrel in September 2007, had "more than doubled in nine months and then promptly halved again. These dramatic swings up and down are bad news for everyone."

He added: "Spiking and plunging oil prices certainly make life complicated for oil companies, whether they be international or national, as they try to plan something in the region of $1 trillion of investments over the next five years and provide adequate returns to shareholders," he said.

"When oil prices are lower than expected, planned investments need to be delayed. And when prices rise too high, the surplus cash tends to cause asset price bubbles, which are then pricked when oil prices come down again," he said.

Furthermore, Scaroni said, "oil price spikes and falls have important geopolitical impacts, periodically shifting power between countries which have oil and countries which use oil."

Oil prices have plunged by some $87/b from peaks of more than $147/b in early July, with North Sea Brent trading as low as $59.02/b earlier this week. OPEC agreed at emergency talks in Vienna last week to cut crude production by 1.5 million b/d from the beginning of November.

Eni's Scaroni, meanwhile, called for a new contractual framework for the global oil industry that would recognize the need of producers for stable demand for their resources.

He said the "exact shape and nature" of such a framework would need to be discussed carefully, but suggested the industry could look to natural gas market take-or-pay structures for ideas.

"The time is ripe for the oil industry as a whole, producers and consumers, to move beyond short-term power shifts and work together in the interest of mutually beneficial stability," he said.

"One idea would be to work towards a new contractual framework which ensures producers can count on stable demand for their oil and stable revenues, perhaps taking a leaf out of the take-or-pay structures which are common in the gas market," he said.

"This would give producers rational incentives to invest in exploration and production capacity, to the benefit of consumers, without the fear of being caught out by the downturn and seeing their returns on investment collapse."

It was in everyone's interest "to forsake their short-term interests and work towards a compromise," he said.

"Just as consumers need supply stability, producers need demand stability. And the whole world needs to ensure oil is used rationally and efficiently," he said.

Copy of Article from 10/29/08 Posting

Source: Platts Oilgram News

Retrieved From: Lexis Nexis

Date: October 29. 2008

Title: OPEC Says Oil Markets Need Time To Adjust To Output Cuts

Byline: Daniel Booth, Margaret McQualie, Jacinta Moran.

Length: 533 Words.

Link to relevant WorldOilNews blog posting.

World oil markets need time to react to OPEC's decision last week to cut supply by 1.5 million b/d from November, the cartel's Secretary General Abdalla el-Badri said October 28, adding he was not overly worried by the fact that oil prices had declined further after the deal was announced.

"We just have to give some time to the market to react. This is an abnormal situation," Badri said, referring to the fact that OPEC was trying to restore equilibrium to world oil markets against a background of global financial turmoil.

International crude benchmarks have fallen by some $87/barrel since peaking above $147/b in early July. Earlier this week, North Sea Brent crude futures traded at $59.02/b, its lowest level in 19 months.

Badri, speaking on the sidelines of the annual Oil & Money conference in London, added that if circumstances warranted new action by OPEC, the group would meet again.

Qatari Oil Minister Abdullah al-Attiyah, also particating in the conference, said he thought OPEC was unlikely to call another emergency meeting before its next scheduled conference on December 17 in Oran, Algeria. "I don't think we will meet" before December, he said.

Badri, meanwhile, said OPEC did not like dramatic price movements up and down, and that this kind of volatility was good neither for producers, consumers or investment. "If we have a price decline, then most of our projects will be either delayed or canceled," Badri warned.

Qatar's Attiyah said many companies were requesting delays to their planned cargo lifting dates as the global financial crisis continued to deepen. "We are seeing a lot of lifters ask to start delaying lifting," he said. "Today is the first time we are seeing a global financial crisis...Today we are seeing a lot of oil and no one will buy it."

Paolo Scaroni, CEO of Italian oil and gas major Eni, said the oil industry expected prices to continue to fall. "Everyone in this room is agreed that the oil price will continue to collapse and stay there," he said, adding this could lead to a new price spike three or four years from now.

OPEC's decision to cut production last week drew criticism from consumers, including the UK, whose energy minister Mike O'Brien described the move as "disappointing."

But Badri said the world should not look to OPEC to help find a way out of the current financial crisis. "What surprises me is that everybody is looking to OPEC to bail out this crisis," he said. "Please don't look at us to bail you out."

Meanwhile, the UAE's Abu Dhabi National Oil Company said October 28 it will cut crude allocated to term customers loading in November and December as part of its commitment to OPEC's 1.5 million b/d oil output reduction starting in November.

