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John Levin: Four Ways to Cut the Price of Oil and Keep the Savings in the U.S.

by on May 24, 2011

Huffington Post…

NEW YORK — With all the partisan debate over spending cuts in the U.S., energy policy seems to be pretty far down on everyone’s agenda. That’s a shame because there is probably no other single area that could have a bigger impact on the country’s finances. Think of it this way: Every 10 percent reduction in the price of oil represents a $36 billion tax cut for America. The United States imports 10 million barrels of oil a day. At a price of $100 per barrel that’s $365 billion a year that the country is being “taxed” by foreign suppliers. It is an urgent national priority to reduce this cost both in financial terms and for national security. And, no, the recent drop in oil prices and promised relief at the gas pump projected for the summer doesn’t change a thing. If anything, it should inspire the U.S. to act more aggressively to drive prices down further. Fortunately, the means are at hand to make a meaningful impact on this cost and keep the savings home. Here four ways it can happen. Hold Mideast allies to their word — Some of the current cost may be temporary and described as a risk premium for uncertainties in the Middle East, particularly Libya. Libyan production is 1.9 million barrels per day of high quality oil, which is roughly 2.5 percent of world output of 84 million barrels a day. Eventually there is every reasonable expectation that Libyan production will come back, as Col. Qaddafi will be ousted and the oil will be quickly produced (Qatar has already indicated that they would help with the transshipment) or he will somehow survive or some kind of compromise be reached, in which case Iran or some other country will undoubtedly facilitate the sale of the oil. In the meantime, Saudi Arabia has indicated that it would increase production by 3.5 million barrels a day and Kuwait has indicated they would increase production by 500,000 barrels per day to offset any shortfall from Libyan production. It is unclear whether such added supply has come on the market but it is clear that one way or the other, adequate supply and lower prices are at hand if Saudi Arabia and Kuwait keep their word. We should put the pressure on to see they do and that the markets acknowledge it. Start leveraging natural gas to electrify vehicles — The United States can take its massive natural gas reserves and supply them to our utilities, which are underutilized at night, to produce electric power to drive electric and hybrid vehicles. This is a multi-year program that will not be achieved instantaneously, but starting it can materially affect the current expectations and behavior of those who own oil. Historically those expectations have been for ever-increasing prices because of worldwide demand and an increased number of autos. But should those expectations be changed sellers would tend to sell. Cheating by OPEC members would tend to increase and it would be extremely difficult for the cartel to enforce its quotas. A significant failure of United States policies over the last 40 years since the first OPEC embargo has been inaction on our part to reduce demand and as a consequence expectations. There are major side benefits to this approach. We would create a major worldwide auto industry with advanced technology and real jobs for our labor force. Much of this technology and know-how could be exported for the benefit of our companies and our country. Of course much of the natural gas would come from shale and we must carefully identify what risks that poses to the water supply and to the environment. Increase gasoline taxes –There is little doubt a gas tax would lower demand. Any regressive aspect could be moderated by either income tax benefits or rebates to the lowest income segment of the population. Tax benefits to businesses that reduce their gasoline consumption could help ease the burden on commercial users. Stop throwing good money after bad — Counterproductive policy such as those involving ethanol should be abandoned. Not only do these approaches not reduce the demand for imported oil but they raise the price of corn and other food imports. The consequence of the latter plus the price of oil is an income squeeze on the lowest income parts of not just the United States but the world. The subsidies would be better spent on alternative energy sources like wind and solar that could cut demand for oil. The fact that the U.S. is more obsessed with cutting taxes that it pays to itself than with cutting the “taxes” it pays to OPEC is a situation that must be corrected. Energy policies that address supply and demand for gasoline are the answer.

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Saudi Arabia Faces The End Of ‘Easy Oil’

by on May 24, 2011

Huffington Post…

WAFRA, Kuwait — The Arabian Peninsula has fueled the global economy with oil for five decades. How long it can continue to do so hinges on projects like one unfolding here in the desert sands along the Saudi Arabia-Kuwait border. Saudi Arabia became the world’s top oil producer by tapping its vast reserves of easy-to-drill, high-quality light oil. But as demand for energy grows and fields of “easy oil” around the world start to dry up, the Saudis are turning to a much tougher source: the billions of barrels of heavy oil trapped beneath the desert.

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China Posts First Quarterly Trade Deficit In Six Years

April 10, 2011

BEIJING — China reported its first quarterly trade deficit since 2004 on Sunday as surging prices for commodities pushed up its import bill. The General Administration of Customs said in an online statement that China posted a trade deficit of $1.02 billion from January to March this year. However, China reported a small trade surplus of $140 million in March, up from a deficit of $7.3 billion the month before, it said. Export growth in the first quarter was strong, it said, increasing 26.5 percent to $399.64 billion compared to a year earlier, but imports soared 32.6 percent during that period, to $400.66 billion. “The value of imports in the first quarter hit a record high for the first time of more than $400 billion,” the administration said. It said China imported more mechanical and electrical equipment, including cars, as well as iron ore and soybeans, than it did a year ago and that the prices of those commodities had all shot up. Analysts expect a Chinese global trade surplus this year of $160 billion-$200 billion but say that should narrow if oil and commodity prices stay high. Last year, China ran a trade surplus of about $16 billion a month. A smaller trade surplus might help to ease trade strains with Washington and other governments that complain Beijing is giving its exporters an unfair advantage with currency controls and other policies. Stronger imports could help economies looking to China’s robust growth to drive demand for their goods. Imports also might benefit from ongoing government efforts to boost consumer spending to reduce reliance on exports and investment. China is a major importer of oil, iron ore and raw materials and runs a deficit with suppliers such as Saudi Arabia and Australia. It pays for that by running multibillion-dollar surpluses with the United States and Europe. ___ Online: General Administration of Customs of China (in Chinese): http://www.customs.gov.cn

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Daniel Dicker: Is the Oil Market Predicting War?

April 8, 2011

I’ve watched and traded the oil markets for 25 years and the recent huge speculative inflows of money driving oil and gas prices higher are reminiscent more of the move I saw in 1991, when we were on the cusp of the first Gulf War with Saddam Hussein. Is this market trying to price in a similar event? Most analysts are comparing this latest run up in prices in energy to 2008, when we also saw a speculatively driven run– that time to $147 a barrel. As I describe in my book, Oil’s Endless Bid , in both cases we have not had the reality, but instead the perceptions of supply or demand problems driving a rapacious flood of betting into the futures market from institutions, hedge funds, investment banks and even individuals. But the way that this money is flowing in is telling of the big difference in the motive that I think I see: This time around, the curve of oil prices looks strikingly less like 2008, and much more like the market I saw in 1991, during the run-up to war in Kuwait. Oil futures are not priced like stocks but in futures months that continually expire. Each month is a tradable issue in itself and prices independently. The relationships of those monthly prices make up the ‘curve’. For the past 5 and more years, the oil market has had a predominantly ‘contango’ curve; that is, the oil in the future has priced at a marked premium to the oil pricing today. But in the last month or so, the curve has slowly but surely ‘flattened’ out, and now the traded prices for crude twelve months from today are actually lower. Ok, this is all very wonky, but what the market is really saying is that it is betting on a short but very serious disruption to supply, one that is not expected to last — like a war. So, what kind of specific disruption could this market be expecting? I don’t know, but two possibilities that might fit this bill might be the commitment of ground forces in Libya, or a real disruption from protests in Saudi Arabia, where the US government would again be in a very delicate spot and forced to support the Sheiks of the Kingdom to an even greater degree that they have supported dictator Saleh in Yemen, no matter how reluctantly. Libya’s 1.6m barrels a day of supply is manageable, while Saudi Arabia’s 10m barrels a day (and 4m swing barrels) would be instantly game changing to the global marketplace. How deep that support turns out to be and whether military force will be part of that commitment seems to me to be the big bet that the oil markets are making right now. The run-up in crude is now moving in bigger and bigger leaps — up another dollar today, above $110 in the US-based WTI and closing in on $125 in the European Brent contract. I’m not predicting it, but this market seems to be looking seriously at the future possibility of even wider and more serious oil problems down the road. It ought to be an interesting summer.

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Robert Lenzner: The Double Whammy Of Libya And Japan Mean Higher Oil Prices

March 22, 2011

Further escalation of the Libyan conflict is “a much greater threat to the global financial markets than the radiation leaks in Japan,” writes CLSA’s Christopher Wood this morning. Add in further interest rate tightening in China and the World Bank prediction that it will take 5 years to rebuild Japanese infrastructure and you’ve got the recipe for a slower global economy. Wall Street is just waking up to the aftershock of the Japanese earthquake and tsunami — the global supply chain of just-in-time delivery of electronic and auto parts from Japan. The basis of much productivity and profit gains in recent years has been severely interrupted. Industrial production of batteries, circuit boards and parts for Toyota and Nissan autos will cause a slowdown in global commerce. No doubt about it. The only trade Streettalk sees good as gold is crude oil, which is already up 17.62% in a month. I’d be long crude oil futures and global producers away from the Middle East. And for good measure I’d own a coal producer like Peabody Energy, which is bound to profit from the blow to nuclear power, and the rising cost of oil. You’re looking at unrest rolling across the region; demonstrations in Syria, a state of emergency in Yemen, a Day of Rage Protest in Saudi Arabia and he little understood prospect of continuing risks in the oil producing areas of Kuwait and Saudi Arabia where Shiite population present a threat to stability. What’s more: crude oil demand in the US rose 4.4% last month, further indication of a recovering economy. Add in the very real blow to nuclear power prospects by the the existence of iodine and cesia in the Tokyo tap water and the uncertainty of getting the reactors in northern Japan completely under control and in repair. This Japanese meltdown has reduced electric power in Japan. It has caused the Chinese to review plans for their building of 37 additional nuclear plants and caused the Germans to review the safety provisions of 7 nuclear facilities. Face it: the conflagration in Libya will be over soon. But the entire Middle East will never be the same. The new $67 billion Saudi royal family bribe for popular support is a bloody sign of weakness. The only timetable you can count on is an uneven, long lasting period of political volatility that will thrust oil prices up in fits and starts. Be long oil. Probably be long gold and silver as well, as the charts for both precious metals are in remarkable tandem. You must protect yourself against the unleashing of political and social unrest through oil producing regions: Libya, Iran, Kuwait, Saudi Arabia, the Emirates.

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Video: Sen Says Oil May Rise on `Souring’ U.S.-Saudi Relations

March 18, 2011

March 18 (Bloomberg) — Amrita Sen, a commodities analyst at Barclays Capital, discusses U.S. relations with Saudi Arabia and the outlook for oil prices amid political upheaval in the Middle East and North Africa. She speaks with Maryam Nemazee on Bloomberg Television’s “The Pulse.”

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Oil Prices Jump After UN Approves Military Action In Libya

March 18, 2011

SINGAPORE (Reuters) – Brent crude jumped by more than $1 to $116 on Friday on fears of rising geopolitical tension in the oil-rich Middle East and North Africa, after the United Nations approved military action to contain Libyan leader Muammar Gaddafi. Front-month Brent rose $1.10 to $116 by 3:25 a.m. ET, after earlier touching a one-week high of $116.50, while U.S. crude for April rose $1.49 to $102.91. Japan’s strongest earthquake on record a week ago sent fear coursing through global financial markets, raised concerns of reduced demand from the world’s third-largest oil user and triggered a drop in Brent to a three-week low near $107 two days ago. High oil prices and Japan’s disaster may pose a twin blow to the nascent economic recovery. Brent is less than $4 away from a 2-1/2-year high of almost $120 reached on February 24, when an uprising against Gaddafi shut down at least two-thirds of Libya’s oil output. “The initial shock in the markets with regards to the negative impact on growth as well as the short-term effect on Japanese demand is now subsiding and people are turning to the medium- and long-term implications of the earthquake on oil demand and turmoil intensifying in the Middle East,” said Yingxi Yu, a Singapore-based commodities analyst with Barclays Capital. The involvement of foreign forces “could prove to be a further escalation of the situation in Libya. It seems difficult that this will speed up the flow of Libyan oil back into the world market,” Yu added. The U.N. Security Council, meeting in emergency session on Thursday, passed a resolution endorsing a no-fly zone to halt government troops now around 100 km (60 miles) from Benghazi. It also authorized “all necessary measures” — code for military action — to protect civilians against Gaddafi’s forces. French diplomatic sources said military action could follow within hours, and could include France, Britain and possibly the United States and one or more Arab states; but a U.S. military official said no immediate U.S. action was expected. Libya’s pre-crisis oil output of about 1.6 million barrels per day (bpd) is unlikely to reach international markets even if Gaddafi holds on to power, controls and repairs oil infrastructure and resumes shut-in production, analysts said. “To go from condemning Gaddafi to buying his oil in short order would be politically difficult, and while sanctions would be financially painful for consuming countries, it would be an easier option if OPEC fully fills the gap,” JP Morgan oil analysts headed by Lawrence Eagles said in an e-mailed note. Saudi Arabia and other member countries of the Organization of the Petroleum Exporting Countries (OPEC) have increased production this year, partly to offset the loss of Libyan barrels. That has also eroded spare capacity, leaving a thinner cushion to compensate for potential further disruptions. BAHRAIN UNREST Earlier this week, Bahraini forces cracked down on Shi’ite protesters demanding reform by the Sunni monarchy, which drew criticism from key Bahraini and Saudi ally the United States and also from Iran. The involvement of Saudi Arabian troops and other forces from Gulf Cooperation Council (GCC) countries in Bahrain also raised the stakes of confrontation in the island state, which lies less than 100 kilometers from the hub of the Saudi oil industry. “Events over the past week suggest that something profound has changed in the dynamics of the region,” Yu said. “The relation between the U.S. and Saudi Arabia has been the key foundation of the oil market for many decades. Recent events seem to be creating some stress on the relationship.” Saudi Arabia’s King Abdullah will address the nation on Friday to issue a number of decrees, the royal court said in a statement released by the top oil producer’s state news agency late on Thursday. “It’s absolutely crucial for the oil market to watch for potential changes in the Saudi leadership,” Yu from Barclays said. “It’s the only country that holds a meaningful amount of spare capacity and the disruption in Libya has already put some stress on it.” Saudi Arabia has mostly avoided the wide unrest that toppled rulers in Egypt and Tunisia and spread to other Gulf countries, but there are pockets of dissent in the absolute monarchy, which has no elected parliament. Most demonstrations have been in the east of the kingdom, where the world’s largest oil reserves are located and home to a large Shi’ite population. “Day of rage” protests planned for a week ago in Saudi Arabia failed to materialize or fizzled quickly amid a widespread police presence, but social media networks had initially also called for a second day of protests on March 20. (Editing by Clarence Fernandez) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Chriss Street: Fed Policy Squanders the Peace Dividend

March 17, 2011

The U.S. Federal Reserve’s second round of Quantitative Easing stimulus, QE II, has caused vicious unintended consequences around the world. The 42% rise in the CRB index of food prices has already caused starvation for millions of people, burned down the Middle East, and is increasingly creating havoc in Asia. But QE II’s most venomous consequence may be its squandering of the United States Federal Budget’s expected “peace dividend”, as America is now re-ensnared in the Middle East sectarian turmoil. The goal of the Fed’s QE II stimulus was to create enough inflation to force reluctant consumers to open their wallets and start spending. The program’s result has been vicious food and commodity inflation causing consumers to be more reluctant or unable to spend on anything but basic essentials. Given that the Middle East has the highest percentage of income spent on food with Morocco at 63%, Algeria at 53%, Egypt at 48%, and Libya at 38%; it should not be surprising the region would be the first to burn down from protests. Iran’s Shiite leadership has clearly stoced the fires of popular dissent that has caused the uprisings in North Africa. The recent spread of this havoc to the Arabian Peninsula now represents a once in a generation opportunity for Iran to try to regain dominance in the entire Persian Gulf. For the last decade the Iranians have used covert paramilitary capabilities to undermine America’s military missions in Iraq and Afghanistan. Iran has seen their efforts as a low cost and high reward opportunity to bleed America’s public support for the Gulf commitments. Barack Obama ran for president as a centrist candidate with a strident pledge to military intervention in Afghanistan. As Obama campaigned in 2008 the Bush Administration was achieving a modest victory in Iraq and a stalemate in Afghanistan. Most analysts assumed if Barack Obama became president he would quickly cut-back spending and draw-down American ground forces in the Middle East. But once in office, President Obama almost tripled the U.S. troop strength and spending in Afghanistan and pursued an aggressive war. With current spending on Iraq and Afghanistan running at approximately the same $250 billion annually as in the Bush administration, there is an still an expectation that by the 2012 election campaign the United States will begin to realize a “peace dividend” from an American troop withdrawal of about $150 billion per year. Saudi Arabia has watched in horror over the last two months as their allies in Morocco, Algeria, Egypt and Libya have been devastated by popular unrest. After its neighbor Bahrain with its 60% majority of Shiite Muslims was rocked by protests, Saudi Arabia decided to send in its military to “rescue” their embattled Sunni Muslim Al Khalifa family who ruled Bahrain since 1783. The “rescue” of Bahrain and the liberation of Kuwait are the only two direct military actions by Saudi Arabia since World War I. The Iranians had probably hoped to destabilize Bahrain without triggering an invasion by Saudi Arabia, but the introduction of an occupying military force into a fellow Shiite majority country creates a probable third front for Iran to challenge and bleed the United States and her allies. The Obama administration now finds itself in the midst of a boiling Middle East cauldron with massive political and military risks. Bahrain is the home port to the U.S. 5th Fleet, which provides America with control of the Persian Gulf and protection for the world’s largest sources of crude oil and natural gas. Even though the latest Washington Post/ABC News poll released today finds that sixty-four percent of Americans think the Afghanistan war “hasn’t been worth it”; President Obama will probably soon be forced to announce a halt to or even reverse of the withdrawal of U.S. combat forces from Iraq and Afghanistan as Iran becomes more emboldened by America’s new political and military weaknesses. The American government has racked up a sorry record in its misguided attempts to stimulate the economy, which seems to have only resulted in a doubling of our national debt and even higher unemployment. With a new Congress determined to cut deficit spending, the Administration obviously pressured the Fed to do something bold to help the economy. So far, the Fed’s QE II bold stimulus has spewed inflation and harmed many nations. With the Middle East heating up and the “peace dividend” about to evaporate, QE II may soon inflict tremendous political and financial damage to the United States.

