Oilexco unit seeks bankruptcy protection
Wednesday, December 31, 2008
CALGARY — International oil producer Oilexco Inc. disclosed Wednesday that its main subsidiary is insolvent.
Oilexco shares fell 64 cents to 25 cents on the Toronto Stock Exchange, down from a high of $19.50 in June.
The company, focused on the British central North Sea, said wholly owned Oilexco North Sea Ltd. — which accounts for substantially all of the Calgary-based parent company's assets — would file for administration, a form of bankruptcy protection, with the British high court as soon as practicable, likely next week.
Oilexco said the decision came after a syndicate of lenders, headed by hard-pressed Royal Bank of Scotland, declined to provide more funding less than two weeks after approving $47.5-million in bridge financing.
The company had indicated it would need a further boost to stay afloat.
“Oilexco does not have any other source of funding at this time and has therefore concluded that an administration must be pursued,” it stated.
In the meantime, “all parties expect that safe and orderly operations will continue.”
The parent company “is considering its options in light of this development but at this time remains solvent and committed to the strategic review process that was previously announced.”
Oilexco hired Morgan Stanley and Merrill Lynch in mid-December to investigate strategic options, and it said Wednesday that “several parties have indicated significant interest” in possibilities which could include a sale of the company or some of its assets.
Oilexco said it “understands that it is the intention of the proposed administrators to continue this process, with the intention of selling Oilexco North Sea Ltd. or all or substantially all of its assets in such a way as to maximize the value of the assets for all stakeholders, and maintain the business, its employees and systems as a going concern.”
However, “there can be no certainty that any binding offers will be received or accepted or that any transaction will be completed or, if it is completed, that there will be any equity value for Oilexco shareholders.”
Oilexco tapped the financial market in October 2007 when it secured a $500-million loan from a syndicate of banks.
That financing was used to develop the Ptarmigan, Shelly and Huntington fields, for the completion of its acquisition of the Balmoral production vessel and for general corporate purposes.
Oilexco's producing properties, exploration and development activities are located in the North Sea, specifically the Outer Moray Firth and Central Graben areas off eastern Scotland.
It has been struggling with financing problems since October, when it announced the closing of a planned financing had been delayed by the credit crisis. It also cut its production target amid falling oil prices.
- With files from Reuters
© Copyright The Globe and Mail
Wednesday, December 31, 2008
Tuesday, December 30, 2008
Friday, December 26, 2008
Doom and Gloom Media Contribute To Fear and Recession
Modern Parable
Japanese co (Toyota) and US co (Ford Motors) decide to have a canoe race on a River Both teams practiced to reach their peak performance. On the big day, Japanese won by a mile. USA,discouraged ,investigate the reason for the defeat.Senior management was formed to recommend action. Conclusion was the Japanese had 8 people rowing and 1 person steering, while the American team had 7 people steering and 2 people rowing.
Ford spent the last 30 yrs moving its factories out of US, claiming they can't make money paying US wages. TOYOTA spent last 30 yrs building plants inside the US. Last quarter's results: TOYOTA - 4 billion profits , Ford 9 billion in losses. Ford folks are still scratching their heads, and collecting bonuses... and now wants the Government to 'bail them out'.
Submitted by shleprock at 9:41 PM Tuesday, December 23 2008
Think 2008 was bad? Just wait, economists say
TheStar.com - Canada -
December 24, 2008
Julian Beltrame
THE CANADIAN PRESS
OTTAWA–It's going to get worse. As bad as the past few months were, even the rosiest of economic forecasts shows on average that Canadians will get poorer in 2009 and many – perhaps as many as 200,000 additional workers – will lose their jobs as the economic recession deepens.
The economic tsunami that was well below the surface as 2008 began hit Canada's shores with a crash in the fall and is only now washing deeper inshore, swallowing an economy that once appeared impregnable – having withstood both the Asian financial crisis a decade ago and the 9/11 fallout in the United States.
Prime Minister Stephen Harper described it best in a recent television interview in which he perhaps tellingly did not reject out of hand the possibility of a depression – a deep economic downturn in which output shrinks by 10 per cent or more.
"I've never seen such uncertainty ... I'm very worried about the Canadian economy," he said, before explaining that governments had learned survival lessons from the 1930s depression that they are applying to the current situation.
But as Merrill Lynch's Canadian chief economist David Wolf put it: "Given the events of the past few months how can you rule anything out? Even us bears have been surprised at just how aggressively things have unravelled."
A key lesson of the Great Depression – and a reason economists believe the damage can be contained shy of D-terrain – is that governments must not sit idly by as the cancer spreads.
The U.S., Europe, China and others have already stepped to the plate with Ruthian stimulus packages worth trillions of dollars in total, and Harper has suggested spending measures in the $20-billion range are being prepared for the Jan. 27 budget, at a price of a huge deficit.
As well, Ottawa and Ontario announced last Saturday that $4 billion will go into jump-starting the battered Canadian auto sector, with more likely to come as part of a North American industry restructuring.
The measures aren't necessarily going to be popular with Canadians, although they are likely a minimum condition for preventing a Liberal-NDP coalition, with the backing of the Bloc Quebecois, from seeking to dump the government once Parliament resumes in late January.
A Canadian Press Harris/Decima poll conducted in mid-month found only 39 per cent support for stimulus spending if it means Ottawa will go into deficit.
For policy makers, the deficit ship has long since sailed.
Even sober-minded economists don't see much to shout about in keeping government books in the black if it means the rest of the country sinks. If everyone else is too scared to spend their last dime, governments had better, they reason.
"Unfortunately it's necessary. Things could be very ugly if policy makers don't step in to support the economy, in certain cases specific industries," said Bank of Montreal deputy chief economist Douglas Porter.
"It still going to be the weakest year since `91," agreed Dale Orr, managing director of IHS Global Insight. "The second half will be better than the first, thank goodness, but we'll need another year after that before we're back to the economy returning to potential."
Orr's analysis is shared almost universally among private sector economists, who have been busily revising even their bleakest forecasts in the past few weeks.
Last week, the Bank of Nova Scotia set the standard for low with a projection that the economy would shrink 1.2 per cent in 2009. A day later the Bank of Montreal did it one notch better at minus 1.3 per cent.
The shocker, however, is that most expect a seldom considered statistic called nominal gross domestic product – which measures the value of what the country produces – to become headline news next year as the wealth-effect of high commodity prices over the last six years gets reversed big time with oil in the tank and prices of minerals, grains, coal and other commodities also in decline.
Many are expecting nominal GDP to shrink by as much as three per cent in 2009, bringing lower corporate profits, lower government revenues and most importantly, lower wages for Canadians.
"That's a shrinking of the economic pie the likes of which we really haven't seen for generations," said Wolf.
The latest projections also predict Canada's unemployment rate will rise to about eight per cent, from the current 6.3 per cent, resulting in something Canadians also haven't seen in a generation, outright job losses of 200,000 from the recession's peak to trough.
While the jobless rise in 2009 will hurt, it's still a far cry from the last two recessions. Unemployment hit 13 per cent in the 1980-81 decline, when industrial North America – mainly the steel and auto sectors – went through a painful restructuring. In the early 1990s the recession hurt real estate and retail sectors and pushed the jobless rate to 10 per cent.
How do we get ourselves out of this mess?
A recovery is coming, economists say, and it's likely from a combination of several factors.
Surely some good must come from the trillions of dollars being poured into the economy from governments around the world, they figure.
The other bright spot – although it's cold comfort to Canada's oilpatch – comes from cheap oil, which will cut business costs and leave more money in the pockets of consumers around the world.
And then there's that fickle measure called consumer confidence, which has been dining on despair for months and sits at its lowest level in more than a quarter century.
Orr believes much of the loss of trust and confidence among investors and consumers stems from global markets' stomach-churning bungee jump since mid-September.
In Canada, the stock market has lost more than 40 per cent of its value since a mid-June record high, wiping out hundreds of billions of dollars of stock value and squeezing the investments of Canadians held in pension plans, stocks and mutual funds. That has made people feel poorer and tighten their wallets and companies from cutting investments and expansion plans.
"Everybody is gloom and doom now, but things could turn around quickly," Orr says. "Everybody is now waiting for conformation we're at the bottom and if you can get a week or two of really strong markets, there will be a piling on phenomenon and people won't be able to wait to get back in."
But he hurries to add, it might not be wise to bank on it happening in 2009.
Japanese co (Toyota) and US co (Ford Motors) decide to have a canoe race on a River Both teams practiced to reach their peak performance. On the big day, Japanese won by a mile. USA,discouraged ,investigate the reason for the defeat.Senior management was formed to recommend action. Conclusion was the Japanese had 8 people rowing and 1 person steering, while the American team had 7 people steering and 2 people rowing.
Ford spent the last 30 yrs moving its factories out of US, claiming they can't make money paying US wages. TOYOTA spent last 30 yrs building plants inside the US. Last quarter's results: TOYOTA - 4 billion profits , Ford 9 billion in losses. Ford folks are still scratching their heads, and collecting bonuses... and now wants the Government to 'bail them out'.
Submitted by shleprock at 9:41 PM Tuesday, December 23 2008
Think 2008 was bad? Just wait, economists say
TheStar.com - Canada -
December 24, 2008
Julian Beltrame
THE CANADIAN PRESS
OTTAWA–It's going to get worse. As bad as the past few months were, even the rosiest of economic forecasts shows on average that Canadians will get poorer in 2009 and many – perhaps as many as 200,000 additional workers – will lose their jobs as the economic recession deepens.
The economic tsunami that was well below the surface as 2008 began hit Canada's shores with a crash in the fall and is only now washing deeper inshore, swallowing an economy that once appeared impregnable – having withstood both the Asian financial crisis a decade ago and the 9/11 fallout in the United States.
Prime Minister Stephen Harper described it best in a recent television interview in which he perhaps tellingly did not reject out of hand the possibility of a depression – a deep economic downturn in which output shrinks by 10 per cent or more.
"I've never seen such uncertainty ... I'm very worried about the Canadian economy," he said, before explaining that governments had learned survival lessons from the 1930s depression that they are applying to the current situation.
But as Merrill Lynch's Canadian chief economist David Wolf put it: "Given the events of the past few months how can you rule anything out? Even us bears have been surprised at just how aggressively things have unravelled."
A key lesson of the Great Depression – and a reason economists believe the damage can be contained shy of D-terrain – is that governments must not sit idly by as the cancer spreads.
The U.S., Europe, China and others have already stepped to the plate with Ruthian stimulus packages worth trillions of dollars in total, and Harper has suggested spending measures in the $20-billion range are being prepared for the Jan. 27 budget, at a price of a huge deficit.