ADNOC will cut 5% of its Upper Zakum grade loading in November to buyers with long-term agreements, an ADNOC official said. In addition, the producer will cut by between 5% and 15% four grades of crude, including Upper Zakum, allocated to term customers in December.

ADNOC will cut 5% of Upper Zakum term liftings in December, along with a 15% cut in Murban, a 10% cut in Lower Zakum and a 5% reduction in Umm Shaif.

Margaret McQuaile, Jacinta Moran, with Daniel Booth in Singapore

Copy of Article from 10/28/08 Posting

Source: Platts Oilgram Price Report

Retrieved From: Lexis Nexis

Date: October 28, 2008

Title: Despite Cut, OPEC Remains Concerned: Badri

Byline: Kate Dourian

Length: 1095 Words

Link to relevant WorldOilNews blog posting here.

OPEC Secretary General Abdalla el-Badri said October 27 that OPEC was concerned by the continued fall in oil prices even after the group agreed to cut supply by 1.5 million b/d and he did not rule out the possibility of a further emergency OPEC meeting before a planned December 17 gathering in Algeria, Kuwait's official news agency KUNA reported.

It quoted Badri as saying in an interview that the fall in oil prices below $70/barrel would jeopardize all future energy projects and he called on non-OPEC producers Russia, Mexico and Norway to cut oil supply and help OPEC balance markets.

KUNA quoted Badri as saying the October 24 agreement by OPEC in Vienna to slash supply by 1.5 million b/d from next month was "a wise decision at this time."

It said Badri explained that the decision was taken after studying supply and demand data which showed that supply next year would be higher than demand because of the economic crisis "and therefore a decision was taken to try to prevent a further deterioration in oil prices and to stabilize the market."

Badri said he hoped the agreement would help to achieve both these goals but that the producers' club would watch closely market developments in the next few weeks "to determine if there is a need for further action."

He noted that oil prices had fallen by more than 50% since July, when front-month WTI crude oil futures traded at an all-time high of $147.27/b, and said OPEC expected a further weakening in energy demand as a result of the financial crisis.

The group wanted to see "reasonable and fair" oil prices, at a level that serves both producers and consumers.

Badri, who visited Moscow before the OPEC meeting, said he had discussed with Russian leaders the need for cooperation among all producers to stabilize the market at a time of falling demand.

Pointing out that OPEC accounts for just 40% of global supply, Badri said non-OPEC producers Russia, Norway and Mexico "should contribute by cutting production because a fall in oil prices below $70/barrel will affect all energy projects worldwide in the future."

The biggest cut will come from OPEC kingpin Saudi Arabia, which will trim output by 466,000 b/d. The kingdom, which raised supply unilaterally by around 500,000 b/d between June and August this year to meet what it said was higher demand from its customers, already has implemented some cutbacks as demand subsided.

Saudi Arabian oil minister Ali Naimi told the Saudi-owned newspaper al-Hayat on October 25 that Saudi output would fall to 8.6 million b/d in November following the latest OPEC decision.

Naimi explained that the producers' club decided to reduce its collective output target to 27.3 million b/d from 28.8 million b/d to correct a "big imbalance" between supply and demand.

"Through our observation of the market from the supply and demand side, it became clear to us that supply is far higher than demand and we also noticed that global inventories were rising and that if we did not take this action, there would have been a big imbalance in the market and this has nothing to do with price," Naimi said.

He said that one of the reasons for the volatility in oil prices was the surplus in inventories "and this is what we are trying to avoid." Oil prices were being affected by other factors, Naimi added, including speculation, geopolitical tensions and weather-related incidents.

The kingdom had increased production in the summer partly because prices had risen to unreasonable levels and because of higher demand from lifters of Saudi crude, Naimi said, adding that it produced nearly 9.7 million b/d in August.

He did not give any figures for Saudi supply in September. But a Platts survey of OPEC production showed Saudi output fell to 9.5 million b/d last month.

Naimi told al-Hayat that "starting in November, Saudi production will be around 8.6 million b/d," but he gave no indication of volumes produced in October.

"What we have noticed with our customers is that as a result of the global economic slowdown and the bankruptcies of several banks, that they are unable to buy crude because there is no liquidity and this reduces demand for oil," he said. "So when a producer sees lower demand for its crude sales, there is no need to produce volumes that are not wanted and which will only go into storage."

Asked if the global economic slowdown might lead to a further cut in OPEC's production, Naimi replied: "Anything is possible and the problem with predicting this is that it will depend on the state of the world. So if the recession continues and demand for crude oil falls further, there is no doubt that this will require further measures."

