Thursday, October 4, 2007

The Lies Of Colin Campbell

Hydrogen is the most common element in the universe and carbon is the fourth most common element in the universe. One would think that these two elements are able to bond together all the time and are constantly binding together throughout the universe. Yet not according to so-called "Dr." Colin Campbell, British Petroleum's chief propagandist for the biogenic petroleum origin cult and it's "fossil" fuel myth. According to Colin Campbell hydrogen and carbon only bonded together twice in the history of Earth.

The bulk of the world's production comes from organic-rich deposits laid down in two exceptional epochs of extreme global warming 90 and 150 million years ago.
Indeed it would be strange if hydrogen and carbon only bonded twice in the Earth's history during periods of extreme global warming.

According to science there is a different reality than the myth perpetuated by British Petroleum. According to the modern theory, and more importantly empirical data, hydrocarbons are constantly being created.

Below the Gulf of Mexico, hydrocarbons flow upward through an intricate network of conduits and reservoirs. They start in thin layers of source rock and, from there, buoyantly rise to the surface. On their way up, the hydrocarbons collect in little rivulets, and create temporary pockets like rain filling a pond. Eventually most escape to the ocean. And, this is all happening now, not millions and millions of years ago, says Larry Cathles, a chemical geologist at Cornell University.

"We're dealing with this giant flow-through system where the hydrocarbons are generating now, moving through the overlying strata now, building the reservoirs now and spilling out into the ocean now," Cathles says.

He's bringing this new view of an active hydrocarbon cycle to industry, hoping it will lead to larger oil and gas discoveries. By matching the chemical signatures of the oil and gas with geologic models for the structures below the seafloor, petroleum geologists could tap into reserves larger than the North Sea, says Cathles, who presented his findings at the meeting of the American Chemical Society in New Orleans on March 27.
Also see Colin Campbell: Wrong Again.

Wednesday, October 3, 2007

The Lies Of Kenneth Deffeyes

Richard Heinberg speaks of an "oil window" that exists from 7,500 feet to 15,000 feet, below which, Heinberg claims, the hydrocarbon bonds of petroleum begin to break down and turn into natural gas. Every scientist and oil man in the world knows this is a lie. But where does Richard Heinberg get such a ridiculous idea?

None other than Kenneth Deffeyes of Hubbert's Peak fame.

In Beyond Oil: The View From Hubbert's Peak Deffeyes writes:

Burying the sediments, or the oil, deeper than 15,000 feet continues the molecular breaking until the remaining product has only one carbon atom per molecule. That gas, almost pure methane (CH4) is often referred to as "dry" natural gas. The limit of 15,000 feet is the bottom of the oil window. If you are looking for oil, you need organic-rich sediments that have been buried, at some point in their history, into but not deeper than the oil window.
This makes one wonder what kind of drugs Deffeyes is on. Transocean, the world's largest deep water offshore driller, regularly drills oil wells, not natural gas wells, twice as far below the "oil window" claimed by Deffeyes. And they are going deeper looking for oil, not natural gas.

Also see The Many Wrong Predictions of Ken Deffeyes.

Monday, October 1, 2007

The Lies Of Richard Heinberg

In the The Abiotic Oil "Controversy", Richard Heinberg states:

the temperatures at depths below about 15,000 feet are high enough (above 275 degrees F) to break hydrocarbon bonds. What remains after these molecular bonds are severed is methane, whose molecule contains only a single carbon atom. For petroleum geologists this is not just a matter of theory, but of repeated and sometimes costly experience: they speak of an oil “window” that exists from roughly 7,500 feet to 15,000 feet, within which temperatures are appropriate for oil formation; look far outside the window, and you will most likely come up with a dry hole or, at best, natural gas only.
That paragraph is simply wrong in so many ways it's hard to know where to begin. According to Transocean, they have succesfully drilled oil wells 30,189 feet true vertical depth below the mudline in over 4000 feet of water. This is far below the 15,000 foot limit claimed by Heinberg. And no Mr. Heinberg, hydrocarboon bonds do not break apart below 15,000 feet. That is a lie.

InfoGulf.Com via Offshore Mag: Exploration and Development Below 15,000 feet TVD.

For exploration greater than 15,000 ft TVD on the shelf during the period 2003-2005, 115 wellbores (45 in 2003, 41 in 2004, and 29 in 2005) were drilled by 35 operators.

Those wells were drilled at least 2 years ago. We are finding oil much deeper now.

Also see: The Lies of Kenneth Deffeyes.

Sunday, September 30, 2007

The Peak Oil Hoax And My Conversion

It wasn't too long ago I actually thought the peak oil theory had merit. Now I realize it is a hoax just like biogenic petroleum origin, "fossil" fuels, and man-made carbon dioxide causing global warming are all hoaxes.

Tuesday, September 25, 2007

Mexico Will Run Out Of Oil In 9 Years

Analysts watch, wince as Mexico's oil supply dwindles.

"Mexico's oil production is in decline. There's probably no way to stop it," said Mike Rodgers, an expert at one of the top oil industry consulting firms, PFC Energy in Houston.

Mexico is the second largest supplier of oil to the United States (about 1.5-million barrels a day). But output from its major fields is dwindling fast, according to official figures from the state-owned oil giant Petroleos Mexicanos (Pemex). The country's known oil reserves will run out in nine years, the government says, potentially undermining the nation's oil-dependent budget.

Mexico's decline only adds more pressure to prices in a tight global oil market, which hit $83 a barrel Thursday. Worse still, its emptying wells are only a reflection of a global decline in aging oil fields around the world.

With no major oil fields left to discover, analysts say the world is approaching "peak oil," the moment at which oil production hits its maximum capacity and slowly starts to fall.

Mexican output peaked at just over 3.4-million barrels a day in 2004. "I don't believe we'll ever see it that high again, no matter how much is invested," said David Shields, an oil industry consultant in Mexico City.

Daily output at Mexico's biggest oil field, Cantarell, highlights the problem. Production there dropped by a staggering half a million barrels in the last 18 months, to 1.5-million barrels from 2-million. Once the world's second-biggest oil field, it is expected to continue losing production, down to as little as 600,000 barrels a day by 2013.

Thursday, September 20, 2007

Keep It Simple

Getting Crude in All the Wrong Places

you may just conclude that our energy situation appears to be far more precarious than you'd previously thought.

As a result, I've repeatedly urged my Foolish friends to make certain that their portfolios contain a reasonable blend of energy names. I don't think you need to get too fancy here, perhaps beginning with the two big enchiladas in the production and oilfield service sectors, ExxonMobil (NYSE: XOM) and Schlumberger (NYSE: SLB). Beyond that, it might make sense to fill in with other solid names in the sector, such as natural gas growth story and Motley Fool Inside Value recommendation Chesapeake (NYSE: CHK) or deepwater drilling king Transocean (NYSE: RIG).
I prefer ConocoPhillips and ChevronTexaco over ExxonMobil just because they are cheaper. For the same reason I prefer Halliburton over Schlumberger. Of course Transocean is my favorite: indeed Transocean is the deepwater drilling king. Merger with GlobalSantaFe approved today.

Wednesday, September 19, 2007

Pickens: Oil Won't Hit $100 Until After This Year

Oil will hit $100 but probably not in 2007: Pickens

NEW YORK (Reuters) - Oil will continue to trend higher after hitting fresh highs over $82 a barrel but is unlikely to puncture the $100 level this year, Texas oilman and investor T. Boone Pickens said on Wednesday.

"You'll hit $100 -- I don't think you'll hit $100 this year unless you have some kind of geopolitical event that causes that to happen, but you're going to get to $100 at some point," Pickens told Reuters in New York.

Concerns that supplies will struggle to keep up with demand as the Northern Hemisphere gears up for winter pushed U.S. crude oil futures to a record $82.51 a barrel on Wednesday before they settled at $81.93, prompting forecasts prices could rise to $100.

"The trend is up, and if your supplies are 85 million barrels per day (bpd) globally, and you look at what demand is predicted to be for the fourth quarter, it is 88 million bpd," Pickens said.

"It means probably demand is greater than supply and the price goes up further."

Pickens said that while oil will eventually reach triple-digit levels, it was unlikely to spike to $100 this year unless an unforeseen event upsets fundamentals.

Pickens, who heads the BP Capital hedge fund, which was valued at $4 billion earlier this year, said prices could be pressured if demand shows signs of wavering.

"We haven't been at this level, so I don't have a feel for when we start killing demand with price," he said, adding oil could fall back to $78 a barrel before rising further.

In April when prices were around $65 a barrel, the legendary oilman forecast oil prices could tip $80 in late 2007 due to supply constraints.

Monday, September 17, 2007

Goldman Finally Gets It

Goldman Raises Year-End Oil Price Forecast to $85

Sept. 17 (Bloomberg) -- Goldman Sachs Group Inc. raised its yearend oil-price forecast to $85 a barrel and said there was a ``high risk'' of a jump above $90 because supplies will drop to critical levels in the fourth quarter, when heating demand peaks.

Goldman increased its 2007 yearend forecast from a previous prediction of $72 a barrel, analysts at the world's biggest securities firm said in a research note today. Prices are forecast to reach as high as $95 a barrel by the end of 2008, Goldman said.

Surging oil prices threaten to erode the profits at energy consuming companies such as Air France-KLM Group, Europe's biggest airline, whose first-quarter earnings missed analyst estimates because of higher jet fuel costs. Crude oil touched a record $80.50 a barrel in New York today on concern an OPEC production increase starting Nov. 1 won't come soon enough to bolster supplies for the northern hemisphere winter.

``In the current environment, the risk of oil prices spiking to $95 remains very high should inventories continue to draw down to critical levels,'' Jeffrey Currie, a London-based commodity analyst at Goldman, said in a telephone interview today.

The 500,000-barrel-a-day output increase announced by the Organization of Petroleum Exporting Countries last week to assuage fears of a supply shortfall ``will be too little, too late,'' the Goldman report said.