As well, Ottawa and Ontario announced last Saturday that $4 billion will go into jump-starting the battered Canadian auto sector, with more likely to come as part of a North American industry restructuring.
The measures aren't necessarily going to be popular with Canadians, although they are likely a minimum condition for preventing a Liberal-NDP coalition, with the backing of the Bloc Quebecois, from seeking to dump the government once Parliament resumes in late January.
A Canadian Press Harris/Decima poll conducted in mid-month found only 39 per cent support for stimulus spending if it means Ottawa will go into deficit.
For policy makers, the deficit ship has long since sailed.
Even sober-minded economists don't see much to shout about in keeping government books in the black if it means the rest of the country sinks. If everyone else is too scared to spend their last dime, governments had better, they reason.
"Unfortunately it's necessary. Things could be very ugly if policy makers don't step in to support the economy, in certain cases specific industries," said Bank of Montreal deputy chief economist Douglas Porter.
"It still going to be the weakest year since `91," agreed Dale Orr, managing director of IHS Global Insight. "The second half will be better than the first, thank goodness, but we'll need another year after that before we're back to the economy returning to potential."
Orr's analysis is shared almost universally among private sector economists, who have been busily revising even their bleakest forecasts in the past few weeks.
Last week, the Bank of Nova Scotia set the standard for low with a projection that the economy would shrink 1.2 per cent in 2009. A day later the Bank of Montreal did it one notch better at minus 1.3 per cent.
The shocker, however, is that most expect a seldom considered statistic called nominal gross domestic product – which measures the value of what the country produces – to become headline news next year as the wealth-effect of high commodity prices over the last six years gets reversed big time with oil in the tank and prices of minerals, grains, coal and other commodities also in decline.
Many are expecting nominal GDP to shrink by as much as three per cent in 2009, bringing lower corporate profits, lower government revenues and most importantly, lower wages for Canadians.
"That's a shrinking of the economic pie the likes of which we really haven't seen for generations," said Wolf.
The latest projections also predict Canada's unemployment rate will rise to about eight per cent, from the current 6.3 per cent, resulting in something Canadians also haven't seen in a generation, outright job losses of 200,000 from the recession's peak to trough.
While the jobless rise in 2009 will hurt, it's still a far cry from the last two recessions. Unemployment hit 13 per cent in the 1980-81 decline, when industrial North America – mainly the steel and auto sectors – went through a painful restructuring. In the early 1990s the recession hurt real estate and retail sectors and pushed the jobless rate to 10 per cent.
How do we get ourselves out of this mess?
A recovery is coming, economists say, and it's likely from a combination of several factors.
Surely some good must come from the trillions of dollars being poured into the economy from governments around the world, they figure.
The other bright spot – although it's cold comfort to Canada's oilpatch – comes from cheap oil, which will cut business costs and leave more money in the pockets of consumers around the world.
And then there's that fickle measure called consumer confidence, which has been dining on despair for months and sits at its lowest level in more than a quarter century.
Orr believes much of the loss of trust and confidence among investors and consumers stems from global markets' stomach-churning bungee jump since mid-September.
In Canada, the stock market has lost more than 40 per cent of its value since a mid-June record high, wiping out hundreds of billions of dollars of stock value and squeezing the investments of Canadians held in pension plans, stocks and mutual funds. That has made people feel poorer and tighten their wallets and companies from cutting investments and expansion plans.
"Everybody is gloom and doom now, but things could turn around quickly," Orr says. "Everybody is now waiting for conformation we're at the bottom and if you can get a week or two of really strong markets, there will be a piling on phenomenon and people won't be able to wait to get back in."
But he hurries to add, it might not be wise to bank on it happening in 2009.
Tuesday, December 23, 2008
I agree with Pescod, Regroup for 2009
S&P/TSX COMPOSITE
8309.76 +60.23
SHANGHAI COMPOSITE
1897.22 -90.53
CRUDE OIL
$39.03 -0.88
To say that we are currently going through historical
times is an understatement and everyone is aware of it.
All of a sudden people are watching BNN and CNN like
crazy for hints of what next on the economy and how
ugly it’s going to get.
We’ve already had one of the biggest crashes in his-
tory and some indexes plunged more in the past year
than they did in 1929. So you have blue-chip stocks get-
ting absolutely beaten up, which means for those in the
speculative market such as we like in the resources, it
has been a total bloodbath.
The concern is that hundreds of junior miners will not
be able to get financed in this market, at a time when
roughly 80 to 85 producing mines are being shut down
and in the oil and gas market, there’s not a lot of folks
that make money at $38.00 oil.
Who it is that survives
this time may well thrive when things do get better. Of
course the big question these days is how far away is
that? Is it a mere six months down the road after a mas-
sive stimulus by countries around the world? Or is one
going to have be much more patient? For sure in the
short-term though, there will be casualties.
These have been absolutely brutal days for many in
the market, but over the next few days, it’s time to get
priorities straight and remember that friends and family
are what makes things go.
We, like everyone else, will be re-grouping over the
holidays hoping to battle on through what could be a
very challenging year next year.
Merry Christmas and all the best to everyone!
8309.76 +60.23
SHANGHAI COMPOSITE
1897.22 -90.53
CRUDE OIL
$39.03 -0.88
To say that we are currently going through historical
times is an understatement and everyone is aware of it.
All of a sudden people are watching BNN and CNN like
crazy for hints of what next on the economy and how
ugly it’s going to get.
We’ve already had one of the biggest crashes in his-
tory and some indexes plunged more in the past year
than they did in 1929. So you have blue-chip stocks get-
ting absolutely beaten up, which means for those in the
speculative market such as we like in the resources, it
has been a total bloodbath.
The concern is that hundreds of junior miners will not
be able to get financed in this market, at a time when
roughly 80 to 85 producing mines are being shut down
and in the oil and gas market, there’s not a lot of folks
that make money at $38.00 oil.
Who it is that survives
this time may well thrive when things do get better. Of
course the big question these days is how far away is
that? Is it a mere six months down the road after a mas-
sive stimulus by countries around the world? Or is one
going to have be much more patient? For sure in the
short-term though, there will be casualties.
These have been absolutely brutal days for many in
the market, but over the next few days, it’s time to get
priorities straight and remember that friends and family
are what makes things go.
We, like everyone else, will be re-grouping over the
holidays hoping to battle on through what could be a
very challenging year next year.
Merry Christmas and all the best to everyone!
The House 80 MM ran ahead of the news and killed HOU in Less then 1 week
I exited the stock with a huge loss, but it would have been even larger if I waited till today...
The National Bank MM House 80 Knew this was coming and HOU is NOT moving up responding to the correction in Oil from Jan to Feb futures contracts which went from 33.000 to 44.00 overnight.
In December 2008 the MM sold of 41 Million shares more then he bought, and when you have millions more taking out every bid the stock has no where to go but down. We have been robbed by House 80. Compare this to the increase in the short action, which has increased to well over 6 Million. Its pure manipulation at the expense of HOU long shareholders and money is being made as HOU falls on the short side. Get away from this highly manipulated Horizon Beta ETF. The market maker is capitalzing on this fall, you can count on it.
Add QEC-T at 1.85 partners include Talisman and Forest Oil, 750,000 acres of Quebec shale gas.
The MM knew this was coming and shorted the stock into the millions...
Horizons BetaPro ETFs to split, consolidate
2008-12-22 17:15 ET - News Release
See News Release (C-HOD) Horizons BetaPro NYMEX Crude Oil Bear Plus ETF
Mr. Howard Atkinson reports
BETAPRO MANAGEMENT INC. ANNOUNCES UNIT SPLIT AND CONSOLIDATIONS
BetaPro Management Inc., the trustee and manager of the exchange traded funds listed in the tables, intends to split or consolidate the units of Horizons BetaPro NYMEX Crude Oil Bear Plus ETF, Horizons BetaPro NYMEX Crude Oil Bull Plus ETF and Horizons BetaPro S&P/TSX Global Gold Bear Plus ETF, as indicated.
SPLIT
ETF Ticker Split ratio
Horizons BetaPro NYMEX Crude Oil Bear Plus ETF HOD 2:1
After the Toronto Stock Exchange has closed for trading on Dec. 31, 2008, the units of Horizons BetaPro NYMEX Crude Oil Bear Plus ETF will be split on the basis of the ratio of 2:1, and will begin trading on a split-adjusted basis on Jan. 2, 2009, and the split will become effective on Jan. 6, 2009, for unitholders of record on that day.
CONSOLIDATIONS
ETF Ticker Consolidation
ratio
Horizons BetaPro NYMEX Crude Oil Bull Plus ETF HOU 1:5
Horizons BetaPro S&P/TSX Global Gold Bear Plus
ETF HGD 1:5
After the TSX has closed for trading on Dec. 31, 2008, the units of the ETFs in the table, "Consolidations," will be consolidated on the basis of the ratio of 1:5, and will begin trading on a consolidated basis on Jan. 2, 2009, the effective date of the consolidations.
The National Bank MM House 80 Knew this was coming and HOU is NOT moving up responding to the correction in Oil from Jan to Feb futures contracts which went from 33.000 to 44.00 overnight.
In December 2008 the MM sold of 41 Million shares more then he bought, and when you have millions more taking out every bid the stock has no where to go but down. We have been robbed by House 80. Compare this to the increase in the short action, which has increased to well over 6 Million. Its pure manipulation at the expense of HOU long shareholders and money is being made as HOU falls on the short side. Get away from this highly manipulated Horizon Beta ETF. The market maker is capitalzing on this fall, you can count on it.
12:45PM
80 National Bank 1,323,715 2,799,336 2.11 3,135,732 6,560,129 2.09 -1,812,017 3,760,793
Add QEC-T at 1.85 partners include Talisman and Forest Oil, 750,000 acres of Quebec shale gas.
The MM knew this was coming and shorted the stock into the millions...
Horizons BetaPro ETFs to split, consolidate
2008-12-22 17:15 ET - News Release
See News Release (C-HOD) Horizons BetaPro NYMEX Crude Oil Bear Plus ETF
Mr. Howard Atkinson reports
BETAPRO MANAGEMENT INC. ANNOUNCES UNIT SPLIT AND CONSOLIDATIONS
BetaPro Management Inc., the trustee and manager of the exchange traded funds listed in the tables, intends to split or consolidate the units of Horizons BetaPro NYMEX Crude Oil Bear Plus ETF, Horizons BetaPro NYMEX Crude Oil Bull Plus ETF and Horizons BetaPro S&P/TSX Global Gold Bear Plus ETF, as indicated.
