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Oil price target for 2005 of US$64.21- US$66.90


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In reply to: texas4qld on Thursday 17/03/05 09:44am


How do you react to recent statements on oil prices scaling up to $80 a barrel?


In London it is becoming "oil.com".


March 16 (Bloomberg) -- Where is the best place in the world to look for oil?


Under the Indian Ocean? In some of the remote regions of Africa? Down around some of those countries with long, tricky-to- spell names that used to be part of the Soviet Union?


No. The best place to prospect for oil right now is London.


The London stock market is going through a speculative frenzy over oil exploration stocks. Investors are piling into stocks based on little more than rumors and hope. Shares are being sold on the back of the purported expertise of developers, not business plans.


Is this just another dot-com style bubble? Or is there a real investment opportunity underneath the hoopla and the hype?


For a flavor of oil mania 2005, here are two examples.


On March 14, Afren Plc., a new oil and gas company, listed its shares on the London exchange at 20 pence each. By lunchtime, they had jumped to more than 56 pence, almost tripling in just a few hours. The London-based company raised 8 million pounds ($15.3 million) in its initial public offering.


Afren has a starry pedigree. The directors include Rilwanu Lukman, a former president and secretary-general of OPEC. Another director, Egbert Imomoh, used to run the Nigerian operations of Royal Dutch/Shell Group. The company clearly has people on its team who know a lot about oil.


White Nile


Investors in White Nile, however, might regard those gains as relatively paltry. Last month, the company soared in value.


White Nile is an exploration company set up by the former England cricket star Phil Edmonds. Listed on the London market at the start of February, the shares increased more than 11-fold in a week before being suspended. The Financial Times reported that the U.K. Financial Services Authority was investigating the price surge, which came just before an announcement that White Nile had obtained a stake in an oil field in Sudan. The shares are still suspended.


There have been plenty of other spectacular gains. Centurion Energy International Inc., which develops oil assets in Tunisia, has seen its share price rise from just 52 pence in 2003 to a high of 780 pence last month. Desire Petroleum Plc has seen its shares soar from 22 pence last year to a peak of 67 pence this year, before falling back slightly.


In total, 24 new oil exploration and production companies have been listed in London in the last 12 months, according to research by Al Stanton, an analyst with Bridgewell Securities Ltd in London.


Another Prospectus


``Every day there is a thump on the door, and it's another oil company prospectus landing on the doormat,'' said Stanton in a telephone interview. ``Share prices are being pushed up very quickly, with what I suspect are thin volumes and a lot of trading from private investors. The man in the street could well get burned.''


The oil exploration frenzy is starting to show some spooky similarities to the dot-com bubble of five years ago.


Take companies such as Afren and White Nile.


They don't actually own any oil in the ground yet.


Afren has an agreement to take part in a field in Nigeria. The rest of the money raised from investors will be used make acquisitions.


Likewise White Nile. Again, no actual oil. At least not yet. According to a company statement, it was created ``to identify and acquire projects in the natural resources sector with particular emphasis on oil projects within Africa.''


Emphasis on Presentation


While oil exploration by its nature always has been somewhat of a guessing game and companies jumping into that world may go on to great things, many of the new companies seem to be as much about presentation as future production. There are few better illustrations of that than FirstAfrica Oil Plc. It actually used to be a public relations business called Financial Development Corporation Plc before a reverse takeover at the start of this year. It's now in the oil exploration industry (and had been rewarded with a tripling of its share price).


The prospects for small, nimble companies that are good at finding oil haven't looked better in years. The demand for oil has been rising strongly during the last two years, and so has the price. The oil giants need to replenish their reserves.


Unrealistic Expectations


It's not necessarily a bad thing that some oil companies are being floated on the backs of personalities. The oil industry depends on contacts as much as anything else. The more difficult the territory, the more important it is to know the right people. That may well be a crucial factor for success.


The trouble is, a genuine investment story is being over- hyped, just as it was in the technology bubble. The market is channeling investment into an industry that needs it. Yet it is also creating unrealistic expectations and a playground for speculators.


Very few of the technology companies that surfaced during that bubble actually went on to make any money, and the same will almost certainly be true of London's new wave of oil companies.




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In reply to: happy2 on Thursday 17/03/05 08:46pm

Unfortunately, it seems as though the Yanks are about to start drilling in the Alaskan wilderness, according to a report on Lateline tonight.


A precis follows:


News just to hand is that the US Congress, urged by Bush, has narrowly voted approval to tap into the pristine Arctic wilderness of Alaska in the search for additional oil. This area has been protected from such development for over 25 years. Now it seems that ecological concerns will be put on the back burner as Americans are forced to pay more and more at the pump.


The irony is that the oil extracted from this wildreness area is estimated to supply only one twentieth of America's daily needs.