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Dan Dorfman: More Outrage Coming at the Pump

March 13, 2011

Ugh! If you’re planning a getaway for the July 4 weekend, there’s a chance you may have to shell out another $1 to $1.25 a gallon at the gas pump. That essentially is one of the ugly travel scenarios that emerges from a current analysis of future oil prices from Roubini Global Economics, headed by Nouriel Roubini, one of the country’s more prominent economic bears. First, let’s look at the background of this unhappy prospect, which emanates from the volatile Middle East. Thanks to promises of billions in “benefits” to an aroused populace and a strong police hand, Saudi Arabia’s widely anticipated “day of rage” — a day of threatened mass protests — never came to pass last Friday as the monarchy of the world’s largest oil exporter managed to quell student calls for widespread demonstrations throughout the country in a push for Democratic reform. But there’s no escape for the roughly 200 million U.S. drivers, who are experiencing their own days of rage at the gas pump. The agonizing figures tell the story. The average price at the gas pump is now $3.53 a gallon, according to the website GasBuddy.com, up from $3.43 the past week, $3.12 a month ago and $2.78 a year earlier Saudi Arabia may have evaded Friday’s day of rage, but not so oil traders, says Hong Kong trader Selwyn Ortz. The reason, he explains: a lot of them were long oil, had touted the idea that Friday would be a big day for crude in wake of the expected Saudi protests, an event, some thought, that could mark the start of a rise that would drive oil to $200 a barrel. Alas, oil was a mediocre performer that day, falling slightly to a shade above $100 a barrel. That decline largely reflected an earthquake in Japan, which is bound to depress its oil demand, at least temporarily. Meanwhile, the sharp gain in oil prices in recent months and the threat of more uprisings have prompted investment firms throughout Wall Street to reassess where oil prices are headed, given their significant impact on the economy. Roubini Global Economics is one of those firms currently immersed in the process of looking at future oil prices. Preliminarily, its research team has come up with three scenarios, all nasty and each of will thin your wallet and undoubtedly create more days of rages, as explained to me by Shelley Goldberg, Roubini’s director of global resources and commodities strategy. The first scenario — to which the firm accords a 50% probability — calls for oil prices to stay about where they are now and assumes the Saudis, OPEC and the rest of the world will make up any shortfalls. Such a scenario. of course, would suggest that higher prices at the pump — now up to $4 to $4.50 a gallon in growing parts of the country — will be maintained. Roubini’s second scenario — given a 35% probability — pegs oil at $120 a barrel, a price, it’s assumed, that will hold. Based on the rule of thumb that every $10 hike in a barrel of oil is equivalent to about a $0.25-a gallon rise at the pump, $120 oil would theoretically lift the price of gas by $0.50 a gallon from current levels. Prospects of an even bigger jump — an additional $1 to $1.25 a gallon, or maybe higher — are inherent in Roubini’s third scenario, $140 to $150 a barrel oil or perhaps more. This one gets a 10% to 15% probability. The higher end of the $120-$150 range, Goldberg explains, factors in such worrisome possibilities as: –A double-dip recession –Regime upheavals in such OPEC AND non-OPEC countries as Kuwait, Yemen, Bahrain, Syria, Oman and Sudan –A toll on Mideastern infrastructure, notably refineries, pipelines, ships and transportation routes –Enough supply disruptions that the lost oil cannot be made up by OPEC and Saudi Arabia –Significant demand destruction, such as people begin to stop driving or drive less and industry stops producing or produces less Goldberg also sees stepped-up efforts to achieve more production and supply through the exploration of more expensive oil, namely via oil sands, tar sands and deep offshore wells. No one. of course, knows what’s going to happen in the Mideast, but Goldberg figures the dye has been cast. “Higher prices will become the new norm,” she says. Steven Kopits, the managing director of Douglas-Westwood, Ltd., a leading provider of global energy services research, offers also raises the specter of another recession, noting that’s what will occur whenever spending on oil and gasoline exceeds 4% of GDP, which it will do with oil at $90 a barrel. In conjunction with this, he tells me, 10 of the last 11 recessions since World War II took place during periods of sharply rising oil prices and six of the past seven since 1973. The bottom line: More outrage is on the way at the gas pump. What do you think? E-mail me at Dandordan@aol.com.

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Video: AlSayyad Says Saudi Protests Fizzled After Aid Packages

March 11, 2011

March 11 (Bloomberg) — Nezar AlSayyad, chair of the Center for Mideast Studies at the University of California at Berkeley, talks about demonstrations in Saudi Arabia. Protesters in Saudi Arabia stayed away from a so-called Day of Rage after police were deployed in force to deter political activists. Saudi Arabia has tried to calm oil markets and avoid political upheaval with $36 billion of jobless benefits, education and housing subsidies and debt write-offs. AlSayyad speaks with Mark Crumpton on Bloomberg Television’s “Bottom Line.” (Source: Bloomberg)

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Obama News Conference Scheduled To Address Rising Oil & Gas Prices

March 11, 2011

(AP) – The White House says President Barack Obama will address rising oil and gasoline prices at a news conference on Friday. Fuel prices have been rising amid continued turmoil in Libya, an oil-producing country. News that police opened fire to break up a protest Thursday afternoon in Saudi Arabia also has sparked fears that the unrest could spread to that country. Saudi Arabia is the world’s largest oil exporter. Oil prices soared $3 per barrel in just 12 minutes after the news broke in Saudi Arabia. At the pump, gasoline is averaging $3.52 a gallon – 41 cents more than last month. Obama’s news conference is scheduled for 11:15 a.m. Eastern time. It will be his second full news conference of the year. Later, the president and first lady will welcome their hometown, Stanley Cup-winning Chicago Blackhawks to the White House. Following that get-together, first lady Michelle Obama, National Hockey League Commissioner Gary Bettman and USA Hockey Executive Director Dave Ogrean will preside over a street hockey workout and clinic on a rink set up on the South Lawn. The clinic for local youngsters is part of a new collaboration between Mrs. Obama’s Let’s Move! initiative, the NHL and USA Hockey to encourage kids to lead active and healthy lives.

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Video: Sfakianakis Says Oil Price Won’t `Spike’ on Saudi Events

March 11, 2011

March 11 (Bloomberg) — John Sfakianakis, chief economist at Banque Saudi Fransi, discusses conditions in Saudi Arabia, where police fired above crowds yesterday in the Eastern Province city of al-Qatif, and the outlook for crude oil prices. Anti-government protesters called for a “Day of Rage” today. Sfakianakis speaks with Deirdre Bolton on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

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Oil Prices Fall After Japan Earthquake

March 11, 2011

LONDON: Brent crude futures fell below $114 on Friday as a massive earthquake rocked Japan, creating a 10-meter tsunami and shutting down dozens of plants in the world’s third-largest oil consumer. The oil market was also watching out for a planned day of demonstrations in Saudi Arabia, the world’s top oil exporter, and violence in Libya which has disrupted its oil exports. ICE Brent crude fell $1.71 cents to $113.77 a barrel by 0903 GMT. It has fallen from a 2-1/2-year high of $119.79 a barrel on February 24. U.S. crude for April delivery fell 83 cents to $101.87. Japan was hit by a magnitude 8.8 earthquake, which was the largest since observation began in the late 19th century. “This natural disaster could result in another sharp rise in risk aversion on markets and a continuation of yesterday’s correction on commodity markets,” said Commerzbank. “After China and the U.S., Japan is the world’s third biggest consumer of commodities and is dependent on imports for virtually all commodities,” it added. The biggest earthquake to hit Japan in 140 years struck the northeast coast on Friday, triggering a 10-meter tsunami that swept away everything in its path, including houses, cars and farm buildings on fire. European shares fell at the opening to a 3-month low with market sentiment worsening further after the quake in Japan and on growing unrest in the Arab world. Saudi Arabia’s capital was quiet ahead of a planned day of demonstrations that will test whether activists calling for political reform online will succeed in taking their protests to the streets. A loose coalition of liberals, rights activists, moderate Sunni Islamists and Shi’ite Muslims has called for reform and a Facebook page urging protests, strictly forbidden in the conservative kingdom, attracted more than 30,000 supporters. “It is impossible to know what the outcome will be in the Middle East, but while support for .. protests could prove to be a short-term oil market inflection point, looking further forward it would be optimistic to expect Libyan oil production to return to normal levels this year,” Lawrence Eagles with J.P. Morgan said in its research note. In Libya, forces loyal to Libyan leader Muammar Gaddafi have entered the oil port of Ras Lanuf in the east of the country and are fighting for control of the town, rebels said on Friday. The unrest in the oil rich North Africa and Middle East has so far taken precedence over economic woes. Friday protests are also planned in other Gulf countries such as Yemen, Kuwait and Bahrain, after the day’s religious prayers, inspired by upheavals in Tunisia and Egypt. (Reporting by Ikuko Kurahone, additional reporting by Alejandro Barbajosa; editing by Jason Neely) Copyright 2010 Thomson Reuters. Click for Restrictions .

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Oil Prices Soar Again

March 7, 2011

(AP) Oil prices climbed to near $106 a barrel Monday as intense fighting between Libyan government forces and rebels appeared to be turning into a civil war and raised the prospect of a prolonged cut in crude exports from the OPEC nation. By early afternoon in Europe, benchmark crude for April delivery was up $2.25 to $106.67 a barrel, the highest since September 2008, in electronic trading on the New York Mercantile Exchange. The contract had gained $2.51 to settle at $104.42 a barrel on Friday. In London, Brent crude for April delivery was up $1.80 to $117.77 a barrel on the ICE Futures exchange. Over the weekend, supporters and opponents of Libyan leader Moammar Gadhafi fought in several cities, heightening fears that the country is headed for a protracted conflict. Libya’s oil output has fallen by at least 1 million barrels per day from 1.6 million since the uprising began last month. Investors also are concerned violent protests and political upheaval could intensify in the Middle East, where Iran, Iraq, the United Arab Emirates, Kuwait, Bahrain, Qatar, Oman and Saudi Arabia have more than 60 percent of the world’s proven oil reserves. “It is essentially the fear of the unrest spreading across the entire region which is pushing oil prices up,” said Commerzbank in Frankfurt. “Northern Africa and the Middle East produce more than one-third of the global supply of crude oil.” Citigroup said it raised its 2011 average forecast for Brent crude to $105 from $90, but doesn’t expect the violent protests in North Africa and the Middle East to spread to Saudi Arabia, the world’s largest oil exporter. “We assume that output disruption is maintained through the second quarter,” Citigroup said in a report. “Output disruption, or at least the threat of, will support a fear premium for the rest of 2011.” Some analysts expect the recent jump in oil prices – up 26 percent since Feb. 15 – will only have a negligible impact on inflation and economic growth in the U.S., the world’s largest oil consumer. “Oil above $100 will not send the economy back into a recession,” Capital Economics said in a report. “The oil price would have to rise much further to seriously threaten the U.S. economy.” Nonetheless, President Barack Obama’s chief of staff said Sunday that the administration was evaluating the possibility of tapping into the country’s strategic oil reserves – totaling 727 million barrels – as a way of contending with rising gasoline prices. While the fear of supply disruptions was usually mentioned as the key factor for higher oil prices, analysts said speculators also were playing a role. The large trading volumes tied to speculative investments had helped boost market transparency and liquidity, Commerzbank said. “Things become critical, though, when speculators become the main driving force behind prices and, as we see it, this is the case at the moment on the energy markets,” the German bank said. In other Nymex trading in April contracts, heating oil rose 3.6 cents to $3.1253 a gallon, and gasoline gained 3.74 cents to $3.0838 a gallon. Natural gas futures were down 7 cents at $3.74 per 1,000 cubic feet.

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Libya’s Oil Production Down 50%

February 28, 2011

PARIS/RIYADH: The uprising in Libya has cut its oil output by half, the International Energy Agency said on Monday, but Saudi Arabia’s pledge to pump more helped to prevent a further surge in the price of oil. The head of Italian oil company ENI, the biggest foreign operator in Libya, said he thought two-thirds of Libyan oil and gas output had been halted and warned oil extraction could halt if shipments did not resume. Foreign firms have been pulling staff out of Libya due to the uprising against Muammar Gaddafi’s rule. China’s three major state-owned oil and gas companies have evacuated all their Chinese employees. U.S. oil firm Marathon Oil Corp also said it had evacuated all expatriate employees and their dependents from Libya, while ConocoPhillips said it had closed its operations there and evacuated some employees due to the unrest. About half of Libya’s 1.6 million barrels per day (bpd) of production had been cut, IEA Chief Economist Fatih Birol told Reuters Insider TV, citing industry reports. That is higher than the IEA estimated initially. Oil prices jumped toward $120 a barrel last week for the first time since 2008 because of the disruption in Libya, the world’s 12th largest oil exporter. Prices have since eased to $112, partly because Saudi Arabia has promised to meet any shortages. “This is not good news for suppliers in the market but at the same time it is very comforting that Saudi Arabia showed their readiness to make up,” Birol told Reuters in the interview. All demands for extra oil have been met, the head of Saudi state oil company Saudi Aramco said on Monday. The kingdom has boosted its output to around 9 million bpd, a senior Saudi source told Reuters, to meet demand. “All incremental needs requested by our customers have been met,” Saudi Aramco CEO Khalid al-Falih said. OUT FOR MONTHS? As well as the scale of the loss of Libya’s oil, the duration of the shutdown is also a concern to oil markets. Some analysts expect it may be out for a while. “With Libya apparently at risk of a civil war, there are reasons to believe that oil supplies in that country could be off for months,” Bank of America Merrill Lynch said in a note. Libya’s oil exports and oil tanker loadings remained at a virtual standstill. The country exports about 1.3 million bpd of high-quality crude, mostly to Europe. The size of the cut in Libya’s oil output remains unclear partly because of disrupted communications with the country. Eni’s chief executive, Paolo Scaroni, said on Monday he thought two-thirds of Libyan oil and gas output had been halted. He had put the disruption at 1.2 million bpd, or 75 percent, last week. Most of Libya’s oilfields are no longer under Gaddafi’s control, the European Union’s energy commissioner said on Monday. A unit of Libya’s state-owned National Oil Corp has decided to operate separately from its parent until Gaddafi is overthrown and Tripoli is free of his rule, an official said. (Reporting by Ludovic Vickers, Jim Bai, Selam Gebrekidan, Tom Miles, Martina Fuchs, Reem Shamseddine, Barbara Lewis and Giancarlo Navach; editing by James Jukwey) Copyright 2010 Thomson Reuters. Click for Restrictions .

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Raymond J. Learsy: Peak Oil. The New York Times’ Op-ed Gets it Right and Wrong

February 28, 2011

On Friday, two weeks after the issue was discussed at length in the Huffington Post, “WikiLeaks Brings Misguided Joy to Preachers of Peak Oil” 02.10.11 the New York Times found the wherewithal to present us with Michael Lynch’s Op-ed, “Drilling For an Oil Crisis” 02.25.11. The Times piece covers virtually the same territory, namely that the Wikileaks revelation of an American diplomat’s dispatch about the constraints of Saudi oil reserves gave false credence to the peak oil theorists and rendered unto the peak oil pranksters erroneous and misguided bragging rights which they happily exploited to push their agenda that oil production has “entered a terminal decline.” The Times’ Op-ed, as did the earlier Huffington Post piece, raises serious doubts about the ‘peak oil’ theory. Lynch hits the issue squarely on the head when he comments about Saudi Arabia “Officials there have discovered approximately 70 major oil fields that they’ve left untapped over concerns that increased Saudi production would cause global oil prices to collapse.” Well and good and so much for the timeliness of the New York Times’ revelations. However, then the Times piece goes seriously off track. Ascribing blame on the ‘peak oil’ crowd’s lamentations that oil’s production has “entered a terminal decline”, bolstered by the Wikileaks revelations, as the motivating factor in the Obama administration’s “throwing federal subsidies – some $8 billion in the 2012 budget at all sorts of unproven, unrealistic and inefficient energy technologies like wind farms and electric cars.” That “we should not let a false panic over disappearing oil reserves lead into rushed government investments.” Wrong, and wrong once again! Concern about disappearing oil, real or imagined plays a role, but the motivating impulse toward alternative energy technologies is far more fundamental. Perhaps, better said it is ‘existential’ touching on the very existence of life on the planet. The environmental threat to our existence and that of generations to come grows every day. Seeking non fossil fuel solutions to our energy needs are not “rushed government investments” as the Op-ed piece pontificates. And they are hardly “rushed.” They are already several generations overdue.

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Dan Dorfman: Risky Roadmap to $7 a Gallon Gas

February 25, 2011

Like you, I have no idea how far the outbreak of the political unrest will spread. Not so the experts, who basically echo the signature line of the late comedian, Jimmy Durante, “You ain’t seen nothin’ yet.” Simply put, that means, some Persian Gulf watchers say, more political uprisings, swelling strife throughout the Middle East, tougher times ahead for self-professed dictators, likely oil supply disruptions, higher crude prices and a bigger bite at the gas pump, perhaps as much as $7 a gallon. One of Wall Street’s premier energy analysts, Oppenheimer & Co.’s Fadel Gheit, tells me the market really doesn’t appear to grasp the gravity of the situation. “There is no cure for what’s going on,” he says. What we’re looking at, he believes, are likely internal conflicts in such oil-producing countries as Saudi Arabia, Kuwait, Oman, the United Arab Emirates, Qatar and Iran. In total, the six produce about 21.2 million barrels of oil a day, which is the bulk of the Persian Gulf’s daily output of approximately 24 million barrels or 27 percent of global oil supply. These countries are trying to buy time, says Gheit, but their promises of some reform and handing out money to some of the disenchanted just won’t work. What the people in these countries want is substantial change — namely freedom and the heads of the regimes to pack their bags and scram. And unless that happens, he says, there will be more internal conflicts and more protests, accompanied by rising oil prices. “The question,” says Gheit, “is how long can the rulers keep the unrest in the closet? The answer: not long, they really can’t anymore.” How soon is the next crisis? “Only a matter of time,” says Gheit, who thinks things could get especially violent if any unrest were to take hold in Saudi Arabia, which he believes would be met by a major crackdown on any rioters. Michael Larson, a market strategist, at Florida-based Weiss Research, takes it one step further, citing additional anguish from the unrest and demonstrations that are creating higher oil prices, In particular, he points to adding more fuel to the inflationary fires and the slowing of global economic growth. Fred Dickson, the chief investment strategist of D.A. Davidson & Co. in Great Falls, Montana, tosses in another ugly aspect of higher oil costs, notably as it relates to the market — pressure on second and third quarter earnings forecasts — which he says would likely temper those booming stock prices. Apparently, it already is, with Wall Street waking up to the mounting threats stemming from higher oil prices, which it practically ignored during the Egyptian protests and then became fearful of during the Libyan uprising. Indicative of this, the U.S. stock market has gotten whacked in recent sessions, with the Dow skidding 322 points on three consecutive losing sessions. Speculation is rife about how high we’re likely to see oil prices rise. Take your pick. The numbers are all over the lot. In recent days, we’ve heard again from the energy experts that oil — which recently ballooned to a 2.5-year high and is currently trading at a tad under $100 a barrel– is on its way to between $110 to $130. And maybe to new highs, it’s said, should the unrest spread to oil biggie Saudi Arabia, which produces nearly 10 million barrels a day and has said it will make up for any shortfalls due to the turmoil in Libya. The peak in oil, $147.27 a barrel, occurred in July 2008. There are also some flamboyant forecasts around that oil could shoot up to $200 to $300 a barrel, but the general thinking is that such numbers would require serious supply disruptions from major names in the Persian Gulf, such as Saudi Arabia, Kuwait and Iran. Nomura Securities offers another perspective, warning that the price of crude could reach $220 if more production is halted in Libya and Algeria. At the moment, the general view is that the oil price, justifiably, carries about a $10 to $15 a barrel risk premium. What about prices at the pump? Here again, take your pick on how high is high. The preferred media number seems to be that the nation’s roughly 200 million licensed drivers are looking at about $5 a gallon down the pike. That’s essentially the figure that’s making the headlines these days. The national average is $3.17 a gallon, Triple A tells me, but it’s likely few cents higher now as you read this, given the recent jump in oil from the turmoil in Libya. By spring, Triple A figures the price at the pump will climb to between $3.50 to $3.75. A fatter price — between $4 and $4.25 a gallon — is envisioned on July 4 by Dickson, who feels market nervousness over what’s happening in the Mideast is bound to drive oil prices higher. Ditto at the gas pump. An even heftier price tag — $6 to $7 a gallon, which would mean a sudden big jump in oil — is viewed by some energy trackers as a realistic possibility should things get out of hand in Saudi Arabia. One of them, Hong Kong trader Selwyn Ortz, says “I wouldn’t rule that out even though there’s no shortage of oil right now.” “If Saudi Arabia is subject to the same kind of demonstrations and riots that have taken place in Egypt and Libya, a $30- to $40-a-barrel increase, maybe $50, is very plausible. No one can say it can’t happen because nobody knows, not in an era of revolutions. And if it does,” he says, “$7 a gallon could be a low-ball forecast.” As a rule of thumb, Gheit says, every $10-a barrel rise in the price of oil eventually equates to about $0.25-a gallon increase at the gas pump. Meanwhile, there’s no getting away from the severe impact of higher gas prices. As West Coast economist Madeline Schnapp recently explained it to me, every penny boost at the pump draws an estimated $1.5 billion out-of-household cash flow. In her neck of the woods, gas runs $3.40 a gallon, up from $2.90 about six months ago, or $75 to fill up her SUV. That increase, she notes, adds up to a $60 million national tax on consumption. In other words, the chaos from the Mideast mess — be it militarily, financial, the unknowns from regime changes, a prelude to higher inflation numbers and otherwise — would seem to be far from over. It’s also worth poiinting out that 10 of the past 11 recessions since World War 11 can be directly related to sharply higher oil prices, which we’re now experiencing. What do you think? E-mail me at Dandordan@aol.com

