OPEC July output falls 200,000 bpd

I'm floored that all these economists, reporters, industry experts etc, including pro traders in ET, keep "analyzing" why oil price doesn't fall in a well-supplied market, but don't speak out CLEARLY and LOUDLY about THE OBVIOUS: the BROKEN PRICE DISCOVERY MECHANISM.

The light sweet crude oil type used in futures contracts represents a small % of world daily production, yet is used as benchmark to price the rest (based on refinery margins).

Therefore it's practically impossible to do arb between futures and physical market, to bring the supply/demand in sync.

So one just has to control the marginal barrels of LSC to control the entire price chain.

More recently we see OPEC try to "jaw bone" the market lower, with comments like "oil shouldn't be priced over $50/bar based on fundamentals" (Saudi oil minister 2.5months ago), or cutting 400,000 barrels per day citing lack of buyers etc.

The situation would be simply ridiculous, if the financial bleeding of oil consuming nation wasn't so high.

As far as I can tell it's an "once in a generation" wealth redistribution (I've thought quite a bit trying to make sense and I don't think scenarios like "petrodollar recycling" have much merit to justify so much collateral damage). So basically, the 2 oil-men in Washington give BigOil decades worth of profits in a few years. And maybe the "energy crisis" will be the scapegoat for the upcoming recession.
 
Iran warns oil could reach $200 on sanctions

CARACAS, Venezuela (Reuters) - Global oil prices could hit $200 per barrel if the United States pursues international sanctions against Iran, an Iranian official said on Thursday, although analysts passed the comment off as saber rattling.

Iran's Foreign Relations Vice Minister Manuchehr Mohammadi told Venezuelan state television, "The first consequence of these sanctions would be an increase in the price of oil to around $200 per barrel."

The statement comes after the United Nations on Monday demanded that Iran suspend all nuclear development within a month or face the threat of sanctions. Iran responded that it had a sovereign right to nuclear development.

"Clearly Iran does not want to have sanctions imposed, so they want to convey the idea that the cost of these sanctions would be incredibly high," said Tim Evans, an Energy Analyst with Citigroup Futures Research.


"While we can't rule out $200 oil, I think we can assign it a rather low probability," he said.

Markets appeared to shrug off the comment, with U.S. crude oil falling $1.01 to $74.80 on signs that Tropical Storm Chris would not become a hurricane.

Tension over Iran's nuclear ambitions, which has rattled oil markets in recent weeks, has been overshadowed by the bloody conflict in Lebanon.

"It serves (Iran's) interests to create this kind of concern in the world community about the price of oil," said Mark Routt, a senior analyst with Energy Security Analysis Inc. "But there are elements to suggest it might not reach that level."

He said high prices have lead to an increase in non-OPEC production and turned once prohibitively expensive projects like Canadian tar sands into profitable ventures.

At the same time, Routt said, product demand has been dampened by alternative fuel products like biodiesel and ethanol.

Venezuelan President Hugo Chavez has backed Iran's nuclear program and developed close ties to the Iranian government. Chavez visited Iran last week as part of a two-week world tour meant to boost global alliances.
 
Citgo puts refinery stake up for sale

Lyondell has expressed interest in purchasing it

Aug. 16, 2006, 7:38AM


By TOM FOWLER
Houston Chronicle

Lyondell Chemical and Venezuelan government-controlled Citgo appear to be closer to ending their joint ownership of a Houston refinery.

Venezuelan Oil Minister Rafael Ramirez said Tuesday that Petroleos de Venezuela, the state-run oil company that controls Citgo, would sell its 41.25 percent stake in the refinery for $2.2 billion, or $1.3 billion after debt, interest and taxes.

A Lyondell spokesman said Tuesday that no agreement had been reached, but the Houston-based company had said previously it planned to buy out Citgo's stake in the 268,000-barrel-a-day oil refinery.

"The proceeds from the sale will go to the company's shareholder, the Venezuelan government," Ramirez told Bloomberg News in Caracas on Tuesday, adding that the funds will be earmarked for infrastructure projects. "The sale was approved on Friday."

Houston-based Marathon Oil Corp. offered more than $5 billion for the refinery earlier this year, helping set the sale price for Citgo's stake, according to a statement from Petroleos de Venezuela, also known as PDVSA. A spokesman for Marathon declined comment.

The price PDVSA claims Lyondell is paying for its stake is the equivalent of about $20,000 per barrel of oil processing capacity, a record for a U.S. refinery, Natexis Bleichroeder analyst Roger Read told Bloomberg.

That's double the rate top U.S. refiner Valero Energy paid with its $7.9 billion purchase of Premcor, which closed in September.

The southeast Houston refinery started operations in 1918 under the Sinclair Refining Co. name but has changed owners over the years. The Citgo-Lyondell partnership was formed in 1993.

The refinery was upgraded in 1997 to better handle heavy crude, a move that made it one of the top refineries in the country because of its ability to handle the harder-to-process oils, said George Morris, an energy expert at investment bank Petrie Parkman & Co. in Houston. Morris noted that the value of the refinery based on what it reported in free cash flow last year would put it at about $3 billion, but it's widely believed the long-term supply contract it had with PDVSA for oil in recent times made its operating costs higher.

In filings with the Securities and Exchange Commission, Lyondell reported that from 2000 to 2004 the supply agreement was actually advantageous to the refinery because the price was below market prices. Since the fourth quarter of 2004 and throughout 2005, however, the agreement put its oil costs above market prices.

In a news release Tuesday, PDVSA said it provided oil at a price about $2.09 below market prices between 1994 and 2004, leading to losses of up to $705 million.

Citgo has said it planned to divest itself of assets in North America. This includes its stakes in the Colonial and Explorer pipelines, and two asphalt plants. Citgo said recently it will stop selling gasoline in 10 states and parts of four others.
 
Aug. 17, 2006, 1:12AM

Lyondell confirms deal for Citgo stake in refinery


By TOM FOWLER
Houston Chronicle

Lyondell Chemical has confirmed it is buying Citgo's 41.25 percent interest in the Lyondell-Citgo refinery in Houston for about $2.1 billion, including debt.

The refinery will continue to buy up to 230,000 barrels of oil a day from Petróleos de Venezuela, the state-owned oil company that controls Citgo, but under a new contract based on market prices.

Since late 2004, the refinery had been paying above-market prices for oil from PDVSA based on terms of a contract first negotiated in 1993.

Venezuelan Oil Minister Rafael Ramirez announced the deal on Tuesday, but at the time Lyondell officials said a final agreement had not been reached.

"This acquisition, coupled with a new market-based crude oil contract, unlocks the true value of this unique asset and contributes significantly to shareholder value," Lyondell President and CEO Dan Smith said.

The refinery will become a wholly owned subsidiary of Lyondell.

Lyondell noted full ownership of the refinery would have increased the company's net income for the first six months of 2006 from $450 million to $640 million, or from $1.74 to $2.47 a share.
 
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