To me, it seems like the panic button is starting to be hit.

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Fuel price scammers fined $23m

James Madden and Michael Davis

March 18, 2005


EIGHT petrol distributors and eight petrol company executives have been fined more than $23 million for colluding to fix prices.


The scam took place in and around Ballarat, in western Victoria, between June 1999 and December 2000, and was uncovered only when independent operator Trevor Oliver, who ran a BP station in nearby Ararat, reported the scam to the consumer watchdog.


After the Australian Competition and Consumer Commission initiated court proceedings, 16 respondents were last year found guilty of arranging to fix retail petrol prices in breach of the Trade Practices Act.


The companies involved in the price-fixing cartel operated the scam over the phone, using code phrases such as "let's go for a drive" to indicate when a co-ordinated petrol price increase across the region was to be implemented.


Prices were increased by as much as 12 cents overnight, according to court documents.


Yesterday the Federal Court, sitting in Melbourne, handed down penalties totalling almost $24 million, with the most severe fines imposed on Balgee Oil Pty Ltd, which was ordered to pay the commonwealth $5 million, and Brumar Pty Ltd, which must forfeit $4 million.


The highest individual fine was $200,000, which was imposed on Justin Bentley, who was the sole director and shareholder of petrol distribution company Justco Pty Ltd.


Peter Anderson, director and general manager of Apco Service Stations Pty Ltd, was also fined $200,000.

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Which one is correct ?





Ironically, at this moment of $54-a-barrel oil, OPEC is no longer in control. Given the current realities of supply and demand -- and the panic and speculation driving oil traders -it is the market that is setting prices.



But let's not let that distract us from the underlying reality: The reason supply is short is because OPEC members have set things up that way, aided and abetted by cooperating nonmembers and major oil companies who have become rich taking a free ride on the price-fixing gravy train. Even if oil prices returned to OPEC's target of $30 a barrel, that is still three times the price that would be generated by a truly competitive oil market open to free trade and investment, according to energy analyst Edward L. Morse and others.





First and foremost amongst these fundamental factors is the growth in global oil demand seen over the last year or so. Oil demand growth has been especially strong in China, but also here in the United States and elsewhere. Global oil demand has grown much faster than non-OPEC supply, which has enabled OPEC to produce more without seeing prices decline. This growth in demand has also caused inventories not to be as high as they would appear on the surface. Looking at how many days of demand inventories would cover shows a much smaller increase this year versus last year than would appear to be the case by simply looking at the absolute levels of inventories, due to the expected growth in oil demand.


Another important factor influencing prices is the lack of spare production capacity, both upstream (crude oil production), and downstream (refinery capacity). The lack of both spare capacity and inventory cushions to cover potential surges in demand or disruptions in supply, in a strong demand environment, is the primary force behind currently high prices. Spare crude oil production capacity is expected to remain at relatively low levels for at least the next year or two. In addition, refinery spare capacity has also tightened globally, especially given the recent shift towards a lighter product slate, particularly for diesel fuel.


These factors seem to explain most of the movement to high oil prices, even given what appears to be relatively comfortable inventories. As such, EIA does not believe that hedge funds and speculator trading in energy are the main reasons why oil prices are higher now than they were a year or two ago.




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In reply to: texas4qld on Friday 18/03/05 06:53am

Texas 4


Wash your mouth out.


It simply does not happen.


The free market doesn't allow this to happen.


Its a figment of your imagination as was AMCOR.


How can preople fix price where you have one single product which in today's economy is a necessity and there are limited suppliers?


Further more, the cost of extracting the oil is exactly the same for all producers throughout the world. Therefore there cannot be any price variations.


Next thing you are going to tell us that the world is flat.


Its obvious to all and sundry that you are a conspiracy looney and you should be locked up. Or worst still you must me a Muslim extremist and therefore are anti Australian. Wake up to yourself! You have to pay more because in 20 years time the oil barons will have no income and therefore its only fair that we should contribute to their box now.














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In reply to: Avenger on Friday 18/03/05 08:03am




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QUOTE (Avenger @ Friday 18/03/05 09:03am)



The debate either side of the fence across the globe seems to have polarized much like our own discussion here. One side is that the price rise is temporary and in fact there are enough oil reserves for a very long time, and the other is that we are approaching the peak of possible oil production and demand is about to overtake supply, and it explains the rise in price.


Now I obviously fall into the second camp.

Even the ones arguing their is in fact more oil than we have been let on about come to this conclusion not from traditional sources but they are using others. Both sides of the argument agree that there is no massive easily reached supply that we have not been told about. Both agree the traditional easily found deposits are running out.