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Video: Sfakianakis Sees Bahrain Delaying Bond Sale on Unrest

February 18, 2011

Feb. 18 (Bloomberg) — John Sfakianakis, the Riyadh, Saudi Arabia-based chief economist at Banque Saudi Fransi, talks about the political unrest in Bahrain and its impact on financial markets in the region. Credit-default swaps on Saudi Arabia surged on concern unrest in neighboring Bahrain will spread to the world’s biggest oil exporter. The cost of insuring Bahrain’s government debt rose for a fifth day. Sfakianakis speaks with Margaret Brennan on Bloomberg Television’s “InBusiness.” (Source: Bloomberg)

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Jeffrey Rubin: WikiLeaks Reveals Imminent Saudi Oil Peak

February 16, 2011

The International Energy Agency needn’t bother exhorting OPEC to pump more oil to fuel a global economy that now burns a record 87 million barrels a day. Confidential cables from the U.S. embassy in Saudi Arabia released recently by WikiLeaks confirm what others have long suspected: OPEC’s kingpin producer, Saudi Arabia, has little more to give. The cables from the U.S. embassy in Riyadh cites a number of conversations between embassy personnel and Dr. Sadad Al Husseini , a geologist and former executive vice president of Exploration and Production with Aramco, the Saudi oil monopoly. The former Aramco exploration head contends neither the kingdom’s reserve estimates nor future production targets can be believed. According to Husseini, Aramco’s estimates of its world-leading reserves are inflated by 40%. More important, Dr. Husseini acknowledged Saudi production is never likely to get to Aramco’s 12.5 million barrel per day level target. Instead the country is struggling to produce even 10 million barrels a day and it may soon encounter a production peak after which flow rates will inevitably decline. Yet the International Energy Agency is counting on Saudi Arabia to produce no less than 14.6 million barrels a day by 2035. Dr. Husseini’s revealing assessment of the Saudi oil industry goes a long way in explaining why President Bush’s personal pilgrimage there in 2008 during the height of the last oil crisis was only able to elicit a token 300,000 barrel a day production increase. Other than a limited amount of heavy oil that many of the world’ s refineries can’t process, the Kingdom has little more to offer today. Chronic delays in new development and over reporting of reserves by Aramco, paints an illuminating picture of an oil industry that has struggled merely to keep up with depletion. Production is still below the levels reached in the 1970s. And thanks to the Saudi economy’s voracious appetite for its own massively subsidized oil, less of its near-peak production is available for export every year. While the U.S. embassy cables acknowledge Saudi Arabia still has the capacity to raise prices should it withhold supply, it no longer has the capacity to prevent prices from rising because it can’t boost production sufficiently to meet world demand. If Saudi Arabia no longer has an ability to raise production, who does? Still, one way or another the global oil industry will have to produce six million barrels per day more oil than last year to offset the four million barrels per day that is lost to depletion each year, and the nearly two million barrels per day of new crude demand that another year of global economic growth will generate. (Last year, Chinese oil demand alone increased by almost one million barrels a day). If that supply can’t be found, there is only one solution: Higher oil prices will be needed to ration the ever-growing global fuel demand.

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Jeffrey Rubin: Food: What’s Really Behind the Unrest in Egypt

February 9, 2011

It’s more than coincidence the Arab world is convulsing with social unrest just as the United Nations Food and Agricultural Organization’s widely watched price index recently soared past the previous food price peak set in the summer of 2008. After all, didn’t those same prices ignite food riots throughout the world only three summers ago? When 40% of your population lives on less than $2 per day, soaring food prices isn’t about cutting back on luxury spending. This is particularly telling when record prices include basic grains such as wheat, of which Egypt is the world’s largest importer. Suddenly, it becomes a lot more difficult for the roughly 30 million Egyptians living on that $2 per day to stomach their three decade dictator, Hosni Mubarak. Similar popular indigestion, triggered initially around food prices, sent equally beloved Tunisian strongman, Zine El Abidine Ben Ali, packing all the way to exile in Saudi Arabia. And when food riots recently broke out in neighboring Algeria, not only did three-term president Abdelaziz Bouteflika suddenly see fit to lift a 19-year stage of emergency but, more important, he told his government to order a record 800,000 tonnes of wheat. Algeria is not the only country in the region to start bulking up on its food inventories as a hedge against future food protests that could easily morph into popular revolutions. Everyone in the region is doing it, including supposedly stable Saudi Arabia, which recently announced plans to double its wheat inventories. And it is not just Arab nations feeling the pinch. Food riots are sweeping across the developing world, encouraging similar hoarding elsewhere. Bangladesh and Indonesia placed record rice orders; the former doubling its order, while Jakarta quadrupled its rice purchases. And China may soon be joining the fray. Severe drought in the north is having a disastrous impact on the country’s winter wheat harvest. This has left the ground extremely dry for spring planting. If China, normally self-sufficient in wheat, becomes a significant importer this year, world grain prices could go a lot higher. If soaring food prices are the real culprit behind growing civil unrest sweeping through the developing world, governments reaction to the crisis is only bound to make the problem worse. You don’t need a PhD in economics to figure out what happens to prices when every government under the sun starts stockpiling food. What’s most disconcerting about today’s food prices (as it is with oil prices) is not so much their record level but how little time it has taken for basic resource prices to rebound from the post-war’s deepest global recession. At the very beginning of a new cycle, we are already seeing the same record food and energy prices that ended the last cycle. I wonder what that says about the sustainability of growth?

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Daniel Dicker: On Destabilizing Food Inflation, Krugman misses the point

February 7, 2011

Nobel Prize-winning economist Paul Krugman opined today in The New York Times on the reason for high prices in basic foodstuffs, a major inflammatory to the rage we’re seeing in the streets of Egypt, Algeria, Jordan, Saudi Arabia and elsewhere. Krugman is right in how these soaring prices have contributed to Middle East troubles and also correctly warns about the continuing problems that food inflation poses particularly in these Emerging and Third world nations. But the major point of the piece — the fundamental causes of massive price increases — unfortunately concentrates on weather events as the cause. On this point, Mr. Krugman is being entirely too easy on the financial forces wreaking their havoc on these very delicate, and until just five years ago, very insular commodity markets. As I point out in detail in my upcoming book, Oil’s Endless Bid , out from John Wiley and Sons in a few weeks, the “financialization” of all commodity markets, but most particularly oil, has not only unnecessarily pumped up the prices that you and I pay for gasoline and corn and wheat, but has made those prices far more viciously volatile. It is that volatility, even more than the outsized price inflation, that has added so much to the instability in the Middle East and elsewhere. We’ve seen commodities turned into facsimiles of stocks, something they were never designed to be. And yes, there are undoubtedly fundamental reasons for rising prices in oil, corn, wheat, soybeans, coffee and cotton. There is flooding in Australia, drought in Russia, lighter output in South America and reduced crops from India and China. All of these fundamental and weather related events are real. But the outsized inflation in the cost of these commodities from these events is not. In the last year alone, Wheat is up 80%, Corn up 94%, Coffee has almost doubled and cotton is up a staggering 158%. I watched in 1991 as oil rallied $10 dollars over the course of two months as we were preparing to enter a full-fledged war with Iraq, a significant oil producer, that threatened to include Kuwait and Saudi Arabia. Last week, I watched oil rally $4 dollars in a day on the reaction to protests in Egypt, a relative non-participant in global oil. Clearly the financial access and speed of that access to investors and traders has permanently changed the way that commodities are priced and the influences that ultimately work on them. Even the smallest fundamental input can create a multiplied financial effect in commodity markets, using the quick acting commodity indexes, managed futures funds, commodity trade groups, ETF’s, ETN’s and personal futures accounts available today. Even if you wish to argue that the prices we ultimately see from these financial players working on global commodity markets are “fair” — a view I very much disagree with, but economist Krugman believes — it is impossible to argue that they are far less reliable: Monster moves both up and down in basic foods and oils have been happening with far greater frequency and unpredictability. And this unreliability and volatility is becoming a global issue — where the US is better equipped to deal with food prices that double over a year’s time as less than 10% of wages go towards food — events in Egypt, where more than 40% of wages are spent on basic foodstuffs, has proven how quickly other nations can be destabilized by these roller coaster price moves. What can be done? It is clear that the CFTC is moving slowly and may ultimately be unable to put into effect the few governors on massive price swings that Dodd-Frank legislation hoped to help control. But perhaps that analysis is best saved for another blog post. For today, it is enough to recognize that some facile arguments of food commodity inflation, even those made by Nobel prize winning economists, are worthy of very serious exploration and better understanding.

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Egypt Unrest May Cause Big Rise In Oil Prices: Kuwait Official

February 6, 2011

Global oil prices could exceed $110 a barrel if political unrest in Egypt continues, a member of Kuwait’s Supreme Petroleum Council said on Sunday. Oil prices have spiked due to tension in Egypt. Brent crude hit $100 per barrel for the first time since 2008 on fears instability could spread through the Middle East, which together with North Africa pumps over a third of the world’s oil. “I expect oil prices to reach $110 during the first half of 2011, however, it could go above that level if Egypt’s current crisis continues,” Imad al-Atiqi, a member of the OPEC member’s highest oil policy body, told Reuters in a telephone interview. “A huge amount of oil passes through the Suez Canal and the country’s stability is essential for the Middle East’s stability, particularly Israel,” he said. Egypt is a small oil and gas exporter and the main danger of the unrest is seen as the closure of the Suez Canal or the Suez-Mediterranean (SUMED) oil pipeline which passes near Cairo. The canal ships 1.5 million barrels per day (bpd) of crude and the pipeline carries 1 million bpd. Together they account for nearly 3 percent of daily global oil demand. On Thursday, Egypt’s Prime Minister Ahmed Shafiq said the Suez Canal was operating normally despite the unrest. Some oil-focused bankers and fund managers say that even if unrest in Egypt cuts flows along the strategic pipeline and the Suez Canal, the oil price spike would likely be short-lived and flows would resume quickly, regardless of whoever is in power. OPEC members are comfortable with an oil price ranging between $90 to $100 a barrel, Atiqi said, adding the group could meet before their scheduled meeting in June if prices continued rising quickly above $110 a barrel. OPEC ministers and consumers will discuss oil output policy on the sidelines of an international energy conference in Saudi Arabia on February 22, but a formal decision there was unlikely, the OPEC secretary general had said. OPEC says it has spare capacity of 6 million barrels to meet lost output but would do it only when it sees a shortage in the market rather than speculator-driven rallies. (Reporting by Kuwait newsroom; Editing by Rania El Gamal; Editing by David Holmes) Copyright 2010 Thomson Reuters. Click for Restrictions .

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Daniel Dicker: Food Commodity Speculation Adds to Egypt Unrest

January 30, 2011

While the protests in Egypt are politically motivated, there is also little doubt that the rage of the populace there, as well as in Tunisia, Yemen, Algeria and elsewhere, is being inflamed by the huge and volatile increases in basic food prices. While the seeds for huge percentage increases in corn, wheat, sugar, coffee and of course oil are based in some fundamental supply shortages, they have been unnecessarily hypercharged by the influx of investor money, speculative energy and the panic of governments trying to stockpile basic foods and quench the growing hostility of its people. We’ve seen this movie before, in 2007-2008, but it hasn’t looked nearly as bad as this. Massively spiking commodity price inflation, before the global financial collapse, was a far easier problem to find solutions for and contain. Now, with practically all Western governments in the midst of austerity budgeting, less money is available to help Middle Eastern and other emerging nations find adequate and subsidized supplies. But this movie rerun is in widescreen Technicolor: the across-the-board food price increases have never seen this kind of spike before, ever. Wheat is up 75% in the last 12 months, corn up a little more. Coffee is up 85% and cotton a spectacular 140%. While flooding in Australia, a drought in Russia and weak harvests in India and China are the fundamental drivers for this upwards trend, there is little doubt that investors and traders looking to diversify and capitalize on the supply shortages are moving these prices much more significantly and faster. Commodity index investment increased an estimated and whopping $80B dollars last year, bringing total long-only commodity index investment to $350B, according to Barclays. Another $30B of commodity ETF investment is also overwhelmingly long-only, as short commitment in these instruments is normally well under 5% of float. Financial buying of commodities in indexes and ETF’s, with the speed that these instruments operate, overwhelm the futures mechanisms and cause much greater volatility and overall higher prices. We’ve seen this roller coaster ride play itself out once already in oil, moving from 2005-2008 to $147 a barrel, only to collapse to $32 dollars in March of 2009, before re-initiating its upwards trajectory. Whether financial investment in commodities can be absorbed by a free market or not, this kind of boom/bust cycle, now playing itself out again in other critical foodstuffs, is intensely destabilizing and threatens the order in brittle governments around the globe. And governments have been forced to play into this struggle. Increased stockpiling of basic commodities has added to the frenzy of price increases: Algeria and Saudi Arabia have doubled their usual stockpile of wheat, Bangladesh and Indonesia have tripled orders for rice. The mechanism for halting, or even slowing down the massive money flows into financialized commodities is lacking. Small steps on position limits and transparent clearing, mandated under Dodd-Frank legislation, have seen widespread pushback from industry advocates and trading companies. Rules for the energy markets, mandated by Dodd-Frank to be in place and operating today under the Commodity Futures Trading Commission (CFTC), are at least another year away, if they are coming at all. Very little looks to be changing. And with very little changing, we might have to get used to these street scenes in Egypt and other emerging nations elsewhere, as rage from native populations spills over from the spiking prices of simple food basics.

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Franz-Stefan Gady: Undersea Cables: The Achilles Heel of our Economies

December 21, 2010

In December 2008 within milliseconds, Egypt lost 70 percent of its connection to the outside Internet. In far away India, 50 to 60 percent of online connectivity similarly was lost. In Pakistan, 12 million people were knocked offline suddenly, and in Saudi Arabia, 4.7 million were unable to connect to the Internet. The economic costs of this 24-hour outage: approximately 64 million dollars. The recent revelations by WikiLeaks of U.S. national security interests in critical infrastructure vulnerabilities mention the often neglected underpinning of the current connectivity revolution sweeping the planet–undersea cables. In December 2008, four undersea cables were cut simultaneously, affecting Internet users all over the world. While cable cuts happen from time to time nothing, the scope of the cuts illustrate the exposure of our economies to disruption once we lose connectivity. Hardly any people know that our global digital connectivity rests upon a relatively few fiber optic cables lying at the bottom of the Atlantic, Pacific, and Indian Oceans. They wrongly believe that their international communications are carried via satellite links. The truth is that 99 percent of transcontinental Internet traffic travels through these connecting cables; these are the lifelines of our economies. For proof, simply take a quick look at the financial services sector. In 2004 alone, nine million messages and approximately $7.4 trillion a day were traded via undersea cables worldwide. The Society for Worldwide Interbank Financial Telecommunication (SWIFT), a provider of financial messaging, sends about 15 million messages a day over cables. 1 million of these are financial transactions, amounting to over $4.7 trillion dollars a day commuting via the same undersea cables. The finance hub Hong Kong doubles its dependency, i.e. the volume of messages going through these cables, every 18 months. Most of the cable cuts occur because of ship anchors, natural disasters such as earthquakes or fishing nets. While the technical reliability of these cables is very high, international politics have created three particular problem zones in the world — three cable chokepoints where undersea cables converge and where if cut, outages could have severe consequences. The first is in the Luzon Strait, the second in the Suez Canal-Red Sea-Mandab Strait passage, and the third is in the Strait of Malacca. Let’s take a closer look at the Luzon Strait. The reason why cables go through the Luzon Strait rather than taking an alternative route through the Taiwan Strait to avoid this single point of failure is because of the ongoing political tensions between Taiwan and China. The result is that Hong Kong, a major financial hub, is one of the most vulnerable spots to outages in the world. The Hengchun earthquake in 2006 severed the Luzon Strait cables, which, according to Chinese newspapers, “catastrophically affected financial transactions, particularly in the foreign exchange market.” Simultaneous cuts in the Luzon Strait or the Suez Canal-Red Sea-Mandab Strait chokepoints — again largely the result of the political unwillingness of the countries on the Arabian Peninsula to cooperate with regard to overland cables through their territories — could cut Hong Kong off from New York or London, as terrestrial routes would have insufficient capacity to carry the undersea cable load. Payments suddenly could not be made, orders not processed, and bond trading halting on the stock exchange. Given our volatile economic climate, an incident where a number of these cables are cut could have devastating consequences. When cables are cut at one chokepoint, the loss of connectivity might last from a few days to a few weeks depending on how well the cable system owner, the operator of the repair vessel, and the national government involved coordinate their efforts. A few countries are notorious for delaying repair permits if the cuts appear in their territorial waters. The good news is that there is the chance for “undersea cable diplomacy” to bring countries together. The IEEE Reliability of Global Undersea Communications Cable Infrastructure (ROGUCCI) Report, released earlier this year, provides a thorough analysis of these and other concerns, and, most importantly, provides bold, actionable recommendations for addressing each of these problems in order to strengthen the resilience of the global undersea communications cable Infrastructure (GUCCI). The international, non-profit “think and do tank” EastWest Institute has been recruited to champion international policy aspects of the recommendations and is making encouraging progress. There is hope that China and Taiwan could reduce tensions and build trust by allowing the installation of undersea cables in the Strait of Taiwan. It would be a win-win situation for both sides and the world since it decreases the vulnerability of the global economy to communication outages. The same is true for other chokepoints. Undersea cables might serve as the initial building block in inter-country collaboration in some of the most contested regions of the world. This was a notion already recognized by Queen Victoria in her first cable across the Atlantic in 1858 when she expressed hope that undersea cables would prove “an additional link between the nations whose friendship is founded on their common interest and reciprocal esteem.” Franz-Stefan Gady is a foreign policy analyst at the EastWest Institute.

