Oil Market Summary for 03/01/2010 to 03/05/2010

Jobs data indicating that U.S. economic recovery might be picking up steam finally pushed crude oil futures decisively over the stubborn $80 a barrel threshold. Nymex’s benchmark West Texas Intermediate settled Friday at $81.50 a barrel, a seven-week high, after topping $82 in intraday trading.

An unchanged unemployment rate of 9.7% and a smaller-than-expected drop in payrolls propelled both stocks and commodities higher on Friday. Earlier in the week, industry job data also came out better than expected, pushing crude just above the $80 a barrel mark.

Any improvement in the labor market would translate into more commuter driving, more vacation driving this summer and generally greater energy demand, analysts said.

The jobs figures trumped other data, such as increases in inventories, that normally dampen oil prices. Oil inventories rose by 4 million barrels in the week, well ahead of consensus forecasts for a gain of only 1 million barrels.

Remarks by Chinese Premier Wen Jiabao at the opening of the National People's Congress on Friday expressing continued support for the economy also pushed prices higher, analysts said. Wen said the economy was on track to grow 8% this year. Recent efforts by Chinese authorities to curb bank lending have led to uncertainty about Chinese growth prospects.

But the situation in Europe with Greece’s fiscal crisis weighing on the euro continued to unsettle markets. Greece successfully placed a bond issue this week, but questions remain about the stability of the euro zone. The euro inched above the $1.36 mark in late Friday trading.

Oil prices also overcame a nearly 4% drop in natural gas prices on Thursday. The benchmark Nymex contract fell 18.2 cents on Thursday to settle at $4.575 a million British thermal units. Traders concluded that cold winter weather was now over, analysts said.

The draw-down in gas storage was only 116 billion cubic feet in previous week, less than the consensus forecast, so that total gas storage remains above the five-year average. Natural gas futures settled only marginally higher on Friday at $4.595/MMBtu.

Natural gas price trends are more often decoupled from crude oil trends as increased output of shale gas in the U.S. creates a different supply and demand situation.

The Commodity Futures Trading Commission has begun flexing some enforcement muscle in energy futures trading. The CFTC fined UBS for exceeding position limits in heating oil and natural gas contracts, and the U.S. Oil Fund, an exchange-traded fund, said the agency may charge it with wrongly reporting some trades.

But the UBS fine was quite small, only $130,000, and the fault in the USO reporting may lie with the broker or clearing house. Even so, commentators said these may be early signs that the CFTC will be following through on its pledge to police futures trading more carefully.

Source: http://oilprice.com/article-us-jobs-data-propels-crude-oil-above-80-a-barrel.html

By Darrell Delamaide for OilPrice.com who focus on, Fossil Fuels, Metals, Crude Oil Prices, Alternative Energy and Geopolitics To find out more visit their website at: http://www.oilprice.com

The elections in Iraq on March 7, 2010, are likely to serve as an important indicator of the prospects for a resolution of the long-running dispute over the administration of the ethnically mixed and resource-rich province of Kirkuk in the north of the country.

The Iraqi Kurds have repeatedly called for Kirkuk to be transferred to the control of the semi-autonomous Kurdistan Regional Government (KRG), which already administers three provinces in the predominantly Kurdish north of Iraq. The other ethnic groups in Iraq – including the Arab-dominated government in Baghdad – are equally insistent that Kirkuk should remain under central control and that any oil or gas revenues should be divided between the entire population of the country rather than all going to the KRG.

The failure to resolve the issue of the eventual status of Kirkuk threatens not only prospects for permanent political stability in Iraq but also hopes of extracting the province’s huge reserves and building new oil and gas pipelines from Kirkuk to Turkey, and from there to energy-hungry Western markets.

“We are very interested in the oil and gas reserves in Kirkuk. Who wouldn’t be?” said one executive from a leading European energy company. “We would like to invest in the region, perhaps even become involved in building one of the pipelines. But we can’t do anything unless this issue is resolved. At the moment, the risk of political instability is just too great.”

