Remember when it was a big deal that oil reached above 40$/bbl? And that each new high deserved breathless headlines?
Guess what - that was less than a year ago!
(See also here for other oil price graphs)
Now, newspapers cannot make their headlines every day on the oil price, even though the story gets worse and worse, because it gets boring after a while, and people have tuned out. Oil prices are high? Grumble, grumble, boring, boring.
Let's consider the following news, all from today's Financial Times:
Chevron wins Unocal battle with $18bn bid
ChevronTexaco, the second biggest US oil and gas company, on Monday vaulted into the top tier of producers and marketers in the Asia-Pacific region with an $18bn cash and shares acquisition of rival Unocal.
The deal is the biggest in the oil and gas industry for three years. It underscores the importance of natural gas to big oil and gas companies, at a time when the clean, more efficient energy source is increasingly becoming the fuel of choice.
The acquisition is also a coup for ChevronTexaco, which becomes the second biggest owner of Asia-Pacific oil and gas resources, behind PetroChina.
Asia-Pacific is an important market for energy suppliers, given the growing appetites of China and India for energy to fuel their surging economies.
Dave O'Reilly, ChevronTexaco chief executive, said in an interview: "Gas in Asia is clearly a very important part of this. This will clearly augment our presence."
Unocal deal fuels consolidation debate
The high oil price, which is approaching $60 a barrel this week, has been cited often as a reason for the lack of large-scale M&A activity in the sector, because it makes the purchase price too prohibitive.
But Chevron's bid for Unocal shows this may no longer be a barrier to deals. One industry consultant says: "Chevron recently stuck with a $25-$30 planning price [used when making long-term investments] but you would be hard-pressed to use this to justify the Unocal deal. This looks a better deal if you believe oil prices will stay in the $40-$50 range for the foreseeable future."
- oil & gas companies are investing in gas, not in oil. (For instance, in 2004, more than 90% (yes, ninety) of ExxonMobil's new reserves came from Qatari gas).
- demand is in Asia
- oil & gas majors are beginning to take decisions based on long term 40-50$/b oil.
BP blames first Russian decline on harsh winter
BP, the world's second-biggest listed oil company, has suffered the first decline in production at its key Russian oil and gas fields since it sealed a $7bn merger with Russia's TNK two years ago.
While BP blamed the fall on the temporary effects of a harsh Russian winter, the news highlights wider concerns about slowing growth in Russia's energy sector, the world's second-biggest oil exporter.
Extended stagnation in Russia's oil output fuels fears of shortages
Russian oil output was unchanged in March from February, extending a spell of stagnation and increasing fears that the country's rapid rise in production in the 1990s has petered out.
The figures, released yesterday, showed March output at 9.33m barrels a day - below the 9.42m b/d level in September when post-Soviet production hit its highest level.
The flagging output showed that the Kremlin's break-up of Yukos, the oil company, as well as high marginal taxation on producers had sapped the Russian oil industry's ability to respond to booming global demand, analysts said.
The government has complained in the past weeks of under-investment in the economy and warned of the danger of the economy overheating as domestic demand outstrips the economy's ability to respond.
Investment in the oil industry has targeted easy-to-develop fields but has shied away from large infrastructure projects. Increased production requires the development of new fields in Siberia, which are more geologically complex.
Oil exports are Russia's largest source of foreign currency income. The country is the largest producer outside of the Organisation of the Petroleum Exporting Countries.
(...)
Stalling Russian production - coupled with rising demand from China - has made oil markets nervous. It has confirmed fears that production outside of Opec is slowing and unable to meet the increase in demand.
Opec (...) plans to produce about 28.1m b/d this month, although Opec members are resigned to the fact that any rise in output is unlikely to trim prices.
Traders said panic buying last week in the oil market was triggered by a report released by Goldman Sachs, the investment bank, which warned that oil prices could reach $105 a barrel later this year.
Russia, the last big hope for Western oil majors to find worthwhile places to invest, and more generally for the West as a source of non-OPEC oil, is not available anymore;
- there are no easy investments to be made;
- what remains require expensive investments that the political climate in the country is unlikey to make attractive enough and that the local companies will be unable to finance on their own;
- production is stagnating already.
- even 4°-50$/b oil does not change that.
"OPEC is resigned to higher prices"?? WTF? This seems to imply that OPEC is worried that high prices will finally trim demand and eventually lead to a - highly damaging for them - collapse in prices, like happened in the 80s.
"panic buying" tells us that we are still quite far from the requisite levels. Demand will not get reduced, because the easy ways to do that have mostly been tapped (switching away from oil-power power plants) or will take time (switching to higher-MPG cars), and because a good chunk of Asia is at a point in development where car ownership skyrockets.
High oil prices will spark airline losses of $5.5bn this year, warns IATA chief
The global airline industry could lose $5.5bn (£2.9bn) in 2005 because of continuing high crude oil prices, according to a warning yesterday by Giovanni Bisignani, chief executive of the International Air Transport Association.
The total losses by the world's airlines in the five years from 2001-05 would then exceed $40bn.
The deficits threaten the survival of several US airlines in particular, with United Airlines and US Airways still struggling to emerge from bankruptcy.
The forecast loss for 2005 is based on an average price for the European benchmark Brent crude oil of $43 a barrel.
(...)
Mr Bisignani told the AirFin ance conference in New York that the air transport industry remained "fragmented, constrained and quite frankly in many places a financial disaster".
He urged governments to deregulate the industry in order to open access to global capital markets, as well as to cut the tax burden and regulate monopoly suppliers led by airports and air traffic control systems. "We see record profits at airports, when airlines have record losses. Airlines do the flying and everybody else makes the money," he said.
He said that with annual growth of 6 per cent, global air passenger traffic was growing at twice the rate of gross domestic product. "The problem is that the more we sell, the more we lose."
The airline business is typical of our absurd way to use energy. Air transport is indirectly subsidised because airlines cannot go bankrupt (how many times have airlines gone in "Chapter 11" and kept on flying without paying their debts)- and it has been directly subsidised as a result of September 11. Competition drives prices down because the airliebns do not account for all their costs, but does not "clear" the ineffective players. It's a massive market failure with government intervention in all the wrong places.
So higher oil prices do not even have the effect of reducing demand for air travel as the prices are hardly affected, the industry keeps on accumulating losses. I guess it provides jobs to Wall Street to juggle with the whole mess.
Nor very encourageing as we are now officially encouraged to reduce demand. Yeah, reduce someone else's demand.
EU cuts eurozone growth forecast to 1.6%
Surging oil prices, which reached a new peak on Monday and the strong euro have forced the European Commission to cut substantially its forecast for eurozone growth this year, heightening fears about the slowdown's global impact.
The commission said it expected eurozone growth of just 1.6 per cent in 2005, compared with its forecast last October of 2.0 per cent and the 2.0 per cent estimated growth in 2004.
In reality based, non-debt-boosted parts of the world, this is having a real effect. But Europe's slower growth is effectively allowing the US to keep on bingeing just a little longer at our expense.
Oh well.
Remember when 40$/b oil was bad news?