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Saudi Arabia ranked 13th on global competitiveness index

December 14, 2010

Saudi Arabia ranked 13th on global competitiveness index

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Raymond J. Learsy: Price of Ethanol and Price of Oil According to the New York Times

December 10, 2010

In a classic example and contender for the Alfred E. Neuman “I Don’t Get It” prize of the year the New York Times ‘ editorial page of December 9th outdid itself. First we had a dissertation on the “limitless stream of cash flowing to the terrorist from private charities and contributors in Saudi Arabia, Kuwait, and Qatar” entitled ” Follow the Money “. Reference is made to the lame attempts by Saudi Arabia to reign in terror funding citing Qatar “as the worst in the region” and Kuwait as a “key transit point”, and the paltry oversight of the United Arab Emirates’ growing financial center. There is no specific mention of the primordial source of all this money, being of course the tidal wave of oil funds washing over these societies. There is also no mention of our participation as enablers gorging ourselves shamelessly from the poisoned oil chalice tendered to us by these willing suppliers. Ah, but wait. The New York Times has our attention and then blindly goes on to give us a lesson on the science, economics and tax policy of ethanol. First making allusions to the highly theoretical thesis that ethanol production releases more greenhouse gases than petroleum fuels. No proof, but good copy if you are trying to undermine an entire program. Then the editorial, ” Good Energy Subsidies, and Bad ” instructs us that if subsidies are extended another five years it will cost taxpayers a total of $31 billion. Well, Hello! How much is the war in Afghanistan costing us; how many multiples of $31 billion annually? And would we have a war there at all were it not for the “limitless flow of cash flowing to terrorist groups”. Clearly that calculation is not made at the New York Times , nor the concept that oil costs far, far more than we pay for it in dollars and cents when we calculate the cost in lives, lucre, and diversion of resources stripped from this nation because of our addiction to this Middle East drug. In these editorials there is no realization that any steps we take that are reasonable, to wean us away from this malodorous commodity, oil, should be celebrated. Last time I looked there weren’t any Taliban in Iowa.

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FLASHBACK: Obama Slams Bush Tax Cuts For ‘Millionaires And Billionaires’ (VIDEO)

December 7, 2010

NEW YORK — Over the past three months, Obama described the Bush-era program that he’s now adopting as his own as “tax cuts for millionaires and billionaires” no fewer than 50 times, according to a review of his stump speeches, weekly addresses, and comments to campaign donors and members of the news media. The rhetoric was deliberate: Obama was trying to cast Republicans as the party of the wealthy while his fellow Democrats represented the middle class. He used that rhetoric at campaign events across the country, from Los Angeles and Las Vegas to Des Moines, Iowa, and Richmond, Virginia. During at least three pre-election rallies, Obama, playing to crowds filled with die-hard supporters, railed against the tax cuts for the wealthy, eliciting rounds of boos from the audience, according to White House transcripts. Video produced by HuffPost’s Ben Craw Obama repeated the “millionaires and billionaires” line once again on Monday in announcing the deal, but with a slight twist: Rather than rejecting Republicans’ call for a full extension of the tax cuts, he simply expressed opposition to their demand of making it permanent. Obama didn’t make that distinction on the campaign trail. But in addition to the class-warfare rhetoric, Obama described the tax cuts as unaffordable and ultimately ineffective. On Sept. 25, during his weekly radio address Obama referred to the initiative as “tax breaks we cannot afford.” A few days later, during an event the White House billed as a “backyard discussion” at the home of a family in Albuquerque, New Mexico, Obama said the nation would “have to borrow the $700 billion” — the estimated cost of the cuts over 10 years — “from China or the Saudis or whoever is buying our debt, and then we’d pass off on average [a] $100,000 check to people who are making a million dollars, up to more than a billion dollars.” Obama wanted to make sure that his audience understood that either the U.S.’s main rival for decades to come would be financing the tax cut, or the nation that sells the U.S. most of its oil. He used the reference to China and Saudi Arabia a few times. And while Republicans and some Democrats have claimed that no one — even the wealthy — should have their taxes raised during a recession because that could stunt the recovery, Obama cast aside those fears, arguing on Sept. 29 that “98 percent of Americans wouldn’t see any benefit from it.” On Monday, the White House tone towards the tax cuts changed from hostility to acceptance. On a conference call with reporters, senior administration officials declined to explain why. If passed by Congress, the tax initiative would expire in two years. The Federal Reserve forecasts the unemployment rate to hover around 8 percent at the end of 2012. Prior to the current recession, unemployment hadn’t reached the 8 percent level since January 1984. There have been two recessions since then: 1990-91 and 2001. It’s unclear how the White House will be able to let the tax cuts lapse with 8 percent unemployment. Senior administration officials declined to comment when asked. ************************* Shahien Nasiripour is the business reporter for The Huffington Post. You can send him an e-mail ; bookmark his page ; subscribe to his RSS feed ; follow him on Twitter ; friend him on Facebook ; become a fan ; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455. Ben Craw is the video editor for The Huffington Post. He can be reached at bencraw@huffingtonpost.com.

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G.W. Schulz: With Border Surveillance in Trouble, a New Defense Contractor Lines Up

October 26, 2010

At a mid-October conference in Dallas that drew thousands of security industry professionals and government officials, defense mega-contractor Raytheon Co. unveiled its latest pricey product for keeping the nation safe, a bid to remotely detect would-be border crossers before they enter the country illegally. Command-and-control centers staffed by border patrol agents would swiftly collect and analyze mountains of data pouring in from surveillance cameras, radar systems, ground sensors and thermal-image devices busily monitoring possible intruders as they streamed toward the nation’s border. If all of this is starting to sound familiar, it should. Taxpayers have already shelled out at least $615 million to another major defense firm, Boeing Co., which made strikingly similar promises five years ago when it partnered with the Bush administration to create SBInet, a high-tech leg of the larger Secure Border Initiative . SBInet, also referred to as the “virtual fence,” called for filling the desert with modern observation widgets, including a string of towers topped by digital eyes capable of vastly expanding the miles of border that enforcement officers could otherwise effectively secure. The project has since fallen short of expectations, to put it lightly. A series of harsh reviews from congressional investigators at the Government Accountability Office and the Department of Homeland Security’s inspector general have criticized SBInet since its earliest days, pointing to poor planning, cost overruns, scheduling setbacks, technical failures and weak contractor oversight. The latest negative assessment surfaced just days after Raytheon’s announcement. GAO watchdogs called the deficient policing of SBInet’s prime contractor “a major contributor to the program’s well-chronicled history of not delivering promised system capabilities on time and on budget.” Word came Oct. 22 that the Department of Homeland Security would not continue work under Boeing’s contract, and the next day news surfaced that Obama administration officials planned to halt SBInet altogether. Connecticut Sen. Joe Lieberman, chair of the powerful Homeland Security and Governmental Affairs Committee, at an April hearing , called SBInet “a classic example of a program that was grossly oversold.” Colleague John McCain — hardly soft-spoken on the issue of border security this election year — piled on. “There’s been a lack of oversight. There’s been a lack of accountability. And by most reports, this virtual fence has been a complete failure.” So why is Raytheon charting a course toward border surveillance after so many costly headaches? For one thing, the Massachusetts-based company was among several that lost an earlier bid for the SBInet contract to Boeing in 2006. Raytheon may now be looking for a second chance to prove itself and simply take over where Boeing has been unsuccessful, rather than offer an entirely different solution with new hardware. (Requests for comment from Raytheon went unanswered.) Plus, the company is smarting over attempts to ink border security deals with Saudi Arabia and the U.K. worth a combined $4.5 billion that fell through. It’s also the case that 20,000 border patrol officers just aren’t enough to cool the ongoing national furor over illegal immigration and drug-cartel violence, even if the estimated price tag of each new hire is $160,000 for background checks, salaries, night-vision goggles and additional necessities. The promise of modern technology continues to be powerfully tempting, and if taxpayers will pony up more, then Raytheon wants a cut. While SBInet appears doomed, lawmakers and federal officials are still talking about what options may be available. GOP Congressman Michael McCaul of Texas sits on the House’s Homeland Security Committee and has said he’ll push for Defense Department technology being used in Afghanistan and Iraq. A DHS spokesman told the Los Angeles Times that border officials will determine “if there are alternatives that may more efficiently, effectively and economically meet our nation’s border security needs.” What exists on the border now is piecemeal. For the total investment so far from taxpayers, which is somewhere in the neighborhood of $800 million or more, two SBInet deployments cover about 53 miles in Arizona, a sliver of the almost 2,000 miles of border the nation shares with Mexico and far from what was originally envisioned. Homeland Security Secretary Janet Napolitano earlier this year yanked $50 million in economic stimulus funds from SBInet, vowing to use it for truck-mounted cameras and other detection gear authorities believed could produce better results. A $600 million border security bill passed by Congress this summer included hiring additional agents and buying new pilotless drones, with $100 million of it coming from canceled SBInet funds. Raytheon says its own “Clear View,” as they’re calling the system, can be integrated with software and devices built by others. But the process of tying together, or integrating, SBInet’s array of highly technical components along a geographically diverse border — from laser range-finders to surveillance cameras to command centers — proved to be exceedingly difficult for Boeing. Trade publications say Raytheon doesn’t limit the application of Clear View just to government clients. It could also be used by private companies to secure sensitive manufacturing facilities, for example. But Washington always has money to spend, and Raytheon emphasizes Clear View’s potential value to the Department of Homeland Security. A former deputy chief of the Border Patrol, who now consults for Raytheon, told Government Security News the company had briefed senior federal officials about Clear View. Raytheon specifically mentioned SBInet at the conference where it showcased the system, arguing Clear View is superior to what Boeing has done because Raytheon’s software can not only “see” those headed for the border but track their movements, all while “correlating thousands of pieces of ever-changing data and presenting a clear and coherent picture of what’s happening at any given moment,” according to GSN . SBInet wasn’t even the first time we forked over substantial sums in an attempt at digital border security. The Clinton administration launched its lesser-known ISIS program in 1997, a planned network of seismic and infrared sensors combined with surveillance cameras. Auditors blasted it, too. For their part, Boeing executives defend SBInet and say the technology had begun to perform reliably, leading to the seizure of narcotics and interception of illegal border crossers. “In terms of performance on the program, progress is evident,” Boeing’s president of network and space systems, Roger Krone, told Congress in March. Apparently that wasn’t enough for Washington — SBInet is now an expensive lesson taxpayers had to learn the hard way. How much more would Raytheon charge for the privilege? G.W. Schulz joined the Center for Investigative Reporting in 2008 to launch its ongoing homeland security project. Read the project’s blog, Elevated Risk, here .

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Jeffrey Rubin: Can the Canadian Economy Afford the Tar Sands?

October 19, 2010

America is banking on a lot more Canadian bitumen exports to supply it with oil in the future. Already the single largest source of the US’s imported oil, the Alberta tar sands’ supply could soon comprise as much as almost a third of America’s total oil imports–apart from the fact that it’s far from clear whether or not the rest of the Canadian economy could afford the consequences. Whether Canadians like it or not, their dollar has become a petro-currency. Currently trading near parity against the greenback, it wasn’t that long ago that the Canadian dollar was trading as low as 61 cents against its bigger cousin. But of course back then oil was trading at close to $20 per barrel, and at that price Alberta’s tar sands were a marginal energy resource. At $80 per barrel, the oil industry is pumping one and a half million barrels per day, and the once-marginal Canadian resource has suddenly become second only to Saudi Arabia in proven reserves. At triple-digit prices, the tar sands will produce three to four million barrels per day. In turn, the tandem of soaring oil prices and soaring oil production will propel the Canadian dollar to heights it’s never seen. A soaring currency may bring long-lost NHL franchises back to Winnipeg, Quebec City and maybe even Hamilton from Dixie and the desert, but that’s about all the Canadian economy can expect from its major trading partner. Other than Canadian bitumen exports, American consumers won’t be buying much from their northern neighbor. That won’t pose much of a problem for Alberta, whose exports are almost all energy-based. Unfortunately the same can’t be said for the rest of the Canadian economy: shipments to the US market account for three quarters of the country’s total exports. Or at least they do–for now. How long can Ontario remain the single largest producer of motor vehicles in North America if the Canadian dollar is trading at a double-digit premium to the greenback? For that matter, what segments of the Canadian manufacturing sector are likely to survive that exchange rate in the first place? Will the morphing of the Canadian dollar into a petro-currency be Alberta’s revenge for the still-loathed National Energy Program ? Back in the early 1980′s, Ottawa transferred billions of dollars of petro-wealth from Alberta to subsidize manufacturing in Ontario and Quebec by forcing domestic oil prices below world levels. Are the tables about to turn? Will the price for more mega-projects in the tar sands spell the end of the manufacturing sector in Ontario and Quebec? If so, what will the political feedback be from a region of the country that still controls the majority of seats in Canada’s Parliament? As more and more Canadian auto and steel plants are closed in the wake of a soaring currency, America may have to look elsewhere for its future oil supply.

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David Isenberg: Sloppy Language and Human Rights

October 6, 2010

Last week, on Oct. 1, the U.N. Human Rights Council decided to establish a Working Group to elaborate a legally binding instrument on the regulation of the impact of the activities of private military and security companies on the enjoyment of human rights The Working Group will have the mandate to elaborate a legally binding instrument on the regulation, monitoring and oversight of the impact of the activities of private military and security companies on the enjoyment of human rights, on the basis of the principles, main elements and the draft text for a possible convention proposed by the United Nations Working Group on the use of mercenaries as a means of violating human rights and impeding the exercise of the rights of peoples to self-determination. The vote on resolution A/HRC/15/L.22 regarding the open-ended intergovernmental working group was adopted by a vote of 32 in favor, 12 against, and 3 abstentions. The intergovernmental open-ended working group shall meet every year until the fulfillment of its mandate, that it shall have a session of five working days a year and that the first session shall take place no later than May 2011. The result of the vote was as follows: In favor (32): Angola, Argentina, Bahrain, Bangladesh, Brazil, Burkina Faso, Cameroon, Chile, China, Cuba, Djibouti, Ecuador, Gabon, Ghana, Guatemala, Jordan, Kyrgyzstan, Libyan Arab Jamahiriya, Malaysia, Mauritania, Mauritius, Mexico, Nigeria, Pakistan, Qatar, Russian Federation, Saudi Arabia, Senegal, Thailand, Uganda, Uruguay and Zambia. Against (12): Belgium, France, Hungary, Japan, Poland, Republic of Korea, Republic of Moldova, Slovakia, Spain, Ukraine, United Kingdom, and United States. Abstentions (3): Maldives, Norway, and Switzerland. Below are some comments from various countries explaining their votes. OSITADINMA ANAEDU (Nigeria), introducing draft resolution L.22, said that they had the honour to introduce the draft text on behalf of the African Group. The draft resolution called for an international monitoring mechanism on the activities of private military and security companies. The draft resolution called for the establishment of an open-ended intergovernmental Working Group, which would make recommendations to the Council on how to proceed on this important issue. A legally binding instrument would be able to hold private military and security companies accountable to their international human rights obligations. The use of mercenaries remained a controversial issue and Nigeria felt that clear legal measures needed to be pursued. The open-ended intergovernmental Working Group would be able to help guide this process and make valuable suggestions in this regard. Nigeria also raised a number of oral amendments and concluded by saying that they hoped that this resolution would be adopted by a substantial majority of the Council’s members. EILEEN CHAMBERLAIN DONAHOE (United States), speaking in an explanation of the vote before the vote, said that the United States took seriously the issue of private military security companies and their accountability. The most effective way to address those concerns would be the better implementation of existing laws, including the international code of conduct, which would oblige the private military security companies to conduct themselves in respect of human rights. The United States was disappointed that their and other delegations’ suggestions were not adequately addressed in the resolution. The United States said that the draft resolution would not produce an effective resolution of those issues and would divert resources, time and attention from more constructive approaches. Furthermore, the fundamental issues had not been sufficiently considered by the resolution, such as its implications on training and recruitment for private military security companies and even United Nations peacekeeping missions. The United States than called for the vote and said it would vote against the draft resolution. ALEX VAN MEEUWEN (Belgium), speaking on behalf of the European Union in an explanation of the vote before the vote, said South Africa was to be thanked for its efforts to accommodate the concerns of all States. Nevertheless, the European Union was unable to support the resolution, as it did not consider that discussion of private military and security companies was appropriate in the Human Rights Council. It was not primarily a human rights question, and therefore went beyond the competence of the Council. The European Union did not support the proposal that a body established by the Human Rights Council should have the responsibility of establishing an international regulatory framework, nor a possible Convention. The European Union would therefore vote against the resolution. PETER GOODERHAM (United Kingdom), speaking in an explanation of the vote before the vote, said that its objectives on private military and security companies was to reduce the risk that these companies might violate human rights. Taking into account various consultations, the Government of the United Kingdom had decided to implement robust codes of action for private military and security companies with which it worked and also to ensure adherence to those codes and the rules of international law. In light of these facts, the United Kingdom did not support the call for an international regulatory framework nor a legally binding document on the use of private military and security companies, which it did not consider to be a human rights issue. Furthermore, if the resolution was passed, the United Kingdom said that the Office of the High Commissioner for Human Rights should find internal resources to pay for the activities of the intergovernmental Working Group. For these reasons, the United Kingdom would vote against the draft resolution. BENTE ANGELL-HANSEN (Norway), speaking in an explanation of the vote before the vote, said that the growing trend of using private military security companies to implement various assignments was of a great concern. It was particularly so because their use for military purposes blurred the essential difference between combatant and non-combatant, thus undermining the protection of civilians and humanitarian workers. Norway believed that development of a new legal instrument in the international law was outside of the Human Rights Council’s mandate and that the Council was not an appropriate forum for such discussion. Norway would therefore abstain from the vote. ALBERTO J. DUMONT (Argentina), speaking in an explanation of the vote before the vote, said Argentina would vote in favour of the resolution, since it supported inter-Governmental control on security companies, and hoped for a convention in this area. The Human Rights Council needed to look very carefully at the content and scope of such an undertaking, and the Working Group needed to be able to examine all possible inputs for such an aim, not just the documents of the Expert Group. DANTE MARTINELLI (Switzerland), speaking in an explanation of the vote after the vote, said that Switzerland was in favour of the better regulation of private military and security companies and their use in armed conflict. Switzerland added that it was not against a dialogue on the issue of establishing an international mechanism to monitor and oversee the activities of private military and security companies but this needed to be conducted in an inclusive and balanced manner. In summary, Switzerland regretted that the resolution was not adopted by consensus, which is why it had decided to abstain from the vote. KENICHI SUGANUMA (Japan), speaking in an explanation of the vote after the vote, said Japan was concerned that the Council had undertaken various new initiatives without taking into account their budgetary implications. In the future sessions of the Council, Japan asked that a way be found to provide members with the information on programme budgetary implications and the sufficient time to study them. Japan chose not to block consensus, but it hoped that additional budgetary needs would be met though savings and the prudent use of the current biennial budget. What I find interesting about the comments from countries like Belgium, USA, Norway, and UK was that they do not consider the issue of private military and security contractors a human rights issue. Yes, of course, some shade their response by saying (Belgium) it is not “primarily” a human rights issue or (United States) that other existing laws are more appropriate for considering the issue. But, at least with respect to private security, if not private military, contractors, where the salient issue is ensuring that people with guns don’t do things they should not do, they are, as a definitional issue, no different from regular military forces. And all states agree (see Geneva Conventions for example) that the actual or potential use of deadly force by them is very much a human rights issue. So judging from the state’s objections listed above one might be forgiven for concluding that at least some countries think that when a state does something wrong it is a human rights concern. But when the private sector does it, it is, perhaps, just business as usual? I can’t help but think of George Orwell’s famed 1946 essay, “Politics and the English Language” which focused on the link between sloppy language and sloppy thinking.