The Iraqi Kurds have long maintained that, historically, Kirkuk is a Kurdish province but that it was subjected to a process of Arabization under former Iraqi President Saddam Hussein, who deported a significant proportion of its indigenous Kurds and replaced them with ethnic Arabs. No one doubts that such a campaign was launched, although the scale of the deportations is hotly disputed. 

Since the US-led invasion and occupation of Iraq in 2003, the KRG has assumed de facto control of education and security in Kirkuk. Other ethnic groups have accused the KRG of resettling hundreds of thousands of ethnic Kurds in the province, including not only those who were originally from Kirkuk but also a large number of Kurds from other areas. They claim that the KRG’s ultimate aim is to change the demographic balance in the province in the run-up to a constitutionally required – but long overdue – referendum on the status of Kirkuk.  They fear that, if a referendum results in a vote for union with the KRG, the Iraqi Kurds will attempt to use the revenue from the province’s oil and gas reserves as the economic foundations for their long-held dream of an independent Kurdish state.  It is a prospect which alarms not only the Iraqi government in Baghdad but also several of the country’s neighbors. Syria, Iran and – particularly – Turkey all worry that the creation of an independent Kurdish state in northern Iraq will further fuel secessionist tendencies amongst their own already restive Kurdish minorities.

The evidence on the ground in Kirkuk suggests that there is some truth to the allegations of demographic manipulation. In September 2009, local officials in Kirkuk estimated that the population of the province stood at 1.4 million, up from 850,000 at the time of the US invasion in March 2003. More significantly, the voter registry in Kirkuk has increased from 400,000 in 2004 to 900,000 for the March 7 elections. A dispute between Kurds and other ethnic groups over how many seats to allocate to Kirkuk to accommodate this huge increase in voters resulted in the entire election being put back two months after originally being scheduled for January 2010. 

Although a compromise was eventually agreed, the real test is likely to come after the election itself. As happened at the last Iraqi general election, the two main Kurdish parties – the Kurdistan Democratic Party (KDP) and the Patriotic Union of Kurdistan (PUK) – are running on a joint ticket, the so-called Kurdistani Alliance, together with five minor parties. However, this time they will face a challenge from a new party called “Goran” (meaning “Change”), which is dominated by former members of the PUK who had become exasperated by the widespread corruption and misuse of resources in the three provinces under the KRG’s control.

In the July 2009 elections for the KRG, Goran picked up 23.5 percent of the vote. It is also expected to perform well in Kirkuk on March 7, 2010.  But Goran has already declared that, however much it may be opposed to the KDP/PUK in other areas, it is in complete agreement with them on iconic issues such as the transfer or Kirkuk to KRG control. As a result, the predominance of ethnic Kurds in Kirkuk means that the main hope for those opposed to the transfer of Kirkuk to the KRG is that voters break with the pattern of previous elections in Iraq and vote across ethnic lines.  If the Kurdish parties fail to win an overwhelming majority in the province, then it will be much more difficult for them to push for the inclusion of Kirkuk in the territory administered by the KRG and they may be more prepared to reach a compromise with other ethnic groups on the division of revenue from Kirkuk’s oil and gas.  But, for the moment at least, the signs are that the Kurds of Kirkuk will again vote along ethnic lines – which is likely to encourage the Iraq Kurds to renew their calls for a referendum and the eventual transfer of both the province and its oil and gas to the KRG.

Even if the Kurdish parties sweep Kirkuk, there is still no indication that any of the other ethnic groups in Iraq or the central government in Baghdad is prepared to allow the KRG to take over Kirkuk. Consequently, the most likely outcome of the March 7 general election in Kirkuk appears to be an increase in political tensions; and, as long as the standoff remains unresolved, energy companies are likely to continue to be reluctant to make substantial investments in extracting the province’s hydrocarbons and transferring them to Western markets.

