Mideast Crisis Update: Don't Count on the Saudi Oil Supply
As the autocratic rule that has dominated the Middle East for decades continues to unravel, volatility in the global oil markets continues to point toward one overriding concern: How can we maintain an oil-flow balance in the face of this escalating uncertainty?
Global oil prices spiked to their highest levels in more than two years on Friday because of worries that the unrest and resulting production curbs in Libya would spread to other oil-exporting countries.
Oil prices retreated a bit yesterday (Monday) in the aftermath of several developments that investors perceived as positive. In the first, reports said that Libyan protesters were allowing oil shipments to resume from certain parts of the country. And in the second, Khalid Al-Falih, the head of state-owned Saudi Aramco, said that that "all incremental needs" for extra oil have been met.
Of course, even with the Saudi oil supply pledge, these developments offer only a momentary respite in the Mideast crisis. Almost two-thirds of the world's known conventional oil supplies are located in the Middle East region. And the question that isn't being answered – or even asked – right now is this: Are oil supplies sustainable in the face of a longer-term crisis?
The answer to that question will leave you feeling less than sanguine.
$100 Oil Sparks Energy Investment Interest
Civil unrest in the Middle East continues to push oil prices higher as companies with Libyan operations shut down production, threatening oil exports to Europe.
Crude oil futures on Wednesday hit the $100 a barrel level on the New York Mercantile Exchange (NYMEX) for the first time since September 2008. The April contract was as high as $100.91 in pre-market trading yesterday (Thursday).
Prices are even higher in Europe as its market is much more sensitive to Libyan oil export disruption. April Brent crude futures contract rose $2.45, or 2.2%, to $113.75 a barrel yesterday and hit an intraday high of $119.79, the highest level since mid-2008.
Volatility and uncertainty are driving both prices up, according to Money Morning Contributing Editor Dr. Kent Moors, a noted energy expert and editor of the Oil and Energy Investor.
"The Brent is far more sensitive to what's occurring in the Middle East than the [West Texas Intermediate] WTI in New York," Moors said in a FoxBusiness interview Wednesday. "The Brent also is more widely traded internationally than WTI is. So the end result is whenever you get an uncertainty situation like the one we currently have, Brent is going to be spiking further."
The Middle East Crisis: Egypt, Libya and Triple-Digit Oil Prices
We are right now looking at the prospect of significant and sustained instability in a region that's home to two-thirds of the world's known crude oil reserves.
The Middle East crisis – and the unsettling reality it represents – has already sent tremors through the international energy sector. Oil prices are on the march. And this is merely the beginning.
The problems will likely get much worse.
But forewarned is forearmed: Even if the Middle East crisis continues to escalate, we can predict how the global energy sector will be affected. In fact, if the crisis reaches the severity that I'm expecting, it will send the world's energy sector through three very predictable phases.
And each of those phases affords investors with very specific profit opportunities – if they know what to expect.
Oil Prices Surge to Two-Year High on Middle East Turmoil
Protests in the Middle East drove oil prices to a two-year high yesterday (Tuesday) as anti-government violence spread in Libya, threatening the nation's oil industry and raising the possibility the contagion could soon affect larger producers in the region.
Oil jumped more than $7 a barrel, breaching $98 for the April contract of West Texas Intermediate (WTI) crude on the New York Mercantile Exchange. Meanwhile, Brent crude climbed as much as 2.7% to $108.57 on the ICE Futures Europe Exchange.
"Oil is being bought on the risk that this contagion will spread through the Middle East," Jonathan Barratt, managing director of Commodity Broking Services in Sydney, told Bloomberg News by telephone. "This effect is a knee-jerk reaction to the fact that this could spread."
Libya is the latest chapter in a saga of unrest that began in Tunisia in January and has raced through North Africa and the Middle East in recent weeks.
Iran added to the tension in the region yesterday by entering two of its naval ships into Egypt's Suez Canal headed toward the Mediterranean. Israel considers the presence of Iranian warships sailing through the canal "a provocation," Foreign Ministry spokesman Yigal Palmor told Bloomberg.
Fears of massive disruptions in the market have oil traders on edge and the energy markets are now braced for an even sharper run-up, according to Dr. Kent Moors, a noted energy expert and editor of the Oil and Energy Investor.
"That traders do not regard this as a short-term problem is seen in the futures contract curve. We have an escalating and contango market, one in which each month further out has a higher price than earlier months," said Moors. "The volatility will now kick in big time, and that will further unnerve the trading environment."
Libya's importance as an oil producer is more symbolic than anything else.