But the Saudi minister said he hoped economic conditions would improve and the global economy would grow next year, which would translate into higher demand for crude.

Naimi said the current surplus showed those both in and outside OPEC were producing volumes of oil for which there were no customers. He added: "This is why we took this decision and called on other producers, such as Russia and others, to cooperate with us to prevent a further deterioration in prices...we want all producers to be aware that if prices continue to fall, investment in upstream activity will fall and this could lead to a shock and lower demand in the future when demand growth returns to normal."

Meanwhile, OPEC's number two producer Iran said October 26 the cartel may cut output again if the latest agreement fails to stabilize the oil market.

"Be assured that if the recent decision is not effective on the market, OPEC will take steps to consolidate the market and stabilize prices at its next meeting which will be held in [Algeria] in December," Iran's OPEC governor, Mohammad Ali Khatibi, said.

"Currently some members produce more than their quotas. If these countries observe the quotas, about 500,000 barrels will be cut from the current OPEC production volume," he said as quoted by Iran's Mehr news agency, monitored by the BBC.

The 1.5 million b/d cut agreed in Vienna will be divided among 11 members and made from a baseline of 28.808 million b/d, which is derived by subtracting Indonesia's allocation from the 29.673 million b/d 12-member ceiling set in September 2007. Indonesia will leave OPEC at the end of the year and was not part of last week's agreement. Iraq does not participate in OPEC output pacts.

The decision has so far failed to halt the sharp decline in oil prices. North Sea Brent crude traded as low as $59.02/b on October 27, its lowest level since February 22, 2007.

Copy of Article from 10/27/08 Posting

Source: Oil and Gas Journal

Retrieved From: Lexis Nexis

Date: October 27, 2008

Title: Will Russia Join OPEC

Byline: Eric Watkins

Length: 476 Words

Link to relevant WorldOilNews blog posting.

Much has been said over recent months about the possibility of Russia joining the Organization of Petroleum Exporting Countries. In the coming months, we'll probably hear more, too.

A week or so ago, Qatar's Oil Minister Abdullah bin Hamad Al-Attiyah expressed the hope of seeing Russia one day become a full member of OPEC as it would "add value" to the organization.

"I wish one day to see Russia as a full member of OPEC," Al-Attiyah said in an interview. "Russia as the second (largest) oil exporting country (after Saudi Arabia) has a strong role in the oil market, so if Russia were to join OPEC, it would add value," he said.

But even Al-Attiyah had to acknowledge that his wish has little chance of being fulfilled--at least for the moment. "So far the Russians support cooperation, but they don't talk about full membership," he said.

Rising speculation

Speculation about Russian membership arose after Russia sent its most senior delegation in a decade to OPEC's Sept. 9 ministerial meeting in Vienna. At the meeting, Russian Vice-Premier Igor Sechin proposed extensive cooperation between Russia and OPEC to meet global energy needs.

Sechin said at the time that "a draft memorandum of understanding will be submitted" on the matter to OPEC's leaders. But even Sechin didn't suggest that Russia would consider becoming an OPEC member.

Sechin said that Russia and OPEC aimed to increase the predictability and transparency of "all factors that affect the market conditions." He said it was "impossible to imagine" how global energy security could be strengthened "without a dialogue between Russia and OPEC."

Cooperation could include joint projects between Russian and OPEC national oil and gas companies, joint investments and the sharing of technology, as well as environmental issues, Sechin said. But again, he said nothing about becoming a member of OPEC.

Russians say 'nyet'

With all due respect to our friend Al-Attiyah and other esteemed OPEC ministers, there is no reason to think that Sechin or any other Russian official ever would want to join the organization.

After all, what is OPEC about except creating and maintaining production quotas on its members to ensure that none of them deliberately--or even accidentally--destabilizes prices by adding too much or too little oil to the market.

Frankly, it's a little hard to imagine Vladimir Putin or any of his minions accepting the idea of limits to production imposed by anyone. And that, of course, is exactly what OPEC would want to do with a Russia that already can seriously undermine international markets.

Between Russia and OPEC there is no great love lost. Each side recognizes that it can undermine the other and both sides want the other to know that. At best, we'll see an uneasy cooperation between OPEC and Russia. On the question of joining OPEC, Russia's answer will remain "Nyet."

Copy of Article from 10/22/08 Posting

Source: Platts Oilgram News

Retrieved From: Lexis Nexis, link here.