SPLIT
ETF Ticker Split ratio
Horizons BetaPro NYMEX Crude Oil Bear Plus ETF HOD 2:1
After the Toronto Stock Exchange has closed for trading on Dec. 31, 2008, the units of Horizons BetaPro NYMEX Crude Oil Bear Plus ETF will be split on the basis of the ratio of 2:1, and will begin trading on a split-adjusted basis on Jan. 2, 2009, and the split will become effective on Jan. 6, 2009, for unitholders of record on that day.
CONSOLIDATIONS
ETF Ticker Consolidation
ratio
Horizons BetaPro NYMEX Crude Oil Bull Plus ETF HOU 1:5
Horizons BetaPro S&P/TSX Global Gold Bear Plus
ETF HGD 1:5
After the TSX has closed for trading on Dec. 31, 2008, the units of the ETFs in the table, "Consolidations," will be consolidated on the basis of the ratio of 1:5, and will begin trading on a consolidated basis on Jan. 2, 2009, the effective date of the consolidations.
Recession mindset takes toll on retail sales
Recession mindset takes toll on retail sales
VIRGINIA GALT AND MARINA STRAUSS
With files from reporter Matt Hartley and The Canadian Press
December 23, 2008
TORONTO -- Fear of job loss is ushering in a new era of frugality, as some retailers saw a sharp decline in pre-Christmas sales and consumer confidence plunged to its lowest level in 26 years.
The monthly consumer confidence index by the Conference Board of Canada fell for a third month in a row to its lowest level since the deep recession of 1982, with half of respondents saying they expect there will be fewer jobs in their communities six months from now, and more than a quarter saying their families are worse off than they were six months ago.
Consumers are caught in a "very negative downward cycle of a psychology of recession," Glen Hodgson, the Ottawa think tank's chief economist, told a news conference yesterday.
After months of hearing about the deteriorating global economy, "that loss of confidence has become very personal. People are now worried about their financial circumstances and about their job," he added.
Their worries are showing up at the mall. Amid the crucial holiday shopping season, same-store sales saw their steepest decline, plummeting an average of 10.2 per cent the week ended Dec. 13, according to a survey of 27 retail chains by RSM Richter.
Same-store sales measure those at outlets open a year or more, and are considered a crucial retail barometer. Sales have been dropping over the past several weeks, RSM retail consultant Lynn Bevan said.
And Boxing Week business may not be nearly as strong as it has been in past years, Ms. Bevan said. Retailers have already been slashing prices to lure customers, leaving fewer attractive deals for the post-Christmas period, she said.
"People are just worried about keeping their jobs," she said. "Until that really stabilizes, I think people are just going to conserve cash. People are very nervous about what 2009 has to bring. There is so much media about the economy and how it's going to get worse in 2009."
At electronics giant Best Buy Canada, customers are snapping up less expensive items, such as video games, MP3 players and digital cameras, Best Buy spokesman Scott Morris said. But shoppers are deferring their bigger-ticket purchases of products such as flat-panel televisions until Boxing Day, he said.
"We've been through it before and people are gun-shy," said Richard Talbot at retail specialist Talbot Consultants International. "The steady stream of bad news in the U.S. and Europe has a ripple effect."
Likely victims: Big-ticket items and luxury goods, Mr. Talbot said. "Furniture, I suspect, will take a big hit. I went through and looked at the Brick and Sears the other day. You could have fired a cannon through there."
At the Eaton Centre in downtown Toronto yesterday, shoppers went shoulder to shoulder in search of the final items on their holiday shopping lists. But some shoppers, worried about the prospect of rising unemployment, were tightening their purse strings.
"I'm spending less, significantly," said Michael Leahy. "We all know people who have concerns about their jobs and I'd be crazy if I said that wasn't a concern."
It's little wonder Canadian consumers are feeling spooked, economist Dale Orr, managing director of Global Insight Canada, said in an interview yesterday. "Canadians have been faced with unrelenting bad news on the economics front in recent months," Mr. Orr said. "The stock market is down 40 per cent this year, house prices are down, and unemployment is rising."
Still, the picture is nowhere near as dire in terms of job losses as the recession of the early 1980s, when unemployment spiked at 13 per cent, or the recession of the early 1990s, when unemployment rose to 10 per cent.
Now, unemployment is at 6.3 per cent, although it is expected to rise above 7 per cent next year, the Conference Board of Canada's Mr. Hodgson said.
The Conference Board survey found Canadians' confidence about the economy declined 3.3 points to 67.7 in December. That's the lowest since 1982, when the index fell to 63.
One bright spot in the consumer confidence survey: Some shoppers are taking advantage of price cuts on TV sets, fridges, stoves and washing machines, Mr. Hodgson said. "And automobiles, of course, are going to be at rock-bottom prices for some time to come," he added.
The outlook for 2009 consumer confidence depends on what the federal government comes up with in the way of a stimulus package and what happens to the overall unemployment rate, he said.
Confidence will start to return as the majority of Canadians realize that they are keeping their jobs. "When that starts to happen, you'll see a change in attitude," Mr. Hodgson said.
VIRGINIA GALT AND MARINA STRAUSS
With files from reporter Matt Hartley and The Canadian Press
December 23, 2008
TORONTO -- Fear of job loss is ushering in a new era of frugality, as some retailers saw a sharp decline in pre-Christmas sales and consumer confidence plunged to its lowest level in 26 years.
The monthly consumer confidence index by the Conference Board of Canada fell for a third month in a row to its lowest level since the deep recession of 1982, with half of respondents saying they expect there will be fewer jobs in their communities six months from now, and more than a quarter saying their families are worse off than they were six months ago.
Consumers are caught in a "very negative downward cycle of a psychology of recession," Glen Hodgson, the Ottawa think tank's chief economist, told a news conference yesterday.
After months of hearing about the deteriorating global economy, "that loss of confidence has become very personal. People are now worried about their financial circumstances and about their job," he added.
Their worries are showing up at the mall. Amid the crucial holiday shopping season, same-store sales saw their steepest decline, plummeting an average of 10.2 per cent the week ended Dec. 13, according to a survey of 27 retail chains by RSM Richter.
Same-store sales measure those at outlets open a year or more, and are considered a crucial retail barometer. Sales have been dropping over the past several weeks, RSM retail consultant Lynn Bevan said.
And Boxing Week business may not be nearly as strong as it has been in past years, Ms. Bevan said. Retailers have already been slashing prices to lure customers, leaving fewer attractive deals for the post-Christmas period, she said.
"People are just worried about keeping their jobs," she said. "Until that really stabilizes, I think people are just going to conserve cash. People are very nervous about what 2009 has to bring. There is so much media about the economy and how it's going to get worse in 2009."
At electronics giant Best Buy Canada, customers are snapping up less expensive items, such as video games, MP3 players and digital cameras, Best Buy spokesman Scott Morris said. But shoppers are deferring their bigger-ticket purchases of products such as flat-panel televisions until Boxing Day, he said.
"We've been through it before and people are gun-shy," said Richard Talbot at retail specialist Talbot Consultants International. "The steady stream of bad news in the U.S. and Europe has a ripple effect."
Likely victims: Big-ticket items and luxury goods, Mr. Talbot said. "Furniture, I suspect, will take a big hit. I went through and looked at the Brick and Sears the other day. You could have fired a cannon through there."
At the Eaton Centre in downtown Toronto yesterday, shoppers went shoulder to shoulder in search of the final items on their holiday shopping lists. But some shoppers, worried about the prospect of rising unemployment, were tightening their purse strings.
"I'm spending less, significantly," said Michael Leahy. "We all know people who have concerns about their jobs and I'd be crazy if I said that wasn't a concern."
It's little wonder Canadian consumers are feeling spooked, economist Dale Orr, managing director of Global Insight Canada, said in an interview yesterday. "Canadians have been faced with unrelenting bad news on the economics front in recent months," Mr. Orr said. "The stock market is down 40 per cent this year, house prices are down, and unemployment is rising."
Still, the picture is nowhere near as dire in terms of job losses as the recession of the early 1980s, when unemployment spiked at 13 per cent, or the recession of the early 1990s, when unemployment rose to 10 per cent.
Now, unemployment is at 6.3 per cent, although it is expected to rise above 7 per cent next year, the Conference Board of Canada's Mr. Hodgson said.
The Conference Board survey found Canadians' confidence about the economy declined 3.3 points to 67.7 in December. That's the lowest since 1982, when the index fell to 63.
One bright spot in the consumer confidence survey: Some shoppers are taking advantage of price cuts on TV sets, fridges, stoves and washing machines, Mr. Hodgson said. "And automobiles, of course, are going to be at rock-bottom prices for some time to come," he added.
The outlook for 2009 consumer confidence depends on what the federal government comes up with in the way of a stimulus package and what happens to the overall unemployment rate, he said.
Confidence will start to return as the majority of Canadians realize that they are keeping their jobs. "When that starts to happen, you'll see a change in attitude," Mr. Hodgson said.
Friday, December 19, 2008
President George W. Bush outlined his plan to funnel a total of $17.4-billion (U.S.) towards General Motors Corp. and Chrysler LLC
Bailout fatigue
RTGAM
Investors appear to be getting used to big bailouts, judging from the ho-hum response to the White House's plan to rescue struggling U.S. auto makers.
On Friday, about a half-hour before markets opened for trading, President George W. Bush outlined his plan to funnel a total of $17.4-billion (U.S.) towards General Motors Corp. and Chrysler LLC, in an effort to keep them out of bankruptcy in the near term and prevent a wave of auto-related layoffs. (The longer-term fix is for the next administration.)
That pretty much exhausted the first half of the $700-billion rescue fund approved by Congress earlier this year - so Henry Paulson, the U.S. Treasury Secretary, said that Congress should approve the release of the next half of the fund.
And in Canada, Prime Minister Stephen Harper said that a federal stimulus package could total as much as $30-billion (Canadian) in an effort to prevent the deteriorating economy from spinning out of control.
There was a time when three packages of this size would mean something to investors. Not on Friday.
The Dow Jones industrial average closed at 8579.11, down 25.88 points, or 0.3 per cent. The broader S&P 500 closed at 887.60, down 2.32 points, or 0.3 per cent.
To be sure, General Motors did just fine, rising 22.7 per cent. However, the price of the stock is still mired at just $4.49 (U.S.), suggesting that investors still don't have a whole lot of faith in its ability to survive. Ford Motor Co., which is not part of the bailout deal, rose 3.9 per cent.
Financials, however, did poorly, with Citigroup Inc. falling 5.5 per cent and Bank of America Corp. falling 1.6 per cent. Energy stocks were also down, with Chevron Corp. down 3 per cent and Exxon Mobil Corp. down 2.6 per cent.
In Canada, the S&P/TSX composite index closed at 8552, up 126.65, or 1.5 per cent. Research In Motion Ltd. was the big reason, with the BlackBerry maker surging 14.1 per cent after it released a fourth-quarter earnings forecast that topped analysts' expectations. As well, Royal Bank of Canada rose 0.7 per cent and Canadian Imperial Bank of Commerce rose 2 per cent in a late-day rebound.
