by Myra P. Saefong & Ciara Linnane (MarketWatch)
Crude-oil futures held above $58 a barrel on Thursday, on expectations that demand for fuel will rise as the U.S. economy appears in better shape than previously thought and after data showed the first decline in distillates in seven weeks.
Crude for March delivery was last up 6 cents at $58.20 a barrel on the New York Mercantile Exchange. Regular trading on the exchange now begins at 9 a.m. Eastern—an hour earlier each weekday. Earlier, the contract rallied to a four-week high of $58.40, after gaining more than 2% on Wednesday. Forecasts for continued cold weather as well as today’s official start to the Organization of the Petroleum Exporting Countries’ pledge to cut output by another 500,000 barrels a day added to support for oil prices.
The Federal Reserve on Wednesday left key interest rates unchanged as widely expected, but published a policy statement that was upbeat on economic growth and inflation expectations.
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The statement came after data showed a bigger-than-expected 3.5% rise in gross domestic product in the fourth quarter.
See full story. Traders expect a stronger economy to increase demand for oil and its products. Weekly data on oil supplies were also viewed as overall supportive of prices. The Energy Department said crude inventories rose by 2.7 million barrels in the latest week, up for a third week, but distillates, which include heating oil, fell 2.6 million barrels to mark the first decline in seven weeks.
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The draw was slightly bigger than expected after the recent cold snap. The cold weather lifted demand for distillates by 11% versus the week earlier, said Doug Leggate, analyst at Citigroup.
"With the weather outlook seemingly colder through February, distillate stocks look set to fall further," he said in a morning note. Meanwhile, natural gas prices rose 2.7%, or 20.3 cents, to $7.87 per million British thermal units ahead of the release of weekly data on levels of natural gas in storage underground. Fimat USA said the market expects the data, due at 10.30 a.m. Eastern, to show a draw of 200 billion to 210 billion cubic feet. Fimat’s looking for a draw closer to 228 billion.
Crude futures closed out January with a 6.8% loss on the month after finishing December at $62.38. Still, they have rebounded from the $49.90 a barrel low hit by the February contract on January 18 at the height of a rout of commodities. Raymond James on Thursday said it’s cutting its oil-price forecast for 2007 after the steep decline at the beginning of the year.
"While the winter started off more mildly than expected, we think the oil sell-off in January was more technical and financial market-driven rather than fundamentally driven," said analyst J. Marshall Adkins. "
Raymond James is cutting its first-quarter forecast to $57 a barrel from $63, although it expects the price to rise to $70 by the fourth quarter. For all of 2007, it’s expecting an average price of $64, down from a prior forecast of $67. "We continue to believe that the supply/demand fundamentals for oil are actually tighter than they were a year ago," said Adkins. Current prices factor in very little geopolitical risk, he said "though we believe risk from `wildcard’ countries (Iran, Venezuela, Iraq, Nigeria) is still very real."
"While the markets are not yet comfortable with $60+ oil, we believe this will gradually change in the next year," he said.
In equities, benchmarks tracking oil-related shares climbed to reflect the recent strength in the crude futures. The Amex Oil Index (
$XOI:
1,170.32,
6.05,
0.5% ) gained the most ground.
Exxon Thursday posted an overall net income decline of 4% for the fourth quarter, citing lower natural gas realizations and refining margins, which were partly offset by higher crude realizations and improved chemical margins.
The company (
XOM74.39,
0.29,
0.4% ) reported fourth-quarter earnings of $10.25 billion, or $1.76 a share, on revenue of $90.03 billion. This net income figure includes a special tax-related gain of $410 million. In the same period a year earlier, the Irving, Texas-based oil and gas giant earned $10.71 billion, or $1.71 a share, on revenue of $99.34 billion.
On an adjusted basis, excluding special items, the company earned $9.84 billion, or $1.69 a share, in the latest quarter. The average estimate of analysts polled by Thomson Financial was for a profit of $1.51 a share in the December period. In the year-ago period, excluding items, Exxon earned $10.32 billion, or $1.65 a share. Upstream earnings totaled $6.22 billion in the latest quarter, down about $818 million from last year, due to the lower natural gas realizations and decreased volumes resulting from lower European demand.
Downstream earnings reached $1.96 billion, down $430 million from last year, with the lower refining and marketing margins offsetting benefits from the company’s efforts to efficiently manage its inventories. Chemical earnings excluding items rose to $1.24 billion in the latest quarter, benefiting from improved margins and higher volumes.