Oil inventories held in Organization for Economic Cooperation and Development nations will shrink at a rate of 1.5 million barrels a day next quarter, compared with the seasonal norm of a 0.5 million-barrel-a-day drop, because demand is that much stronger than supply, Goldman said.

World oil production during the summer was almost 1 million barrels a day lower than a year earlier while demand was 1 million barrels a day higher, the research note said.
This is extremely bullish. Moo.

Sunday, September 16, 2007

Oil industry 'sleepwalking into crisis'

Former Shell chairman says that diminishing resources could push price of crude to $150 a barrel

Lord Oxburgh, the former chairman of Shell, has issued a stark warning that the price of oil could hit $150 per barrel, with oil production peaking within the next 20 years.

He accused the industry of having its head "in the sand" about the depletion of supplies, and warned: "We may be sleepwalking into a problem which is actually going to be very serious and it may be too late to do anything about it by the time we are fully aware."

In an interview with The Independent on Sunday ahead of his address to the Association for the Study of Peak Oil in Ireland this week, Lord Oxburgh, one of the most respected names in the energy industry, said a rapid increase in the price of oil was inevitable as demand continued to outstrip supply. He said: "We can probably go on extracting oil from the ground for a very long time, but it is going to get very expensive indeed.

"And once you see oil prices in excess of $100 or $150 a barrel, the alternatives simply become more attractive on price grounds if on no others."

Lord Oxburgh added that oil majors must invest more heavily in developing viable alternatives to oil and gas. "If you look at it from oil companies' point of view, effectively what they're doing at the moment is continuing business as usual, and sticking their toes in the water in a number of areas which might become important in future.

"But at present there is a relatively poor business case for making significantly greater investment in these new areas."

Commenting on whether "peak oil" – the point when global oil production goes into terminal decline – was likely to be reached in the near future, he said: "In a way it scarcely matters; what really matters is the gap between production and demand. I don't know whether there is going to be a peak in world oil production, whether it's going to plateau and then slowly come down.

"It could well plateau within the next 20 years, and I guess I would be surprised if it hadn't."

The price of crude oil closed above $80 a barrel for the first time on Thursday, as a hurricane in Texas raised supply concerns.

US light crude hit $80.20, two cents higher than the price it touched on Wednesday. Oil prices have risen 30 per cent since the start of this year and are four times higher than their 2002 level.

The latest figures from the US Energy Information Administration show that global liquid fuels production in August was almost a million barrels per day lower than the same period in 2006.

The International Energy Agency has forecast what it calls an oil "supply crunch" by 2012, a prediction that Lord Oxburgh said could possibly come to pass.

Thursday, September 13, 2007

Oil Closes Above $80 For First Time

Oil Closes Above $80 for First Time.

NEW YORK (AP) -- Oil prices finished above $80 a barrel for the first time Thursday and gasoline prices rose as refiners reported production problems after Hurricane Humberto hit Texas.

Oil first traded over $80 a barrel on Wednesday after the Energy Department reported declines in crude and gasoline inventories and a drop in refinery activity, but ended the day below that psychologically important mark.

Wednesday, September 12, 2007

JP Morgan Upgrades Transocean

Ahead of the Bell: RIG, GlobalSantaFe

NEW YORK (AP) -- A J.P. Morgan Securities analyst upgraded Transocean Inc. and GlobalSantaFe Corp. on Wednesday, saying the combined oil services company will be shielded somewhat from the global jackup rig market and it can pay off debt.

J.P. Morgan Securities analyst David Smith upgraded Transocean and GlobalSantaFe to "Neutral" from "Underweight." This is in contrast to several analysts who in the past week have cut earnings estimates or downgraded the companies.

The two companies, which have agreed to a $53 billion combination, lease to oil companies ships that help drill for oil underwater.

The deal will shield the companies' exposure to the jackup rig market, or operation of ships that float and send down legs to drill for oil on the seafloor.

Prices for jackup rigs are slipping, he said. Strength in the markets for ships that go underwater to seek oil will offset weakness in the jackup market, he said.

Tuesday, September 11, 2007

GlobalSantaFe Orders Most Expensive Drillship Ever

GlobalSanteFe orders new $740 mln drillship

HOUSTON, Sept 11 (Reuters) - Oil and gas drilling contractor GlobalSanteFe Corp. (GSF.N) said on Tuesday it ordered a drillship from Hyundai Heavy Industries Ltd (009540.KS) in a bid to boost its ultra-deepwater business.

Shipyard costs for the drillship are expected to total about $740 million and delivery is expected in September 2010. The drillship is not yet under contract.

The new drillship, which is a vessel designed for drilling in deep water without legs or anchors holding it to the sea floor, will be capable of drilling in water depths up to 10,000 feet and is upgradeable to depths of up to 12,000 feet.

"Our decision to move forward without an executed drilling contract is clearly a departure from our much more conservative past approach," Jon Marshall, GlobalSantaFe's chief executive officer, said in a statement. "However we would not have taken such a capital risk without a very high degree of confidence in the ongoing strength of the ultra-deepwater market."

In a note to clients, energy investment bank Simmons & Co. said the the drillship, the most expensive ordered to date, "provides a strong signal about future demand for ultra-deepwater."

In July, world's largest offshore driller Transocean Inc. (RIG.N) said it would buy GlobalSantaFe for nearly $18 billion. The combination will expand the companies' global reach by creating a fleet of nearly 150 rigs with a market-leading role in the deepwater market, where contracts are more lucrative.

Shares of GlobalSanteFe were down $1.13, or 1.6 percent at $71.54 and shares of Transocean were off 1.5 percent, or $1.67 at $106.64. Both trade on the New York Stock Exchange. (Additional reporting by Matt Daily)

Monday, September 10, 2007

UBS Initiates Oilfield Services

UPDATE 1-RESEARCH ALERT-UBS starts Halliburton, 3 others

Sept 10 (Reuters) - UBS initiated coverage of Halliburton Co (HAL.N), Baker Hughes Inc (BHI.N) and Schlumberger Ltd (SLB.N) with "buy" ratings.

It also started Weatherford International Inc (WFT.N) with a "neutral" rating.

UBS said in a research note that Halliburton was its top pick in the large cap oilfield service and equipment sector, followed by Baker Hughes and Schlumberger.

The brokerage, which has a price target of $52 on Halliburton, said the company was growing as quickly internationally as its competitors, leading with its core competencies in production optimization and drilling services.

UBS said Baker Hughes sought the best-in-class status across all product lines, specifically directional drilling, completions, and drill bits, with considerable offshore success.

The brokerage has a price target of $102 on Baker Hughes.

UBS, which has a price target of $121 on Schlumberger, said the company had become "the gold standard" in the industry by building relationships in key growth areas, stressing local content among personnel, and focusing on providing the highest service quality worldwide.

UBS said it expected Weatherford's growth to moderate with more challenging market share gains, but it should still outpace global upstream spending growth.

The brokerage has a price target of $70 on the stock. (Reporting by Sharangdhar Limaye in Bangalore)

Jefferies Downgrades Shallow Drillers

Sector Snap: Offshore Drillers

NEW YORK (AP) -- Shares of Ensco International Inc., Noble Corp. and Rowan Companies Inc. fell Monday, after a Jefferies & Co. analyst cut his ratings and target prices on the offshore drillers, citing lower day rates amid rising rig supplies.

Noble shares sank $2.70, or 5.3 percent, to $47.80, while Rowan shares fell 94 cents to $35.62. Ensco shares declined $1.50, or 2.7 percent, to $53.70, in morning trading. GlobalSantaFe slipped $1.89, or 2.6 percent, to $71.05.

Judson E. Bailey, in a client note, cut his ratings on the three offshore drillers to "Hold" from "Buy." He said the global supply of jack-up rigs -- a type of offshore drilling platform often used in relatively shallow waters -- is set to increase about 15 percent in the next 24 months.

In the meantime, per-day-per-rig revenue rates -- or dayrates -- for these kinds of rigs is already showing signs of softness in some international markets, wrote Bailey, citing a GlobalSantaFe Corp. disclosure that a jack-up rig was contracted for $185,000 per day, down from its previous rate of $210,000.

Dayrates could decline through 2009, and the stocks are fairly priced for their earnings growth prospects in the meantime, he added.

The analyst cut his target price on Rowan to $40 from $47, on Noble to $55 from $59, and trimmed his target on Ensco to $60 from $76.

Companies with more exposure deepwater drilling, like Diamond Offshore Drilling Inc. and Transocean Inc., are better investment bets for now, added Bailey. He has a "Buy" rating on both stocks.

Jackup Rig Rates Softening

Oil services firms fall amid possible pricing slide.

Noble Corp. (NE:noble corporation) said in a meeting with RBC Capital Markets that prices have been falling to the $185 million to $215 million range for jackup rigs, down from $225 million to $250 million. Noble Energy is concerned that national oil companies have started to build their own rigs, "which would effectively displace demand," RBC said in a note to clients.

Wednesday, September 5, 2007

Conoco Has A Chance @ Shtokman

Conoco, Statoil have chance for Shtokman field - paper.

MOSCOW, Sept 6 (Reuters) - U.S. oil major ConocoPhillips (COP.N) and Norway's Statoil (STL.OL) have a chance to join in the development of Russian gas export monopoly Gazprom's (GAZP.MM) giant Shtokman field, a newspaper reported on Thursday.

Vedomosti business daily quoted sources close to Gazprom as saying Conoco could get 14 percent in Shtokman's first phase development while Statoil would get 10 percent.

The newspaper quoted sources as saying Gazprom thought it was important to invite the U.S. firm into the project to avoid a further souring of Russian relations with the United States.

Gazprom has so far invited only one partner to Shtokman, French oil major Total (TOTF.PA) which agreed to take 25 percent in the company-operator of the $18 billion first phase Shtokman development.

Gazprom has said it would keep 50 percent in the company-operator but would continue talks with both Conoco and Statoil on the remaining 24 percent. The company declined to comment on Thursday.