Now I do not agree the cost to produce oil is the same for every producer. In fact I totally disagree with that. In 2003 the US dept. of energy added the largest amount of oil to global reserves ever. The amount was 181 billion barrels of oil. It came from Canada. In fact it was the tar sands of Canada. Extracting oil from tar sands is difficult and costs a lot more than the traditional method of oil recovery. It is slow and messy and the break even in costs approaches the US$18- mark. So for a decent economic return for investors oil needs to be above USD$22-.


To roughly put the size of this in perspective, 181 billion barrels of oil added by the inclusion of the TAR sands make Canada the second largest holder of oil reserves behind Saudi Arabia with roughly 220 billion barrels of reserves. Iraq and Iran are both slightly over the 110 billion barrel mark in reserves. Thing is, whilst it looks huge and I have included it in my assumptions, global consumption is just over 30 billion barrels a day so its about 6 years consumption. Tar sands are hard and slow to extract and will only probably only peak at 3 million barrels per day no matter what they do. So it will take over 150 years at full tilt to get them all up.


To extract from a simple on shore well not needing too many injection wells the cost may be as low as US$7- per barrel.


To extract oil from an offshore well not to deep around US$11-.

To extract from a deep water offshore well around US$13-.


Both sides accept the reality the easy onshore finds are becoming exhausted except for the Middle East. Both have come to the reality the new oil production more than likely will come from the deep water finds or from tar sands ect ect. The base line cost of setting up will be much higher.


At the top of the production tree in terms of costs is the oil shale. Now there are large reserves of oil shale. Probably around the total know reserves of oil that is left and a bit more. Around the 1,400 billion barrels. Oil shale is contained in rock. To extract it requires energy and a lot of it. So the cost when trying to work it out is a bit of a sliding scale.

If oil is US$25- and it takes roughly 20% of the oil produced to be used as energy to get the oil out of the rock, the effective cost in the equation is US$5-. The break even cost of production of oil by this means is US$25- ish.


Note this is with oil at US$25- the break even is around US$25-.

The sliding scale of the enormous energy in equation comes into effect the higher we go.

AT US$50- the cost break even goes up to US $30- and allowing for some form of decent economic return I would suggest in reality its around US$36-.


Bottom line I think oil needs to remain above US$40- for a long time for oil shale to be viable economically, let alone the environment questions.


At present the oil shale rocks need to be heated briefly to 475 Celsius to release the oil contained in the rock. In Australia, as with most things we are blessed here as well and have huge reserves. Thing about oil shale is that for every ton of rock it contains only roughly 60 liters of oil. In terms of real production it requires a hell of a lot of energy to release the oil so in the global warming environment we are in, lets just say the process makes coal look clean.


Will production happen ? Probably. But when the one extreme quotes oil shale as a resource its always using the full 100% of oil contained in the rock and never seems to talk about the actual process.


Oh and one more thing about the oil shale stuff, the smell is shocking. A pilot plant shut down in Australia a few years ago, people from 100 km away could smell the stink. It was described as very smelly old socks.


In summary, depending on where your well is the range of costs for even traditional oil productions ranges from US$7- to around US$14- and that's not counting a return to investors. Using the non traditional means that even the other end of the argument uses

the range with oil at US$50- for producing a barrel of oil go from say US$7- to US$30 not counting a return for the investment.


Whoops gotta fly open of the market.


Good luck

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US Oil Price Heads to $60 as Market Ignores OPEC Hike

by Selina Williams FWN Select Thursday, March 17, 2005



LONDON, Mar 17, 2005 (ODJ via COMTEX) -- (Dow Jones)




As U.S. oil prices marched to $60 a barrel after breaking through key resistance at $57 earlier Thursday, it became clear that oil traders had already dismissed OPEC's offer to start talks next week on additional supplies to calm prices.

The surge in oil prices came as the Organization of Petroleum Exporting Countries revised up its own demand forecasts for the rest of the year, including a dramatic increase in demand for OPEC crude during the next winter.



But oil traders said the offer of extra barrels is hardly likely to lower prices. Some said it is nothing more than a "nice gesture" from OPEC as the new supplies will mainly be the heavy sour grades that are more difficult to refine.

At 1207 GMT, U.S. benchmark crude was trading up 84 cents at $57.30 a barrel after smashing through several key levels and earlier peaking at $57.50/bbl.


"Now it's not if, but when, oil's going to get to $60 a barrel," said Bache Financial oil broker Tony Machacek. "And it's hard to say when we'll see a substantial setback in the price now - it'll probably come from one of the other markets like the dollar rate," he added.


Earlier Thursday, OPEC President Sheikh Ahmad Fahad Al-Ahmad Al-Sabah said the group could begin talks on another 500,000 b/d increase as early as next week.


Al-Sabah's comments come only one day after the group had pledged an immediate increase of 500,000 b/d to calm prices and help build inventories now to prepare for what is expected to be a tight winter.