And This:
TIP SHEET
David Berman
00:00 EST Friday, December 19, 2008
In an uncertain environment for oil and gas producers, few stocks have suffered as much as Oilexco Inc. - down more than 94 per cent from its high at the end of June, when the price of crude oil was also near its high point. Since then, oil has fallen about 74 per cent and Oilexco shares have plummeted to $1.10 from $19.46, which includes yesterday's 42-per-cent drop.
Yes, there's a connection here to the price of oil. But Oilexco is also suffering from cash issues. On Wednesday, the Royal Bank of Scotland and its banking syndicate cut a deal with Oilexco, which will provide the struggling company with a $47.5-million bridge loan. As part of that deal, the banks get 55.5 million shares of Oilexco - or almost 25 per cent - in the event that the company gets sold.
"This bridge loan makes up the company's cash shortfall that it must be experiencing as a result of current oil prices," Frederick Kozak, an analyst at Canaccord Adams, said in a note.
However, he noted that the loan is a short-term solution, and comes at the expense of diluting the holdings of existing shareholders. He has a "speculative buy" recommendation on the stock, with a 12-month price target of $5.
See David Berman's Market Blog at ReportonBusiness.com
Copyright 2001 The Globe and Mail
RTGAM
Investors appear to be getting used to big bailouts, judging from the ho-hum response to the White House's plan to rescue struggling U.S. auto makers.
On Friday, about a half-hour before markets opened for trading, President George W. Bush outlined his plan to funnel a total of $17.4-billion (U.S.) towards General Motors Corp. and Chrysler LLC, in an effort to keep them out of bankruptcy in the near term and prevent a wave of auto-related layoffs. (The longer-term fix is for the next administration.)
That pretty much exhausted the first half of the $700-billion rescue fund approved by Congress earlier this year - so Henry Paulson, the U.S. Treasury Secretary, said that Congress should approve the release of the next half of the fund.
And in Canada, Prime Minister Stephen Harper said that a federal stimulus package could total as much as $30-billion (Canadian) in an effort to prevent the deteriorating economy from spinning out of control.
There was a time when three packages of this size would mean something to investors. Not on Friday.
The Dow Jones industrial average closed at 8579.11, down 25.88 points, or 0.3 per cent. The broader S&P 500 closed at 887.60, down 2.32 points, or 0.3 per cent.
To be sure, General Motors did just fine, rising 22.7 per cent. However, the price of the stock is still mired at just $4.49 (U.S.), suggesting that investors still don't have a whole lot of faith in its ability to survive. Ford Motor Co., which is not part of the bailout deal, rose 3.9 per cent.
Financials, however, did poorly, with Citigroup Inc. falling 5.5 per cent and Bank of America Corp. falling 1.6 per cent. Energy stocks were also down, with Chevron Corp. down 3 per cent and Exxon Mobil Corp. down 2.6 per cent.
In Canada, the S&P/TSX composite index closed at 8552, up 126.65, or 1.5 per cent. Research In Motion Ltd. was the big reason, with the BlackBerry maker surging 14.1 per cent after it released a fourth-quarter earnings forecast that topped analysts' expectations. As well, Royal Bank of Canada rose 0.7 per cent and Canadian Imperial Bank of Commerce rose 2 per cent in a late-day rebound.
And This:
TIP SHEET
David Berman
00:00 EST Friday, December 19, 2008
In an uncertain environment for oil and gas producers, few stocks have suffered as much as Oilexco Inc. - down more than 94 per cent from its high at the end of June, when the price of crude oil was also near its high point. Since then, oil has fallen about 74 per cent and Oilexco shares have plummeted to $1.10 from $19.46, which includes yesterday's 42-per-cent drop.
Yes, there's a connection here to the price of oil. But Oilexco is also suffering from cash issues. On Wednesday, the Royal Bank of Scotland and its banking syndicate cut a deal with Oilexco, which will provide the struggling company with a $47.5-million bridge loan. As part of that deal, the banks get 55.5 million shares of Oilexco - or almost 25 per cent - in the event that the company gets sold.
"This bridge loan makes up the company's cash shortfall that it must be experiencing as a result of current oil prices," Frederick Kozak, an analyst at Canaccord Adams, said in a note.
However, he noted that the loan is a short-term solution, and comes at the expense of diluting the holdings of existing shareholders. He has a "speculative buy" recommendation on the stock, with a 12-month price target of $5.
See David Berman's Market Blog at ReportonBusiness.com
Copyright 2001 The Globe and Mail
When All Else Fails -Drink LOL
'Sometimes when I reflect back on all the wine I drink I feel shame . Then I look into the glass and think about the workers in the vineyards and all of their hopes and dreams ..
If I didn't drink this wine, they might be out of work and their dreams would be shattered. Then I say to myself, 'It is better that I drink this wine and let their dreams come true than be selfish and worry about my liver.'
~ Jack Handy
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
'I feel sorry for people who don't drink. When they wake up in the morning, that's as good as they're going to feel all day. '
~Frank Sinatra
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
'When I read about the evils of drinking, I gave up reading.'
~ Henny Youngman
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
'24 hours in a day, 24 beers in a case. Coincidence? I think not.'
~ Stephen Wright
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
'When we drink, we get drunk. When we get drunk, we fall asleep. When we fall asleep, we commit no sin. When we commit no sin, we go to heaven. So, let's all get drunk and go to heaven!'
~ Brian O'Rourke
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
'Beer is proof that God loves us and wants us to be happy.'
~ Benjamin Franklin
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
'Without question, the greatest invention in the history of mankind is beer. Oh, I grant you that the wheel was also a fine invention, but the wheel does not go nearly as well with pizza.'
~ Dave Barry
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
To some it's a six-pack, to me it's a Support Group. Salvation in a can!
~ Dave Howell
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
And saving the best for last, as explained by Cliff Clavin, of Cheers. One afternoon at Cheers, Cliff Clavin was explaining the 'Buffalo Theory' to his buddy Norm.
Here's how it went:
'Well ya see, Norm, it's like this...
A herd of buffalo can only move as fast as the slowest buffalo. And when the herd is hunted, it is the slowest and weakest ones at the back that are killed first. This natural selection is good for the herd as a whole, because the general speed and health of the whole group keeps improving by the regular killing of the weakest members.
In much the same way, the human brain can only operate as fast as the slowest brain cells. Excessive intake of alcohol, as we know, kills brain cells. But naturally, it attacks the slowest and weakest brain cells first. In this way, regular consumption of beer eliminates the weaker brain cells, making the brain a faster and more efficient machine.
That's why you always feel smarter after a few beers.'
If I didn't drink this wine, they might be out of work and their dreams would be shattered. Then I say to myself, 'It is better that I drink this wine and let their dreams come true than be selfish and worry about my liver.'
~ Jack Handy
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
'I feel sorry for people who don't drink. When they wake up in the morning, that's as good as they're going to feel all day. '
~Frank Sinatra
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
'When I read about the evils of drinking, I gave up reading.'
~ Henny Youngman
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
'24 hours in a day, 24 beers in a case. Coincidence? I think not.'
~ Stephen Wright
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
'When we drink, we get drunk. When we get drunk, we fall asleep. When we fall asleep, we commit no sin. When we commit no sin, we go to heaven. So, let's all get drunk and go to heaven!'
~ Brian O'Rourke
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
'Beer is proof that God loves us and wants us to be happy.'
~ Benjamin Franklin
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
'Without question, the greatest invention in the history of mankind is beer. Oh, I grant you that the wheel was also a fine invention, but the wheel does not go nearly as well with pizza.'
~ Dave Barry
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
To some it's a six-pack, to me it's a Support Group. Salvation in a can!
~ Dave Howell
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
And saving the best for last, as explained by Cliff Clavin, of Cheers. One afternoon at Cheers, Cliff Clavin was explaining the 'Buffalo Theory' to his buddy Norm.
Here's how it went:
'Well ya see, Norm, it's like this...
A herd of buffalo can only move as fast as the slowest buffalo. And when the herd is hunted, it is the slowest and weakest ones at the back that are killed first. This natural selection is good for the herd as a whole, because the general speed and health of the whole group keeps improving by the regular killing of the weakest members.
In much the same way, the human brain can only operate as fast as the slowest brain cells. Excessive intake of alcohol, as we know, kills brain cells. But naturally, it attacks the slowest and weakest brain cells first. In this way, regular consumption of beer eliminates the weaker brain cells, making the brain a faster and more efficient machine.
That's why you always feel smarter after a few beers.'
Questerre Energy Corporation: Beaver River A-5 Shale Gas Well On-Stream
Questerre Energy Corporation: Beaver River A-5 Shale Gas Well On-Stream
00:15 EST Friday, December 19, 2008
CALGARY, ALBERTA--(Marketwire - Dec. 19, 2008) -
NOT FOR DISTRIBUTION ON U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES
Questerre Energy Corporation (TSX:QEC)(OSLO:QEC) ("Questerre" or the "Company") reported today that the A-5 shale gas well began a long-term production test at the Beaver River Field in British Columbia.
Michael Binnion, President and Chief Executive Officer of Questerre, commented, "This well was an unexpected success and we look forward to long-term production results to confirm the viability of shale production. The existing infrastructure puts us in the enviable position of making positive cash flow from an early-stage shale pilot project."
The tie-in of this well was completed in late November following receipt of regulatory approval. Current production is at a facility constrained rate of 5.0 mmcf/d (833 boe/d) with an initial flowing tubing pressure of 25 mpa (3700 psi). Overall production increases at Beaver River will likely be limited as the existing shale wells, A-2 and A-7, produce at a significantly lower flowing pressure and short-term production declines from A-5 are expected.
A-5 is currently producing from a carbonate-rich sequence in the shale zones at Beaver River. Questerre believes this sequence could provide a pathway for gas from a deeper organic-rich shale interval. Based on final results, Questerre will evaluate two additional re-completion candidates to further pilot test this new shale play. Questerre and its partner hold a joint interest in over 23,000 acres prospective for this play.
With regard to recent announcements by its partner regarding their financial situation, the Company believes the ongoing production and resulting revenue from Beaver River will be sufficient to repay any outstanding amounts and finance their ongoing obligations under the operating agreement which are secured by an operator's lien.
Questerre is a Calgary-based independent resource company actively engaged in the exploration, development and acquisition of high-impact exploration and development oil and gas projects in Canada.