Date: October 22, 2008

Title: OPEC Secretary General Sees 'Huge Oil' Excess in 2009

Byline: Anna Shiryaevskaya

Section: MARKETS & DATA; Pg. 10 Vol. 86 No. 209

Length: 627 words

Link to relevant WorldOilNews blog posting here.

Moscow

OPEC Secretary General Abdalla el-Badri said October 21 there would be a "huge" overhang of oil in 2009 if action was not taken to bring oil markets into balance, and that while OPEC would try to balance the market, it might not be able to do so on its own.

Speaking to reporters in Moscow, Badri would not be drawn on the likely outcome of the oil producer group's emergency talks later this week in Vienna. Asked whether OPEC would agree to cut production and how any cut might be distributed among members, he said: "It has not been decided yet."

He said OPEC would try to balance the market but might not be able to do so without the help of non-OPEC producers.

"From the numbers we have there will be excess supply at the end of 2008" and the first and second quarters of 2009, Badri said.

"If things keep as they are now, there will be a huge oil excess in 2009," he said. "OPEC will try to balance the market, but OPEC alone may not be able to do it."

OPEC's Algerian President Chakib Khelil October 20 called on major independent producers Russia, Norway and Mexico to help share the pain of any output reduction.

Asked whether OPEC would ask Russia to cut exports in line with any OPEC decision to cut output, Badri said: "No. I am sure that they have information and that they will decide themselves."

Badri said OPEC had not been asked officially by any consumer country not to reduce output. "We have not received any official requests from any country," he said.

He rejected any suggestion that the group should refrain from taking action to prevent oil prices from falling further for fear of harming the fragile global economy. "We cannot bail [out] the financial crisis created by Mr. Gordon Brown and others in the United]States," he said, referring to UK Prime Minister Gordon Brown, who last week said it was "absolutely scandalous" that OPEC was considering cutting output (ON 10/20).

"If Mr. Brown is really concerned about his citizens he should really look into the taxes he imposes. He should really try to reduce the tax," he said, referring to the high taxes levied on refined products by Britain and other European governments.

Badri continued: "I have no doubt that the financial crisis created in the [United] States and then spread to the EU and other countries will affect everybody. Some of them will be very affected, some of them will be touched. But everybody will see the heat one way or the other."

The Chinese, Badri said, would be least affected by the financial crisis. But, he said, "they are not immune."

Badri declined to indicate what price level or range OPEC would defend, saying only that the group wanted neither a very high nor a very low price.

OPEC had insisted during the runup to July's records that oil prices were being driven by a number of non-fundamental factors, including speculation on futures markets. During his Moscow news briefing, Badri called for speculation to be controlled.

"We have been seeing at the end of 2007 and in 2008 abnormal speculation in the market, and people should really control it," he said.

Badri arrived in Moscow October 21 for talks with senior Russian officials and to participate in a conference and workshop. His agenda will include discussion of a Russian proposal for cooperation between Moscow and OPEC.

"Russia is a very important oil producer," he said. "We are interested in what Russia is doing and Russia is interested in what we are doing."

There were a lot of challenges in the oil and financial markets as well as technology and the environment, and OPEC and Russia would examine how they might cooperate to tackle these challenges, Badri said.

Russia will not attend OPEC's October 24 meeting, Badri said, noting that no observers would be present.

Copy of Article from 10/20/08 Posting

Source: Platts Oilgram News

Retrieved From: Lexis Nexis, link here.

Date: October 20, 2008

Title: Saudis Could Withstand $30/Barrel Oil: Report

Byline: Kate Dourian

Section: Pg. 1 Vol. 86 No. 203

Length: 835 words

Link to relevant WorldOilNews blog posting here.

Dubai

Oil giant Saudi Arabia can withstand a fall in oil prices to $30/barrel and other Gulf oil producers, while needing a higher price threshold, are also well placed to weather the sharp slide in oil prices, Merrill Lynch said in its quarterly report on the region.

"In a scenario of falling oil prices, it is helpful to look into breakeven oil prices," the financial services and investment banking group said in its report issued this month.

Merrill Lynch noted that when it published its last quarterly report, oil prices were $135/b, allowing the Gulf Cooperation Countries—Saudi Arabia, Kuwait, the UAE, Qatar, Bahrain and Oman—to achieve a current account surplus of $1 billion/day.

"Now the hot topic is precisely the opposite: what would happen if oil prices were to go all the way down to $50/b? Despite the sharp change in oil prices, the fundamental answer remains the same. GCC countries have saved 70% of their windfall over the last five years for rainy days, and it's torrentially downpouring these days," it said in the report.