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Michael Martin: Big Oil Has Replaced Big Tobacco In The Bulls Eye of America’s Vitriol

August 8, 2010

Despite giant pay packages, I wouldn’t want to be a CEO of an oil firm if my life depended on it. Everyone hates you. You have to deal with some of the most unsavory people in the world who steal, bribe, reneg, and lie to you all-the-while demanding signature bonuses , sometimes upward of $70 million. You at times put your own life at risk via your business travels. Back home in America, you have to deal with your own brethren who spit in your face, but at the same time want $2 a gallon gasoline consistently, as if it’s their birthright. You have to have an appeasing and socially acceptable Green ethos. That’s all before you have to deal with a lame President, House, and Senate who collectively could not come up with a National Energy Policy if their offices depended on it. They love the PAC money though. [As of this writing, the Department of Energy has not discovered a single drop of oil for America. Alec Baldwin wants to shut down an oil company . I say let's put the DOE down first Alec - I'll work with you on it.] Tom Bower’s new book Oil: Money, Politics, and Power in the 21st Century is the best book on crude oil that I’ve ever read. It starts with the discovery of oil here and abroad, and how it’s been ingrained in our economy and culture ever since. Bower spoke with more than 250 industry professionals, politicians, and analysts over an 18 month period of time in order to complete this book. It is written as the definitive history of crude oil – and it’s backed up by facts. Not make believe facts or Michael Moore Facts either, but real facts, that in the end provide readers with a well-rounded understanding of America’s addiction to crude oil and how we got here. No one is going to like the conclusion, but “A is A.” You know your history with crude oil. It’s in everything you use every day . Tom Bower is an award-winning, full-time columnist for the Guardian UK . He does not hold back in this book one iota and he doesn’t let anyone off the hook. If you read the book, I think the results will surprise you. “Oil men are intelligent. Most of them are honest and they represent their corporations fairly,” he said. “They are committed to a very complicated business – geographically, geologically, and politically. No one man can do it alone. It requires a culture to make it work.” As recently as 1996, American crude oil production fell to 6.9 million barrels per day and we became a permanent net importer. For every $1 rise in crude oil, Saudi Arabia brings in $2.7 billion in revenues to their country, mostly via Saudi Aramco. Iran, via the National Iranian Oil Company (NIOC), brings in approximately $900 million for every $1 rise. Bower has some criticism for the CEO’s and their response to the green movement (what he calls green). “The environmentalists and green influence the price of oil. Oil companies have had their focus diverted by green . Their prime job is to drill and find oil. The green movement has been unhelpful to the oil industry on a whole.” But what about the giant hole in the ozone and that giant iceberg that’s allegedly four times the size of Manhattan that’s broken off the Petermann Glacier ? “On the other hand, the energy is cleaner. But whether the oil corporation can actually deliver the green movement’s desire’s I think is ridiculous, because in the end, that comes down to government.” It took over 20 years for the Exxon Valdez disaster to be squared away – at least legally. And what they paid in fines was a pittance. “Like Exxon, BP will take decades and generations to reduce and avoid damages from the gulf spill as best they can. In the end, Exxon paid the equivalent of 2 days revenue for the Valdez disaster,” about $500 million. [FYI - the Exxon Valdez is still in service. It's been repaired, sold, and renamed.] But the good news is that according to White House energy adviser Carol Browner, 75% of it is already gone !!! Bower is not so convinced that America will come down too hard on BP. “One-fifth of the all the oil produced today around the globe is consumed by America. America needs BP’s oil. They employ 30,000 people in the US. They are not evil people. They are not malicious people – they have made a terrible mistake. But on the whole, as much as I’m critical of them, I have not met a bad BP-person – except perhaps John Brown. You don’t get to the top by being an angel.” Although, Bower disagrees with me, I suggest that Corporate CEOs get away from the sole focus of trying to meet the quarterly earnings number. Start announcing annually. Wall St. will get used to it. Take risks and be bold. We need energy. I’d like to see the House and Senate give tax credits to investors who can take the risk and who have the ability to jump start investments in bio fuels, electric cars, hydrogen cars, and cheaper oil for the time being, so that we can end our addiction to crude oil or at least cut it down substantially. In order to get off our crude oil addiction of convenience, America is going to have to make a lot of uncomfortable changes in its usage that will require a lot of discipline: car pools, bikes, buses…walking. For those of us who are addicted, those changes are going to be a major inconvenience to our current way of doing things. Anything less of a commitment, is an endorsement of the status quo. As long as we are addicted to crude oil, the derivative products heating oil and gasoline, and the thousands of products that are derived from crude oil , we are partly to blame for the environmental damage and oil spills such as Deepwater Horizon. I interviewed Bower and recorded a 23-minute podcast that’s available at my blog MartinKronicle . Below are some Q & A from the interview: Michael Martin: Who do you think benefits the most from high crude prices? Tom Bower: Oh, certainly the producers for sure. They are the ones who try to manipulate the price higher. The Saudis gauge the demand and cut their production so that they can maximize their revenue. They do this every day. MM: Who benefits from oil embargoes? TB: The traders and speculators. MM: What is the best way we can get off the crude oil addiction? TB: American needs to get on diesel. It will reduce need for oil by 15% per day. They need to get off the SUVs too. But Congress has never passed a substantial energy policy. It’s always voted down by their constituency because they’re afraid to miss out on their votes. America is wasting a great deal of money on their energy.”

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Jeffrey Rubin: What Does King Abdullah Know?

July 20, 2010

It was only two years ago that King Abdullah of Saudi Arabia cautioned consumers that, without $75-per-barrel oil, there was no incentive for his kingdom to bring on new production. Today, apparently, even that price no longer works. Recently, the King announced that he has ordered a halt to all further underground oil exploration, arguing that further finds should be left to future generations of Saudis. That announcement may have gone over well with the class of Saudi students he was addressing at the time, but for oil consumers around the globe it was an explicit statement that the country with the world’s largest oil reserves has no plans to tap them further. So much for the International Energy Agency’s forecast for huge production increases in the kingdom. Like so many of the agency’s previous optimistic projections, this one isn’t any likelier to pan out. But what does King Abdullah know that the IEA doesn’t? For one thing, leaving oil in the ground in Saudi Arabia only makes production in the Gulf of Mexico, and the recent environmental disaster at the sunken Deepwater Horizon rig, even more critical to future supply. Even if the effective federal moratorium on drilling expires in November, the loss of drilling rigs and the uncertainty arising from the staggering financial consequences borne by well operator BP will have lasting constraints on Gulf production. Throw in a few hurricanes and production could soon be retreating again, as it did after the 2005 storm season. And if suspending oil exploration in Saudi Arabia or new deep-water drilling in the Gulf of Mexico isn’t bad enough, check out the new ad campaign against the Alberta tar sands, next in line after deep-water wells to drive future global oil supply. The campaign, “The Other Oil Disaster,” recently rolled out, urging American tourists (and, before too long, British ones) to boycott Alberta, which is quickly becoming a b

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Dubai Stocks Gain Most in 10 Weeks as Mideast Shares Rally on Europe, Oil

June 20, 2010

By Zahra Hankir June 20 (Bloomberg) — Dubai’s benchmark stock index rose the most in 10 weeks and Egyptian shares gained, leading a rally in Middle East markets on growing confidence that Europe will contain its debt crisis. Oil gains boosted Gulf shares. The DFM General Index jumped 3.1 percent, the most since April 11, to 1,547.13, led by Emaar Properties PJSC , the biggest stock in the gauge. The builder of the world’s tallest skyscraper surged 8.6 percent after selling its Hamptons International unit to Countrywide Plc. Egypt’s EGX 30 Index increased 1.6 percent to 6,519.09 as Telecom Egypt , the largest fixed-line telephone company in the region, gained 2.2 percent. The TA-25 Index of Israeli equities advanced 1.5 percent at 3 p.m. in Tel Aviv. Sentiment improved after European Union leaders agreed on June 17 to disclose how banks perform on stress tests to show investors that the financial system can withstand shocks. The Stoxx Europe 600 Index gained for a fourth week, the longest stretch of weekly gains since April. Crude oil rose to $77.18 a barrel on the New York Mercantile Exchange on June 18 for a weekly gain of 4.6 percent. The six nations of the Gulf Cooperation Council supply about a fifth of the world’s oil. “We’re firmer in the region as the international backdrop is decent,” said Ali Khan , head of cash-equity trading at Dubai-based Arqaam Capital Ltd. “Oil is moving toward the top of its trading range.” Global stocks advanced for a second straight week, with the MSCI World Index of developed nations rising 3.2 percent and the MSCI Emerging Markets measure advancing 4 percent. The Standard & Poor’s 500 Index had its biggest two-week rally since November, after New York-area manufacturing expanded. Flexible Yuan The euro strengthened for a second straight week against the dollar, climbing 2.3 percent to $1.2388. China said yesterday it will allow more flexibility in the yuan, signaling an end to the currency’s two-year-old peg to the dollar a week before a Group of 20 summit. Emaar soared the most since March 25 to 3.30 dirhams after declining 1.3 percent earlier in the session. Countrywide, a U.K. realtor and property services company, will own the rights to operate Hamptons’s business in the U.K., Europe and Asia, Emaar said on June 17. The Dubai company will operate Hamptons in the Middle East and North Africa. “As soon as some significant bids were seen on large-cap names, the retail buyers saw this as a signal to re-enter the market,” said Julian Bruce , director of equity sales at EFG- Hermes Holding SAE. “Due to low volumes overall the upside move has been exaggerated.” Constrained Volume A total of 179 million shares traded on the Dubai exchange, compared with the six-month daily average of 200 million. Telecom Egypt rose to 17.31 Egyptian pounds, the highest this month after the company said it will pay a dividend of 55 piasters a share on June 30. Qatar’s QE Index gained 0.6 percent to the highest in a month. The Qatar Investment Authority, the Doha-based sovereign wealth fund, agreed to invest $2.8 billion in Agricultural Bank of China Ltd.’s initial public offering, according to two people with knowledge of the matter. The $58 billion fund signed an agreement with Agricultural Bank on June 17, the people said, declining to be identified because the deal is private. The TA-25 gains were led by Bezeq Israeli Telecommunication Corp.’s 3.2 percent advance. Kuwait’s gauge rose 0.9 percent, the most in almost two weeks. Oman’s index advanced 0.4 percent, while Bahrain’s closed little changed at 1,392.48. Abu Dhabi’s ADX General Index rose 0.8 percent, as did Saudi Arabia’s Tadawul All Share Index. Israeli government bonds were little changed with the benchmark Mimshal Shiklit due February 2019 rising 0.12 shekel to 112.42. The yield dropped one basis point to 4.51 percent. The shekel declined 0.2 percent to 3.8307 against the dollar on June 18. To contact the reporter on this story: Zahra Hankir in Dubai at zhankir@bloomberg.net or

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Raymond J. Learsy: Oil,Cartels, Venezuela- A Moment of Truth For The Department of Justice and the Obama Administration

June 15, 2010

This post is not about the merits of fossil fuels, fully cognizant of the growing existential danger they present to the environment and planet, but rather about the price of fossil fuels and our government’s decades long complicit policies in the transfer of literally trillions of dollars of the nation’s wealth to oil interests and despots around the world. Trillions that have helped to destabilize today’s world lubricating the clash of civilizations, making it possible for the billions upon billions to be expended by Mid-East oil producers to radicalize generations of the young and vulnerable throughout all corners of the globe, to the ethos of jihad and intolerance. The issue is highlighted in a remarkable and eye opening court battle currently being litigated: United States District Court for the Southern District of Texas (No. 06-3569) Spectrum Stores Inc,…et al Plaintiffs -Appellants v. CITGO Petroleum Corporation; Petroleos De Venezuela S.A… et al In essence the case charges that CITGO Petroleum Corporation, an American refining company with refineries in Lake Charles La., Corpus Christi, Tex, and Lemont, Ill. supplying more than 13,500 domestic gasoline stations and wholly owned by the Venezuelan State oil company, Petroleos de Venezuela S.A. is “liable under the Sherman Act for its participation in a global price-fixing conspiracy with the OPEC member nations and other private oil companies.” The essence of the charge against CITGO, and I quote form the complaint as filed: “If the member nations of the Organization of Petroleum Exporting Countries (“OPEC”) were American companies, their participation in an open price fixing conspiracy would be illegal under the Sherman Act. The member nations might take comfort in the special protections afforded sovereign nations but private, especially American companies cannot. This case seeks to hold CITGO Petroleum Corporation, an American refining company wholly but indirectly owned by Venezuela, liable under the Sherman Act for its participation in a global price fixing conspiracy with OPEC member nations and private companies.” The brief goes on to comment, “The conspiracy’s avowed purpose and direct, substantial and foreseeable effect is extraterritorial; increasing the price of oil and Related Petroleum Products (RPPs) globally, including the United States, which is a key target of the conspiracy…CITGO and OPEC have had common high ranking officials. CITGO officers prepared OPEC’s Long-Term Strategy and organized OPEC summits and conferences; provided technical services and information on the U.S. market.” In essence, the complaint alleges That CITGO conspired with OPEC and is therefore liable as a principal and materially assists the cartel in achieving those aims. But here is the nub of the matter. Given the issue of ‘Sovereign Immunity’ as it attains to this proceeding the court has asked the Obama administration to file a brief commenting on the merits of the complaint. In early July the Department of Justice is scheduled present the court with their amicus brief setting forth the Administration’s position. Amazingly, perhaps even inadvertently in that it is a clarion wake up call to our government, CITGO having wrapped itself in the cloak of Sovereign Immunity, has made our government’s actions the cornerstone of its defense. In CITGO’s court filings, incorporating a chronology of the International Oil Policy of The United States which in turn “summarized that over thirty years of public policy statements made by members of (former Presidential Administrations), all reflecting a commitment to cooperation instead of confrontation with foreign sovereign oil-producers.” And therein lies a profound and hidden truth. A truth stemming from a fateful pilgrimage by then Vice President George H.W. Bush in 1986 to then King Fahd’s throne in Saudi Arabia to rescue America’s domestic oil industry reeling from oil prices veering toward single digits. Bush pleaded for a then moribund OPEC to be resuscitated in order to ratchet up oil prices. With the implicit backing of the American government, King Fahd’s Saudi Arabia was quick and eager to comply. Within a year prices near doubled and the rest is history. Thus by giving OPEC a reprieve, Bush and the benign, better said insidious neglect and complicity of subsequent American administrations over the decades, helped saddle world consumers, rich and poor countries alike, transferring literally trillions into the coffers of the OPEC producers and their Big Oil cronies. In the guise of protecting the American oil industry, and likely because of its influence, the United States became OPEC’s guardian. With the American government being acquiescent, OPEC oil producers had little to fear politically. An example of our government’s cartel embracing policies one need look no further than George W. Bush’s – it runs in the family- scuttling through threat of veto the proposed NOPEC Bill (NOPEC Act, S.879, 110th Cong (2007) that would have readily passed in Congress – of which then Senator Hillary Clinton was a co-sponsor and then Senator Obama voted to support), legislation that would have lifted sovereign immunity in American courts for all OPEC related entities, permitting action by the Federal Trade Commission and the Department of Justice under the Sherman Act before the American Bar of Justice. Brazenly, CITGO in its reply to the charges, permitted itself to instruct the court and anyone else interested, in the following civics lesson: according to CITGO, “The United States government has never pursued anti-trust sanctions against any oil producing sovereign…It has instead consistently opted for cooperation and constructive diplomacy with oil producing nations as reflected in numerous public policy statements made by members of the Executive Branch over decades.” Well there you have it, a clear statement of our government’s abject alliance with the machinations of the OPEC cartel. The brief being prepared by the Department of Justice will resonate far and wide. It will be a tell tale act of further collusion by our government in a trillion dollar decades long extortion visited on us and the rest of the world by OPEC and its allies. Or it will be a comprehensive break with past policies whereby our courts and our government are once again on the side of the American people and not the oil nabobs.

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Singapore, Thailand, Vietnam Added to Human-Trafficking Watchlist by U.S.

June 14, 2010

By Daniel Ten Kate and Nicole Gaouette June 15 (Bloomberg) — Singapore, Thailand and Vietnam all regressed last year in their efforts to battle trafficking of men, women and children for labor or commercial sex, according to the U.S. State Department . The three Southeast Asian countries were placed on a watch list of middle-tier countries, placing them one level above the worst offenders such as North Korea, Myanmar and Saudi Arabia, the report said. Malaysia was upgraded from the worst ranking, while Cambodia and Pakistan were removed from the watch list. The department’s 10th annual report grades 175 nations on their efforts to fight this modern form of slavery. The U.S. is listed for the first time, placed among those countries that are doing their best to comply with the Trafficking Victims Protection Act, the American law against human trade. Singapore’s government showed an “inadequate response” to sex trafficking in the city-state with only two convictions last year, the report said. Thailand and Vietnam similarly made little progress in prosecuting trafficking offenders, it said. Malaysia moved out of the worst tier with increased criminal charges against offenders, the report said. Cambodian authorities made a “significant increase” in convictions over the past year, including a public official, and Pakistan boosted efforts to combat bonded labor, the U.S. said. The U.S. is a source as well as a transit and destination country for people forced into labor, debt bondage and prostitution, the report said. The work is predominantly in manufacturing, janitorial services, agriculture, hotel services, construction, nail salons, elder care, strip-club dancing and domestic servitude, the U.S. said. ‘Tears of Families’ “Behind these statistics on the pages are the struggles of real human beings, the tears of families who may never see their children, the despair and indignity of those suffering under the worst forms of exploitation,” Secretary of State Hillary Clinton said at a State Department event to mark the release of the report yesterday in Washington. The International Labor Organization estimated there were 12.3 million victims of forced labor, sex trafficking, debt bondage and recruitment of child soldiers worldwide in 2009. In the same year, there were 4,166 successful prosecutions for trafficking, the State Department report said. The U.S. report lists three tiers of nations. Among those in the bottom section — nations that don’t comply with the law and make no effort to do so — are Zimbabwe, Cuba, Mauritania and Sudan. Japan, Israel and Oman are listed in the middle tier — nations that don’t fully meet the law’s minimum standards yet are making “significant” efforts to do so. Oil-rich Qatar is listed in between the middle and lowest tier on a watch list of countries that don’t meet minimum standards and whose progress is less certain. More Prosecutions Needed The trafficking report calls for better law enforcement, improved laws and more prosecutions for trafficking. The report changes each year, and countries can move from tier one, where the U.S. and others are, to the bottom tier. This year, 22 countries were upgraded, including Djibouti, which moved from the second tier to the first, while 19 lost ground, such as the Dominican Republic, which slipped from tier two to tier three. Sixty-two countries on the list have never prosecuted trafficking, according to the report. “Most countries that deny the existence of victims of modern slavery within their borders are not looking, trying or living up to the mandates” of a United Nations protocol mandate against trafficking, the report said. To contact the reporter on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net ; Nicole Gaouette in Washington at ngaouette@bloomberg.net .

