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."

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.

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 Forbes.com 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

By GARRY KASPAROV

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.

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.

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.

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 NationalFutures.com. "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, NationalFutures.com

$80 Oil Lurks

$80 oil lurks

NEW YORK (CNNMoney.com) -- 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.

Oil above $74 amid North Sea worries

LONDON - Oil prices rose Monday amid concerns over production in the North Sea. OPEC also said it expected refinery problems to affect the market next year.

August Brent rose 9 cents to $77.66 a barrel, retreating from an 11-month high of $78 earlier in the day on the ICE Futures exchange in London.

Light, sweet crude for August delivery gained 16 cents to $74.09 a barrel on the New York Mercantile Exchange by midday in Europe. The contract had risen $1.43 to settle at $73.93 on Friday, after rising as high as $74 earlier in the session. The last time a front-month contract traded or closed over $74 was Aug. 11 last year.

Crude oil prices in New York have followed recent gains in Europe's Brent crude, which has been rising since Thursday when Chevron Corp. and ConocoPhillips said the closure of the North Sea's Central Area Transmission System gas pipeline would reduce oil production at two fields.

Brent traders worry that some oil supplies might be cut, analysts said.

"The thing is when you have problems like this, it's like 'shoot first, ask questions later.' So they buy (oil) and ask questions later," said Tobin Gorey, commodity strategist with the Commonwealth Bank of Australia in Sydney.

In its monthly report, the Organization of Petroleum Exporting Countries said its estimated daily output last month fell more than 3 percent, or nearly 100,000 barrels, on the month to 29.98 million barrels, a decline led by shortfalls from Iraq.

Next year will see refinery problems continue to exert "further upward pressure, despite the healthy crude market," the report said. Qatar's Oil Minister Abdullah bin Hamad Al-Attiyah said Monday there is no need for OPEC to meet urgently to deal with rising prices.

"There is no shortage in the market for crude," Al-Attiyah told Dow Jones Newswires.

Al-Attiyah blamed high prices on a global shortage of refining capacity and tension in oil-producing regions.

"I don't have a magic solution," he said. "None of my customers are panicking for more oil."

A report Friday from the International Energy Agency saying global energy consumption in 2008 will likely rise at its fastest clip in recent years also supported prices.

The IEA report also said, though, that oil prices persisting above $70 a barrel may steadily eat away at demand.

Nymex heating oil futures rose 0.69 cent to $ 2.1175 a gallon, and natural gas futures lost 20.6 cents to $6.456 per 1,000 cubic feet.

Last Days Of Oil Age?

From the Times of London: Are these the last days of the Oil Age?

Oil ruled the 20th century; the shortage of oil will rule the 21st. There is now no doubt about the rising trend in oil prices. In 2003 a barrel of Brent crude sold for $29; in 2004 it rose to $38; in 2005 it rose to $54.50; in 2006 it rose to $65. Last Friday the price closed at $77.50. Some dealers expect it to test the $80 level quite shortly.

Last Tuesday the lead story in The Financial Times was the latest report from the International Energy Agency. The FT quoted the IEA as saying: “Oil looks extremely tight in five years’ time,” and that there are “prospects of even tighter natural gas markets at the turn of the decade”. For an international agency, that is inflammatory language. This steep rise in the oil price over a four-year period has been caused by demand rising at more than 2 per cent a year, while supplies had risen more slowly, by a healthy 4.1 per cent in 2004, but by only 1.25 per cent in 2005 and 0.5 per cent in 2006.

This has revived the “oil peak” debate among oil analysts. Some analysts believe that the world will never again be able to pump as much oil as we are pumping at present.

Peter Warburton’s excellent weekly risk analysis has pointed out that 27 of the 51 oil-producing nations listed in BP’s Statistical Review of World Energy reported output declines in 2006. One projection of world crude oil production actually forecasts a 10 per cent reduction in total world output between 2005 and 2015. That would be a revolution.

The oil peak debate can be left to the oil analysts. It is a complex issue, and there are some grounds for questioning the most pessimistic forecasts, including the likely development of the Canadian tar sands, and the success of American enhanced oil recovery techniques. Past forecasts of oil depletion have often proved wrong, and the present forecasts are uncertain. Nuclear power could increase energy supply, but a big nuclear programme has been left far too late in most countries.

The five-year view taken by the IEA is itself a central forecast. Some analysts think that the peak oil moment has already been reached; some still think that it will not come until 2020 – which is itself only 12 years away. Market trends and the statistics both support the IEA’s view that consumption is accelerating and supplies falling faster than expected. Of course, if the “crunch” point is only five years’ away for oil, and closer for natural gas, it has, for practical purposes, already arrived.

Those of us who remember the 1970s and early 1980s know how damaging the oil shocks were. They postponed the economic hopes of more than a decade, from 1974 to 1985. The rise of the oil price led to global inflation; at one point, around 1980, it looked as though global inflation could tip over into global hyper-inflation.