The report said the lowest breakeven oil price that would bring 2008-2009 budgets into balance is in Saudi Arabia ($30/b), followed by the UAE ($40) and Qatar ($55). "Therefore, that means that Saudi Arabia can maintain the current level of budget spending even if the oil price were to fall to $30/b," it said.

The highest breakeven number is $75/b for Kuwait, due to a one-off budget transfer of around $20 billion to capitalize the social security system, it said.

The average breakeven price for the GCC countries is $50/b. Four of the GCC member states, except Oman and Bahrain, are members of OPEC. With Iran, the Gulf oil producers hold roughly 60% of global crude reserves.

Recent analyses on the impact of the current global financial crisis have suggested that Gulf states, which benefited from soaring oil prices, achieving record budget surpluses as a result, are better placed to weather the storm. However Merrill Lynch and others have reduced their growth forecast for the Gulf states, where regional stock markets have mirrored the meltdown in global equities values.

Merrill Lynch cut its 2009 forecast for GCC growth to 4.5% from 6.2% due to the weakening economic backdrop and lower oil prices.

Standard & Poor's, part of the McGraw- Hill Companies, said in a recent report that by opening up to world markets in recent years, the GCC countries were more vulnerable to financial turbulence abroad.

"In an environment where soaring oil prices have led to the massive accumulation of surplus cash for the oil-producing GCC countries, it might have appeared earlier in the year that the global credit crunch would simply pass them by. But recent events have shown that as these economies have opened up to the rest of the world in recent years, so too have their vulnerabilities to global economic conditions," S&P said in report published this month focusing on the UAE.

Washington-based PFC Energy, in a report looking ahead to the extraordinary OPEC meeting due to be held on October 24, recalled the oil price collapse of the late 1980s, when OPEC increased production just before the Asian financial crisis and sent prices crashing down to $9/b.

OPEC, in calling the meeting, is signaling it wants to avoid past mistakes, PFC said. "The precipitous fall in crude oil—and calls from technical analysts and some banks that $60/b or even $50/b oil is the likely short-term target—no doubt raises anxieties among the group, but it is unlikely that OPEC has in mind a specific short-term price target it is looking to defend," PFC said.

Even Venezuelan President Hugo Chavez has in recent days been warning that lower oil prices are here to stay—and has started preparing his constituency for potential cuts in government spending as a result, it said.

"The key OPEC power, Saudi Arabia, furthermore will be hesitant to support a high price strategy at this point. Not only will Riyadh be unwilling to see inflationary fears brought on by higher oil derail key consuming countries' efforts to stimulate their own sagging economies, but from a political standpoint the Saudis will not want expansionary fiscal policies being portrayed as simply lining OPEC coffers," PFC said.

"At the same time, Saudi Arabia would reject calls that a lower oil price is needed in order to stimulate the global economy, creating a somewhat narrow path to navigate," it said.

OPEC is likely instead to focus on keeping commercial oil storage at or above the five-year average to ensure that refiners have adequate crude and thereby deflect calls for higher output, the report said.

Such a strategy would lead to a "softer price environment" while avoiding the calamitous collapse as witnessed during the Asian financial crisis, when a fight for market share between Saudi Arabia and Venezuela led to the creation of a massive crude overhang, PFC said. It noted it recently had revised downward its 2009 oil price forecast to $85/b from $105/b to reflect this new environment.

Copy of Article from 10/09/08 Posting

Source: Platts Oilgram Price Report

Retrieved From: Lexis Nexis, link here.

Date:October 10, 2008

Title: 'Deteriorating' market prompts OPEC meeting

Byline: Staff reports

Section: Pg. 1 Vol. 86 No. 197

Length: 993 words


Link to relevant WorldOilNews blog posting here.

OPEC on October 9 confirmed plans to hold an emergency meeting November 18 in Vienna to discuss the financial crisis and its impact on oil.

The oil producer group's Vienna secretariat issued a statement noting "growing unease" over the turmoil in world markets, and said it was determined "to ensure that oil market fundamentals are kept in balance and market stability is maintained."

OPEC last met on September 9, when it left official limits unchanged at 29.673 million b/d but agreed to rein in oversupply. It had not been due to meet again until December 17 in Oran, western Algeria.

On September 9, front-month crude closed at $103.26/barrel on the New York Mercantile Exchange. On October 9 it settled at $86.59/bbl.

OPEC's statement gave no indication as to what action the producers' club might be considering, but Qatari oil minister Abdullah al-Attiyah, the group's longest serving minister, said in a television interview October 9 that a supply cut might be considered amid falling demand for crude oil as a result of the global economic meltdown.