Exxon Mobil also said it repurchased 115 million shares of its common stock in the fourth quarter at a gross cost of $8.4 billion. Shares outstanding were reduced to 5.73 billion as of Dec. 31. The stock closed Wednesday at $74.10, down 29 cents.
by Fabiola Sanchez
President Hugo Chavez was granted free rein Wednesday to accelerate changes in broad areas of society by presidential decree, a move critics said propels Venezuela toward dictatorship. Convening in a downtown plaza in a session that resembled a political rally, lawmakers unanimously gave Chavez sweeping powers to legislate by decree and impose his radical vision of a more egalitarian socialist state.
"Long live the sovereign people! Long live President Hugo Chavez! Long live socialism!" said National Assembly President Cilia Flores as she proclaimed the "enabling law" approved by a show of hands. "Fatherland, socialism or death! We will prevail!"
The law gives Chavez, who is beginning a fresh six-year term, more power than he has ever had in eight years as president, and he plans to use it during the next 18 months to transform broad areas of public life, from the economy and the oil industry in particular, to "social matters" and the very structure of the state. His critics call it a radical lurch toward authoritarianism by a leader with unchecked power – similar to how Fidel Castro monopolized leadership years ago in Cuba.
"If you have all the power, why do you need more power?" said Luis Gonzalez, a high school teacher who paused to watch in the plaza, calling it a "media show" intended to give legitimacy to a repugnant move. "We’re headed toward a dictatorship, disguised as a democracy."
Hundreds of Chavez supporters wearing ruling-party red gathered in the plaza, waving signs reading "Socialism is democracy," as lawmakers read out passages of the law giving the president special powers to transform 11 areas of Venezuelan law.
"The people of Venezuela, not just the National Assembly, are giving this enabling power to the president of the republic," congresswoman Iris Varela told the crowd.
President Bush said Wednesday that he’s "concerned about the Venezuelan people."
"I am concerned about the undermining of democratic institutions. And we’re working to help prevent that from happening," Bush said in an interview with Fox News.
But in the square in Caracas, Venezuelan Vice President Jorge Rodriguez publicly ridiculed the idea that the law is an abuse of power, and argued democracy is flourishing.
"What kind of a dictatorship is this?" Rodriguez asked the crowd, saying the law "only serves to sow democracy and peace."
"Dictatorship is what there used to be," Rodriguez said. "We want to impose the dictatorship of a true democracy."
Chavez, a former paratroop commander re-elected with 63 percent of the vote in December, has said he will decree nationalizations of Venezuela’s largest telecommunications company and the electricity sector, slap new taxes on the rich, and impose greater state control over the oil and natural gas industries.
The law also allows Chavez to dictate unspecified measures to transform state institutions; reform banking, tax, insurance and financial regulations; decide on security and defense matters such as gun regulations and military organization; and "adapt" legislation to ensure "the equal distribution of wealth" as part of a new "social and economic model."
Chavez plans to reorganize regional territories and carry out reforms aimed at bringing "power to the people" through thousands of newly formed Communal Councils designed to give Venezuelans a say on spending an increasing flow of state money on projects in their neighborhoods, from public housing to potholes. Venezuelan historian Ines Quintero said that with the new powers, Chavez will achieve a level of "hegemony" that is unprecedented in the nation’s nearly five decades of democratic history. Opposition leader Julio Borges called for the 4 million Venezuelans who voted against Chavez not to be left out of decision-making, particularly as he pushes for constitutional changes including scrapping the term limits that would end his presidency in 2013.
"The worst we Venezuelans can do is throw in the towel and become like an ostrich (burying our heads in the sand) and giving up the fight," Borges told the Venezuelan radio station Union Radio.
But the top U.S. diplomat for Latin America, Thomas Shannon, said the enabling law isn’t anything new in Venezuela.
"It’s something valid under the constitution," said Shannon, the assistant secretary of state for Western Hemisphere affairs, told reporters in Colombia. "As with any tool of democracy, it depends how it is used," he added. "At the end of the day, it’s not a question for the United States or for other countries, but for Venezuela."
Chavez has requested special powers twice before, but for more modest legislative changes. In 1999, shortly after he was first elected, he used it to push through two new taxes and a revision of the income tax law after facing fierce opposition in congress. In 2001, invoking an "enabling law" for the second time, he decreed 49 laws including controversial agrarian reform measures and a law that sharply raised taxes on foreign oil companies.