Shtokman, in the Barents Sea, is one of the world's biggest gas fields with reserves enough to supply the world for over a year. Its gas is slated for delivery to Europe by pipelines and to the United States as liquefied natural gas from the middle of next decade.

Tuesday, September 4, 2007

Transocean Blurb @ IBD

Flexible Tack Wins For Hartford Fund.

Transocean (NYSE:RIG) is up 34% this year. The world's largest offshore oil and gas driller was a top buy for the fund in its latest disclosure period. The stock has had three quarters of triple-digit earnings growth. EPS growth has accelerated for four quarters.

Its Q2 earnings rose 338%, beating analyst estimates by 7%. Use of its drilling rigs is up, as are its rates.

But the stock slipped 23% from its late July high to a mid-August low. The downturn came at around the time Transocean said it would take over GlobalSantaFe (NYSE:GSF). Leverage to help finance the takeover will boost the firm's debt at a time when credit is growing scarcer and costlier.

The company's cautious outlook for shallow-water rigs seemed to further spook investors.

But the stock has rallied about 11% from its recent low and sits 10% off its old high. It shot above its 10-week moving average Tuesday as volume ticked up to just below average.

Noble Adds 2 Ships To Fleet

Noble Corporation Takes Delivery of New High-Spec Jackup.

SUGAR LAND, Texas, Sept. 4 /PRNewswire-FirstCall/ -- Noble Corporation (NYSE: NE) today reported that the Company has taken delivery of a new high-specification jackup drilling rig constructed by Dalian Shipbuilding Industry Co. Ltd. in Dalian, People's Republic of China. The Noble Roger Lewis, the first of three such rigs being built for the Company, is in transit to its inaugural drilling assignment in Qatar, where it will work under contract to Shell.

The Noble Roger Lewis was constructed based on the proven F&G JU-2000E design, which includes enhanced environmental protection, safety and drilling efficiency features to meet the ever-increasing requirements of worldwide exploration and production operations.

"With the delivery of the Noble Roger Lewis, the Company has successfully added both a high-specification jackup and an ultra-deepwater semisubmersible, the Noble Clyde Boudreaux, to our fleet this year," said Noble Chief Operating Officer David W. Williams. "These additions, as well as the units we expect to take delivery of in 2008 and 2009, continue to enhance our asset and revenue base and further strengthen our ability to serve our customers."

The Noble Roger Lewis is designed to operate in water depths up to 400 feet and is equipped to drill wells in high-pressure/high-temperature environments up to 30,000 feet deep. Compared to many other jackups, the Noble Roger Lewis has more deck space, higher variable load, more drilling capacity, greater cantilever reach (up to 75 feet), and accommodations for a greater number of personnel.

Noble is the leading supplier of premium jackups (independent-leg cantilevered jackups capable of operating in water depths of 250 feet to 400 feet) in the Middle East and India, with a fleet that now includes 17 drilling units.

Noble Corporation is a leading provider of diversified services for the oil and gas industry. The Company performs contract drilling services with its fleet of 62 mobile offshore drilling units located in key markets worldwide, including the U.S. Gulf of Mexico, Middle East, Mexico, the North Sea, Brazil, West Africa and India. The fleet count includes five rigs under construction.

Friday, August 31, 2007

Transocean's Swell

Jim Cramer: Transocean's Swell

Before the private-equity nonsense struck, Transocean (RIG) was rivaling National Oilwell Varco (NOV) and Schlumberger (SLB) for king of oil service.

It should have been: Transocean has the longest contracts, the best day rates, the least leverage to North America -- essentially none -- and the best deepwater profile. Then Transocean went and did the smartest thing it could possibly do: merge with GlobalSantaFe (GSF), offering a fantastic new company to shareholders. It was a brilliant move.

Interestingly, the deal put the stock in the hands of arbs, the worst possible place to be. The arbitrage style has been bunched with so many other strategies that have been failing that if Transocean had done nothing at all, instead of bettering itself with this transaction, its stock would be much, much higher -- probably closer to $120.

You can only imagine, though, if you are an arb in lots of fields, including fixed income, and the redemptions are coming all at once and fast and furious from the funds of funds -- what are you going to sell: CDOs or Transocean?

So Transocean got tagged.

Now is the time, with oil at $73 a barrel, to buy some Transocean and take advantage of the arb throwaway. Transocean is so much cheaper than Schlumberger at $95, and it could be up gigantically as the deal draws to a conclusion and is fully funded.

I know people don't even want to touch this stuff. But I know that everyone is going to be rooting around and dusting off their oil and gas plays now that oil declined to slide into the $60s.

Transocean's the play.

Zacks Likes Halliburton

Halliburton Spin-Off Positive.

Seeing Halliburton's (NYSE: HAL) latest moves as positive steps, Zacks senior oil & gas industry analyst Sheraz Mian is keeping his Buy recommendation in place on the company. From his most recent update:

'The KBR spin-off and an increased push in the Eastern Hemisphere through a headquarters in Dubai are both positive developments. The spin-off of the high volume, low margin KBR business removes distractions, improves operational focus, and makes Halliburton a pure-play on the oilfield service market.

'We believe this will aid valuation by narrowing down, if not altogether eliminating, its valuation discount relative to Schlumberger (NYSE: SLB) and other large-cap peers. Our Buy recommendation remains unchanged as we continue to view Halliburton as a core oilfield service holding.

'Management is targeting industry-leading revenue, earnings, and returns performance metrics over the next few years, highlighting the breadth and depth of the company's oilfield franchise. Our unchanged price objective of $44 is based on 2007 P/E and EV/EBITDA [enterprise value-to-earnings before interest, taxes, depreciation and amortization] multiples of 17.0x and 9.2x, still below most of its large-cap peers.'

Thursday, August 30, 2007

Noble Opportunity

Noble shares down as Chevron cancels rig early

HOUSTON, Aug 30 (Reuters) - Shares of offshore oil and gas drilling contractor Noble Corp (NE) fell more than 4 percent on Thursday after the company said Chevron Corp (CVX) put an early end to a contract for a rig in Nigeria.

In its fleet status report filed with regulators on Wednesday, Noble said Chevron had ended its contract for the "Noble Roy Butler" jackup rig about four months early.

Jackup rigs are used to drill in shallower waters.

"It had nothing to with rig performance or safety," said John Breed, a spokesman for Noble. "It allows us to market the rig four months earlier with the goal of achieving a higher dayrate in a high rig demand period worldwide."

Shares of Sugar Land, Texas-based Noble were off 3.3 percent to $49.49 in afternoon trade on the New York Stock Exchange after falling as low as $48.82.

"Early termination of Noble's jackup 'Roy Butler' in Nigeria is going to raise eyebrows (raised ours)," Tudor Pickering & Co. Securities Inc wrote in a note to clients. "Is this simply Nigeria instability or something broader? Probably former, but datapoint will bring out offshore drilling skeptics saying rig oversupply."

Noble also reported that delivery dates for four newly built rigs have been pushed back by a couple of months.

A Houston-based spokesman for Chevron was not immediately available to comment on why it canceled the contract early.

There are a number of new jackup rigs currently under construction, which has led to investor worry about those rigs flooding the market and pushing dayrates down.

The daily rate paid for use of the "Noble Roy Butler" was $129,000 to $131,000, according to a filing with the U.S. Securities and Exchange Commission.

Without Oil Sands Reserves Would've Fallen Last Year

Global oil reserves up only 1% last year

CALGARY -- Record global oil and gas profits of US$243-billion and record spending of US$401-billion have resulted in a marginal 1% increase in world oil reserves last year -- all of it coming from a 1.9-billion-barrel addition from Canada's oilsands, according to a new study.

Without Canada's contribution, 228 public oil and gas companies active globally and included in the study would have collectively produced more oil than they found, John S. Herold, a U.S.-based independent petroleum research company, and Harrison Lovegrove & Co., a global oil and gas advisory firm, said in the 2007 Global Upstream Performance Review, released yesterday.


The challenges are heating up the debate over peak oil, the report says.

"Without expressing a position on the matter, we believe that the issue has become part of the industry's long-term planning," the study says.

"If the peak oil theory is correct, and a decline in world production is imminent, a company must choose among four alternatives -- try to become a dominant participant, find a niche operational talent, harvest assets or liquidate quickly."

Wednesday, August 29, 2007

S&P Bullish On Drillers

Oil Drillers: Well-Positioned for Gains

Based on the subindustry's solid relative strength, combined with favorable overall fundamentals, S&P believes the group has additional price appreciation potential. S&P's top pick in the group is Noble (NE), ranked 5-STARS (strong buy).

Tuesday, August 28, 2007

OPEC Sets Oil Price @ $70

OPEC policy will hit the poorest hardest, says IEA chief

PARIS (AFP) - The head of the International Energy Agency (IEA) criticised OPEC for setting a target price of around 70 dollars per barrel, saying in an interview published Tuesday that it would hit the poorest hardest.

"The market is clearly aware that OPEC has set itself a new implicit price target or a new price band of around 70 dollars (51 euros) per barrel and that the organisation will endeavour to defend this level," Claude Mandil told Arab Oil and Gas review.

"I deplore this, because it is a factor that could, whatever people often say, weigh on world economic growth and which represents a very heavy burden for the poorest people and the poorest countries," he added.

Saturday, August 25, 2007

Getting Back Into the Water

Getting Back Into the Water

I know the oil service sector has come a long way in the last few years and oil is at or below 70, but unless you feel there will be a world wide recession how can we pass up an industry with stocks trading at single digit multiples.

Transocean (RIG) and Noble (NE) both fit the bill with huge growth this year and next. RIG is expected to earn $11.41 next year. That is 43% growth on the bottom line from a 2007 number of $7.93. Even if I give that estimate a 20% haircut you still end up at 11x with 15% growth. This analysis is even more compelling for NE. Take a good look at these stocks if you aren't involved.

Tar Sands' Profitability Questionable

Tar Sands: The Oil Junkie's Last Fix, Part 1

For this week's article, I collaborated with energy journalist Roel Mayer, a freelance writer on earth, energy and economy, based in Canada. Roel is a keen observer on energy, and the Canadian tar sands in particular, so he was a natural research partner for this short study on the state of oil production from tar sands.