"Of course there will be a study of supply and demand and if we see that supply is more than demand, of course OPEC will take action to cut supply so that there is balance between supply and demand," Attiyah told Dubai-based al-Arabiya television in an interview.

He said OPEC had agreed at its September meeting to adhere more strictly to output targets and trim excess supply, which he put at around 550,000 b/d, amid signs of falling demand for crude oil.

OPEC will discuss the market situation at the November 18 meeting and "formulate a plan to be implemented to restore balance between supply and demand" in view of the current global financial crisis, Attiyah said, adding that he believed the crisis had not been played out fully.

"I believe this is the beginning and not the end of the current crisis. We will have to reach rock bottom before the situation can be fixed," he said.

The statement by OPEC said the organization "is concerned about the deteriorating economic conditions with contagion risks. The subprime mortgage problems that have been observed for a long time have created a shock wave in financial institutions resulting in huge losses, and escalating credit squeeze which has turned into a deep financial crisis."

"The continuing turmoil in the financial market has spread to many regions and created even more uncertainties for the world economy," it said. "Amid growing unease over this situation, [OPEC] has decided to hold an extraordinary meeting...on Tuesday, 18 November 2008, in Vienna to discuss the global financial crisis, the world economic situation and the impacts on the oil market."

Meanwhile, Venezuela wants OPEC to adopt a system of price bands to prevent wild movements in oil prices, a top government official said October 9.

Bernardo Alvarez, Venezuela's ambassador to the US before he was expelled last month amid a diplomatic spat, said in an address before Venezuela's National Assembly that the country will make the proposal to OPEC.

He said the sharp drop in oil prices since July should worry not only producers, but the whole oil-consuming world because exploration, production and financing of oil activities can become compromised by a sudden decline in prices.

"The idea is that a bands system is set up, that is the Venezuelan proposal. Even when (oil) prices rose well above $100/barrel, president (Hugo Chavez) said $100 was a fair price," Alvarez told reporters after the address. "So, I think we should do it somehow, managing supply and demand, bringing consumers and producers together."

Amid the growing global financial crisis, "we need to impose some order" in international financial circles and a system of price bands will achieve just that, said Alvarez, without giving more details on the plan.

OPEC had in place a price band of $22-$28/barrel, but formally abandoned it in January 2005.

Libya's top oil official, Shokri Ghanem, said a day earlier when news that an extraordinary meeting was on the cards that it was difficult at this point to predict what action OPEC might take at the November meeting, but that "all options" were open to the group in its efforts to stem a fall of more than $60/barrel in oil prices since they peaked at record highs above $147/b this summer 8 (ON 10/9). OPEC's own basket of crudes stood at $77.38/b October 8.

"It all depends on what happens from now till the conference. We have to see what is happening in the market, whether it firms up, decelerates or rebounds," Ghanem said. "We are very concerned because the market is crazy and there are so many factors and we have to see what are the reasons for the deterioration [in oil prices]."

Iran's oil minister Gholamhossein Nozari said last weekend that world oil markets were already oversupplied to the tune of 400,000 b/d and that this volume could triple to 1.2 million b/d early next year. He said an oil price below $100/b served neither producing nor consuming countries.

The US Energy Information Administration said this week it expected the price of US West Texas Intermediate crude to average $111.57/b this year, $4.43/b lower than its September forecast. The EIA also cut its 2009 price forecast: it now sees WTI averaging $112/b next year, $14.50/b down from the $126.50/b forecast in September.

The International Monetary Fund said October 8 it expected oil prices to remain around $100/b in 2009 despite a major downturn in the global economy, provided there are no further supply shocks or further major downward revisions in world economic growth.

"With inventories low and spare capacity limited, and with very low short-term supply-and-demand price elasticities, commodity prices have become highly sensitive to news about possible supply disruptions," the IMF said in its World Economic Outlook.

The IMF warned that markets were likely to remain volatile, "responding quickly to shifting perceptions of demand and supply.

Copy of Article from 10/08/08 Posting

Source: Platts Oilgram News

Retrieved From: Lexis Nexis, link here.

Date: October 8, 2008

Title: EIA sees OPEC output trailing global demand over next 6 months

Byline: Margaret McQuaile, Daniel Goldstein

Section: MARKETS & DATA; Pg. 9 Vol. 86 No. 199

Length: 885 words


Link to relevant WorldOilNews blog posting here.

Demand for OPEC crude will exceed the oil producer group's actual output over the next six months unless the global economy turns out to be weaker than expected, the US Energy Information Administration said October 7 in its latest Short Term Energy Outlook.

