Here is why oil stocks ahve been weak despite booming crude prices. Make no mistake about it OSX investors -- THE US GOVERNMENT IS YOUR DEADLY ENEMY.
2111 GMT, 000204 ? U.S. Accelerates Efforts to Scuttle Oil Production Cut
Agreement
U.S. Secretary of Energy Bill Richardson said Feb. 2 during a visit to Norway that
while the United States believes oil prices are currently too high, it will pressure
neither Norway nor the Organization of Petroleum Exporting Countries (OPEC) to
lower them. While in Oslo, Richardson met behind closed doors with Norwegian
Oil Minister Marit Arnstad, who recently returned from Saudi Arabia where she
vowed to stick to output cuts as agreed until March 31. Despite her pledge to
maintain cuts, there are other signs that Norway may discontinue compliance with
production cuts past March ? in effect, lower the price of oil.
"We are concerned about high oil prices," Richardson said following his
meeting with Arnstad. "We think that right now they are high. But the United
States very strongly believes that market forces should dictate prices. We
are not here to pressure OPEC or countries like Norway."
On March 23, 1999 OPEC and non-OPEC producers, including Norway,
agreed to cut more than 2.1 million barrels per day (bpd) from the world oil
market. Norway?s share amounted to 200,000 bpd, which was 50 percent of
all non-OPEC producers? cuts and a little below 10 percent of total cuts.
However, the U.S. Energy Information Agency (EIA) reported an 80 percent
compliance rate with these cuts in the second and third quarters of 1999
that fell to 74 percent in the fourth quarter. The North Sea production
accounted for an estimated 80 percent of these gains. Still, with even partial
compliance, oil prices have reached almost $26 a barrel, which can also be
attributed to a reduction in world oil stocks and the normal high winter
demand.
The Norwegian Oil Ministry on Dec. 8, 1999 expressed satisfaction with the
oil price recovery, but cautioned over the strength of the rebound.
"Norwegian oil production will be reduced by 200,000 bpd in the first quarter
of 2000," the ministry statement said, bringing Norway in line with its
pledged cuts. But, the statement added, "This measure will be removed if
other producers fail to implement announced cuts or if the development of
the oil market takes other directions than expected." However, Arnstad?s
statement may be an attempt to put off the inevitable. The 2000 Norwegian
budget is already based upon an increase of 500,000 bpd.
Richardson?s trip was undoubtedly designed to exploit this uncertainty.
Norway?s need for a high price conflicts with the United States? need for
affordable oil. The current rise in oil prices has stung U.S. consumers and
industry. With elections around the corner, the Clinton administration has
been under increased pressure to release oil from its 580 million barrel
Strategic Petroleum Reserve to help bring down prices. But after weeks of
remaining noncommittal, Richardson indicated that the United States would
not enact that option.
Conversely, high oil prices have aided Norway?s oil industry. Average
production costs in Norway are relatively high compared with other regions.
Weighted average operating costs in Norway were $4.80 per barrel in 1996
compared to $1 per barrel in Venezuela and Saudi Arabia. As well, oil
exports account for roughly 55 percent of Norway?s total export revenues.
Still, the country is in a better position than other oil producers to take a
financial loss in the event of a decline in oil prices, because the government
has established a financial safety net for such an occasion. In 2000 the
government is expected to add about $9 billion to this petroleum fund,
bringing the total to almost $38 billion. Still, it is unlikely that the Norwegian
government would use these funds unless it was forced to do so.
Even though most Norwegian oil is exported to Europe, by attempting to
persuade Norway directly, the United States hopes to indirectly influence its
own oil suppliers: Mexico, Venezuela and Saudi Arabia. Saudi Arabia, along
with Iran and Russia among others, competes with Norway in supplying oil
to the European market. If Norway were to add 200,000 bpd of extra oil in
this market, it would increase the supply of oil in the European market, as
well as lower prices. This would force Saudi Arabia, and in turn other
suppliers to the United States, to lower their prices. Increased Norwegian
production may simply set this process in motion.
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