He was also the one who coined "The Law of Receding Horizons." For those who missed my previous articles on receding horizons, it is a simple concept: as the cost of energy rises, the cost of everything else made with energy (like building materials) also rises. So an energy project which was expected to be profitable when energy costs were x amount higher than today, turns out to still be uneconomical when you get there.

And the tar sands of Alberta are shaping up to be the oil industry's poster child of this phenomenon. With oil well over $60 today, the low-grade sludge called kerogen that we recover from tar sand--actually more like a putty, at room temperature, which is why I refuse to use the whitewashing term "oil sands--should be highly profitable.

But paradoxically, the impending decline of global crude oil production, which is now coming clearly into view, has led to a mad rush to produce the tar sands. And this, in turn, has led to skyrocketing costs...such that now, the real "profit" in producing the tar sands seems to be in government tax breaks, not in actual profit on the resource itself.

In fact, the Canadian tar sands operations are facing a whole host of challenges, beyond economic--so much so, that one wonders why we try to harvest them at all.

But trying we are: according to the respected energy analytics firm Wood Mackenzie (WoodMac), about $117 billion is going to be spent on the tar sands by 2015.

Let's look at some of the challenges.

Cost Inflation

In a fine demonstration of the receding horizons paradox, WoodMac issued a report in March entitled "The Cost of Playing in the Oil Sands," which showed a 55% cost increase since 2005 for a peak flowing barrel of oil derived from the tar sands.

They further noted that in 2006 alone, many of the large tar sands developers announced cost increases and project delays, as they experienced an average 32% cost increase for integrated mining projects, and a 26% increase for in situ projects.

For example, last year Shell Canada shook investors when it revealed that its Athabascan tar sands operation would cost $11 billion Canadian to expand its operation by only 100,000 barrels per day-six times the original cost estimate, which was made only about eight years earlier.

Around the same time, a research report by Merrill Lynch said the cost increase would mean that the Athabasca project would only make about a 10% return on its investment if oil were to remain at least $50 per barrel!

WoodMac analyst Conor Bint issued a clear warning about the tar sands' receding profitability horizon, saying, "Companies in the oil sands will have to control capital expenditures going forward to ensure that project breakeven prices do not exceed current levels in order to remain profitable."

And what are the cost-inflating culprits, according to Bint?

The usual litany: labor shortages and skyrocketing material costs. "With the sheer number of oil sands projects together with the future arctic pipelines and conventional oil and gas developments in Alberta, labour demands in Canada will be pushed to their limits."

Which sort of calls bullshit on their helpful tip that good project management and contractor scheduling will help keep costs in line. No doubt, you must carefully watch your labor hours when your typical field hand is pulling down "combat pay" in the six figures. But that isn't going to help you a bit when tires, steel, machines, and basic metals are all going through the roof under the crush of increasing global demand, primarily driven by Asia, and primarily due to high oil costs. For example, the price of steel is up 70% in just the last five years.

In a recent essay on the cost inflation of conventional oil projects ("Upstream Economics and the Future Oil Supply"), oil analyst Dave Cohen made the shrewd observation that "the situation presents a classic Catch-22," where "the cure for industry inflation is a slowdown in upstream activity, whereas the initial goal was to accelerate upstream development to meet growing global oil demand."

Cohen notes that the cost of finding and producing oil has outpaced the growth in the price of oil. While oil has risen about 32% since 2005, costs have increased about 79%.

Given that the cost of finding and producing conventional oil is in the neighborhood of one-fifth that of producing tar sands, this is not an investment-friendly scenario.


Naturally, the aforementioned factors are leading to questions about the long-term viability of the tar sands industry, and slowing the pace of financing for its projects.

For not only are costs rising, they're rising faster every year, across the board: for labor, materials, and energy. And in all likelihood, taxes and pollution-related costs will soon join the list.

For example, Canadian Natural Resources Ltd. said in March it wouldn't move forward with its plans to build an upgrader plant due to runaway costs, and Synenco Energy Inc. shelved its upgrader in May. Likewise, last year France's Total SA announced that it was pushing its tar sands project back by three years, again due to soaring costs for labor and materials.

"I don't think it's an anomaly," says Mark Friesen, a Calgary-based analyst at FirstEnergy Capital Corp. "I think it's an indication of how difficult the environment is. If we're not careful, more projects may end up being delayed or cancelled."

Delays are now becoming endemic to tar sands operations. Major equipment such as cokers and metallurgical towers now have waiting times of two years or more, more than double the wait of three years ago. (Now there's an obvious investment opportunity.)

A shifting landscape of taxation also dogs tar sands ambitions. The removal this year of a significant tax advantage for Canada's income trusts, which have been among the largest backers of tar sands projects, caused Canadian Oil Sands, one of the largest trusts, to post its first net loss in its 10-year history.

Friday, August 24, 2007

Investing For $100 Oil

Investing For $100 Oil

Transocean (nyse: RIG - news - people ) also deserves a central place in your positioning for $100 oil. I have raised our buy price to $100 for RIG. Don’t be put off by the $100 per share price. Investing is a matter of percentages. If you buy 100 shares of a $25.00 stock or 25 shares of a $100.00 stock, the investment is the same. If either doubles, you will have doubled you money, regardless of how many shares you buy.

Thursday, August 23, 2007

Lehman Boosts Targets For Offshore Drillers

Lehman Boosts Target Prices for Offshore Drillers, Favors Deepwater Companies

NEW YORK (AP) -- Shares of offshore drilling companies rose on Wednesday after a Lehman Brothers analyst raised price targets for several and forecast strong earnings for the sector, citing solid revenue and high demand for rig services.

Angeline Sedita estimated offshore drillers's earnings growth from 2007 to 2009 to range from 30 to 97 percent, with Rowan Cos. on the low end and Diamond Offshore Drilling Inc. on the high end.

Most offshore companies have about 55 to 70 percent of 2009 revenue locked into current contracts, Sedita noted, but there is still potential for substantial growth. Deepwater drillers, which perform drilling operations thousands of feet below the ocean floor, have the greatest potential for a rise in earnings, she said.

"We continue to favor companies with deepwater exposure given our belief of the long-term strength of the market," Sedita wrote, "and that demand will continue to outstrip rig supply, even with new rig construction."

Sedita initiated 2009 profit estimates for several companies, including Noble Corp. and Diamond Offshore, which she called "top picks." Sedita raised Diamond's price target to $125 from $103 and Noble's target to $124 from $98.

Diamond shares rose $4.38, or 4.8 percent, to $96.08 in afternoon trading. Noble shares rose $1.30, or 2.2 percent, to $59.47.

Sedita also raised Ensco International Inc.'s price target to $63 from $60; Pride International Inc.'s target to $43 from $39; and Rowan's target to $45 from $44.

Ensco shares rose $1.10, or 2 percent, to $55.81; Pride shares rose $1.45, or 4.5 percent, to $34.03; Rowan shares rose 67 cents to $36.

Lehman Brothers suspended price targets and ratings for GlobalSantaFe Corp. and TransOcean Inc., which are merging, because the firm is advising the former during the process.

GlobalSantaFe shares rose $2.29, or 3.5 percent, to $67.29; TransOcean shares rose $2.87, or 2.9 percent, to $100.86.

Saturday, August 18, 2007

Transocean Upgraded By Stifel Nicolaus

Crude Oil Finds Buyers

Among ratings changes, Transocean (RIG) was upgraded by Stifel Nicolaus to buy from hold, lifting its shares 4% to $99.60.

Wednesday, August 15, 2007

Transocean Sets Nigerian Deepwater Record

Deepwater Pathfinder sets Nigerian deepwater record

HOUSTON -- Transocean Inc.'s ultra deepwater drillship Deepwater Pathfinder has set the record for drilling in the deepest water depth offshore Nigeria. The vessel drilled the Opukiri 1X well for Devon Energy offshore Nigeria in 2,766 m (9,075 ft) water depth.

The previous Nigerian water-depth record was 2,690 m (8,826 ft) set last year for Petrobras on the Kiniun 1X well by the Transocean ultra deepwater drillship Deepwater Discovery.

China's Dependency On Oil Imports Hits Record High In July

China's Dependency on Oil Imports Hits Record High in July

BEIJING -- China's dependency on crude-oil imports hit a record high of 48.8% in July on a drop in domestic oil production and record volumes coming in from abroad.

Analysts say it is inevitable that the key 50% threshold will be broken as China's efforts to increase oil output won't be enough to offset increases in crude consumption.

Tuesday, August 14, 2007

How To Profit From Global Warming

Russia's seabed flag heralds global ocean carve-up.

No firm is able to drill anywhere near the North Pole, but global warming may make the region more accessible.

Drilling group Transocean says its Discoverer Deep Seas holds the world depth record for oil and gas drilling, set in 2003 at 10,011 feet of water in the Gulf of Mexico.

"We are building four new enhanced Enterprise-class drill ships (in South Korea) that will be able to work in water depths of 12,000 feet and drill wells 40,000 feet deep," said Guy Cantwell, spokesman for Transocean.

Soros Reveals Stake In Conoco

Soros fund reports stakes in Conoco, Freeport-filing

WASHINGTON, Aug 14 (Reuters) - Billionaire investor George Soros reported in a regulatory filing on Tuesday that his fund has taken on stakes in U.S. oil major ConocoPhillips and Freeport-McMoRan Copper & Gold Inc.

Soros Fund Management reported in a filing with the U.S. Securities and Exchange Commission its holdings as of June 30, which included 432,243 shares in ConocoPhillips and 407,474 shares in Freeport-McMoRan.