Source: http://www.oilprice.com/article-iraqi-elections-likely-to-fuel-ethnic-tensions-further-delay-access-to-kirkuks-reserves.html

This article written by Gareth Jenkins for OilPrice.com who focus on, Metals, Crude Oil Prices and Geopolitics To find out more visit their website at: http://www.oilprice.com    

With Yemen’s oil revenues plunging, the government’s push into the gas market seemed like an economic saving grace for a state wracked by poverty and terrorism, but analysts warn more thought should be given to carving out the country's post-petroleum era.

The infamous Christmas Day bomber’s attempts to blow up a jet approaching Detroit – which Yemen-based al Qaeda in the Arabian Peninsula claimed responsibility for – has drawn unwanted attention to the country’s vulnerability to terrorist movements.

Dwindling oil and water resources, high poverty and illiteracy, a ballooning population, rebel uprisings and separatist movements have made Yemen ripe for extremism.

Nestled in the southern tip of the Arabian Peninsula, Yemen is highly reliant on oil money, which accounts for 70 percent of the budget. But total reserves amount to about 2.8 billion to 3 billion barrels, which “really isn’t much to write home about,” S. Rob Sobhani, president and founder of Caspian Energy Consulting in Potomac, Maryland, told OilPrice.com.

In recent months, the government has tried to spark foreign interest: A delegation from Indonesia visited Sanaa, the Yemeni capital, in January to discuss investment in the oil and gas industry as well as the mining sector. And in February, France’s Total signed a preliminary oil exploration deal for $32 million. The company was already leading a $4.5 billion liquefied natural gas plant that started production in October.

Major gas exports, however, are probably not “in the cards” for the Middle Eastern country, but some reserves may be moved within the region by pipeline to Oman and possibly to Saudi cities like Jeddah, Sobhani said. Yemen is strategically advantageous to all liquid natural gas markets, both in the Asia-Pacific basin and on either side of the Atlantic Ocean, he also wrote in the Christian Science Monitor in February.

Yemen needs “built-in consumers already lined up” to fuel the gas sector but where such interest will come from remains unclear, said Christopher Boucek, an associate in the Middle East program for the Washington-based Carnegie Endowment for International Peace. Boucek cited huge, “unfounded” fears in the United States that Yemeni natural gas tankers entering Boston’s port, for example, constituted “some sort of a threat to national security.”

Apart from drying-up oil reservoirs, the government is also contending with a legal process -- and “mechanics on the ground” for exploring, producing and extracting gas -- that are “not very well streamlined,” Boucek noted, adding that Sanaa aims to fix these problems in a bid to court more foreign investors.

Traditionally, however, the country is viewed as a “boutique” market enticing smaller companies to “make their name,” explained Boucek, making it uncertain why larger players would want to bid for these oil blocks. As a selling point, Yemen would probably argue that most of the country is unexplored and only a few basins are in production, but Boucek said he is “skeptical” that any new finds would be “major, commercially viable discoveries.”

Concerns about terrorism have also failed to persuade oil giants to take a chance, he maintained. For years, some of the preferred targets of terrorists in the Arabian Peninsula have included workers in the energy sector and foreign firms, he said, also noting “scores of attacks” at the hands of pirates.

If the country can offer “attractive terms” to oil companies at a better rate than their neighbors, as well as provide certain security guarantees, “then absolutely we will see investment flowing into Yemen,” predicted Sobhani.

After the attempted bombing in December, the government bolstered security at oil and gas facilities to guard against militant attacks, according to local media reports.

At the end of February, the Pentagon also reportedly approved $150 million in counterterrorism funding to Yemen, up from $67 million in the last fiscal year, including equipment and training to local counterterrorism forces.

Yet, Sobhani doubts this kind of international anti-terrorism assistance is enough to stabilize Yemen and sway reluctant foreigners to inject money into the economy.

“It’s an uphill battle because you are looking at a population that is very young,” he said. “You’re looking at an enemy that can pay money to these young kids to join them, whether it’s al Qaeda or your homegrown anti-American types.”

Potential financiers also need to see good governance, which Yemen may now realize, Sobhani added.