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Singapore, Thailand, Vietnam Added to Human-Trafficking Watchlist by U.S.

June 14, 2010

By Daniel Ten Kate and Nicole Gaouette June 15 (Bloomberg) — Singapore, Thailand and Vietnam all regressed last year in their efforts to battle trafficking of men, women and children for labor or commercial sex, according to the U.S. State Department . The three Southeast Asian countries were placed on a watch list of middle-tier countries, placing them one level above the worst offenders such as North Korea, Myanmar and Saudi Arabia, the report said. Malaysia was upgraded from the worst ranking, while Cambodia and Pakistan were removed from the watch list. The department’s 10th annual report grades 175 nations on their efforts to fight this modern form of slavery. The U.S. is listed for the first time, placed among those countries that are doing their best to comply with the Trafficking Victims Protection Act, the American law against human trade. Singapore’s government showed an “inadequate response” to sex trafficking in the city-state with only two convictions last year, the report said. Thailand and Vietnam similarly made little progress in prosecuting trafficking offenders, it said. Malaysia moved out of the worst tier with increased criminal charges against offenders, the report said. Cambodian authorities made a “significant increase” in convictions over the past year, including a public official, and Pakistan boosted efforts to combat bonded labor, the U.S. said. The U.S. is a source as well as a transit and destination country for people forced into labor, debt bondage and prostitution, the report said. The work is predominantly in manufacturing, janitorial services, agriculture, hotel services, construction, nail salons, elder care, strip-club dancing and domestic servitude, the U.S. said. ‘Tears of Families’ “Behind these statistics on the pages are the struggles of real human beings, the tears of families who may never see their children, the despair and indignity of those suffering under the worst forms of exploitation,” Secretary of State Hillary Clinton said at a State Department event to mark the release of the report yesterday in Washington. The International Labor Organization estimated there were 12.3 million victims of forced labor, sex trafficking, debt bondage and recruitment of child soldiers worldwide in 2009. In the same year, there were 4,166 successful prosecutions for trafficking, the State Department report said. The U.S. report lists three tiers of nations. Among those in the bottom section — nations that don’t comply with the law and make no effort to do so — are Zimbabwe, Cuba, Mauritania and Sudan. Japan, Israel and Oman are listed in the middle tier — nations that don’t fully meet the law’s minimum standards yet are making “significant” efforts to do so. Oil-rich Qatar is listed in between the middle and lowest tier on a watch list of countries that don’t meet minimum standards and whose progress is less certain. More Prosecutions Needed The trafficking report calls for better law enforcement, improved laws and more prosecutions for trafficking. The report changes each year, and countries can move from tier one, where the U.S. and others are, to the bottom tier. This year, 22 countries were upgraded, including Djibouti, which moved from the second tier to the first, while 19 lost ground, such as the Dominican Republic, which slipped from tier two to tier three. Sixty-two countries on the list have never prosecuted trafficking, according to the report. “Most countries that deny the existence of victims of modern slavery within their borders are not looking, trying or living up to the mandates” of a United Nations protocol mandate against trafficking, the report said. To contact the reporter on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net ; Nicole Gaouette in Washington at ngaouette@bloomberg.net .

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Singapore, Thailand, Vietnam Added to Human-Trafficking Watchlist by U.S.

June 14, 2010

By Daniel Ten Kate and Nicole Gaouette June 15 (Bloomberg) — Singapore, Thailand and Vietnam all regressed last year in their efforts to battle trafficking of men, women and children for labor or commercial sex, according to the U.S. State Department . The three Southeast Asian countries were placed on a watch list of middle-tier countries, placing them one level above the worst offenders such as North Korea, Myanmar and Saudi Arabia, the report said. Malaysia was upgraded from the worst ranking, while Cambodia and Pakistan were removed from the watch list. The department’s 10th annual report grades 175 nations on their efforts to fight this modern form of slavery. The U.S. is listed for the first time, placed among those countries that are doing their best to comply with the Trafficking Victims Protection Act, the American law against human trade. Singapore’s government showed an “inadequate response” to sex trafficking in the city-state with only two convictions last year, the report said. Thailand and Vietnam similarly made little progress in prosecuting trafficking offenders, it said. Malaysia moved out of the worst tier with increased criminal charges against offenders, the report said. Cambodian authorities made a “significant increase” in convictions over the past year, including a public official, and Pakistan boosted efforts to combat bonded labor, the U.S. said. The U.S. is a source as well as a transit and destination country for people forced into labor, debt bondage and prostitution, the report said. The work is predominantly in manufacturing, janitorial services, agriculture, hotel services, construction, nail salons, elder care, strip-club dancing and domestic servitude, the U.S. said. ‘Tears of Families’ “Behind these statistics on the pages are the struggles of real human beings, the tears of families who may never see their children, the despair and indignity of those suffering under the worst forms of exploitation,” Secretary of State Hillary Clinton said at a State Department event to mark the release of the report yesterday in Washington. The International Labor Organization estimated there were 12.3 million victims of forced labor, sex trafficking, debt bondage and recruitment of child soldiers worldwide in 2009. In the same year, there were 4,166 successful prosecutions for trafficking, the State Department report said. The U.S. report lists three tiers of nations. Among those in the bottom section — nations that don’t comply with the law and make no effort to do so — are Zimbabwe, Cuba, Mauritania and Sudan. Japan, Israel and Oman are listed in the middle tier — nations that don’t fully meet the law’s minimum standards yet are making “significant” efforts to do so. Oil-rich Qatar is listed in between the middle and lowest tier on a watch list of countries that don’t meet minimum standards and whose progress is less certain. More Prosecutions Needed The trafficking report calls for better law enforcement, improved laws and more prosecutions for trafficking. The report changes each year, and countries can move from tier one, where the U.S. and others are, to the bottom tier. This year, 22 countries were upgraded, including Djibouti, which moved from the second tier to the first, while 19 lost ground, such as the Dominican Republic, which slipped from tier two to tier three. Sixty-two countries on the list have never prosecuted trafficking, according to the report. “Most countries that deny the existence of victims of modern slavery within their borders are not looking, trying or living up to the mandates” of a United Nations protocol mandate against trafficking, the report said. To contact the reporter on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net ; Nicole Gaouette in Washington at ngaouette@bloomberg.net .

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Exxon, Chevron Seek Reprieve From `Crucifixion’ Over BP’s Gulf Oil Spill

June 14, 2010

By Joe Carroll June 14 (Bloomberg) — Exxon Mobil Corp., Chevron Corp. and ConocoPhillips, the largest U.S. oil companies, will ask lawmakers not to punish them for the human and environmental damage inflicted by BP Plc’s oil spill in the Gulf of Mexico. Exxon Chief Executive Officer Rex Tillerson , Chevron CEO John Watson and James Mulva , CEO of ConocoPhillips , are scheduled to appear tomorrow before a House Energy and Commerce Committee panel examining offshore drilling safety and U.S. energy policy. The hearing presents the U.S. oil CEOs with an opportunity to distance their companies from BP, said Anthony Sabino , who teaches oil and natural-gas law at St. John’s University in New York. BP has lost 43 percent of its market value since the disaster and has been excoriated by President Barack Obama for repeated failures to cap the leaking well. “A crucifixion of the whole oil industry for the sins of BP in the form of a ban on deep-water drilling isn’t a good idea because look at all the people it’s going to put out of work,” Sabino said. “ Exxon and ConocoPhillips will stress their own safety records to make that case.” Since an April 20 explosion aboard the Deepwater Horizon drilling rig that killed 11 workers, more than 50 million gallons of crude have poured into the Gulf from a BP-owned well, based on calculations from a government panel. Obama Meeting The U.S. government has intensified pressure on BP to stop the spill and pay for damages. Obama has asked to meet June 16 with BP’s chairman, Carl-Henric Svanberg , and other company officials. BP Chief Executive Officer Tony Hayward will appear before the House Energy and Commerce oversight committee the following day. The oil company CEOs have been asked to testify tomorrow about the spill’s effect on U.S. energy policy, Eben Burnham- Snyder, a spokesman for Representative Edward Markey , said June 9. Markey is a Massachusetts Democrat and chairman of the subcommittee holding the hearing. Tillerson, Watson and Mulva probably will press lawmakers to avoid changes in offshore drilling rules that could discourage exploration in U.S. territorial waters without making meaningful contributions to safety, said Gianna Bern , president of Brookshire Advisory & Research Inc. in Flossmoor, Illinois, which advises oil companies on strategy and risk management. Tillerson will urge lawmakers to wait until an investigation has determined the cause of the catastrophe before deciding on changes to offshore drilling rules, Alan Jeffers , a spokesman for the Irving, Texas-based company, said in a telephone interview. Nancy Turner , a spokeswoman for ConocoPhillips, didn’t return phone messages left after regular business hours. Chevron’s media department also didn’t respond to after-hour requests for comment. Valdez Comparison The April 20 pressure surge, or blowout, at BP’s Macondo well about 40 miles (64 kilometers) from the Louisiana coast triggered an oil spill that dwarfs Exxon’s 1989 Valdez tanker disaster in Alaska’s Prince William Sound. Fisherman, oyster farmers and shrimpers have filed lawsuits and claims for lost profits as blobs of crude threaten shorelines from Louisiana to the Florida Panhandle. More than 30 deep-water rigs have been ordered to cease drilling off the coasts of Louisiana and Texas for at least six months while federal officials conduct a review of offshore safety practices. The Gulf accounts for 30 percent of U.S. oil production, according to the Energy Information Administration. The drilling halt may cut oil production in the Gulf by as much as 11 percent next year, said Paul Cheng , a Barclays Capital analyst. ‘Wreak Havoc’ “These executives need to explain to the politicians that if you permanently shut us down in the deep water it’s going to wreak havoc with energy production and put the United States even more at the mercy of foreign oil producers,” Sabino said. Also scheduled to appear before tomorrow’s panel are Lamar McKay and Marvin Odum , the presidents of the U.S. units of BP and Royal Dutch Shell Plc, respectively. Lawmakers may ask Exxon, Chevron, ConocoPhillips and Shell to describe safety measures they have used offshore to avoid the sort of disaster BP faced, said Bern, a former BP crude trader. Exxon, which pumps more crude than every member of OPEC except Saudi Arabia, Iran and Iraq, abandoned an exploration project known as Blackbeard in the Gulf of Mexico in 2007 rather than risk a blowout. The company quit the project, which sought to drill more than six miles beneath the sea floor, after repeated pressure surges indicated the well was unstable. Controlling Macondo BP engineers alerted federal regulators at the Minerals Management Service that they were having difficulty controlling the Macondo well six weeks before the disaster, according to e- mails released by the Energy and Commerce Committee. “I don’t think this would have happened on Exxon’s watch,” Tom Bower , author of “The Squeeze: Oil, Money and Greed in the 21st Century,” said in a June 11 Bloomberg Television interview. “They’d be much more careful and much more conscious of the need to supervise subcontractors.” To contact the reporter on this story: Joe Carroll in Washington at jcarroll8@bloomberg.net .

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Exxon, Chevron Seek Reprieve From `Crucifixion’ Over BP’s Gulf Oil Spill

June 14, 2010

By Joe Carroll June 14 (Bloomberg) — Exxon Mobil Corp., Chevron Corp. and ConocoPhillips, the largest U.S. oil companies, will ask lawmakers not to punish them for the human and environmental damage inflicted by BP Plc’s oil spill in the Gulf of Mexico. Exxon Chief Executive Officer Rex Tillerson , Chevron CEO John Watson and James Mulva , CEO of ConocoPhillips , are scheduled to appear tomorrow before a House Energy and Commerce Committee panel examining offshore drilling safety and U.S. energy policy. The hearing presents the U.S. oil CEOs with an opportunity to distance their companies from BP, said Anthony Sabino , who teaches oil and natural-gas law at St. John’s University in New York. BP has lost 43 percent of its market value since the disaster and has been excoriated by President Barack Obama for repeated failures to cap the leaking well. “A crucifixion of the whole oil industry for the sins of BP in the form of a ban on deep-water drilling isn’t a good idea because look at all the people it’s going to put out of work,” Sabino said. “ Exxon and ConocoPhillips will stress their own safety records to make that case.” Since an April 20 explosion aboard the Deepwater Horizon drilling rig that killed 11 workers, more than 50 million gallons of crude have poured into the Gulf from a BP-owned well, based on calculations from a government panel. Obama Meeting The U.S. government has intensified pressure on BP to stop the spill and pay for damages. Obama has asked to meet June 16 with BP’s chairman, Carl-Henric Svanberg , and other company officials. BP Chief Executive Officer Tony Hayward will appear before the House Energy and Commerce oversight committee the following day. The oil company CEOs have been asked to testify tomorrow about the spill’s effect on U.S. energy policy, Eben Burnham- Snyder, a spokesman for Representative Edward Markey , said June 9. Markey is a Massachusetts Democrat and chairman of the subcommittee holding the hearing. Tillerson, Watson and Mulva probably will press lawmakers to avoid changes in offshore drilling rules that could discourage exploration in U.S. territorial waters without making meaningful contributions to safety, said Gianna Bern , president of Brookshire Advisory & Research Inc. in Flossmoor, Illinois, which advises oil companies on strategy and risk management. Tillerson will urge lawmakers to wait until an investigation has determined the cause of the catastrophe before deciding on changes to offshore drilling rules, Alan Jeffers , a spokesman for the Irving, Texas-based company, said in a telephone interview. Nancy Turner , a spokeswoman for ConocoPhillips, didn’t return phone messages left after regular business hours. Chevron’s media department also didn’t respond to after-hour requests for comment. Valdez Comparison The April 20 pressure surge, or blowout, at BP’s Macondo well about 40 miles (64 kilometers) from the Louisiana coast triggered an oil spill that dwarfs Exxon’s 1989 Valdez tanker disaster in Alaska’s Prince William Sound. Fisherman, oyster farmers and shrimpers have filed lawsuits and claims for lost profits as blobs of crude threaten shorelines from Louisiana to the Florida Panhandle. More than 30 deep-water rigs have been ordered to cease drilling off the coasts of Louisiana and Texas for at least six months while federal officials conduct a review of offshore safety practices. The Gulf accounts for 30 percent of U.S. oil production, according to the Energy Information Administration. The drilling halt may cut oil production in the Gulf by as much as 11 percent next year, said Paul Cheng , a Barclays Capital analyst. ‘Wreak Havoc’ “These executives need to explain to the politicians that if you permanently shut us down in the deep water it’s going to wreak havoc with energy production and put the United States even more at the mercy of foreign oil producers,” Sabino said. Also scheduled to appear before tomorrow’s panel are Lamar McKay and Marvin Odum , the presidents of the U.S. units of BP and Royal Dutch Shell Plc, respectively. Lawmakers may ask Exxon, Chevron, ConocoPhillips and Shell to describe safety measures they have used offshore to avoid the sort of disaster BP faced, said Bern, a former BP crude trader. Exxon, which pumps more crude than every member of OPEC except Saudi Arabia, Iran and Iraq, abandoned an exploration project known as Blackbeard in the Gulf of Mexico in 2007 rather than risk a blowout. The company quit the project, which sought to drill more than six miles beneath the sea floor, after repeated pressure surges indicated the well was unstable. Controlling Macondo BP engineers alerted federal regulators at the Minerals Management Service that they were having difficulty controlling the Macondo well six weeks before the disaster, according to e- mails released by the Energy and Commerce Committee. “I don’t think this would have happened on Exxon’s watch,” Tom Bower , author of “The Squeeze: Oil, Money and Greed in the 21st Century,” said in a June 11 Bloomberg Television interview. “They’d be much more careful and much more conscious of the need to supervise subcontractors.” To contact the reporter on this story: Joe Carroll in Washington at jcarroll8@bloomberg.net .