Monday, August 13, 2007

Sterne Agee Upgrades Transocean/GlobalSantaFe

Research Reports: Barron's Online

Transocean - RIG-NYSE
Buy - Price 100.40 on August 7
by Sterne Agee
After analyzing GlobalSantaFe merger terms, we have raised our ratings on both stocks from Hold to Buy. The 12-month target for RIG is 122 a share; for GSF, 81. The combined entity should earn in excess of $12 a share in '08. Given a high level of firm contract backlogs, confidence in this estimate should be higher than normal...Transocean is the dominant player in the deepwater offshore-drilling industry.

Jefferies Upgrades Transocean/GlobalSantaFe

Ahead of the Bell: Oilfield Services

Jefferies Analyst Upgrades GlobalSantaFe and Transocean to "Buy" From "Hold"

NEW YORK (AP) -- A Jefferies & Co. analyst upgraded Transocean Inc. and GlobalSantaFe Corp. on Monday, saying the decline in the oilfield services providers' stocks since the companies announced a merger is overdone.

Last month, GlobalSantaFe and Transocean Inc. agreed to join forces to create the world's biggest fleet of oil rigs. These companies operate ships that oil companies use to drill for oil, as well as other oil services.

Shares of both companies are down more than 13 percent since the deal was announced. Jefferies analyst Judson E. Bailey said investors are worried that decaying credit quality could drag the economy into recession, which would stanch demand for energy.

He said while the risks have increased, the sell-off is too much. He upgraded both companies' shares to "Buy" from "Hold."

He said the $16 billion in contracts the two Houston-based companies have lined up should assure they can close the deal despite the volatility in the debt markets.

Friday, August 10, 2007

Zacks: Conoco Still A Buy

Minus Venezuela, COP Still a Buy

News reports that ConocoPhlllips is exiting its Venezuela businesses has not caused Zacks senior energy analyst Sheraz Mian to lower his Buy rating on the shares to this point. Here's why:

The $15 billion share buyback announcement, expected to be completed by year-end 2008, followed the company's exit from Venezuela. While Venezuela is no doubt a setback, we were positively surprised by the buyback program, which will effectively reduce the company's share count by almost 9%.

Our continued positive view of ConocoPhillips shares reflects the company's strong position in the politically stable OECD [Organization for Economic Cooperation and Development] markets and attractive valuation. The company has significantly strengthened its upstream portfolio through its Burlington and LUKOIL transactions and remains a premier domestic refining player.

The recent joint partnership agreement with EnCana will enhance the company's upstream and downstream prospects further. Our new target price of $90, up from $80 before, results from applying 2007 P/E [price-to-earnings] and P/CF [price-to-cash flow] multiples of 8.7x and 5.4x, respectively. These are still at discounts to the super majors.

Wednesday, August 8, 2007

Leon Cooperman: Why I'm A Bull

Why I'm a bull.

(Fortune Magazine) -- The stunning drop in stock prices dominated the headlines for days in late July -- and not just in the business press. The major market averages in the U.S. fell approximately 5% in a week, the largest weekly decline in five years.

The steady rise in share prices that preceded the plunge contributed to investor complacency; bond buyers were not demanding enough compensation for the risks they assumed. Now fear has replaced complacency, and risk is more appropriately priced.

As a result -- and most important because I do not believe recent credit-market turmoil will derail the economy -- I view this market drop as a long overdue correction rather than the end of the bull market.

My outlook for the next 12 months has not changed. I believe there's limited downside risk in the U.S. stock market from current levels, and returns over the coming year should be in the low double digits.

One key reason is that we are enjoying steady employment growth, averaging 145,000 jobs a month so far this year, which should mitigate the effects of recent debt-market troubles and housing weakness.

In defense of my notion that the equity market is unlikely to fall sharply from current levels, I would note the following: First, bull markets do not die of old age, they die of excesses such as accelerating and above-trend economic growth, rapidly rising inflation, and interest-rate hikes from a hostile Federal Reserve.

Those excesses are simply not with us today, nor do I expect their arrival anytime soon.

Second, the current bull market has experienced no price/earnings ratio expansion -- unlike every other bull market in the past five decades. In effect, this bull market is not characterized by speculation; rather, its expansion has been restrained compared with earnings growth and the trend of inflation and bond interest rates.

Buffett Ups Burlington Northern Stake

Berkshire Buys More BNSF Shares

Tuesday August 7, 10:58 pm ET
By Anna Jo Bratton, Associated Press Writer
Buffett's Berkshire Hathaway Buys 1.62 Million Shares of Burlington Northern

OMAHA, Neb. (AP) -- Warren Buffett's Berkshire Hathaway Inc. bought 1.62 million shares of Burlington Northern Santa Fe Corp. in the past few days, according to a filing late Tuesday with the Securities and Exchange Commission.

The acquisition increases Berkshire's stake to 40.65 million shares -- about 11.5 percent of the Fort Worth, Texas-based railroad.

Tuesday, August 7, 2007

Calyon Securities Upgrades Oil Services

Ahead of the Bell: Oilfield Services.

NEW YORK (AP) -- A Calyon Securities analyst upgraded the oilfield services sector on Tuesday, saying the stocks have fallen too far.
Calyon Securities analyst Mark Urness hiked the sector to "Overweight" from "Marketweight" and upgraded a number of stocks including Baker Hughes Inc., Ensco International Inc., Halliburton Co., Oil State International Inc., Transocean Inc. and Weatherford International Inc.

Urness said fear has overcome greed. While it was only natural for prices to pull back from their peaks, an index of oilfield services companies is down 11 percent since mid-July. He said this is too far.

Investors appear to believe that the credit shocks enveloping the market are going to lead to "a dramatic slowing of the U.S. economy, eventually spreading globally and bringing down oil demand and prices," he said.

But fundamentals for the industry remain intact, he said. Economies in places like India and China continue to grow, leading to more demand for oil.

That will help these companies, which operate rigs helping energy companies extract oil and perform other services like drilling.

Monday, August 6, 2007

More On Transocean

Oil Stocks Look Good on Overdone Selloff

Sorry, but I can't back away from the oils or the oil drillers here. They had that huge run up and now are pulling back so heavily that you have to presume that oil, the commodity, is going to the $60s. I am not buying it. I think that oil could be heading down, but this selloff is overdone. Here's why: 1. It is true that most oil companies did not grow their reserves this quarter. That's what I keep hearing is the reason for the downturn. But many did: XTO, Devon, Anadarko and Apache, for example. 2. Those who didn't grow, which includes ExxonMobil and Occidental, have to drill more. The CFO of Occidental said that to me on Friday's "Mad Money". 3. The offshore drillers in particular are acting totally nuts. Who knows where Transocean would be if it chose not to do a deal? So what's going on?...

Transocean Selloff Presents Buying Opportunity

7 Trading Ideas for Monday

5+ Consecutive Down Days: These are stocks that have closed down for five or more consecutive days and are trading above their 200-day moving average. Our research shows that stocks trading above their 200-day moving average that close down for five or more days have shown positive returns, on average, 1-day, 2-days and 1-week later. Historically, these stocks have provided traders with a significant edge.

Transocean (NYSE:RIG)

Wednesday, August 1, 2007

Oil Close To $79

Oil Hits New Record on Inventory Report

Oil Prices Rise to New Record After Government Reports Drop in Crude Inventories

NEW YORK (AP) -- Oil prices jumped to a new record Wednesday after the government reported a steep drop in crude inventories last week as refinery utilization surged.

Light, sweet crude for September delivery rose 55 cents to $78.76 a barrel on the New York Mercantile Exchange. That surpasses the previous record of $78.40, set in July 2006.

Tuesday, July 31, 2007

Oil Settles Above $78, Sets New Record

Oil Settles Above $78, Sets New Record

NEW YORK (AP) -- Oil futures settled at a record high above $78 Tuesday on expectations that crude inventories fell last week and reports of new violence in Nigeria, a large oil producer and key supplier to the U.S.

Investors believe Wednesday's inventory report by the Energy Department's Energy Information Administration will show that refiners drew down oil inventories as they continued to increase gasoline production last week, analysts said.

News that a Nigerian construction worker was kidnapped Tuesday added to the bullish tone of a market that seemed determined to test last year's record highs, analysts said.

"They want to get back to $78.40," the intraday price record set July 14, 2006, said Jack Hunter, an energy trader at FC Stone Group in Kansas City.

Light, sweet crude for September delivery gained $1.38 to settle at $78.21 a barrel on the New York Mercantile Exchange. That puts futures within striking distance of the intraday record, and beat the settlement price record of $77.03 set the same day.

Oil's advance helped pull other energy futures higher. But news that Total PetroChemicals USA Inc. is reducing output at a Texas refinery to perform maintenance gave investors a rare additional reason to buy gasoline futures.

The August gasoline contract, which expired after the close of trading, rose 5.52 cents to settle at $2.1408 on the Nymex. Expiring futures contracts are often subject to volatile swings as investors square positions. The September contract, which now assumes front-month status, rose 4.67 cents to settle at $2.1059 a gallon.

At the pump, meanwhile, the average national price of a gallon of gas fell 1.4 cents overnight to $2.876, according to AAA and the Oil Price Information Service. Retail prices, which typically lag the futures market, peaked at $3.227 a gallon in late May. Futures at that point were rallying on concerns that refiners were not making enough gas to meet summer driving demand.

"The gasoline market now appears amply supplied with the end of the heavy driving season only about a month away," wrote Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Ill., in a research note.

That's part of the reason gasoline futures have fallen nearly 29 cents over the last two weeks.

In other Nymex trading, heating oil futures rose 3.49 cents to settle at $2.10 a gallon and natural gas futures fell 30.8 cents to settle at $6.191 per 1,000 cubic feet.

September Brent crude gained $1.31 to settle at $77.05 a barrel on the ICE futures exchange in London.

Analysts surveyed by Dow Jones Newswires, on average, expect Wednesday's inventory report to show crude oil inventories fell by 690,000 barrels in the week ended July 27 as refinery utilization rates rose by 0.7 percentage points to 92.4 percent of operating capacity.

Gasoline stocks are expected to have increased by 1.1 million barrels, and distillate stocks, which include heating oil and diesel fuel, to have risen 1.4 million barrels.