In the democracies, governments lost elections; in the Soviet Union, their regime was rocked. If governments found things very difficult, so did private individuals. Unemployment rose and the trade unions became very militant.

Investors were caught in a trap of rising nominal values but falling real values. In the property market, house prices rose, but the general price level rose even faster. For the first ten years of the inflation, gold proved to be a hedge and a protection; but this was followed by a period when the real purchasing power of gold was falling. Most people became poorer, except for those with access to oil money, but some became much poorer, much more quickly. Life became more of a gamble and societies became less stable. All this happened at a time when the supply of oil was being artificially restricted by the Opec oil cartel. There was no absolute shortage of oil, though analysts already knew that the oil peak would happen eventually. Now the situation has moved from a political problem, open to political settlement, to an absolute geological shortage. For the future, oil supply will be a zero-sum game. Some nations will be “haves” but others will be “have nots”.

The shortage of oil and natural gas, relative to demand, had already changed the balance of world power. Historians may well conclude that the US decision to invade Iraq was primarily motivated by the desire to gain physical control of Iraq’s oil and to provide defence support to other Middle Eastern oil powers. Political motivations are always mixed, but oil is an essential national interest of the United States. If the US is now deciding to withdraw from Iraq, the price will have to be paid in terms of loss of access to oil.

Russia, the leading producer of natural gas and one of the two leading oil producers, is the global winner. President Putin has already used oil and gas as a diplomatic weapon. The relationship between the European Union and Russia will naturally be influenced by increasing European dependence on Russian oil and gas. Germany may well turn towards Russia, out of weakness. The oil shocks of the 1970s had different effects on different European countries. Britain had some North Sea oil and the prospect of more, as did Norway. Germany and France had little or no oil of their own. Differential shocks in the coming period of oil shortage will make it harder to maintain the euro-zone. Differential shocks are a threat to single-currency systems.

The world is coming to the end of the age of oil, which produced its own technology, its balance of power, its own economy, its pattern of society. It does not greatly matter whether the oil supply has peaked already or is going to peak in five or 12 years’ time. There is a huge adjustment to be made. There will be some benefits, including higher efficiencies and perhaps a better approach to global warming. But nothing will take us back towards the innocent expectation of indefinite expansion of the first months of the new millennium.

Oil surges To New High - $77

Oil surges to new high above $77 a barrel

LONDON (Reuters) - Oil leapt to a fresh 11-month high above $77 a barrel on Friday, lifted by lingering supply concerns and a rush of speculative money into the commodity.

Also supporting the market, the International Energy Agency (IEA) -- in its second assessment of the world market in a week -- predicted fuel demand would grow more quickly next year despite near-record prices.

London Brent, seen as the best indicator of the global market, rose 82 cents to $77.22 a barrel by 1:08 p.m., after earlier reaching a new 11-month high of $77.45. The benchmark is within sight of last August's $78.65 record.

Oil has gained more than $6 in the past two weeks on speculative buying by funds that have noted strong demand in top consumer the United States in the peak summer driving season.

U.S. crude gained 33 cents to $72.83 a barrel -- still way below Brent which has advanced on reduced North Sea crude supplies due to maintenance.

The IEA said on Friday oil demand will grow more quickly in 2008 than this year, boosting the need for OPEC crude.

But higher output and refinery capacity should ease pressure on supply, the adviser to 26 industrialised nations argued.

"We see a slightly easier situation in several ways," said Lawrence Eagles, head of the IEA's Oil Industy and Markets Division. "Total crude and liquids growth is in excess of demand growth."

The IEA report has traced a picture of continued market tightness going into 2008, Barclays Capital in a research note. "The obvious consequence is an increased need for OPEC crude."

Dealers remain anxious over supplies from countries such as Nigeria and Iran, but most traders attribute much of oil's latest rally to a fresh infusion of fund money.

"There is no lack of crude supply fundamentally, but funds are betting on a more bullish market, hence a great deal of buying," said Tetsu Emori of Astmax Futures in Tokyo.

Consumer nations have called repeatedly for members of the Organization of the Petroleum Exporting Countries to pump more to lower prices. OPEC ministers have rejected the call, saying markets are amply supplied.

An Iranian oil official reiterated on Friday that a surge in oil prices was not due to a lack of supply in the market.

OPEC is due to meet next in September.

Supermajors Hit 52 Week Highs

Oil stocks hit new highs despite crude drop.

NEW YORK (MarketWatch) -- Oil stocks moved higher Thursday on expectations of fat second-quarter earnings even as crude-oil prices retreated from the $74 level and despite a downgrade of Royal Dutch Shell.

"Although Shell retains upside, we see upside plus catalysts in other companies. Shell remains a very long-term value play," UBS said.
It raised its price target on the firm to 2,300 pence, from 2,100 pence a share to reflect a stronger outlook for Shell's operating environment.
ConocoPhillips rose 2.5% to $87.75. Chevron jumped 1.6% to $92.22 and Exxon Mobil added 1.8% to $88.89.

Conoco Up Again After Share Buyback Announcement

ConocoPhillips continues to rise. Long COP.