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Tanker Rates Poised to Surge 43% With China Oil Shipping Buoying Frontline

June 14, 2010

By Alaric Nightingale June 14 (Bloomberg) — Supertanker rates are poised to surge to a two-year high by December as China’s demand for oil sends ships the equivalent of 11 extra times around the globe in a month. The 31 percent jump in China’s imports increased return journeys for supertankers to about 1.13 million miles in April, or 284,000 miles more than a year ago, based on customs data and voyage lengths. Daily rates may reach $100,000 by December, said Rikard Vabo , an analyst at Fearnley Fonds ASA, whose November recommendation to buy shares of Frontline Ltd., the biggest supertanker operator, earned 49 percent. His prediction for freight is 43 percent higher than the June 11 price of $70,025. China, the engine of the global economic recovery, is going further to get oil, with Angola a bigger provider than Saudi Arabia this year. Longer journeys combined with what the International Energy Agency says will be record consumption in 2010 are driving shipping demand even as forward freight agreements show prices will average $44,944 for the third quarter and $45,466 in the fourth. “China is the U.S. of the 1960s and Japan of the 1970s as its thirst for oil grows,” said Charlie Fowle , chairman of London-based shipbroker Galbraith’s Ltd. “As China strengthens ties with countries such as Angola and Venezuela, in addition to Middle Eastern suppliers, it increasingly means tighter supply in the tanker market.” Chinese Expansion The nation’s economy will expand 10.1 percent this year, more than three times the pace of the U.S., the world’s largest energy consumer, according to as many as 87 economists surveyed by Bloomberg. Fueling that growth will require an extra 669,000 barrels of oil daily, the Paris-based IEA predicts, equal to more than two additional supertanker cargoes a week. China is already the biggest user of commodities from copper to coal, spurring a rush for raw materials across the globe. Venezuelan President Hugo Chavez said in April that China would lend $20 billion and form a venture to pump crude. Petroleo Brasileiro SA, Brazil’s state-controlled oil company, signed a $10 billion-loan accord and a supply contract last year. China National Petroleum Corp. has operations in 29 countries from Equatorial Guinea to Sudan. Oil purchases from Angola reached 4.29 million metric tons in April, about 70 percent more than two years earlier, customs data show. Saudi Arabia supplied 3.09 million tons. The average journey from Angola to China takes more than 33 days, compared with 21 days from Saudi Arabia, according to the distances.com website. Venezuela to China takes almost 40 days. Next Destination Seven supertankers off Angola on June 11 came from Asia, according to ship-tracking data compiled by Bloomberg. One arrived from the Middle East and another from the Caribbean. Two were signaling China as their next destination, with the rest yet to declare where they would sail. “China’s craving for energy is by far the biggest contributor to a continued good supertanker market,” said Per Mansson , the managing director of shipbroker Nor Ocean Stockholm AB. “There is an increased interest from Chinese charterers to find transportation much further away from the Persian Gulf.” Extra days delivering crude, or making the return journey, are sapping tanker supply as deliveries from yards accelerate. Fifty-four supertankers joined the fleet last year, the most since 1976, and another 79 will be added this year, according to Clarkson Research Services Ltd., a unit of the world’s biggest shipbroker. There are now 527 supertankers, Lloyd’s Register- Fairplay data show. Oil Demand Slumped Shipping lines ordered vessels as rates on the Saudi Arabia-to-Japan route, the industry’s benchmark, rose as high as $177,000 a day in July 2008, before plunging as low as $1,246 by September last year as oil demand slumped. Crude oil plunged to $32.40 a barrel in December 2008, after reaching a record $147.27 five months earlier. Shipping rates were last at $100,000 in July 2008. Frontline said last month it needs $31,100 a day to break even on vessels known in the industry as very large crude carriers, or VLCCs. The Bermuda-based company had 45 percent of its fleet trading in the spot market last year, with the balance on longer-term charters. Frontline will earn $3.09 a share this year, according to the mean of 20 analyst estimates compiled by Bloomberg. The company reported earnings per share of $1.32 last year and its shares rose 40 percent this year in Oslo trading. Overseas Shipholding Group , the biggest U.S.-based tanker owner, said in February that it was putting more than 80 percent of its fleet in the spot market. The New York-based company will return to profit in the third quarter, ending five consecutive quarterly losses, analyst estimates compiled by Bloomberg show. The shares fell 7.8 percent this year in New York trading. January Prediction While rates rose 74 percent this year, they fell as low as $22,672 on Feb. 18. Prices averaged $46,454 this quarter, more than the $28,758 predicted by the median estimate in a Bloomberg survey of 13 analysts, traders and shipbrokers in April. Crude oil traded on the New York Mercantile Exchange more than doubled since the end of 2008 and the World Bank said on June 9 the global economy would expand 3.3 percent this year, up from a January prediction of 2.7 percent. A slowdown in global economic growth may damp tanker prices. International Monetary Fund Deputy Managing Director Naoyuki Shinohara said June 9 the risks to the global economic outlook have “risen significantly” and policy makers have limited room to provide support to growth. The Washington-based World Bank, while raising its forecast, acknowledged that government budgets were strained. Global Equities As much as $7.7 trillion was wiped off the value of global equities from mid-April to the end of last month amid mounting concern that Europe’s debt crisis would curb the region’s economic growth. China wants to cool real-estate speculation and the country’s Federation of Logistics and Purchasing reported June 1 that manufacturing expanded at a slower pace in May than economists surveyed by Bloomberg estimated. “China has been good for the VLCC trade, but these trade surges can’t continue,” said Martin Stopford , managing director of Clarkson Research. “You get a shift in regional trading patterns, then they tend to slow or reverse.” China cut oil imports to the lowest in four months in May, according to preliminary customs data released June 10. The tanker fleet won’t be counting on China alone to bolster rates. The explosion on a rig in the Gulf of Mexico leased by London-based BP Plc in April caused the worst oil spill in U.S. history. Increased environmental concerns may hasten the withdrawal of single-hulled supertankers, deemed by the European Union in 2003 to be “more accident prone.” Deliveries From Yards Eleven percent of the global supertanker fleet is fitted with a single hull, according to Lloyd’s Register-Fairplay. A global phase-out started this year and the International Maritime Organization ban takes full effect in 2015. “Utilization rates are getting to a point where a lot of these ships are effectively out of the market,” said Jeff McGee, an analyst at London-based Simpson, Spence & Young Ltd., the world’s second-largest shipbroker. Fewer single-hulled ships competing for business will offset deliveries of new vessels and the fleet may even shrink this year, he said. Renewed demand for shipping may also bolster orders for new vessels. Shipbuilders led by Hyundai Heavy Industries Co., the world’s biggest, won about $700 million of contracts to build supertankers this year, according to Clarkson Research data. Shares of the Ulsan, South Korea-based company rose 30 percent in Seoul trading since January, compared with a 0.5 percent advance in the country’s benchmark Kospi Index . Distances Traveled The most important measure of demand for ships is so-called ton-miles, or the amount of cargo multiplied by how far the vessels have to travel, because it aggregates the two main sources of demand, cargoes and distance, according to Nor Ocean’s Mansson. The calculation for deliveries to China was determined by multiplying imports in tons by the distances traveled from each supplier to the east-coast port of Qingdao. Some countries were excluded because they may also deliver by land. It assumed all voyages were by supertankers on return journeys. Oil is also carried on smaller ships , some vessels may go to other Chinese ports or travel to different regions for their next cargoes and not all carriers will make the return journey empty. “We see China as very, very important for ton-mile in the future,” said Erik Folkeson Jensen , an analyst at Lorentzen & Stemoco AS in Oslo, who expects rates to reach $88,000 before the end of the year. “China is a large part of the reason why the tanker market is as good as it is.” To contact the reporter on this story: Alaric Nightingale in London at Anightingal1@bloomberg.net

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Ex-McKinsey Consultant Convicted by Federal Jury in Iran Trade Ban Case

June 5, 2010

By Patricia Hurtado June 5 (Bloomberg) — Former McKinsey & Co. consultant Mahmoud Reza Banki was convicted by a federal jury in New York of violating the Iran trade embargo and running an unlicensed money-transfer business. The jury took about four hours to convict Banki of all five charges against him. U.S. District Judge John Keenan in New York, who is presiding over the case, told the panel to return June 7 and he will instruct them on the law regarding a forfeiture. The government will ask that he surrender $3.4 million in illegal proceeds. Banki’s lawyer, Baruch Weiss, declined comment after the verdict. Banki, a naturalized U.S. citizen born in Iran, was accused of running a “value-transfer” business that essentially moved money to residents of Iran from 2006 to 2009 in violation of the embargo. Banki received about $4.7 million as part of the transfer process and used the money to buy a $2.4 million condominium, invest in securities and pay credit-card bills, the government charged. “There is an additional thing you’ll have to do, which is the forfeiture of assets,” Keenan told the panel and he advised them not speak to anyone or read about the case until they have concluded their deliberations. “Return to court Monday afternoon and I will charge you on the law regarding forfeiture.” Family Money Banki, who has been in custody since his arrest on the charges in January, didn’t show any reaction to the verdict. His mother and girlfriend began sobbing and as he was led away by U.S. Marshals, his mother attempted to hug her son. “Just a minute for his mother,” she said. “Ma’am, I’m sorry,” a marshal said as he was escorted out of the courtroom to a holding cell. Defense lawyers told the jury during the trial that Banki got the money from his family and reported the funds to the government. Prosecutors alleged during the trial that Banki received the wire transfers in a personal Bank of America Corp. account he set up for that purpose. The money came from companies and individuals in Saudi Arabia, Kuwait, Latvia, Slovenia, Russia, Sweden, the Philippines, the U.S. and other countries, prosecutors said. Banki allegedly used a value-transfer system called hawala, in which money doesn’t physically cross international boundaries through the banking system, according to the statement. Customers transfer funds to operators known as hawaladars in one country, and corresponding funds are distributed by associate hawaladars to recipients in another country, according to the statement. The parallel accounts are later settled by the hawaladars in a variety of ways. The jury convicted Banki of five counts, including conspiracy, violating the Iran trade embargo, operating an unlicensed money transfer process and two counts of making false statements. No sentencing date has been set. The case is U.S. v. Banki, 1:10-CR-00008, U.S. District Court, Southern District of New York (Manhattan). To contact the reporter on this story: Patricia Hurtado in federal court in New York at pathurtado@bloomberg.net .

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BP Shears Riser Away From Well Under Plan to Divert Leaking Oil With Cap

June 3, 2010

By Jim Polson and Katarzyna Klimasinska June 3 (Bloomberg) — BP Plc has sheared away the riser from its leaking Gulf of Mexico well, a precursor to the company’s attempt to lower a cap onto the leak and divert oil to ships on the surface. The riser was cut off today, and setting a cap on the leak will take a “couple of hours,” U.S. Coast Guard Admiral Thad Allen said at a press conference in Metairie, Louisiana. The company yesterday removed a diamond-blade saw after it got stuck during an attempt to make a second, finer cut on the well’s riser. BP today began using what it called a “massive pair of scissors” to shear off the pipes. The rougher cut may lead to a looser fit and a higher oil leakage rate between the blowout preventer, a five-story tall stack of safety valves, and the cap. BP rose 12.4 pence, or 2.9 percent, to 442.15 at 2:34 p.m. in London. The shares have fallen 33 percent since the Deepwater Horizon drilling rig exploded April 20 and sank two days later, killing 11 workers and causing the leak. The biggest oil spill in U.S. history has soiled about 140 miles (225 kilometers) of coastline, halted new exploratory deep-water drilling in the Gulf, shut down a third of its fishing areas and cost BP at least $1 billion. The Financial Times today quoted Chief Executive Officer Tony Hayward as saying in an interview that it is “an entirely fair criticism” that BP wasn’t fully prepared for an oil leak in deep water. Plugging the Leak The company failed in its first effort to capture oil using a 40-foot-tall containment box from the well about a mile under water. BP removed a tube that was capturing a portion of the flow when it began its failed effort last week to stop the leak using drilling mud and cement. BP and government officials have given up trying to plug the well earlier than August, when an emergency relief well can intercept the damaged hole, Allen said June 1. “I’m still very optimistic they will be able to collect 80 percent to 90 percent of the oil,” said Nansen Saleri, chief executive officer of Quantum Reservoir Impact in Houston, a consulting firm that helps oil companies increase production. “It’s much better to go with solutions that, if not 100 percent, at least mitigate some of the damage. They’re going about it the correct way.” Saleri was previously chief of reservoir management for Saudi Aramco, Saudi Arabia’s state-owned oil company. To contact the reporters on this story: Jim Polson in New York at jpolson@bloomberg.net ; Katarzyna Klimasinska in Houston at kklimasinska@bloomberg.net

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Dubai Capital Returning, Standard Chartered Says

May 31, 2010

By Bloomberg News May 31 (Bloomberg) — Capital is gradually flowing back into Dubai after one of its main holding companies reached a debt restructuring accord with lenders, according to Standard Chartered Plc , one of Dubai World ’s seven biggest creditors. “Because of the settlement agreement, sentiment is slowly coming back to the market,” Hassan Jarrar , managing director of Standard Chartered’s United Arab Emirates unit, said in an interview in Shanghai today. “We see a lot of funds coming from different parts of the world into Dubai, trying to capitalize on emerging opportunities, especially in real estate.” Dubai World, one of the sheikhdom’s three main state-owned business groups, roiled global markets late last year when it said it would seek to delay repaying loans. The company said May 20 it reached an accord with its main creditor group to restructure $23.5 billion of liabilities. More than 90 banks are owed money by Dubai World, and Royal Bank of Scotland Group Plc , HSBC Holdings Plc and Standard Chartered are among its seven biggest creditors. Access to credit in Dubai is easing in areas including mortgages, auto loans and corporate debt, according to Jarrar. “Dubai is right now having some short-term pains, but you cannot erase the importance of that place,” he said. Real estate prices in Dubai, the second-largest emirate in the U.A.E., have plummeted about 50 percent from their peak in late 2008. Dubai’s economy will shrink about 0.5 percent this year, according to the International Monetary Fund, marking the second year of contraction for the debt-laden emirate. London-based Standard Chartered, which derives most of its profit from emerging markets, is “hoping” to be granted a license in Libya, and sees opportunities in countries including Saudi Arabia, Iraq, Egypt and Algeria, Jarrar said. The lender, which generated 16 percent of pretax profit from Africa and the Middle East in 2009, wants to take advantage of rising trade and mergers and acquisitions between the oil- rich regions and other emerging markets. Standard Chartered shares slipped 1.1 percent in Hong Kong today. — Luo Jun in Shanghai, with assistance from Vivian Salama in Abu Dhabi. Editors: Philip Lagerkranser , Brett Miller To contact Bloomberg News staff of this story: Luo Jun in Shanghai at +8621-6104-7021 or jluo6@bloomberg.net

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Qatar Shares Advance After Oil Climbs Orascom Surges as MTN Deal Nears

May 30, 2010

By Zahra Hankir and Dana El Baltaji May 30 (Bloomberg) — Qatar stocks rose, leading Gulf Arab markets higher, on speculation this month’s decline may have been overdone as economic growth picks up and global markets rallied as concerns over Europe’s debt crisis eased. Industries Qatar, the second-biggest petrochemicals maker in the Middle East, surged the most in more than two months. In Abu Dhabi, Emirates Telecommunications Corp. , the phone company known as Etisalat, gained after its long-term corporate credit rating was raised by Standard & Poor’s. Qatar’s QE Index gained 2.1 percent, the biggest advance since May 10, to 6,825.89. The gauge slumped 9.2 percent this month. The Bloomberg GCC 200 Index , which tracks 200 equities in the region, climbed 0.2 percent. Egypt’s EGX 30 Index surged 3.3 percent at 1:19 p.m. in Cairo. “We continue to focus on international markets and oil, which were generally higher over the Thursday to Friday period,” said Ali Khan , head of cash-equity trading at Dubai- based Arqaam Capital Ltd. “Qatar was the worst performing market in the region month-to-date.” European stocks posted a weekly gain as the Stoxx Europe 600 Index rebounded from an eight-month low on speculation the economy is strong enough to weather the region’s government-debt crisis. U.S. stocks also rose last week, paring the biggest Dow Jones Industrial Average decline in May since 1940, as consumer confidence and home sales rose, and China said its $300 billion sovereign wealth fund will maintain its investments in Europe. Spain Downgrade Crude oil for July delivery increased $3.93, or 5.6 percent, to $73.97 a barrel last week on the New York Mercantile Exchange. The six nations of the Gulf Cooperation Council, made up of the U.A.E., Qatar, Saudi Arabia, Kuwait, Oman and Bahrain, supply about a fifth of the world’s oil. Spain lost its AAA credit grade at Fitch Ratings last week. The ratings company on May 28 cut the grade one step to AA+ and assigned it a “stable” outlook, according to a statement from London. Spain has held the top rating at Fitch since 2003. “The Spain downgrade news came after Europe closed,” Khan said. “I would remain cautious as headline risk from Europe still remains.” Industries Qatar rose 4.7 percent, the most since March 17, to 100.5 riyals. Etisalat, the biggest phone company in the United Arab Emirates, gained 0.5 percent to 10.55 dirhams after it was upgraded to AA-from A+ at S&P. Orascom Surges Orascom Telecom Holding SAE , the biggest mobile phone operator in the Middle East by users, jumped 14 percent, the most since Jan. 31, to 6.18 Egyptian pounds. The result of talks between Orascom and MTN, Africa’s largest cellular phone operator, may be known in about a week, Al Mal newspaper reported today, citing Orascom Telecom Chairman Naguib Sawiris . Orascom spokeswoman Manal Abdel Hamid confirmed the remarks. “Investors expect the final outcome of the deal with MTN to be clear soon,” said Ashraf Akhnoukh , a senior equity trader at CIBC brokerage in Cairo. The DFM General Index dropped 0.3 percent, and Abu Dhabi’s ADX General Index declined 0.2 percent. Oman’s index gained 0.2 percent and the Kuwait Stock Exchange Index rose less than 0.1 percent. Saudi Arabia’s Tadawul All Share Index dropped 1.6 percent. To contact the reporter on this story: Zahra Hankir in Dubai at zhankir@bloomberg.net ; Dana El Baltaji in Dubai at 1021 or delbaltaji@bloomberg.net

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Raymond J. Learsy: The Oil Nabobs Slouching Towards Iran. Time For A Peoples Boycott

May 23, 2010

On March 15 the tanker ‘Front Page’ left the port of Fujairah, U.A.E. reportedly to drop anchor at another port in the U.A.E. and then was scheduled to sail on to Saudi Arabia. This according to the Wall Street Journal’s front page article(“Oil Trade With Iran Thrives, Discreetly” 05.20.10). Tracking information however revealed a very different course. The ‘Front Page’ made an unreported stop along the coast of Iran to load a cargo of Iranian oil. Illegal? No. Impolitic? Clearly very much so, given the acute political tensions and the draconian oppression being imposed by the Iranian government against its people. Hardly the kind of company one would like to be seen or associated with. And who was the charterer of the ‘Front Page’? None other than Royal Dutch Shell, the very same company currently in the process of petitioning Alaska and the U.S. Government to drill exploratory wells this summer in the Arctic’s Beaufort and Chukchi Seas. The Interior Department is presently reviewing Shell’s application for a permit to drill. Given the BP Gulf oil disaster there is widespread concern and pushback in Congress to hold back any and all permitting until causes of the disaster are known. Given the evidenced duplicitous nature with whom they are dealing, clearly not a bad idea. As far as the rest of us, know that the next time you tank up at a Shell station you may well be helping the mullahs of Iran. But Shell is not alone in doing a “brisk business buying Iranian oil…” Yes, you guessed it. Here too BP stands tall. And along with BP there is Total SA, the French oil giant. Being a dutiful yet circumspect customer of the mullahs, a Total chartered tanker recently turned off its tracking transponder throughout its sail into Iranian waters and loading of oil at its Iranian port of call. In case you may not have known, this is the same Total, parent of Total Petrochemicals USA Inc., with production facilities in Louisiana and Texas producing a range of base chemicals including polyethylene, polystyrenes. The Wall Street Journal goes on to report that none of current sanction proposals in the U.N. or the U.S. would target Iran’s export oil business which happens to generate nearly half of the Iranian government’s revenues. The reason being is concern that an embargo would spike the price of oil and severely impact the economies of such major Iranian oil importers as Japan, India, and China. One needs to question whether this is not the rationale trotted out by the oil companies and delivered by their well-heeled lobbyists to our gullible bureaucrats. These, the very oil companies and oil interests who find it convenient, if not to say highly profitable, to trade in Iranian oil. Consider the following. Today the world is awash with oil. Oil storage is bulging at the seams from Cushing Oklahoma, to Rotterdam to Singapore. Iran exports currently some 2 million barrels of oil a day, a quantity that would hardly be missed given the supplies currently available. And then there is Saudi Arabia with a capability of producing over 12 million barrels a day while currently pumping but 8 million barrels, a shut in production capability of more than 4 million barrels, twice that of Iran’s exports alone. Certainly the Saudis could easily and probably happily make up for any Iranian shortfall without moving the price of oil a nickel. And should the Saudis not be cooperative, seeking to exploit the situation to their own advantage in order to spike the price of oil, they need only be reminded that if the Iranians should come knocking at their door with pistol in hand at some future date, and the Saudis then lift the hot line to call Washington as they are prone to do, no one will be at home to answer their call. (Please also see; “With Russia and China On Board Iran Can Now Be Stopped” 11.29.09.) It stands to reason that embargoing Iranian oil through governmental or business initiatives could be a highly effective way of dealing with the renegade Iranian regime, and if done thoughtfully, with minimal impact on oil’s price. This combined with a policy of shaming those who continue to do business with Iranian agencies either directly or indirectly through third party oil trading brokers, would be an effective adjunct to such an embargo policy. Finally, if governments don’t act, we as consumers can take much into our own hands by boycotting those products that may well be produced from Iranian oil. Given the sourcing policies of the oil companies, i.e. Shell, BP and Total SA., one should be cognizant that the next time you tank up at a Shell station, as but one example, you may well be helping the mullahs of Iran. If the international oil companies themselves as well as our governments do not take the initiative of boycotting Iranian oil in order to bring down a murderous regime then we must, in solidarity with the oppressed people of Iran, exercise our individual initiative. It is past time for each of us to commit to a ‘Peoples Boycott’ of products produced in whole or in part from Iranian oil, be it gasoline, heating oil, fuel oil, base chemicals and on. It is the least we can do given the deprivations being suffered by the Iranian people.