Declines in crude inventories have driven oil prices higher in recent weeks, much to analysts' chagrin.

Vienna's PVM Oil Associates noted that "even with such a decline, U.S. crude stocks would remain some 43 million barrels above the five-year average and around 17 million barrels higher than seen in the same week last year."

Those fundamentals don't seem to matter to many speculators. Analysts say large investment funds -- many of which trade on technical factors -- have pulled money out of gasoline futures and plowed it into oil futures in recent weeks, another factor driving high oil prices and undermining gasoline futures.

Investors are also closely watching OPEC, whose officials have been giving mixed signals about whether the cartel will decide during a September meeting to boost production.

"There is no official price band, but I think I can safely say we would not feel comfortable if the oil price sank to $50 a barrel," said Abdalla Salem el-Badri, secretary general of the Organization of Petroleum Exporting Countries, in an interview with Austrian financial daily Wirtschaftsblatt published Monday. "A price above $80 also wouldn't make us particularly pleased."

Sunday, July 29, 2007

Oil Back Above $77

Oil bounces back to $77

LONDON (Reuters) -- Oil jumped back to $77 a barrel Friday as investors focused on tightening fuel supplies and brushed off worries about corporate borrowing costs and the U.S. economy that roiled stock markets.

U.S. crude for September delivery gained $2 to settle at $77.02 a barrel on the New York Mercantile Exchange, according to early tallies.

Sharp falls in global stock markets, triggered by weak U.S. housing data and tightening credit markets, had dragged crude more than $1 lower late on Thursday. But oil recovered its poise on Friday, remaining within sight of its record high of $78.40 hit last July.

"The upward movement again shows the market is tight on supply because of the peak demand period," said Gerard Burg, an oil and gas analyst from National Australia Bank.

A slowing of the U.S. economy would have an impact on energy consumption and some saw room for more downside on oil.

"We think there may be a little more room to go before the current downdraft runs its course," said a Man Financial report.

For now, however, fuel demand in the world's top consumer remains robust. Government inventory data on Wednesday showed a third straight draw in U.S. crude stocks.

Analysts said OPEC's output curbs would ensure a continuing decline in U.S. crude stocks through the third quarter.

Traders meanwhile continued to monitor the closure of most of ExxonMobil's 326,000-barrel per day Fawley refinery, which accounts for almost a fifth of Britain's refining capacity.

While bullish for gasoline and heating oil, the closure could be bearish for North Sea crude if the plant stops processing for a prolonged period. Exxon said on Thursday it plans to restart operations over the next several days.

Thursday, July 26, 2007

Oil Tops $77

Oil Prices Top $77 a Barrel.

NEW YORK (AP) -- Oil prices topped $77 a barrel Thursday amid speculative buying and worries that inventories of crude oil at a key Oklahoma terminal fell last week.

Light, sweet crude for September delivery climbed as high as $77.24 a barrel in electronic trading on the New York Mercantile Exchange before dropping back to $76.91, up $1.03.

September Brent crude advanced 54 cents to $76.86 a barrel Thursday on the ICE Futures exchange in London after hitting $77.16 earlier in the session.

U.S. oil surpassed London Brent prices Thursday for the first time in five months. A supply glut at Cushing, Oklahoma -- the delivery point for crude traded on the Nymex -- had held U.S. oil unusually lower than the brent benchmark since February.

The U.S. Energy Department's weekly supply report on Wednesday, however, showed a 1.4 million barrel decline in oil inventories in and around the Cushing, Oklahoma, storage point, analysts said.

Prices jumped Wednesday after the weekly supply report showed overall increases in gasoline inventories and refinery utilization, and declines in inventories of crude oil, roughly in line with analyst expectations.

Some, however, hinted Thursday's price movements were purely speculative as fundamentals were mostly unchanged.

"It seems that the bulls are back on the market, " said Sucden analyst Michael Davies in London. "Investors are prepared to put more money into oil once again."

Thursday's increases renewed speculation that crude futures would resume their challenge of record highs.

"It is still very much a reality that we could see $80 a barrel," said Rob Laughlin of brokerage MF Global. "We haven't seen a storm yet and refineries have shown there is demand for crude out there."

Transocean and ConocoPhillips

We continue to like Transocean (RIG) and ConocoPhillips (COP) based on this weeks news.

Transocean and GlobalSantaFe's Slick Union

Financial engineering has come to offshore drilling.

On Monday, Transocean (nyse: RIG - news - people ) and GlobalSantaFe (nyse: GSF - news - people ) agreed to merge, creating a $53 billion empire. Under the deal, shareholders will not get a premium but they will get a partial stake in the new company and $15 billion in cash.

With global demand for oil and gas surging, the services industry has been under pressure to consolidate. By piggy-backing on one another, larger companies will be able to take advantage of economies of scale and enhance their purchasing power. The Transocean-GlobalSantaFe merger may be the first major domino to fall in a long line of similar aglomertins.

The deal pleased Wall Street, as shares of Transocean jumped 6.3%, or $6.92, to $116.89 in Monday afternoon trading. Similarly, GlobalSantaFe shares climbed 5.2%, or $3.90, to $78.64.

Management may have called the agreement "a merger of equals," but Transocean is clearly leading the way.

First, Transocean dwarfs GlobalSantaFe in sheer size. At $18 billion, GlobalSanteFe's market capitalization is half of Transocean. The combined company will operate under the Transocean name and trade under the "RIG" ticker symbol. More significantly, Transocean's current chief executive officer, Robert Long, will preside over the enlarged company, while GlobalSantaFe's CEO, Jon Marshall will take the chief operating officer title.

The new Transocean will boast 20,000 employees and a global fleet of 146 rigs. "This transaction will enhance our high-end floater fleet, including five newbuild ultra-deepwater units, while growing our position in the worldwide jackup market, especially in the Middle East, West Africa and North Sea," Long said on Monday. "In addition, we will be positioned to better offer the full scope of drilling services to customers in all geographical areas."

Transocean's pseudo-takeover offers shareholders no premium, but the $15 billion payout is a compelling concession. For each Transocean share, shareholders will get $33.03 per share and 0.70 share of the new company's stock. Meanwhile, for each GlobalSanteFe share, shareholders will get $22.46 in cash and a 0.48 share. In total, the companies will shell out $15 billion in cash, funded by a bridge loan from Goldman, Sachs and Lehman Brothers -- in other words, the pay-day will be funded by debt. The combined company will use the first two years of free cash flow to reduce its borrowings.

"The $15 billion cash payment allows us to achieve a more appropriate capital structure and deliver immediate value to our combined shareholders," GlobalSantaFe's Marshall said on Monday.

Financially and strategically, it's a smart move, according to Weedon & Company analyst Matt Conlan

In the case of most offshore driller mergers, there are few operational synergies-- Transocean and GlobalSantaFe predict $100 million to $150 million in annual savings by 2010. However, from a debt capacity stand point, it was advantageous for the companies to merge.

"This is all about capital," Conlan told on Monday. "The enormous debt capacity really drove the deal." The merger allows the companies to buy in 30% of their stock without paying a premium to the current market price. "That greatly enhances your earnings and cash flow per share," he said. Now, "the capital structure will have a 30% debt-to-enterprise value, which is more reasonable," Conlan said. "It's still low-risk." Despite the added debt, the combined company will still have plenty of dry powder to make other acquisitions possible.

Before the deal, Transocean had $3.5 billion in debt, while GlobalSantaFe had $707 million. Combined, the companies have a $33 billion backlog, $16 billion of which is free cash flow. Essentially, "they're give back all of their free cash flow," Caylon Securities analyst, Mark Urness said Monday.

In addition, there are a handful of merger benefits. By joining forces, the former rivals will no longer have to compete against each other for work or spar for future equipment purchases.

Other offshore drilling players will probably follow suit. "I think that the immense debt capacity in the industry is going to continue to put pressure on companies," Conlan said. For years, offshore drilling investors have pressured companies to return value to shareholders, instead of plowing it all back into the business. Like Transocean and GlobalSantaFe, most of the industry is highly underlevered. According to Canlon, the sector has a $100 billion market capitalization and less than $5 billion in net debt. From 2007 to 2009, there will be $40 billion in free cash flow.

With so many players, and so many possible match-ups, its difficult to predict what pairings will occur; however, one likely takeover target is Pride International (nyse: PDE - news - people ). As one of the cheapest companies in the sector, it could attract suitors.

Investors seem to agree: shares of Pride were up 5.1%, or $1.95, to $40.18 on Monday.

ConocoPhillips Net Profit Falls 94 Percent in 2Q, Projects Drop in 3Q Production

HOUSTON (AP) -- ConocoPhillips' decision to snub an invitation from President Hugo Chavez to keep producing crude oil in Venezuela under tougher terms has had two results: much lower net profit in the second quarter and a projected drop in third-quarter production.

On Wednesday, the third-largest U.S. oil company said a $4.5 billion charge in the second quarter to write off its huge assets in Venezuela sliced net income by 94 percent. Without that charge, operating earnings topped Wall Street expectations with the help of higher oil prices and refining margins.

Investors, focusing on operating earnings, drove ConocoPhillips shares up $1.96, or 2.4 percent, to $84.29 Wednesday. The shares have traded in a range of $54.90 to $90.84 in the past year.

Some analysts said the cut in production could make it hard for ConocoPhillips to achieve production-growth targets this year. John Parry, a senior analyst with John S. Herold Inc., said lower output in the July-September period almost certainly will lead to lower third-quarter earnings, perhaps as much as 20 percent versus the most-recent quarter.

"It's still going to be a decent number," Parry said. "It's not going to shake the foundation of the company. But it's going to be a factor."

The April-June results amounted to net income of $301 million, or 18 cents a share, compared with last year's robust second quarter when ConocoPhillips posted a profit of $5.18 billion, or $3.09 a share. ConocoPhillips was the first of the U.S. oil majors to report second-quarter results.

Revenue in the most-recent quarter rose to $47.4 billion from $47.1 billion in the year-ago period.