The move further stoked fears of supply crunches amid soaring demand, as it was a sharp reversal from previous years when OPEC typically reduced output in the second quarter to prevent prices from falling.


Al-Sabah, who is also Kuwait's oil minister, said that if agreed next week, the extra oil could be flowing as early as April.


"I think 500 (thousand b/d) is very easy," he said. "Saudi Arabia can add two to three hundred....It could start as soon as April."


UAE Oil Minister Mohammed bin Dhaen al-Hamili also said OPEC would pump more oil if prices climb too high.


However, demand is still set to surge and the expectation is that supply may not be sufficient.


In its monthly oil market report released Thursday, OPEC said strong U.S., Chinese and resurgent Japanese economies will push demand for OPEC oil even higher in the second half of the year.


"Chinese refineries continue to be running flat out, with indications of noticeable inventory draws," OPEC said in a report. "Thus, crude imports are very likely to resume at a strong pace in February and March," it added.


Disappointing increases in non-OPEC oil output will push demand for OPEC crude in 2005 up over half a million barrels a day on the year, the report said.


Most of the growth is in the second half of the year during peak gasoline and winter heating oil seasons. The fourth quarter call-on-OPEC is among the highest levels ever, with world oil demand seen surging to 85.77 million b/d by the end of this year, the report said.


OPEC agreed Wednesday to raise its output quota by 2% immediately to 27.5 million b/d, endorsing a move by Saudi Arabia and Kuwait to ramp up production now to fill up inventories.


"It's a U-turn on inventory policy," said Vera De Ladoucette, senior vice president of the Cambridge Energy Research Associates. "There is strong demand, stronger than some anticipated, which eventually could lead to a capacity crunch."


Saudi Arabia and Kuwait have already begun pumping more oil unilaterally. They plan to have added at least 370,000 b/d by April and perhaps twice that amount in the second quarter.


But the group's decision to produce more oil only exerts further upward pressure on prices as it stretches OPEC's spare capacity to the limit and leaves the global system vulnerable to supply disruptions in Iraq, Nigeria, Venezuela and other volatile oil-producing countries.


As it is, only Saudi Arabia has significant spare capacity remaining, though there are some extra barrels available in Kuwait.


"OPEC has reached its production limits," Algerian Oil Minister Chakib Khelil said over the weekend. "If it came to a crunch, it has capacity for one million barrels, and I don't think a production increase would influence the barrel price."


OPEC President Al-Sabah said Wednesday that the group has the ability to pump some 31 million b/d of oil to meet winter demand.


But OPEC estimates it will be called on to pump some 30.3 million b/d in the fourth quarter, leaving only a thin cushion of spare capacity. As such, the market will continue to remain vulnerable to price spikes, Al-Sabah said.






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QUOTE (Avenger @ Friday 18/03/05 09:03am)

the cost of extracting the oil is exactly the same for all producers throughout the world.



Avenger, how can your assertion be true?


There are many variables involved in extracting oil such as land, shallow waters, deep sea, extreme weather conditions, terrain, location, distribution, political instability, graft, labour costs, taxes, etc.

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In reply to: happy2 on Saturday 19/03/05 11:31am

Just a final note on this thread,


Many thanks to all for the contributions.

Great discussion all round.

Interesting to see both sides of the argument.


At present even the daily Telegraph is calling oil higher, which leads me to suspect this push may not in fact reach my own 2005 target. When everyone is calling one direction,

its time to use the other.


Expect at some time it will get to my own initial targets but becoming less confident on this push.


The initial spread I was talking about that leads me more and more to believe we shall see oil higher longer term was the 6 year futures spread. The difference between the two last week Had narrowed from US$15- to US$9.80. This week yet again virtually every day the spread has narrowed and now sits at US$8.41. For a week on a spread this is quite some move.


Personally expect even if we fail this time I suspect the spread will continue to narrow.


Just for the record December 2011 oil futures closed at US$49.11.


Interesting most analyist still usuing a long term valuation for oil around US$30- when this is the reality. If it costs US$15- to extract the oil and if one uses US$30- to work out a valuation before NPV of the cashflows, your starting number to work out the valuation is US$15-. If they were to use the current spot rate the starting NPV calculation would be usuing a starting number of US$34- .... in other words the difference in the actual market implied valuation and the rubbish numbers being used by most brokers analyists in Australia is 226% different. Not suggesting they use the current spot but somewhere between will begin to be used and expect some serious interest as time goes on for quality oil stocks, not talking about smaller marginal ones even if they have positive cashflows.



So next time you see a brokers report on valuation of say WPL, just ask the question, what was the long term oil price they used for the valuation.


Obviously the long end of the futures curve Dec 2011 futures close on Friday was yet another all time contract high.


Best of luck ....

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