This news release contains forward-looking information. Implicit in this information are assumptions regarding commodity pricing, production, royalties and expenses, that, although considered reasonable by the Company at the time of preparation, may prove to be incorrect. These forward-looking statements are based on certain assumptions that involve a number of risks and uncertainties and are not guarantees of future performance. Actual results could differ materially as a result of changes in the Company's plans, commodity prices, equipment availability, general economic, market, regulatory and business conditions as well as production, development and operating performance and other risks associated with oil and gas operations. There is no guarantee made by the Company that the actual results achieved will be the same as those forecasted herein.
Barrel of oil equivalent ("boe") amounts may be misleading, particularly if used in isolation. A boe conversion ratio has been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil and is based on an energy equivalent conversion method application at the burner tip and does not necessarily represent an economic value equivalent at the wellhead.
This news release does not constitute an offer of securities for sale in the United States. These securities may not be offered or sold in the United States absent registration or an available exemption from registration under the United States Securities Act of 1933, as amended.
FOR FURTHER INFORMATION PLEASE CONTACT:
Questerre Energy Corporation
Anela Dido
Investor Relations
(403) 777-1185
(403) 777-1578 (FAX)
Email: info@questerre.com
Website: www.questerre.com
00:15 EST Friday, December 19, 2008
CALGARY, ALBERTA--(Marketwire - Dec. 19, 2008) -
NOT FOR DISTRIBUTION ON U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES
Questerre Energy Corporation (TSX:QEC)(OSLO:QEC) ("Questerre" or the "Company") reported today that the A-5 shale gas well began a long-term production test at the Beaver River Field in British Columbia.
Michael Binnion, President and Chief Executive Officer of Questerre, commented, "This well was an unexpected success and we look forward to long-term production results to confirm the viability of shale production. The existing infrastructure puts us in the enviable position of making positive cash flow from an early-stage shale pilot project."
The tie-in of this well was completed in late November following receipt of regulatory approval. Current production is at a facility constrained rate of 5.0 mmcf/d (833 boe/d) with an initial flowing tubing pressure of 25 mpa (3700 psi). Overall production increases at Beaver River will likely be limited as the existing shale wells, A-2 and A-7, produce at a significantly lower flowing pressure and short-term production declines from A-5 are expected.
A-5 is currently producing from a carbonate-rich sequence in the shale zones at Beaver River. Questerre believes this sequence could provide a pathway for gas from a deeper organic-rich shale interval. Based on final results, Questerre will evaluate two additional re-completion candidates to further pilot test this new shale play. Questerre and its partner hold a joint interest in over 23,000 acres prospective for this play.
With regard to recent announcements by its partner regarding their financial situation, the Company believes the ongoing production and resulting revenue from Beaver River will be sufficient to repay any outstanding amounts and finance their ongoing obligations under the operating agreement which are secured by an operator's lien.
Questerre is a Calgary-based independent resource company actively engaged in the exploration, development and acquisition of high-impact exploration and development oil and gas projects in Canada.
This news release contains forward-looking information. Implicit in this information are assumptions regarding commodity pricing, production, royalties and expenses, that, although considered reasonable by the Company at the time of preparation, may prove to be incorrect. These forward-looking statements are based on certain assumptions that involve a number of risks and uncertainties and are not guarantees of future performance. Actual results could differ materially as a result of changes in the Company's plans, commodity prices, equipment availability, general economic, market, regulatory and business conditions as well as production, development and operating performance and other risks associated with oil and gas operations. There is no guarantee made by the Company that the actual results achieved will be the same as those forecasted herein.
Barrel of oil equivalent ("boe") amounts may be misleading, particularly if used in isolation. A boe conversion ratio has been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil and is based on an energy equivalent conversion method application at the burner tip and does not necessarily represent an economic value equivalent at the wellhead.
This news release does not constitute an offer of securities for sale in the United States. These securities may not be offered or sold in the United States absent registration or an available exemption from registration under the United States Securities Act of 1933, as amended.
FOR FURTHER INFORMATION PLEASE CONTACT:
Questerre Energy Corporation
Anela Dido
Investor Relations
(403) 777-1185
(403) 777-1578 (FAX)
Email: info@questerre.com
Website: www.questerre.com
Thursday, December 18, 2008
Oil markets brush off OPEC's big cut
Oil markets brush off OPEC's big cut
Investors are unimpressed despite cartel's massive production cuts, sending oil below $40 (U.S.) for first time in five years
SHAWN MCCARTHY
GLOBAL ENERGY REPORTER
December 18, 2008
OTTAWA -- Oil markets gave a sharply negative review yesterday to OPEC's decision to slash production by a further 2.2 million barrels a day, as crude prices fell below $40 (U.S.) a barrel for the first time in more than five years.
At a meeting in Algeria, ministers from the Organization of Petroleum Exporting Countries agreed to cut supplies by a total of 4.2 million barrels a day below September levels. The cartel had already agreed to rein in production by two million barrels at two separate meetings this fall.
However, traders responded to the largest OPEC cut yet by driving down the price of crude, and analysts said the action was too little, too late to prevent a further erosion in oil prices early next year.
"Markets are saying, it's not enough, it's insufficient" said Dina Cover, commodity economist with the Toronto-Dominion Bank.
Pointing to the prospect of an actual drop in oil demand next year, Ms. Cover recently forecast oil prices to slump to as low as $25 (U.S.) a barrel, and to average $30 (U.S.) in the second quarter of next year.
And OPEC's new production targets don't change that view, she said yesterday.
"We expect demand to fall a lot further and OPEC will probably have to cut again."
In New York yesterday, the price of light, sweet crude fell 8 per cent or $3.54 (U.S.) a barrel to $40.06, after trading as low as $39.88.
In their communiqué, OPEC ministers said that, "if unchecked, prices could fall to levels which would place at jeopardy the investments required to guarantee adequate energy supplies in the medium-to-long term."
Traders remain skeptical that OPEC will actually meet its targeted, 4.2-million-barrel reduction, said David Kirsch, energy analyst with PFC Energy.
The cartel has not fully implemented the two-million-barrel cut announced in two stages this fall, and gave little indication of how individual members are expected to comply with the latest round.
"OPEC has got its work cut out for it, and there is very much a question of OPEC's ability to carry through on its agreement," Mr. Kirsch said.
The cartel called on non-OPEC producers to help maintain the stability of global oil markets by reining in production. Several countries, including Russia, Azerbaijan and Syria sent observers to the meeting, but made no commitment to impose cuts.
Russian Deputy Prime Minister Igor Sechin instead told the meeting that Russian producers had already cut production this fall and would do so again if market conditions warranted.
It would have been helpful in the communiqué if Russia had come out and indicated it would cut production," Mr. Kirsch said.
"But [Mr.] Sechin's statement merely reflected what the markets already knew," he said. "If oil prices remain at low levels - and more importantly, if the financial straits that a lot of Russian oil companies find themselves don't ease soon - Russian output is going to fall a further 300,000 to 500,000 barrels a day."
Saudi Arabia has once again emerged as the key producer that must adjust its volumes to market conditions. Last spring, when prices were climbing to record levels, the Saudis faced considerable pressure from oil-consuming nations to boost production.
And now, it will be up to the world's largest exporter to absorb much of the production cuts. The alternative is to allow prices to slump even further than currently projected, forcing higher-cost producers, including those in Canada's oil sands, to reduce output and scale back investment.
OPEC OUTPUT CUT
OPEC oil ministers agreed yesterday to remove a record 2.2-million barrels per day from oil markets in a race to balance supply with the world's rapidly crumbling demand for fuel.
OPEC OUTPUT
Million barrels per day (mb/d)
Jan. '07 26.92
Jan. '08 29.89
Aug. '08 30.4
Nov.*'08 28.07
Note: OPEC 12 includes Angola and Ecuador.
* Indonesia leaves OPEC at the end of 2008 and is excluded from quota from Nov. 2008.
BRENT CRUDE PRICE
Weekly close, $U.S.
Jan. 7/07 $55.64
Jan. 6/07 $96.79
Jul. 13/08 $144.49
Dec. 17/08 $47.90
REUTERS/THE GLOBE AND MAIL66 SOURCE: THOMSON REUTERS
Investors are unimpressed despite cartel's massive production cuts, sending oil below $40 (U.S.) for first time in five years
SHAWN MCCARTHY
GLOBAL ENERGY REPORTER
December 18, 2008
OTTAWA -- Oil markets gave a sharply negative review yesterday to OPEC's decision to slash production by a further 2.2 million barrels a day, as crude prices fell below $40 (U.S.) a barrel for the first time in more than five years.
At a meeting in Algeria, ministers from the Organization of Petroleum Exporting Countries agreed to cut supplies by a total of 4.2 million barrels a day below September levels. The cartel had already agreed to rein in production by two million barrels at two separate meetings this fall.
However, traders responded to the largest OPEC cut yet by driving down the price of crude, and analysts said the action was too little, too late to prevent a further erosion in oil prices early next year.
"Markets are saying, it's not enough, it's insufficient" said Dina Cover, commodity economist with the Toronto-Dominion Bank.
Pointing to the prospect of an actual drop in oil demand next year, Ms. Cover recently forecast oil prices to slump to as low as $25 (U.S.) a barrel, and to average $30 (U.S.) in the second quarter of next year.
And OPEC's new production targets don't change that view, she said yesterday.
"We expect demand to fall a lot further and OPEC will probably have to cut again."
In New York yesterday, the price of light, sweet crude fell 8 per cent or $3.54 (U.S.) a barrel to $40.06, after trading as low as $39.88.
In their communiqué, OPEC ministers said that, "if unchecked, prices could fall to levels which would place at jeopardy the investments required to guarantee adequate energy supplies in the medium-to-long term."
Traders remain skeptical that OPEC will actually meet its targeted, 4.2-million-barrel reduction, said David Kirsch, energy analyst with PFC Energy.
The cartel has not fully implemented the two-million-barrel cut announced in two stages this fall, and gave little indication of how individual members are expected to comply with the latest round.
"OPEC has got its work cut out for it, and there is very much a question of OPEC's ability to carry through on its agreement," Mr. Kirsch said.
The cartel called on non-OPEC producers to help maintain the stability of global oil markets by reining in production. Several countries, including Russia, Azerbaijan and Syria sent observers to the meeting, but made no commitment to impose cuts.
Russian Deputy Prime Minister Igor Sechin instead told the meeting that Russian producers had already cut production this fall and would do so again if market conditions warranted.
It would have been helpful in the communiqué if Russia had come out and indicated it would cut production," Mr. Kirsch said.
"But [Mr.] Sechin's statement merely reflected what the markets already knew," he said. "If oil prices remain at low levels - and more importantly, if the financial straits that a lot of Russian oil companies find themselves don't ease soon - Russian output is going to fall a further 300,000 to 500,000 barrels a day."