Excluding the $4.5 billion Venezuelan impairment, ConocoPhillips' adjusted earnings amounted to $4.8 billion, or $2.90 a share -- far exceeding the $2.68 a share forecast of analysts surveyed by Thomson Financial.

ConocoPhillips, along with Exxon Mobil Corp., refused to sign deals last month with Venezuela to keep pumping oil in that country's petroleum-rich Orinoco River basin. The company said last month it likely would incur the $4.5 billion charge in the second quarter.

ConocoPhillips has said its initial investment in Venezuela was $2.6 billion, though analysts say it's worth far more than that.

In a conference call with analysts Wednesday, ConocoPhillips Chairman Jim Mulva said the company is negotiating with Venezuelan authorities on final compensatory terms for its investment. Earlier this month Mulva said such talks could take several more months.

"We're working toward an amicable solution and settlement on compensation," he said. "If we don't, then we resort to international arbitration."

Don Putin

Don Putin


When Vladimir Putin took power in Russia in 2000, the burning question was: "Who is Putin?" It has now changed to: "What is the nature of Putin's Russia?" This regime has been remarkably consistent in its behavior, yet foreign leaders and the Western press still act surprised at Mr. Putin's total disregard for their opinions.

Again and again we hear cries of: "Doesn't Putin know how bad this looks?" When another prominent Russian journalist is murdered, when a businessman not friendly to the Kremlin is jailed, when a foreign company is pushed out of its Russian investment, when pro-democracy marchers are beaten by police, when gas and oil supplies are used as weapons, or when Russian weapons and missile technology are sold to terrorist sponsor states like Iran and Syria, what needs to be asked is what sort of government would continue such behavior. This Kremlin regime operates within a value system entirely different from that of the Western nations struggling to understand what is happening behind the medieval red walls.

Mr. Putin's government is unique in history. This Kremlin is part oligarchy, with a small, tightly connected gang of wealthy rulers. It is partly a feudal system, broken down into semi-autonomous fiefdoms in which payments are collected from the serfs, who have no rights. Over this there is a democratic coat of paint, just thick enough to gain entry into the G-8 and keep the oligarchy's money safe in Western banks.

But if you really wish to understand the Putin regime in depth, I can recommend some reading. No Karl Marx or Adam Smith. Nothing by Montesquieu or Machiavelli, although the author you are looking for is of Italian descent. But skip Mussolini's "The Doctrine of Fascism," for now, and the entire political science section. Instead, go directly to the fiction department and take home everything you can find by Mario Puzo. If you are in a real hurry to become an expert on the Russian government, you may prefer the DVD section, where you can find Mr. Puzo's works on film. "The Godfather" trilogy is a good place to start, but do not leave out "The Last Don," "Omerta" and "The Sicilian."

The web of betrayals, the secrecy, the blurred lines between what is business, what is government, and what is criminal -- it's all there in Mr. Puzo's books. A historian looks at the Kremlin today and sees elements of Mussolini's "corporate state," Latin American juntas and Mexico's pseudo-democratic PRI machine. A Puzo fan sees the Putin government more accurately: the strict hierarchy, the extortion, the intimidation, the code of secrecy and, above all, the mandate to keep the revenue flowing. In other words, a mafia.

If a member of the inner circle goes against the Capo, his life is forfeit. Once Russia's richest man, Mikhail Khodorkovsky wanted to go straight and run his Yukos oil company as a legitimate corporation and not as another cog in Mr. Putin's KGB, Inc. He quickly found himself in a Siberian prison, his company dismantled and looted, and its pieces absorbed by the state mafia apparatus of Rosneft and Gazprom.

The Yukos case has become a model. Private companies are absorbed into the state while at the same time the assets of the state companies move into private accounts.

Alexander Litvinenko was a KGB agent who broke the loyalty code by fleeing to Britain. Worse, he violated the law of omertà by going to the press and even publishing books about the dirty deeds of Mr. Putin and his foot soldiers. Instead of being taken fishing in the old-fashioned Godfather style, he was killed in London in the first recorded case of nuclear terrorism. Now the Kremlin is refusing to hand over the main suspect in the murder.

Mr. Putin can't understand Britain doing potential harm to its business interests over one human life. That's an alien concept. In his world, everything is negotiable. Morals and principles are just chips on the table in the Kremlin's game. There is no mere misunderstanding in the Litvinenko case; there are two different languages being spoken.

In the civilized world, certain things are sacrosanct. Human life is not traded at the same table where business and diplomacy are discussed. But for Mr. Putin, it's a true no-limits game. Kosovo, the missile shield, pipeline deals, the Iranian nuclear program and democratic rights are all just cards to be played.

After years of showing no respect for the law in Russia, with no resulting consequences from abroad, it should not come as a surprise that Mr. Putin's attitude extends to international relations as well. The man accused of the Litvinenko murder, Andrei Lugovoi, signs autographs and enjoys the support of the Russian media, which says and does nothing without Kremlin approval. For seven years the West has tried to change the Kremlin with kind words and compliance. It apparently believed that it would be able to integrate Mr. Putin and his gang into the Western system of trade and diplomacy.

Instead, the opposite has happened -- the mafia corrupts everything it touches. Bartering in human rights begins to appear acceptable. The Kremlin is not changing its standards: It is imposing them on the outside world. It receives the stamp of legitimacy from Western leaders and businesses but makes those same leaders and businesses complicit in its crimes.

With energy prices so high, the temptation to sell out to the Kremlin is an offer you almost can't refuse. Gerhard Schröder could not resist doing business with Mr. Putin on his terms and, after pushing through a Baltic Sea pipeline deal while in office, he had a nice Gazprom job waiting for him when he left the chancellorship. Silvio Berlusconi also became a Putin business partner. He even answered for Mr. Putin at an EU meeting, vigorously defending Russian abuses in Chechnya and the jailing of Mr. Khodorkovsky and then joking to Mr. Putin, "I should be your lawyer!" Now we see Nicolas Sarkozy boosting the interests of French energy company Total in the Shtokman gas field.

Can Mr. Sarkozy possibly speak out strongly in support of Britain after making big deals on the phone with Mr. Putin? He should know that if Gordon Brown gets Mr. Putin on the line and offers to drop the case against Mr. Lugovoi, perhaps Total will find itself pushed out to make room for BP.

We in the Russian opposition have been saying for a long time that our problem would soon be the world's problem. The mafia knows no borders. Nuclear terror is not out of the question if it fits in with the Kremlin business agenda. Expelling diplomats and limiting official visits is not going to have an impact.

How about limiting the Russian ruling elite's visits to their properties in the West? Ironically, they like to keep their money where they can trust in the rule of law, and so far Mr. Putin and his wealthy supporters have every reason to believe their money is safe. They've been spending so much on ski trips to the Alps that they recently decided to bring the skiing to Russia by snapping up the Olympic Winter Games.

There is no reason to cease doing business with Russia. The delusion is that it can ever be more than that. The mafia takes, it does not give. Mr. Putin has discovered that when dealing with Europe and America he can always exchange worthless promises of reform for cold, hard cash. Mr. Lugovoi may yet find himself up for sale.

Putin's Thugpolitik

UK demands 'colonial, insulting'

MOSCOW, Russia (Reuters) -- Russian President Vladimir Putin on Tuesday denounced Britain for making insulting demands that betrayed outdated colonial thinking, in comments likely to escalate a row over the murder of Alexander Litvinenko.

A stern -- at times seemingly angry -- Putin used highly forceful Russian to denounce Britain.

Britain and Russia have each expelled four diplomats in a spat over the murder and Moscow's refusal to extradite the chief suspect in the case.

"What they propose is an obvious vestige of colonial thinking," Putin was shown saying on Russian state television.

"They must have clearly forgotten that Britain is no longer a colonial power, there are no colonies left and, thank God, Russia has never been a British colony," Putin said.

Britain has demanded Moscow extradite Russian businessman Andrei Lugovoy so that he can be put on trial in London for Litvinenko's murder.

Russia has refused, citing its constitution, which forbids the extradition of Russian citizens.

"They should better change their brains than our constitution," Putin said at a meeting with youth organizations in Zavidovo, some 120 km (75 miles) northwest of Moscow.

Friday, July 20, 2007

Oil Prices Up After Violence In Nigeria

Oil prices up after violence in Nigeria

VIENNA, Austria - Oil prices rose Friday after news of new violence in southern Nigeria, where police said a Lebanese businessman was shot dead in his home in an apparent kidnapping attempt.

Kidnappings and oil rig attacks have become common in the southern river delta region of Africa's largest crude producer, where oil giants like Royal Dutch Shell PLC, Exxon Mobil Corp. and Eni SpA have large operations. The assailants range from militants demanding political concessions to criminal gangs seeking ransoms.

Arrests are rare, even though the kidnappings and bombings have cut production in Nigeria by about a quarter, helping to drive up oil prices worldwide.

Light, sweet crude for August delivery on the New York Mercantile Exchange rose 19 cents to $76.11 a barrel by afternoon in Europe.

The contract had risen 87 cents, or 1.2 percent, to close at $75.92 a barrel Thursday, after hitting an 11-month high of $76 right before the end of the trading day. A front-month contract last settled over $76 a barrel on Aug. 9.

The Nymex September crude contract, which becomes the front-month contract at the end of Friday trading in New York, was up 20 cents at $76.27.

In London, Brent crude for September delivery was up 8 cents to $77.75 on the ICE Futures exchange.

Crude oil prices rose Thursday after Total SA declared force majeure — a contractual clause absolving a supplier for delivery delays beyond its control — at its 240,000 barrel-a-day Dalia field facility in Angola. Production at the facility fell to 127,000 barrels due to an electrical problem. Total said Friday it had lifted force majeure on oil exports from the Dalia installation.

Vienna's PVM Oil Associates also listed "reduced OPEC exports by 240,000 barrels a day in the four weeks to Aug. 4 ... a fire at Saudi Arabia's Ras Tanure oil terminal (and) reports of China's economic growth reaching 11.9 percent in the second quarter" as pushing prices upward.