Looking to the future, Yemen can meet the gas needs of other Gulf nations but probably only has enough resources for the next 10 or 15 years, he said. It’s vital, he added, that the government use part of the foreign money fueling the gas industry to build other sectors like solar energy.

As it stands, Yemen has not directed “much serious, developed thought” to carving out competing economic sectors, charged Boucek of the Carnegie Endowment for International Peace. In actuality, “nothing on the horizon” will replace income previously earned from oil sales, leaving a gap that a potential natural gas windfall will not fill in time, Boucek cautioned.
In the meantime, he warned, “all of Yemen’s other problems” will worsen -at a time when its government coffers are emptying.

Source: http://www.oilprice.com/article-yemens-push-into-the-gas-sector-fails-to-stimulate-great-excitement-and-raises-disturbing-questions.html

By Fawzia Sheikh for OilPrice.com who focus on, Metals, Crude Oil Prices and Geopolitics To find out more visit their website at: http://www.oilprice.com

The artificially-engendered revival of the dispute, which began in February 2010 between Argentina and the United Kingdom over the sovereignty of the Falkland Islands in the South Atlantic, has been portrayed as a posturing by embattled Argentine Pres. Cristina Fernández de Kirchner, taking advantage of both the start of exploratory oil and gas drilling by British company Desire Petroleum in the Falklands waters, and the talks by Latin American and Caribbean leaders of the Rio Group in the Mexican resort of Playa del Carmen, beginning on February 22, 2010. But the crisis may well play into the political posturing of equally embattled United Kingdom Prime Minister Gordon Brown, who faces a general election by June 2010 at the latest.

Britain’s presently governing Labour Party is as conscious — almost superstitiously so — of the fact that the 1982 Falklands War with Argentina revived the flagging fortunes of incumbent Conservative Prime Minister Margaret Thatcher, just as the US Democratic Party is fixated on the belief that Democratic Pres. Lyndon Johnson failed to win a second term in office because of being embroiled in the Vietnam War. As a result, the British Labour Party is unlikely to attempt to quell the dispute in the short term between the UK and Argentina, even though it plays strongly into the hands of Pres. Fernández de Kirchner.

The increasingly leftist bloc within Latin America, prompted and often financed by Venezuelan Pres. Hugo Chávez Frias, obliged Pres. Fernández on February 22, 2010, in Mexico by endorsing her attacks on the UK position and the assertion of Argentine sovereignty over the Falklands. It is clear, however, that Argentina’s population and Armed Forces are in no position to resume any form of military conflict with the United Kingdom over the Falklands, even though British forces are themselves stretched by engagement in Afghanistan.

In many senses, though, this represents a possible “win-win” approach for Venezuelan Pres. Chávez, who is integrated strategically with his two principal allies, Iran and Russia, and, to a degree, the People’s Republic of China (PRC), in that any threat to the Falkands could bring about a redeployment of UK forces out of Afghanistan and into the Falklands. This, too, could assist in the re-election of Gordon Brown’s Labour Government in the UK, which would be preferable to Chávez as well as to Iran and Russia than the election of a Conservative Government in the UK.

As well, the episode strengthens the Rio Group, which is consolidating at the expense of the Organization of American States (OAS) and the US’ now almost moribund Monroe Doctrine.

As a result, the entire “storm in a South Atlantic tea-cup” will neither result in renewed conflict between Argentina and the UK in the near future, but will further the political positions of Pres. Chávez, Pres. Fernández, Prime Minister Brown, and the strategic positions of the PRC, Iran, and Russia - all three of which have commercial-strategic as well as geopolitical interests in South America, if only to minimize or contain US influence.

Source: http://www.oilprice.com/article-renewed-battle-for-the-falkland-islands-suits-the-embattled-british-argentine-leaders-and-others.html

Anaysis By GIS/Defense & Foreign Affairs Staff for oilprice.com who focus on Metals, Crude Oil Prices and Geopolitics To find out more visit their website at: http://www.oilprice.com

Oil Market Summary for 02/22/2010 to 02/26/2010 at The Oil Corner.