Saudi Arabia has once again emerged as the key producer that must adjust its volumes to market conditions. Last spring, when prices were climbing to record levels, the Saudis faced considerable pressure from oil-consuming nations to boost production.
And now, it will be up to the world's largest exporter to absorb much of the production cuts. The alternative is to allow prices to slump even further than currently projected, forcing higher-cost producers, including those in Canada's oil sands, to reduce output and scale back investment.
OPEC OUTPUT CUT
OPEC oil ministers agreed yesterday to remove a record 2.2-million barrels per day from oil markets in a race to balance supply with the world's rapidly crumbling demand for fuel.
OPEC OUTPUT
Million barrels per day (mb/d)
Jan. '07 26.92
Jan. '08 29.89
Aug. '08 30.4
Nov.*'08 28.07
Note: OPEC 12 includes Angola and Ecuador.
* Indonesia leaves OPEC at the end of 2008 and is excluded from quota from Nov. 2008.
BRENT CRUDE PRICE
Weekly close, $U.S.
Jan. 7/07 $55.64
Jan. 6/07 $96.79
Jul. 13/08 $144.49
Dec. 17/08 $47.90
REUTERS/THE GLOBE AND MAIL66 SOURCE: THOMSON REUTERS
Wednesday, December 17, 2008
The Fed Bank Conspiracy Explained On You-Tube?
And for those that feel that this we are just pawns in a worldwide chess game this is an interesting conspiracy theory...
USA Expects Crude To Shoot Back Up!
NEW YORK (CNNMoney.com) -- Despite the recent rout in oil prices, the government expects crude to shoot back up over the long term. That is expected to result in a drastic drop in oil imports and a greater use of renewable energy.
U.S. expects big drop in oil imports
Despite the recent drop in crude prices, the rising cost of a barrel of oil will boost the use of renewable energy and help slow greenhouse gas emissions.
By Steve Hargreaves, CNNMoney.com staff writer
Last Updated: December 17, 2008: 4:32 PM ET
NEW YORK (CNNMoney.com) -- Despite the recent rout in oil prices, the government expects crude to shoot back up over the long term. That is expected to result in a drastic drop in oil imports and a greater use of renewable energy.
Oil imports - which currently make up 60% of all the oil consumed in the U.S. - should drop to about 40%, the Energy Information Administration said in its long-term energy outlook on Tuesday.
The drop will largely be the result of higher oil prices encouraging conservation and an expanded use of home-grown biofuels.
In making its predictions, EIA used an average crude price of $130 a barrel in 2030. That price is nearly double the projections for 2030 made last year - $70 a barrel.
Although the report was not meant to predict oil prices, EIA analysts say increased demand and limited access to new supplies will push crude prices up in the long term, despite crude's recent plunge.
The upward revision in price is a major shift in the government's long-term views on oil supply and demand. Limited access to new oil sources - particularly in OPEC countries - is a major reason why prices should increase.
Renewables on the rise
"People are becoming aware of the fact that conventional supplies of oil outside of OPEC are quite limited," said Robert Kaufmann, director of Boston University's Center for Energy & Environmental Studies. "It's getting harder and harder to tell the story that oil prices will remain low forever."
EIA's higher price estimate could give ammunition to policymakers seeking a big push into alternative fuels, or those seeking a more hawkish foreign policy, or both, said Kaufmann.
He said non-OPEC production peaked in 2004, and OPEC countries are expected to provide a greater share of the world's oil going forward.
But OPEC has little incentive to increase its ability to pump oil. The cartel has seen the world is willing and able to pay over $100 for oil, and many OPEC countries have become accustomed to revenues generated from those high prices. For them, the higher the price the better - so long as it doesn't kill the global economy or spur a mass shift away from oil.
EIA's price revision is in-line with predictions made earlier this year by the International Energy Agency (IEA), a similar group to EIA that has a more global focus.
The IEA drastically lowered its long-term world oil supply forecast this spring -from nearly 120 million barrels a day to maybe 100 million per day by 2030 - citing access to resources as a major concern.
In making its predictions, EIA does factor in the growth of supplies from "nonconventional" oil, like oil from tar sands or biofuels made from plants. It also makes its projections based on current policy, which does not include things like laws restricting greenhouse gas emissions, which could potentially drive up the cost of fossil fuels.
Higher oil prices, combined with some government mandates, are expected to yield a boost in renewable energy use as well.
Renewables should account for 21% of all energy used in the U.S. by 2030, the agency said, up from about 15% currently. Last year EIA said renewable use would remain flat at 15% in 2030.
Under current policies, EIA predicts energy-related carbon dioxide emissions will slow in the years ahead, but will increase about 7% by 2030. Last year the agency said carbon dioxide emissions should grow by 15% by 2030.
Most climate scientists say the world needs to cut its carbon dioxide emissions by about 80% by 2050 if it is to avoid the worst effects of global warming. During the presidential campaign, President-elect Barack Obama pledged to cut U.S. emissions by that amount.
The EIA estimates that if the country were to cut its greenhouse gas emissions by 40% in 2030, electricity prices would rise by about 10% due to the costs of switching from cheap coal to more expensive wind or natural gas sources to produce electricity. The agency does not have projections for an 80% reduction by 2050. To top of page
First Published: December 17, 2008: 2:28 PM ET
U.S. expects big drop in oil imports
Despite the recent drop in crude prices, the rising cost of a barrel of oil will boost the use of renewable energy and help slow greenhouse gas emissions.
By Steve Hargreaves, CNNMoney.com staff writer
Last Updated: December 17, 2008: 4:32 PM ET
NEW YORK (CNNMoney.com) -- Despite the recent rout in oil prices, the government expects crude to shoot back up over the long term. That is expected to result in a drastic drop in oil imports and a greater use of renewable energy.
Oil imports - which currently make up 60% of all the oil consumed in the U.S. - should drop to about 40%, the Energy Information Administration said in its long-term energy outlook on Tuesday.
The drop will largely be the result of higher oil prices encouraging conservation and an expanded use of home-grown biofuels.
In making its predictions, EIA used an average crude price of $130 a barrel in 2030. That price is nearly double the projections for 2030 made last year - $70 a barrel.
Although the report was not meant to predict oil prices, EIA analysts say increased demand and limited access to new supplies will push crude prices up in the long term, despite crude's recent plunge.
The upward revision in price is a major shift in the government's long-term views on oil supply and demand. Limited access to new oil sources - particularly in OPEC countries - is a major reason why prices should increase.
Renewables on the rise
"People are becoming aware of the fact that conventional supplies of oil outside of OPEC are quite limited," said Robert Kaufmann, director of Boston University's Center for Energy & Environmental Studies. "It's getting harder and harder to tell the story that oil prices will remain low forever."
EIA's higher price estimate could give ammunition to policymakers seeking a big push into alternative fuels, or those seeking a more hawkish foreign policy, or both, said Kaufmann.
He said non-OPEC production peaked in 2004, and OPEC countries are expected to provide a greater share of the world's oil going forward.
But OPEC has little incentive to increase its ability to pump oil. The cartel has seen the world is willing and able to pay over $100 for oil, and many OPEC countries have become accustomed to revenues generated from those high prices. For them, the higher the price the better - so long as it doesn't kill the global economy or spur a mass shift away from oil.
EIA's price revision is in-line with predictions made earlier this year by the International Energy Agency (IEA), a similar group to EIA that has a more global focus.
The IEA drastically lowered its long-term world oil supply forecast this spring -from nearly 120 million barrels a day to maybe 100 million per day by 2030 - citing access to resources as a major concern.
In making its predictions, EIA does factor in the growth of supplies from "nonconventional" oil, like oil from tar sands or biofuels made from plants. It also makes its projections based on current policy, which does not include things like laws restricting greenhouse gas emissions, which could potentially drive up the cost of fossil fuels.
Higher oil prices, combined with some government mandates, are expected to yield a boost in renewable energy use as well.
Renewables should account for 21% of all energy used in the U.S. by 2030, the agency said, up from about 15% currently. Last year EIA said renewable use would remain flat at 15% in 2030.
Under current policies, EIA predicts energy-related carbon dioxide emissions will slow in the years ahead, but will increase about 7% by 2030. Last year the agency said carbon dioxide emissions should grow by 15% by 2030.
Most climate scientists say the world needs to cut its carbon dioxide emissions by about 80% by 2050 if it is to avoid the worst effects of global warming. During the presidential campaign, President-elect Barack Obama pledged to cut U.S. emissions by that amount.
The EIA estimates that if the country were to cut its greenhouse gas emissions by 40% in 2030, electricity prices would rise by about 10% due to the costs of switching from cheap coal to more expensive wind or natural gas sources to produce electricity. The agency does not have projections for an 80% reduction by 2050. To top of page
First Published: December 17, 2008: 2:28 PM ET
TSX Data Transmission Halts Trading
Wall Street lower after Fed rate easing
Dec 17, 2008 12:52 PM
Be the first to comment on this article...
Malcolm Morrison
THE CANADIAN PRESS
The Toronto stock exchange is down – meaning today that its computers are not conducting trades, and have not been all morning.
"We've halted the Toronto stock exchange and TSX Venture Exchange and we will update you as soon as we are able," said Caroline Quick, director of communications at market operator TMX Group Inc. (TSX: X).
"It's a technical issue", she added, declining to elaborate.
Judging by the performance of Canadian bellwether stocks in New York, financials are a weight while energy stocks advanced.
Royal Bank was down 77 cents to US$28.33 while EnCana Corp. was ahead 37 cents to US$48.18 as the January crude contract on the New York Mercantile Exchange was off 70 cents at US$42.90.
The slippage in crude prices came even as the Organization of Petroleum Exporting Countries cut its output quotas by 2.2 million barrels a day. It's the largest-ever one-time reduction as the cartel struggles to support prices that have fallen from a peak of US$147 a barrel in July.
The Canadian dollar moved down 0.17 of a cent to 83.04 cents US after gaining two cents Tuesday.
New York stock markets moved lower, giving back a chunk of the previous day's gains that followed the U.S. Federal Reserve's cut in its key interest rate to between zero and 0.25 per cent to deal with a rapidly worsening economy.
The Dow Jones industrial average declined 108.2 points to 8,816 following a 359-point jump.
The Nasdaq composite index lost 19.63 points to 1,570.26 while the S&P 500 index declined 10.55 points to 902.65.
Traders digested much worse than expected results from Morgan Stanley, which lost US$2.37 billion as it endured a wide range of setbacks in one of the roughest quarters ever for investment banks. The loss of $2.34 per share was far below analyst expectations of a loss of 34 cents a share.
The February bullion contract in New York rose $27.50 to US$870.20 an ounce.
In corporate news, the Globe and Mail reported that Canadian Pacific Railway Co. (TSX: CP) plans to cut 600 union jobs and reduce other spending in tough times.