Prices also were reacting to a U.S. inventory report earlier this week that showed declines in both oil and products stocks.

The report Wednesday also showed U.S. gasoline demand over the previous four weeks has surged to record levels, keeping the fuel as one of the leading movers of global oil prices.

Wednesday, July 18, 2007

Oil Back Above $75

Oil Goes Back Above $75

Oil futures bounced higher on Wednesday after a bullish inventory report released by the Energy Information Administration caught analysts and traders by surprise.
August light sweet crude was up $1.12 at $75.07 a barrel on the New York Mercantile Exchange. Reformulated gasoline jumped 8 cents to $2.19 a gallon, and heating oil climbed 6 cents to $2.09 a gallon.

Natural gas advanced 17 cents, or 2.6%, to $6.47 per million British thermal units.

Energy futures markets were calm until the EIA released its weekly storage report. The figures show that crude inventories declined by 500,000 barrels during the week ended July 13, while analysts were expecting a 450,000-barrel decline.

Gasoline stores plummeted by 2.2 million barrels. Analysts were looking for an 850,000-barrel increase. Distillate inventories grew by 145,000 barrels, well short of the 900,000-barrel injection that had been foreseen.

Refinery utilization increased 0.8 percentage points to 91% during the week.

"Although there was a slight increase in refinery utilization, the drop in gasoline inventories caught many in the market off guard," says Thomas Hartmann, analyst at Altavest Worldwide Trading.

Tuesday, July 17, 2007

Oil Hits $75

Crude contract back atop $75 a barrel

SAN FRANCISCO (MarketWatch) -- Crude-oil futures climbed past $75 a barrel Tuesday, with improvements in U.S. refinery activity expected to dent crude supplies and with overseas production challenges and a key options expiration helping send prices higher.

The benchmark August crude contract touched its highest level since last August.
"The market is trying to fulfill its technical destiny," said Phil Flynn, analyst at Alaron Trading.

"Fund money has been pouring into the energy complex for the past couple of weeks, and that has bolstered prices quite a bit, adding $5 to $10 a barrel," said Michael Lynch, president of Strategic Energy & Economic Research.

"They are reacting in part to the outages in Nigeria and the North Sea, as well as refinery problems in the U.S.," he said in e-mailed comments.

But Lynch warned that "it appears as if the third quarter will see a serious turnaround in fundamentals, especially if we don't get any major hurricane losses."
'Fund money has been pouring into the energy complex for the past couple of weeks, and that has bolstered prices quite a bit, adding $5 to $10 a barrel.'
— Michael Lynch, Strategic Energy & Economic Research.

Crude oil for August delivery was last up 80 cents, or 1.1%, to $74.95 a barrel on the New York Mercantile Exchange. The contract hit an intraday high of $75.35 a barrel during the session, its highest level since August 25, 2006, when it climbed as high as $76.38.

The record intraday level for a front-month contract stands at $77.95 from the regular trading session on July 14, 2006. In electronic trading, it climbed as high as $78.40 that day.

The expiration of August crude options likely helped exaggerate Tuesday's move, traders said.

And petroleum products climbed along with crude, with the August reformulated gasoline adding 2.38 cents, or 1.1%, to trade at $2.15 a gallon, but that's after dropping Monday to a one-month low. August heating oil rose 1.74 cents to $2.073 a gallon.

As of Tuesday, however, the precise production output affected by the closure of the CATS pipeline remained unknown, Dow Jones Newswires reported.

"North Sea production problems have been supporting Brent for the last few days," said James Williams, economist at WTRG Economics.

But it's really "about refinery capacity and demand from refineries snapping up crude inventories," said John Person, president of "That is what is keeping the bullish pressure going for this market."

Traders have been focusing on refinery activity for several weeks. The largest of three crude-processing units at BP Plc's Whiting, Ind., refinery was restarted over the weekend. The unit had been taken offline on July 9, according to a news report Monday from Dow Jones Newswires.

Separately, BP said the restart of a processing unit at its Texas City, Texas, refinery will likely stretch into the week and may take until July 22 to conclude, Dow Jones reported Monday. And a processing unit at Valero Energy's McKee refinery in Sunray, Texas, was restarted Saturday after several days of repairs.

"The return of three refineries to full operations... should start to reduce the exceptionally high crude-oil stocks," said Williams, in e-mailed comments.
At the same time, West Texas Intermediate crude is likely "trying to return to its normal relationship to the price of Brent," said Williams. "WTI normally trades at a premium to Brent but high inventories at Cushing, [Okla.] depressed the U.S. marker crude, and Brent has been at a premium to WTI."

On Monday, Brent crude climbed as high as $78.40 on the InterncontinentalExchange
ICE167.98, -2.00, -1.2%) -- 25 cents shy of the record intraday high reached in August 2006, according to Dow Jones Newswires. On Tuesday, it traded lower.

'It looks as if the old high of $78.40 will be challenged, and if there is even a hint or suspected threat of a supply disruption of any kind from here until mid September ... then $80 and even $85 is not out of the picture.'
— John Person,

Monday, July 16, 2007

$80 Oil Lurks

$80 oil lurks

NEW YORK ( -- Oil prices are again on a tear.

In the last four weeks, U.S. light crude oil futures have jumped about 12 percent and are now trading some $6 shy of the all-time trading high of $78.40 a barrel for a front-month contract set last July.

So, with both the geopolitical scene and hurricane season heating up, will we see $80 oil in the next few weeks?

"I don't see anything blunting the price rise until it disrupts our way of life," said energy analyst Mike Fitzpatrick, who's firm Man Financial has an $83 target price for crude by the end of September. "With the economy the way it is, that clearly hasn't happened yet."

The recent runup - crude is now above $72 but traded in the low $60s just a month ago - is the result of heightened tensions overseas, expectations of a pickup at refineries (read more demand) and overall a tighter supply and demand picture, said Antoine Halff, head of energy research at Fimat in New York.

On the geopolitical front, a truce between the Nigerian government and rebels who want greater local control over oil revenue is unwinding fast. Oil worker kidnappings have resumed in the African country, which exports over 2 million barrels a day of high quality crude.

In Venezuela, ExxonMobil and ConocoPhillips recently said they were leaving the country after left-leaning president Hugo Chavez tried to renegotiate leases more favorable to the Venezuelan government. The departure of the big oil firms raises question as to whether Venezuela can keep up production, already faltering due to lack of investment in recent years.

And international inspectors are set to release a report any day detailing Iran's nuclear activity, which will almost surely be followed by more tough talk, at least, by both sides in the spat over that country's nuclear program.

Meanwhile, analysts say refiners will start using more crude in coming weeks as they work to churn out gasoline for the summer driving season and begin to make heating oil for winter. Refinery demand for crude typically wanes in the winter and early spring, then picks up in the late spring and summer.

U.S. refiners have been slow to ramp up production this summer due to heavy maintenance and a series of accidents and other problems, but traders expect they eventually will run at greater capacity.

And the supply and demand picture continues to tighten. Earlier this week the International Energy Agency boosted its forecasts for demand for the next few years and cut its supply estimates.

Most analysts say surging demand from developing countries and the United States, combined with a limited amount of new supplies, is the main reason why crude has gone from around $20 a barrel four years ago to over $70 today.

But it's not the only reason. The tight supply-demand picture magnifies the effects of any supply disruption - such as a hurricane in the Gulf of Mexico or even a possible war with Iran - as there is less spare capacity in other parts of the world to pick up the slack.

It has also attracted lots of money from investors betting on crude prices, which one recent study said is adding $10 a barrel to the price.

Nearly everyone agrees that the tight market combined with a big event like a hurricane knocking out Texas refineries or bombs falling over Tehran would push prices soaring above $80.

But barring what industry watches call an "unforeseen event," experts are mixed as to whether crude will hit a record high this summer.

"I see us getting to $75 or $77 without much problem," said Peter Beutel, an oil analyst at Cameron Hanover, a consulting firm. But to go any higher "we would need something to happen."

Fimat's Halff agreed. "I'm not sure we'll see $78, but we'll go back to $75," he said.

But whether crude sets a record this summer or not is beside the point, said Edward Morse, chief energy economist at Lehman Brothers. "It's the macro picture that's important," he said. "It looks like average prices are on track to be higher this year, and higher still the year after."

Oil Over $74

Speculators drive oil over $74

LONDON (Reuters) -- Oil rose above $74 a barrel on Monday, driven towards an all-time high by an influx of speculative fund money and tightening crude supplies from the North Sea.

U.S. crude rose 17 cents at $74.10 a barrel, close to 11-month highs but still well below its record high of $78.40 set in July 2006.

London Brent climbed to a fresh 11-month high of $78.40 in earlier trade, just 25 cents shy of the record peak reached last August.

Seasonal maintenance on North Sea oilfields, coupled with unanticipated outages, has helped extend oil's near three-week rally, lifting Brent by more than $7 since late June.

"The markets will retain focus on North Sea production problems and refinery outages in the week ahead. These factors will continue to support prices at the current levels," said David Moore at Commonwealth Bank of Australia.

Speculative flows into commodities have also fueled the run-up, driven in part by fears a rush by U.S. refiners to produce enough gasoline this summer will leave the world's second-biggest consumer short of heating fuel in the winter.

"The direction of crude oil remains firmly in the hand of the large speculative funds," said Olivier Jakob of Petromatrix.

Speculators in the New York Mercantile Exchange crude oil market boosted net long positions to a record high in the week ending July 1 in a bet prices would rise, the Commodity Future Trading Commission (CFTC) said Friday.

Speculative net long positions in the NYMEX heating oil and gasoline markets also rose, hitting their highest levels in years, the CFTC data showed.

Forecasts for rising demand in 2008 would also reinforce bullish sentiment and support prices, analysts said.

World oil demand will grow more quickly in 2008, though more output and refinery capacity should ease pressure on supply, the International Energy Agency said Friday.

Price fluctuations in oil affect major producers including ExxonMobil, Chevron, ConocoPhillips and BP Plc.