Now Chavez has a free hand to bring under state control the oil and natural gas projects still run by private companies in Venezuela, a top oil supplier to the United States and home to South America’s largest gas reserves.
Chavez has said companies upgrading heavy oil in the Orinoco River basin – British Petroleum (nyse: BP – news – people ) PLC, Exxon Mobil Corp. (nyse: XOM – news – people ), Chevron (nyse: CVX – news – people ) Corp., ConocoPhillips (nyse: COP – news – people ) Co., Total SA and Statoil ASA (nyse: STO – news – people ) – must submit to state-controlled joint ventures. The new law enables Chavez to unilaterally "regulate" this transition if companies don’t agree to the new framework within an unspecified "peremptory period."
Copyright 2006 Associated Press.
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Anglo-Australian miner Rio Tinto PLC said Thursday its net profit for 2006 surged 42.6 percent to a record $7.44 billion on higher commodity prices and strong global demand for iron ore, copper and other resources.
Rio Tinto, the world’s second biggest iron ore producer, said underlying earnings – which excludes one-off items such as asset sales – rose 48 percent to $7.34 billion.
Annual sales rose 22.6 percent to $25.44 billion. The result was roughly in line with analysts’ forecasts, which on average were for US$7.4 billion with an upper range of $7.8 billion and a low of $7.2 billion.
Chairman Paul Skinner said the company sees a number of uncertainties in the global economy and expects some moderation of growth. But growth in China remains strong and well-balanced.
"We continue to view the overall outlook for commodities as positive, with prices remaining well above their long run averages in 2007," he said.
Higher commodity prices lifted earnings by $3.07 billion, the company said. But sales volumes were lower, cutting earnings by $135 million, with lower grades at the Grasberg copper mine in Indonesia the main cause. Cost pressures cut earnings by $741 million. Rio Tinto said acute shortages of mining equipment and skilled workers in the industry are driving up costs, particularly at its iron ore operations in the Pilbara region in Australia’s remote northwest.
"The operating and project environment for mining companies remains challenging, with shortages in key mining supplies and skills leading to continued industry wide cost pressure," chief executive Leigh Clifford said.
Rio Tinto’s biggest earner was its copper division, which contributed $3.56 billion to net earnings, up 76 percent on last year. Iron ore was the next biggest, adding $2.28 billion to net earnings, up 32.3 percent. The company boosted its final dividend to 64 U.S. cents from 41.5 U.S. cents in 2005, taking the total ordinary dividend payout for the year to $1.04, up 30 percent on the 80 U.S. cents paid out in 2005.
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A 2.5 billion Australian dollar (US$1.93 billion; euro1.5 billion) plan to pipe natural gas more than 3,000 kilometers (1,865 miles) from Papua New Guinea’s southern highlands to Australia has been abandoned, the company involved announced Thursday.
Oil Search Ltd., Papua New Guinea’s largest oil and gas producer, said it had completed a review of the PNG Gas Project and decided to suspend work because other options for liquid natural gas found in the region had "demonstrably higher value and return potential."
"It is clear that the alternative development options, including LNG, petrochemicals and other in-country options, which were not present two years ago, are now demonstrably more attractive and cannot be ignored," Oil Search Ltd.’s managing director Peter Botten said in a statement.
Oil Search said that with the global price of liquid natural gas soaring and gas prices in Australia remaining low, the partners in the PNG Gas Project – Oil Search, U.S.-based Exxon Mobil Corp. (nyse: XOM – news – people ), Australia’s AGL Energy Ltd., Japan’s Nippon Oil Corp. and the Papua New Guinea government – decided the pipeline no longer made financial sense.
Talks had started with Exxon Mobil on potential joint ventures to develop the Hides, Angore, Kutubu and Juha gas fields in the South Pacific island nation’s central highlands.
Oil Search had been seeking expressions of interest for its plans to build a pipeline from the fields to the Papua New Guinea coast, under the Torres Strait and then to Mount Isa in Australia’s Queensland state.
But project has been floundering since the developers of the Australian section of the pipeline, AGL Energy and Malaysia’s Petronas Gas Bhd., put work on hold as construction costs soared.
Botten said the submissions it received confirmed the company’s belief that the project was still "an attractive investment option based on appropriate cost control and continued strong market support," and AGL said it still believes the project remains viable in the long term.
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