OPEC's 13 members produced 32.34 million b/d in September, 350,000 b/d lower than August's 32.69 million b/d, the EIA said.

The lower September volume was mainly the result of a 200,000 b/d drop in output from OPEC kingpin producer Saudi Arabia and a 100,000 b/d drop in Iraqi output, the EIA estimates showed.

Saudi production fell to 9.4 million b/d from 9.6 million b/d, while Iraqi output fell to 2.35 million b/d from 2.45 million b/d, the EIA said.

The EIA estimates show Saudi output climbing from 9.1 million b/d in April to 9.7 million b/d in July before dropping to 9.6 million b/d in August and 9.4 million b/d in September.

Excluding Iraq, production from the 12 members bound by output agreements fell by 250,000 b/d to 29.99 million b/d, leaving OPEC-12 output 317,000 b/d over the 29.673 million b/d official limit.

The EIA said OPEC's call at its September 9 meeting for greater compliance with official limits suggested a 500,000 b/d cut in output.

"But this outcome is uncertain," the EIA said. It will "depend on Saudi Arabia's willingness to cut," the EIA said.

"Taking into account uncertainties about Saudi actions, this Outlook assumes that OPEC crude oil production declines to 32.4 million b/d in the fourth quarter of 2008 [from 32.7 million b/d in the third quarter] and falls through 2009 to an average of 31.6 million b/d for that year," the EIA said.

Last month, the EIA forecast 2009 OPEC production of 32.05 million b/d.

The EIA said the combination of higher oil production from Saudi Arabia over the summer, the impact of high prices on demand and the likely impact of the credit market turmoil on the world economy suggested a "loosening" in the global oil balance.

"However, unless the global economy is weaker than anticipated, EIA expects that the call on Organization of the Petroleum Exporting Countries' (OPEC) crude oil will exceed OPEC crude oil production over the next six months," it said.

This market balance and the relatively low level of OECD commercial oil inventories suggest some upward pressure on prices, the EIA said. However, it added, "if non-OPEC oil production increases as expected during 2009, oil price pressures would then moderate."

Global oil consumption is projected to increase by about 300,000 b/d in 2008, to 86.14 million b/d, compared to last year, EIA said. Projected growth for 2008 is nearly 350,000 b/d lower that last month's projection, reflecting the deteriorating global economic outlook.

OPEC will meet in December to determine where to keep its production level. Howard Gruenspecht, acting head of the EIA, told reporters that Saudi Arabia's take on the ongoing economic troubles would be very important. He added that how suppliers like OPEC respond to declining demand will be critical in the coming months.

"What really matters in particular is how Saudi Arabia sees the situation and what in particular the goals of Saudi Arabia really are."

The spot price of West Texas Intermediate crude oil is projected to average $111.57/barrel in 2008, compared to $72.32/b in 2007, EIA reported.

Last month, the agency projected an average WTI price for the year of $116/b. EIA is projecting an average WTI price of $112/b in 2009, compared to $126.50/b predicted last month.

Average regular retail gasoline and diesel prices in the US are projected to be $3.56/gal and $4.01/gal respectively for 2008, EIA said. In September, EIA projected an annual retail gasoline price of $3.61/gal, and $4.09/gal for diesel.

For 2009, EIA is projecting average gasoline prices of $3.56/gal, and $3.91/gal for diesel, compared to $3.88/gal for gasoline predicted last month and $4.26/gal expected last month for diesel.

In 2007, gasoline averaged $2.81/gal and diesel averaged $2.88/gal.

"You could continue to see gasoline prices continuing to move south," Gruenspecht said. "If you see oil prices stay at $90, that's consistent with $3 gasoline. Lower oil prices are the silver lining in bad [economic news]."

Total US petroleum and other liquids consumption is projected to decline by about 830,000 b/d, or about 4%, in 2008 compared to last year, EIA said. The agency based its forecast on prospects for a weaker economy and high crude oil and products prices continuing in 2009. Last month, the agency projected a decline of 610,000 b/d, or 3%.

US crude production is projected to average 4.96 million b/d in 2008, EIA reported. In 2007, production averaged 5.06 million b/d. Last month, the EIA said crude production would average 5.13 million b/d this year.

The projection includes an assumption of hurricane-induced offshore outages of about 32 million barrels, EIA said.

Fuel ethanol production is projected to increase to 590,000 b/d in 2008 and to 660,000 b/d in 2009 from 430,000 b/d in 2007, EIA said, unchanged from a month ago. Because of the decline in petroleum consumption and the growth of ethanol production, net crude imports are projected to be 9.64 million b/d in 2008 and 9.25 million b/d in 2009, EIA said. In 2007, net imports were 10 million b/d.