And insurer Kingsway Financial Services Inc. (TSX: KFS), under pressure from a major shareholder, says it is cutting costs by US$20 million next year.
Quebecor World Inc. (TSX: IQW) says Pierre Karl Peladeau and Erik Peladeau, heirs of founder Pierre Peladeau, have resigned from the commercial printer's board. This comes as former parent company Quebecor Inc., headed by the Peladeaus, sues Quebecor World, which is restructuring under bankruptcy protection.
On the earnings front, pharmaceutical company MDS Inc. (TSX: MDS) reported a fourth-quarter loss of US$255 million on a big after-tax writedown related to the troubled Maple medical-isotope reactor project. The results are preliminary and do not include another writedown of between $270 million and $370 million related to goodwill at its MDS Pharma Services division.
Transat AT Inc. (TSX: TRZ) said non-cash and non-operating items drove the travel operator into the red for its 2008 financial year, with a net loss of $50 million. Transat took a $45.7-million writedown on asset-backed commercial paper and a $2.3-million foreign exchange hit.
In the United States, Securities and Exchange Commission chairman Christopher Cox blamed regulators for a decade-long failure to investigate Wall Street money manager Bernard Madoff, now accused of a US$50-billion Ponzi scheme.
Markets overseas were mixed.
Japan's Nikkei stock average rose 0.5 per cent, while Hong Kong's Hang Seng index closed with a gain of 2.2 per cent.
The FTSE 100 declined 0.6 per cent in afternoon trading in London, while Germany's DAX index was off 0.5 per cent and France's CAC-40 was down 0.95 per cent.
Shares of BNP Paribas plunged 16 per cent after the French bank said extreme market volatility triggered a loss of US$972 million over the first 11 months of the year due to carnage in investment banking over the last two months.
Dec 17, 2008 12:52 PM
Be the first to comment on this article...
Malcolm Morrison
THE CANADIAN PRESS
The Toronto stock exchange is down – meaning today that its computers are not conducting trades, and have not been all morning.
"We've halted the Toronto stock exchange and TSX Venture Exchange and we will update you as soon as we are able," said Caroline Quick, director of communications at market operator TMX Group Inc. (TSX: X).
"It's a technical issue", she added, declining to elaborate.
Judging by the performance of Canadian bellwether stocks in New York, financials are a weight while energy stocks advanced.
Royal Bank was down 77 cents to US$28.33 while EnCana Corp. was ahead 37 cents to US$48.18 as the January crude contract on the New York Mercantile Exchange was off 70 cents at US$42.90.
The slippage in crude prices came even as the Organization of Petroleum Exporting Countries cut its output quotas by 2.2 million barrels a day. It's the largest-ever one-time reduction as the cartel struggles to support prices that have fallen from a peak of US$147 a barrel in July.
The Canadian dollar moved down 0.17 of a cent to 83.04 cents US after gaining two cents Tuesday.
New York stock markets moved lower, giving back a chunk of the previous day's gains that followed the U.S. Federal Reserve's cut in its key interest rate to between zero and 0.25 per cent to deal with a rapidly worsening economy.
The Dow Jones industrial average declined 108.2 points to 8,816 following a 359-point jump.
The Nasdaq composite index lost 19.63 points to 1,570.26 while the S&P 500 index declined 10.55 points to 902.65.
Traders digested much worse than expected results from Morgan Stanley, which lost US$2.37 billion as it endured a wide range of setbacks in one of the roughest quarters ever for investment banks. The loss of $2.34 per share was far below analyst expectations of a loss of 34 cents a share.
The February bullion contract in New York rose $27.50 to US$870.20 an ounce.
In corporate news, the Globe and Mail reported that Canadian Pacific Railway Co. (TSX: CP) plans to cut 600 union jobs and reduce other spending in tough times.
And insurer Kingsway Financial Services Inc. (TSX: KFS), under pressure from a major shareholder, says it is cutting costs by US$20 million next year.
Quebecor World Inc. (TSX: IQW) says Pierre Karl Peladeau and Erik Peladeau, heirs of founder Pierre Peladeau, have resigned from the commercial printer's board. This comes as former parent company Quebecor Inc., headed by the Peladeaus, sues Quebecor World, which is restructuring under bankruptcy protection.
On the earnings front, pharmaceutical company MDS Inc. (TSX: MDS) reported a fourth-quarter loss of US$255 million on a big after-tax writedown related to the troubled Maple medical-isotope reactor project. The results are preliminary and do not include another writedown of between $270 million and $370 million related to goodwill at its MDS Pharma Services division.
Transat AT Inc. (TSX: TRZ) said non-cash and non-operating items drove the travel operator into the red for its 2008 financial year, with a net loss of $50 million. Transat took a $45.7-million writedown on asset-backed commercial paper and a $2.3-million foreign exchange hit.
In the United States, Securities and Exchange Commission chairman Christopher Cox blamed regulators for a decade-long failure to investigate Wall Street money manager Bernard Madoff, now accused of a US$50-billion Ponzi scheme.
Markets overseas were mixed.
Japan's Nikkei stock average rose 0.5 per cent, while Hong Kong's Hang Seng index closed with a gain of 2.2 per cent.
The FTSE 100 declined 0.6 per cent in afternoon trading in London, while Germany's DAX index was off 0.5 per cent and France's CAC-40 was down 0.95 per cent.
Shares of BNP Paribas plunged 16 per cent after the French bank said extreme market volatility triggered a loss of US$972 million over the first 11 months of the year due to carnage in investment banking over the last two months.
OPEC Shocks with 4.2 Million bpd Oil Output Cut
OPEC Shocks with 4.2 Million bpd Oil Output Cut
OPEC, MIDDLE EAST, SAUDI ARABIA, IRAN, OIL, ENERGY, COMMODITIES
Reuters
17 Dec 2008 10:59 AM ET
The Organization of the Petroleum Exporting Countries agreed on Wednesday to make its deepest output cut ever to counter slumping demand and falling oil prices, said the group's Secretary-General Abdullah al-Badri.
OPEC has agreed to cut 4.2 million barrels per day from September actual production of 29.045 million bpd, according to OPEC's post meeting communique. That would imply a new OPEC output target of 24.845 million bpd.
The 12 members of the Organization of the Petroleum Exporting Countries were also aiming to build a floor under prices that have dropped more than $100 from a July peak above $147 a barrel.
As the ministers convened a meeting which was expected to proceed smoothly, oil was trading just above $44 a barrel.
Saudi Arabia, the world's biggest oil exporter, has led by example—reducing supplies to customers even before a cut has been agreed to help push prices back towards the $75 level Saudi King Abdullah has identified as "fair".
Ali al-Naimi, the kingdom's oil minister, was first to publicly call for curbs of 2 million bpd ahead of the meeting.
"The purpose of the cut is to bring the market into balance and avoid the gyrations of the price," he said. "The cut may lead to higher prices or may not."
Others in the group that pumps more than a third of the world's oil said at least two million barrels needed to go from daily output to prevent a massive build in inventories.
"A minimum of two million we think needs to be cut so we can balance the market," Iraqi Oil Minister Hussain al-Shahristani told Reuters.
The expected cut, the third this year, would bring a total reduction in OPEC supply to four million bpd, nearly a five percent cut in world oil supplies.
OPEC has encouraged other producers to cut back too.
Russia and Azerbaijan are attending the Oran meeting as observers and have said they could rein in exports in future, but stopped short of am immediate pledge.
Leading a high level delegation, Russia's Deputy Prime Minister Igor Sechin said in a speech to OPEC that Moscow did not plan to join in coordinated output cuts and did not want to join the group.
Oil below $50 is uncomfortable for all producing nations, but especially for OPEC members Venezuela and Iran which are dependent on higher prices to fund ambitious domestic programs.
Noble Cause
It is hoped that a sharp supply cut will put oil on the path towards $75.
"You must understand the purpose of the $75 price is for a much more noble cause," the Saudi Oil Minister said. "You need every producer to produce and marginal producers cannot produce at $40 a barrel."
(See what analysts are saying about OPEC's supply cuts in the accompanying video...)
"Therefore we believe that $75 is probably more conducive to marginal producers to continue so we don't have a shortage in the market and we avoid the future sky-rocketing of prices," he said.
Analysts said a limited recovery in prices would put a bit more strain on a recessionary global economy, but it may help pull the world back from the brink of deflation—a growing source of concern.
The influential Saudi Oil Minister clearly outlined the kingdom's route to lower production. It is pumping 8.2 million bpd against 9.7 million bpd in August.
"The difference is 1.5 million barrels per day—that is what we've done," Naimi said.
Saudi Arabia's implied output target is about 8.477 million bpd under existing OPEC curbs.
To have a lasting price impact, any OPEC deal must to be strictly observed.
According to independent observers cited in OPEC's monthly report on Tuesday, the group's compliance in November to existing cuts was only just over 50 percent.
Analysts said deeper cuts would further test discipline in the group.
That restraint would be needed to slim down growing world oil stockpiles.
A slump in consumption has lifted oil inventories in OECD industrialized nations to the equivalent of nearly 57 days of forward demand, a measure OPEC closely monitors. The industry norm for this time of year is about 52.
Copyright 2008 Reuters. Click for restrictions.
URL: http://www.cnbc.com/id/28274993/
Privacy Policy . Terms of Service
© 2008 CNBC.com
OPEC, MIDDLE EAST, SAUDI ARABIA, IRAN, OIL, ENERGY, COMMODITIES
Reuters
17 Dec 2008 10:59 AM ET
The Organization of the Petroleum Exporting Countries agreed on Wednesday to make its deepest output cut ever to counter slumping demand and falling oil prices, said the group's Secretary-General Abdullah al-Badri.
OPEC has agreed to cut 4.2 million barrels per day from September actual production of 29.045 million bpd, according to OPEC's post meeting communique. That would imply a new OPEC output target of 24.845 million bpd.
The 12 members of the Organization of the Petroleum Exporting Countries were also aiming to build a floor under prices that have dropped more than $100 from a July peak above $147 a barrel.
As the ministers convened a meeting which was expected to proceed smoothly, oil was trading just above $44 a barrel.
Saudi Arabia, the world's biggest oil exporter, has led by example—reducing supplies to customers even before a cut has been agreed to help push prices back towards the $75 level Saudi King Abdullah has identified as "fair".
Ali al-Naimi, the kingdom's oil minister, was first to publicly call for curbs of 2 million bpd ahead of the meeting.
"The purpose of the cut is to bring the market into balance and avoid the gyrations of the price," he said. "The cut may lead to higher prices or may not."
Others in the group that pumps more than a third of the world's oil said at least two million barrels needed to go from daily output to prevent a massive build in inventories.