2011 Oil Prices Prompting Energy Consumption Concerns Among Readers
With oil prices moving higher, consumers are already fretting about how much it's going to cost them to fill their tanks. And given the current outlook, that cost is going to head even higher – meaning there's no relief in sight.
The political mayhem in Egypt is the latest oil-price catalyst to appear, and is yet another candidate to help push 2011 oil prices closer to the predicted $150-a-barrel level. Analysts worry that Egypt's chaos could disrupt the millions of barrels of oil that pass through the Suez Canal.
Traders' main unease is that the political unrest in Egypt is something that could occur in neighboring countries – especially those with a much bigger influence on the global oil exporting market.
Ensco, Pride Combine to Create the World's Second Largest Offshore Driller
Ensco PLC (NYSE: ESV), a U.K.-based energy company, announced yesterday (Monday) that it agreed to buy Pride International Inc. (NYSE: PDE), for $7.3 billion in cash and stock in a deal that will create the world's second-largest offshore driller.
The transaction represents a further transformation of the U.S. offshore drilling industry, which is still struggling to recover from last year's explosion of Transocean Ltd.'s (NYSE: RIG) Deepwater Horizon drilling rig, which killed 11 workers and spewed roughly 4.8 million gallons of crude into the Gulf of Mexico. Transocean, based in Vernier, Switzerland, is the world's largest offshore driller.
Ensco will pay $41.60 a share for Texas-based Pride, a 21% premium to its closing price on Friday. The purchase would be the largest for Ensco, and is the second-largest acquisition of a U.S. oil services company in the last year.
Are You Concerned About 2011 Oil Prices?
With crude oil prices moving higher, consumers are already fretting about how much it's going to cost them to fill their tanks. And given the current outlook, that cost is going to head even higher – meaning there's no relief in sight.
The political mayhem in Egypt is the latest oil price catalyst to appear, and is yet another candidate to help push 2011 oil prices closer to the predicted $150-a-barrel level. Analysts worry that Egypt's chaos could disrupt the millions of barrels of oil that pass through the Suez Canal.
Oil prices on the New York Mercantile Exchange (NYMEX) were steady yesterday (Tuesday), after jumping 8% in the previous two trading sessions to land just below $92 a barrel. Meanwhile, Brent crude oil futures in London hit a two-year high of $102.08 a barrel in intraday trading.
Egypt Protests Could Lead to $150 Oil
Egypt is hardly the most influential player in the global energy market. Crude oil production has been in decline there for nearly two decades. Since hitting its peak level of 941,000 barrels per day (bpd) in 1993, producion has dropped steadily – falling to 873,000 bpd in 1997, 696,000 bpd in 2005, and finally to about 685,000 bpd currently.
Of course, while Egypt may not produce very much of the world's oil and gas, it does control about 5% of the world's oil and gas delivery.
For that reason, the Egypt protests have had a very pronounced effect on the global energy market. The price of oil futures traded on the New York Mercantile Exchange (NYMEX) remain above $90 a barrel, while London Brent Crude has traded above $100 a barrel for two days.
Egyptian Oil Operations Abandoned as Protests Disrupt Energy Industry
Several large oil companies are shutting down operations in Egypt as six days of protests against President Hosni Mubarak's regime have disrupted the oil and gas industry.
The nation's military closed ranks with the government leadership but allowed protestors to continue mass demonstrations in defiance of a curfew as further unrest spread through the streets of Cairo. Mohamed ElBaradei, the former head of the United Nations' nuclear watchdog agency, has emerged as the favorite among opposition leaders to replace Mubarak.
Statoil ASA (NYSE ADR: STO), Norway's largest oil company, halted drilling in Egypt as other companies, including Royal Dutch Shell PLC (NYSE ADR: RDS.A, RDS.B) and BP PLC (NYSE ADR: BP), shut down local offices and started evacuating the families of expatriate workers as well as non-essential staff.
Oil Companies Pumping Profits as Crude Continues to Climb
Despite political fallout from the Gulf oil spill, drilling and oil services companies made big waves in the waning months of 2010. And they're likely to carry that success through 2011 as higher oil prices and political gridlock keep the profits pumping.
Baker Hughes Inc. (NYSE: BHI), Halliburton Co. (NYSE: HAL), Helmerich & Payne Inc. (NYSE: HP), and Occidental Petroleum Corp. (NYSE: OXY) are among the oil companies that produced outstanding results in the final three months of 2010.
Occidental, the largest onshore crude producer in the continental United States, reported a 29% increase in fourth-quarter profit. Net income climbed to $1.2 billion, or $1.49 a share, from $938 million, or $1.15 a share a year earlier.