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Qatar Stocks Fall to Two-Month Low, Pacing Gulf Decline After Oil Retreats

May 23, 2010

By Dana El Baltaji May 23 (Bloomberg) — Qatari shares tumbled to the lowest level in two months, leading a decline in Gulf Arab markets, as oil prices closed near a low for the year and European stocks fell last week on concern economic growth may slow. Industries Qatar, the second-biggest petrochemicals maker in the Middle East, dropped to the lowest since August and National Bank of Kuwait also declined. Gulf Finance House EC , a Bahrain-based investment bank, retreated to the lowest in at least six years. Qatar’s gauge lost 1.5 percent to 6,974.96, the lowest since March 15. The Bloomberg GCC 200 Index, which tracks 200 equities in the region, fell 1 percent at 14:48 in Dubai. Kuwait’s Combined Group Contracting Co. advanced. Crude oil has tumbled 19 percent this month and closed at $70.04 a barrel on May 21. Oil fell as European governments struggled to contain the region’s debt crisis. The six members of the Gulf Cooperation Council, including Qatar and Kuwait, hold about 40 percent of the world’s proven oil reserves. The slump in oil prices is “having a broad based impact on our markets,” said Ali Khan , head of cash-equity trading at Dubai-based Arqaam Capital Ltd. “Volatility in global markets, with Europe as a key theme, is preempting significant participation of international liquidity in our markets.” In Europe, the Stoxx Europe 600 Index on May 21 slumped to the lowest level in more than six months on concern that European governments are divided on how to contain the region’s sovereign-debt crisis after Germany unilaterally banned some bets against government bonds and financial institutions. ‘Too Big’ Industries Qatar lost 2.6 percent to 100.4 riyals, the lowest since Aug. 20. National Bank of Kuwait , the country’s largest lender, lost 1.7 percent to 1,180 fils. The bank’s Chief Executive Officer Ibrahim Dabdoub denied having interest in Turkey’s Tekstilbank AS, Alternatifbank AS or Anadolubank AS. General Electric Co.’s 21 percent stake in Turkiye Garanti Bankasi AS is “too big” for the bank to buy, he said. Kuwait’s benchmark index retreated for a fourth day, declining 0.9 percent. Gulf Finance House tumbled 5.3 percent to 44.5 fils, the lowest close in Kuwait trading since at least March 2004 when Bloomberg started tracking the shares. Combined Group , a construction company, climbed 2.3 percent to 1,760 fils, the highest since February 2006, when Bloomberg began monitoring the stock. The company said it was the lowest bidder for a 37.8 million-dinar ($130 million) Kuwait state water project. Abu Dhabi’s index lost 0.8 percent, and the Dubai Financial Market General Index fell 0.7 percent. The Muscat Securities Market 30 Index dropped 1 percent and the Bahrain All Share Index decreased 0.5 percent. Saudi Arabia’s Tadawul All Share Index lost 0.7 percent at 1:53 p.m. in Riyadh. To contact the reporter on this story: Dana El Baltaji in Dubai delbaltaji@bloomberg.net

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Dubai Shares Lead Gulf Slump on Europe Crisis, Earnings Decline, Oil Drop

May 16, 2010

By Zahra Hankir May 16 (Bloomberg) — Dubai shares fell, leading Gulf markets lower, on concern Europe’s sovereign debt crisis will hurt the global economic recovery and after companies including Kuwait’s Agility posted lower earnings. Crude oil declined. Agility dropped 3.5 percent as the storage and logistics company said profit fell 52 percent. Vodafone Qatar decreased to the lowest since April 21 after the mobile-phone company reported a loss. Emaar Properties PJSC, developer of the world’s tallest skyscraper, also slid. The DFM General Index declined 1.9 percent to 1,686.35, the lowest in a week, as of 12:58 p.m. in Dubai. The Bloomberg GCC 200 Index of stocks in the Gulf fell 1.3 percent and Egypt’s EGX 30 Index tumbled 2.7 percent. “Concern about the long-term impact of Greek and European spending cuts on global growth is weighing on oil and equity markets,” said Rabih Sultani , a fund manager at Duet Mena Ltd. in Dubai, a unit of Duet Group, which oversees $2.1 billion. In Europe, the Stoxx Europe 600 Index sank 3.4 percent on May 14. The euro fell to its lowest level since the collapse of Lehman Brothers Holdings Inc. in 2008 on concern the shared currency may be headed for disintegration. Oil tumbled to $71.61 a barrel, a three-month low, on concern that Europe’s crisis may reduce energy consumption. The six nations of the Gulf Cooperation Council supply about a fifth of the world’s oil. Vodafone Qatar Agility retreated to 560 fils, the lowest in a week. The company’s first-quarter net income fell to 17.6 million dinars ($61 million). Agility said it is in talks with the U.S. government to reach a settlement over alleged overbilling on military supplies. Vodafone Qatar slumped as much as 6.1 percent to 8.50 riyals and last traded at 8.90 riyals. The venture between Vodafone Group Plc and state-controlled Qatar Foundation posted a full-year loss of 673.4 million riyals ($185 million). Emaar fell 2.6 percent to 3.73 dirhams, the lowest since May 9. The Kuwait Stock Exchange Index decreased 0.8 percent, the most in a week, and Qatar’s QE Index dropped 1.7 percent. Abu Dhabi’s index retreated 0.9 percent, Bahrain’s measure and Oman’s MSM30 Index lost 0.7 percent. Saudi Arabia’s Tadawul All Share Index fell 0.5 percent, extending yesterday’s 2.3 percent slump. To contact the reporter on this story: Zahra Hankir in Dubai at zhankir@bloomberg.net or

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Martin Luz: Fealty to Folly: Oil Is Dead! Long Live Oil!

May 14, 2010

Memo to oil apologists: When VHS supplanted BetaMax nobody shed a tear. When word processing software replaced typewriters , nobody shrieked about a socialist revolution in the steno pool. And when the jet engine replaced the propeller, there were no protests on the Mall in Washington about a vast supersonic conspiracy. Face it. Technology changes. And the petroleum-based economy is dead. It’s built on antiquated technology that’s killing us and our planet. Now quit your whinging, get over it, and move on. A Drop In the Gulf Since the dawn of the industrial age, human beings have pumped about 46 TRILLION gallons of oil from under the ground ( 1.1 trillion barrels ). Where did it all go? We’ve burned it. We turned it into fertilizers. We turned it into plastics. Among other things. But wait. Where did all those petrochemical “products” go after they were burned, and dispersed, and tossed into trash bins? All that petro-refuse sure as hell didn’t just find it’s way back down the oil well from whence it came. Nope. We’re wallowing in it… in the air, ground, and water. Is it really so hard to picture? Where else do you imagine 46 trillion gallons of oil could possibly go after we’re done with it? And what about the next 46 trillion gallons? And the next 46 trillion after that? In fact, in 2008, the chief of Saudi Arabia’s state run oil company ARAMCO scoffed at peak oil theorist and claimed that there was easily another 500 trillion gallons of conventional and unconventional oil yet to be pumped out, processed, used up and discarded. Oh… Well hooray then. But where will all that oil go? The great Pacific Garbage Patch – a toxic soup of plastic particles – is already estimated to cover an area somewhere between the size of Texas and the size of the entire Continental U.S. ( explanation here ; nauseating video here ). And recently another great garbage patch was discovered, stretching from Bermuda half way across the North Atlantic to the Azors ( icky pictures here ). At the mouth of the Mississippi River, in the Gulf of Mexico, there’s a hypoxic ” dead zone ” the size the state of New Jersey, caused in large part by a run off of petrochemical-based fertilizers. And the carbon toll on the atmosphere is well known… even if denialists still protest. What will planet Earth look like after we’ve processed and discarded 450 trillion more gallons of oil – ten times what we’ve already used and discarded ? Put it this way: the spill in the Gulf will look like a drop in the bucket. The oil economy is like a zombie from the movie Night of the Living Dead… an economic corpse that’s roaming the land and threatening to eat us alive. Fealty to Folly Oil has served its purpose. It was great while it lasted, and it got us to a point where we have the industrial and technological wherewithal to chart a new course. Thanks oil, we say a prayer for the ghosts of the dinosaurs whose flesh and bones we have burned. But we’re no longer primitives who need to animal fat to light our evening meditations, or chase away evil spirits. Hospitals no longer use leeches, or bloodletting, or even mercury thermometers for that matter. Audio cassettes long ago replaced vinyl, and were themselves replaced by CDs, which are now being replaced by MP3 files. Sure it sucked to have to pay good money to replace music I already owned. But some of it I didn’t replace, which turned out OK really. I replaced the timeless stuff that I really wanted, and the other stuff, truth be told, I don’t miss it. And if I do get a nostalgic hankering, for a buck I can download that one song I really miss, revel in its dated novelty, and then re-enter the 21st Century. Facts are facts, and the fact is we can’t afford the socialized environmental cost of having another 450 trillion gallons of oil pumped out of the ground, processed, used up and then strewn all about the place – the Earth isn’t that big. Look at the mess we’ve already made with just the 46 trillion gallons we’ve used so far. (And just because there’s enough wildlife left to fill up several time slots of cable programming on NatGeo, that in no way means that the planet is healthy. Not by a long shot.) Those who are doubling down on the oil economy are like addicts who swear that this last bender and this last bet at the roulette table will cure all that ails us. It’s sheer folly. But they’re too busy living in the past to see it. And yes, it will take Herculean effort, and lots of money to rejigger our economic infrastructure to function on something other than oil. (Let’s not even start on coal.) But what’s the option? Put on your Walkman headset and swing your Hoola-Hoop while you ask your Magic 8 Ball how to make all the problems with the oil economy magically disappear?

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Egypt Stocks Fall Most in Five Months, Lead Arab Markets on Debt Concerns

May 9, 2010

By Zahra Hankir May 9 (Bloomberg) — Egypt shares slumped the most since November, leading a drop in Arab markets, after global stocks tumbled on concern Europe’s debt crisis will spread beyond Greece and slow the global economic recovery. Crude oil fell to $75 a barrel. Orascom Telecom Holding SAE lost the most this year as Algeria reiterated intentions to buy Orascom’s unit in the country, objecting to a proposed sale to MTN Group Ltd. Air Arabia PJSC dropped the most since March as profit declined. Egypt’s EGX plunged 5.1 percent, the biggest slump since Nov. 30, to 6,756 at the close in Cairo. Dubai’s DFM General Index declined 1.2 percent and Qatar’s QE Index fell 4 percent. Saudi’s benchmark rose 2.4 percent, paring yesterday’s losses. “The international melt-down scenario related to Greek sovereign debt” is pushing Arab markets lower, said Yazan Abdeen, a Dubai-based fund manager at ING Investment Management (Dubai) Ltd. “If you think in the gloom scenario, international demand falls and hence oil, and that leads to less sovereign government revenue.” Stocks fell globally last week on concern Europe will be unable to contain the spiraling government debt crisis. European shares tumbled the most in 18 months before euro-region leaders met in Brussels to endorse the Greek bailout. Moody’s Investors Service said banks in Portugal, Spain, Italy, Ireland and the U.K. could be at risk as the threat of contagion grows. The MSCI World Index slid 2.3 percent to 1,099.58 on May 7, the lowest close since Feb. 8. Orascom Telecom Egypt’s benchmark followed “suit with the rest of the region and the world for that matter,” said Teymour El-Derini, head of Middle East and North Africa sales at Naeem Brokerage in Cairo. Orascom Telecom, the Middle East’s biggest mobile-phone company by number of subscribers, dropped 6.7 percent, the most since Dec. 15, to 5.96 Egyptian pounds. Algeria’s government will buy Orascom’s unit in the North African country if it’s offered for sale, Finance Minister Karim Djoudi said on May 6, after the market closed. Air Arabia, the region’s largest low-cost carrier, retreated 3.4 percent, the most since March 31, to 90.8 fils. First-quarter net income fell more than 50 percent to 50 million dirhams ($14 million) as fuel prices rose and it cut fares to lure passengers amid slowing economic growth in the Middle East. Saudi Rises Crude oil tumbled to $75.11 a barrel, capping its biggest weekly decline in 16 months. Oil is up 28 percent in the past 12 months. The six nations of the Gulf Cooperation Council, made up of the United Arab Emirates, Qatar, Saudi Arabia, Kuwait, Oman and Bahrain, supply about a fifth of the world’s oil. Shares in Saudi Arabia, the world’s biggest oil exporter, declined 4.4 percent yesterday. The country’s market is the only one tracked by Bloomberg News that is open Saturdays. The Tadawul All Share Index gained the most since Sept. 26. Oil prices are stable and producers expect demand to rise in 2010, Saudi Arabia’s Oil Minister Ali al-Naimi said today. “Oil demand is very good,” he said. “It is going to increase this year.” The Kuwait Stock Exchange Index retreated 1.9 percent, the most in more than five months. Oman’s MSM30 Index slid 1.1 percent and Bahrain’s gauge dropped 1 percent. Abu Dhabi’s index lost 1.4 percent. “The sell-off in the regional markets should not be sustainable,” ING’s Abdeen said. To contact the reporters on this story: Zahra Hankir in Dubai at zhankir@bloomberg.net

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Magda Abu-Fadil: Pan-Arab TV: Big on Audience, Lop-Sided on Advertising

May 8, 2010

Arab TV viewers enjoy more free satellite channels than their counterparts in developed countries or emerging markets, and although 95% of TV households access free programs, only 70% of television revenues come from advertising. That, according to the “Arab Media Outlook 2009-2013″ survey, published by the Dubai Press Club . The study also found that while the top 15 pan-Arab channels claim 64% of audience share, they make up 80% of the nearly $900m pan-Arab advertising revenues. Translation: those leading channels with the highest audiences are able to command a premium on their advertising. “In turn, these channels are held by a few groups from the (Arab) Gulf, namely MBC, Rotana/LBC, Abu Dhabi Media Company, Dubai Media Inc., and Al Jazeera,” the report said. Leading pan-Arab TV channel groups Other media owners, like Egypt’s Melody and Dream TV channels, are within the top 10 media groups in the region in terms of advertising revenues, it added. The report explained that the relative importance of each pan-Arab channel varied across the region, given the distinctive features of the Arab Gulf states, the Levant countries of Lebanon, Syria, Palestine and Jordan, and, North Africa, respectively. The MBC group, with its bouquet of entertainment, sports and news channels like Al Arabiya, dominates Saudi Arabia and the Gulf countries, for example. Al Arabiya logo While the MBC Group offers only one pay-TV channel in its current bouquet, its FTA channels have historically acted in many ways like pay channels, the report said. This contrasts with Western markets where premium content, such as Hollywood movie regional premiers and premium sports, tend to be available only via subscription services. Moreover, industry experts suggest viewers in the Arab region are less sensitive to new releases than in other markets, according to the survey, with viewers less likely to pay a premium to access very recently released Hollywood movies. Instead, they wait for several months to watch the content for free, impacting the traditional business model of pay-TV operators, the survey found. “Thus, FTA players, such as MBC, are able to secure deals with Hollywood studios to acquire rights for movies that are three to five years old, which are very popular with viewers,” it explained. Other major broadcasting groups, including government-owned organizations, are also increasingly catching up in terms of quality and breadth of content, the report noted, leading to some market share being transferred their way. In Egypt and the rest of North Africa, national terrestrial channels and some satellites take precedence in viewership. North Africa’s TV landscape is no longer dominated by state-run channels, and markets have incrementally opened up to new private networks that now challenge historically dominant broadcasters. So the region is emerging as a key market in the free-to-air TV sector, the survey found. “Egypt’s Al Hayat TV, Melody TV and Dream TV are all success stories in their country, and even beyond,” it said. Dream TV logo Melody Arabia TV logo Tunisia’s Nessma TV and Morocco’s 2M further west are both popular channels that could potentially become significant pan- Arab players, at least in North Africa, the report said. These channels will make strides by investing further in content and generating interest from across the region, it added. Morocco’s 2M TV logo In Lebanon, and to some extent the surrounding Levant countries, Lebanese channels dominate. The most popular being the LBC Group and Future TV channels with their mix of very popular entertainment programs, local and imported soap operas, game shows and newscasts tailored to various segments of the viewing audience. LBC’s newscasts, for example, cater to a large Lebanese diaspora scattered across the globe, as well as a captive audience in the Gulf region and local viewers in Lebanon — resulting in clear segmentation based on regional preferences. Interestingly, the survey stressed that FTA channels suffered from low advertising revenues relative to the large audiences they served. It attributed it to factors finally being taken into account by regional TV executives, including pan-Arab audiences fragmented across nearly 600 channels: “This fragmentation limits the market both at the top and the bottom.” The top five FTA satellite channels make up 47% of total viewing share, leaving hundreds of other stations with extremely low viewing shares, thereby bringing their commercial viability into question, it said. Another key factor related to audience fragmentation is that not all channels in the region are run for purely commercial reasons, it explained. “This puts severe pressure on any channel, which is trying to operate commercially, since competition for content and, therefore, viewers is extremely stiff,” the report said. This unusual business model means there is little pressure from the industry to increase advertising prices when TV channels have other sources of funding, it added. Add to the mix the lack of accurate and widely accepted audience measurement systems in the Arab region, with broadcasters relying instead on consumer surveys carried out by market research firms with ties to the broadcasters themselves. A further stumbling block: pan-Arab satellite TV does not offer targeted advertising by country, so it ‘s difficult charging appropriately high rates for the size of the audience. “This challenge is compounded by the fact that the average demographic of the Arab audience is relatively low income, which has traditionally turned off global advertisers,” the study found, adding that the highest proportion of advertising on pan-Arab media came from hygiene and house care products.

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