Margaret McQuaile, Daniel Goldstein

Copy of Article from 10/06/08 Posting

Source: Business Week

Retrieved From: Lexis Nexis, link here.

Date: October 6, 2008

Title: The Saudis and OPEC: Behind The Flare Up

Byline: By Stanley Reed

Section: What's Next -- Oil; Pg. 45 Vol. 4102

Length: 872 words

Link to relevant WorldOilNews blog posting here.

It happens almost like clockwork. A few days before the end of every month, marketing executives from Saudi Aramco, Saudi Arabia's national oil company, ring up the likes of ExxonMobil and Royal Dutch Shell, sounding them out about the oil they need and the price they would be willing to pay. The Saudis crunch the numbers, set a price, then call the global customers back to see how much they'd be willing to buy. By the 10th of the following month, customers--there are about 80 in all--are told how much crude they'll actually get.

It's all part of an elaborate dance that goes on continually at OPEC's biggest producer. While the cartel may set production quotas for each member, the Saudis and a few other top suppliers frequently exceed those limits in order to meet world demand. And these days, the dance looks more like a tug-of-war, as the Saudis and their allies in the organization seek to contain crude prices while Iran and others want to keep them as high as possible. Saudi relations with OPEC "depend on where prices are; when prices are too high [the Saudis] side with consumers," says Vera de Ladoucette, senior director of consultancy Cambridge Energy Research Associates in Paris.

WARY OF HIGH PRICES

The tug-of-war is a key factor in the extraordinary volatility in prices lately. After soaring to $147 per barrel this summer, crude plummeted to below $90 in early September. On Sept. 22 it jumped again to $130 as traders scrambled to cover short positions and fretted about the U.S. economy, then fell to $107 as those pressures eased.

Why wouldn't the Kingdom want to squeeze the maximum out of customers? The Saudis have long memories and recall how high prices can cut into consumption; it happened in the 1980s and it's happening again now. Any threat to oil's leading role as a source of energy is a big worry for a country that sits on reserves of some 260 billion barrels. "We are concerned about the permanent destruction of demand," says a senior Saudi official. "Those who buy hybrid vehicles are not going back to SUVs."

OPEC hardliners such as Iran and Venezuela, by contrast, have less oil in the ground and are running short on cash, so they're more interested in maximizing revenues today. Friction within OPEC has been growing because Saudi Arabia has been pumping almost 10% more than its OPEC quota of 8.9 million barrels per day. The Saudis and other Persian Gulf states believe a price of $90 per barrel is about right, while the hardliners don't want to see anything less than $100 per barrel. "The current market is not balanced; it is oversupplied," Iranian OPEC representative Mohammad Ali Khatibi told Reuters.

Talk to the Saudis privately and they often express frustration with OPEC. Saudi negotiators complain that some members come to meetings with rigid political positions that don't take the real world into consideration. And the Saudis dismiss the likes of Venezuela and Iran for talking big without having the oil to back it up. Venezuela can't produce its quota of 2.5 million barrels per day, while Iran struggles to pump its 3.8 million. Only the Saudis have significant unused capacity that they can tap to influence the markets, and they are working to add to this margin.

The conflict flared this summer. Fearing that sky-high prices could blight oil's future, King Abdullah convened a conference of energy ministers and oil executives in the port city of Jeddah on June 22. At the meeting, the Saudis unilaterally announced a 200,000-barrel-a-day hike in production, on top of an increase of 300,000 barrels daily a few weeks earlier, annoying others in the producers' club. Algerian oil minister and current OPEC President Chekib Khelil called reporters to his hotel room to say he saw no need for the Saudi move.

It's clear the Saudis and Khelil don't see eye-to-eye. At a Sept. 9 OPEC conclave in Vienna, the Saudis went along with vague language promising a cut. But after the meeting they put out the word that they didn't feel bound by it. Khelil, meanwhile, held a 4 a.m. press conference at which he said the agreement required OPEC to cut output by 520,000 barrels per day--apparently violating an agreement with the Saudis, who would bear the brunt of any cut, not to mention a specific number.

The Saudis aren't about to abandon OPEC. But when it comes to pumping what the world needs to keep going, they will generally deliver what their customers want even if it goes against other members' wishes--which likely means more conflict in the producers' club. The Saudi production increases, says Christophe de Margerie, CEO of French oil giant Total, "are a coup de knife in the OPEC system."