"A minimum of two million we think needs to be cut so we can balance the market," Iraqi Oil Minister Hussain al-Shahristani told Reuters.
The expected cut, the third this year, would bring a total reduction in OPEC supply to four million bpd, nearly a five percent cut in world oil supplies.
OPEC has encouraged other producers to cut back too.
Russia and Azerbaijan are attending the Oran meeting as observers and have said they could rein in exports in future, but stopped short of am immediate pledge.
Leading a high level delegation, Russia's Deputy Prime Minister Igor Sechin said in a speech to OPEC that Moscow did not plan to join in coordinated output cuts and did not want to join the group.
Oil below $50 is uncomfortable for all producing nations, but especially for OPEC members Venezuela and Iran which are dependent on higher prices to fund ambitious domestic programs.
Noble Cause
It is hoped that a sharp supply cut will put oil on the path towards $75.
"You must understand the purpose of the $75 price is for a much more noble cause," the Saudi Oil Minister said. "You need every producer to produce and marginal producers cannot produce at $40 a barrel."
(See what analysts are saying about OPEC's supply cuts in the accompanying video...)
"Therefore we believe that $75 is probably more conducive to marginal producers to continue so we don't have a shortage in the market and we avoid the future sky-rocketing of prices," he said.
Analysts said a limited recovery in prices would put a bit more strain on a recessionary global economy, but it may help pull the world back from the brink of deflation—a growing source of concern.
The influential Saudi Oil Minister clearly outlined the kingdom's route to lower production. It is pumping 8.2 million bpd against 9.7 million bpd in August.
"The difference is 1.5 million barrels per day—that is what we've done," Naimi said.
Saudi Arabia's implied output target is about 8.477 million bpd under existing OPEC curbs.
To have a lasting price impact, any OPEC deal must to be strictly observed.
According to independent observers cited in OPEC's monthly report on Tuesday, the group's compliance in November to existing cuts was only just over 50 percent.
Analysts said deeper cuts would further test discipline in the group.
That restraint would be needed to slim down growing world oil stockpiles.
A slump in consumption has lifted oil inventories in OECD industrialized nations to the equivalent of nearly 57 days of forward demand, a measure OPEC closely monitors. The industry norm for this time of year is about 52.
Copyright 2008 Reuters. Click for restrictions.
URL: http://www.cnbc.com/id/28274993/
Privacy Policy . Terms of Service
© 2008 CNBC.com
OPEC says it will cut output by 2 million barrels
GEORGE JAHN
Associated Press
December 17, 2008 at 6:00 AM EST
ORAN, ALGERIA — Saudi Arabia, OPEC's de-facto leader, said Wednesday the group will slash a record 2 million barrels from its daily production, while Russia and other countries said they would join in the effort by removing hundreds of thousands more barrels from the market.
Saudi Oil Minister Ali Naimi said there was an OPEC consensus ahead of a formal agreement later in the day for the cut.
An official decision to cut 2 million barrels from output all at once would be a first for the organization. OPEC had cut that amount from its output four years ago, but that was done in two stages.
Also significant would be formal support from Russia, Azerbaijan and other non-OPEC producers. Mexico, Norway and Russia slashed production in the late 1990s, at a time oil was selling for about $10 (U.S.) a barrel.
Saudi Oil Minister Ali Naimi speaks to reporters at the OPEC meeting in Oran, Algeria. Ouahab Hebbat/AP
Enlarge Image
Saudi Oil Minister Ali Naimi speaks to reporters at the OPEC meeting in Oran, Algeria. (Ouahab Hebbat/AP)
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Russian Deputy Premier Igor Sechin and Azeri Energy Minister Natik Aliev said separately their countries would reduce output by a total of more than 600,000 barrels a day.
Mr. Naimi first mentioned the 2 million figure in Oran on Tuesday, the eve of the oil ministers' decision making meeting. Asked Wednesday if he stood by that figure, he told reporters “that's the correct number.” Later, he said the cut would take effect Jan. 1, pending formal approval by the ministers.
Mr. Sechin, in comments to The Associated Press, said “Russian oil companies have already made a decision to cut deliveries to the market ... approximately equivalent to 350,000 barrels per day.”
“As soon as OPEC makes the decision, Russian companies will immediately follow,” he said.
Mr. Aliev said his country, too “will support the OPEC cuts,” slashing up to 300,000 barrels a day from Azerbaijan's output. That would be more than a third of total production for the country on the oil-rich Caspian Sea.
Mr. Aliev said his government had calculated the 2009 budget based on an oil price of $70 a barrel, and would have to compensate for the loss of money by tapping into a strategic government oil fund. Oil prices have plunged stunningly in recent months to less than $50 a barrel from $147 a barrel in July.
That might be good for consumers already straining from the financial crisis. But — like Azerbaijan — OPEC and non-OPEC producers are hurting from levels that are in some cases now below what's needed to balance their budgets or earn a profit.
Oil producers fear a drawn-out lull in prices could hurt investment and lay the groundwork for another sharp price spike when the world's economy rebounds.
“There's always been some finger-pointing at OPEC, but now even some (rich consuming nations) are saying maybe prices have gone too far,” Olivier Jakob of energy analysis firm Petromatrix in Switzerland said ahead of the meeting. “In terms of security of supply, you are much worse at $40 a barrel than at $75.”
OPEC gave ministers ammunition to justify cuts in its latest monthly market report, released Tuesday. The bloc predicted demand for its crude oil will have fallen by 700,000 barrels per day this year, and will drop by at least twice that amount in 2009 as the worsening global economy “is expected to have a strong impact on oil demand.”
Ahead of a formal decision, other OPEC ministers also expressed sentiment for a large cut to shock the market and put a floor under prices.
Shokri Ghanem, Libya's delegate to OPEC, said that “we should make a substantial cut” and that 2 million barrels was “a very good number.”
Venezuelan Energy Minister Rafael Ramirez used similar language: “What is important is that there should be a consensus to cut production. A significant cut,” he said. Mr. Ramirez added that Venezuela, a traditional price hawk, favors a cut of between 1 million to 2 million barrels per day.
Iranian Petroleum Minister Gholamhossein Nozari did not give a number, but said that Iran would support a reduction of 2 million barrels per day.
Still, while eager to push prices higher, OPEC must weigh production cuts against the risk of driving the economies of its top customers deeper into recession.
A senior OPEC official, who spoke on condition of anonymity because he was not authorized to comment publicly, said “reasonable” OPEC nations would accept prices around $50 a barrel in the short term so as not to contribute to the world economic downturn.
Associated Press
December 17, 2008 at 6:00 AM EST
ORAN, ALGERIA — Saudi Arabia, OPEC's de-facto leader, said Wednesday the group will slash a record 2 million barrels from its daily production, while Russia and other countries said they would join in the effort by removing hundreds of thousands more barrels from the market.
Saudi Oil Minister Ali Naimi said there was an OPEC consensus ahead of a formal agreement later in the day for the cut.
An official decision to cut 2 million barrels from output all at once would be a first for the organization. OPEC had cut that amount from its output four years ago, but that was done in two stages.
Also significant would be formal support from Russia, Azerbaijan and other non-OPEC producers. Mexico, Norway and Russia slashed production in the late 1990s, at a time oil was selling for about $10 (U.S.) a barrel.
Saudi Oil Minister Ali Naimi speaks to reporters at the OPEC meeting in Oran, Algeria. Ouahab Hebbat/AP
Enlarge Image
Saudi Oil Minister Ali Naimi speaks to reporters at the OPEC meeting in Oran, Algeria. (Ouahab Hebbat/AP)
Related Articles
Recent
* OPEC puts faith in deep cut to revive oil price
* Oil sinks despite Saudi supply cut
* Nexen buys OPTI stake in Long Lake
The Globe and Mail
Russian Deputy Premier Igor Sechin and Azeri Energy Minister Natik Aliev said separately their countries would reduce output by a total of more than 600,000 barrels a day.
Mr. Naimi first mentioned the 2 million figure in Oran on Tuesday, the eve of the oil ministers' decision making meeting. Asked Wednesday if he stood by that figure, he told reporters “that's the correct number.” Later, he said the cut would take effect Jan. 1, pending formal approval by the ministers.
Mr. Sechin, in comments to The Associated Press, said “Russian oil companies have already made a decision to cut deliveries to the market ... approximately equivalent to 350,000 barrels per day.”
“As soon as OPEC makes the decision, Russian companies will immediately follow,” he said.
Mr. Aliev said his country, too “will support the OPEC cuts,” slashing up to 300,000 barrels a day from Azerbaijan's output. That would be more than a third of total production for the country on the oil-rich Caspian Sea.
Mr. Aliev said his government had calculated the 2009 budget based on an oil price of $70 a barrel, and would have to compensate for the loss of money by tapping into a strategic government oil fund. Oil prices have plunged stunningly in recent months to less than $50 a barrel from $147 a barrel in July.
That might be good for consumers already straining from the financial crisis. But — like Azerbaijan — OPEC and non-OPEC producers are hurting from levels that are in some cases now below what's needed to balance their budgets or earn a profit.
Oil producers fear a drawn-out lull in prices could hurt investment and lay the groundwork for another sharp price spike when the world's economy rebounds.
“There's always been some finger-pointing at OPEC, but now even some (rich consuming nations) are saying maybe prices have gone too far,” Olivier Jakob of energy analysis firm Petromatrix in Switzerland said ahead of the meeting. “In terms of security of supply, you are much worse at $40 a barrel than at $75.”
OPEC gave ministers ammunition to justify cuts in its latest monthly market report, released Tuesday. The bloc predicted demand for its crude oil will have fallen by 700,000 barrels per day this year, and will drop by at least twice that amount in 2009 as the worsening global economy “is expected to have a strong impact on oil demand.”
Ahead of a formal decision, other OPEC ministers also expressed sentiment for a large cut to shock the market and put a floor under prices.
Shokri Ghanem, Libya's delegate to OPEC, said that “we should make a substantial cut” and that 2 million barrels was “a very good number.”
Venezuelan Energy Minister Rafael Ramirez used similar language: “What is important is that there should be a consensus to cut production. A significant cut,” he said. Mr. Ramirez added that Venezuela, a traditional price hawk, favors a cut of between 1 million to 2 million barrels per day.
Iranian Petroleum Minister Gholamhossein Nozari did not give a number, but said that Iran would support a reduction of 2 million barrels per day.
Still, while eager to push prices higher, OPEC must weigh production cuts against the risk of driving the economies of its top customers deeper into recession.
A senior OPEC official, who spoke on condition of anonymity because he was not authorized to comment publicly, said “reasonable” OPEC nations would accept prices around $50 a barrel in the short term so as not to contribute to the world economic downturn.
Tuesday, December 16, 2008
Late Day Volatility=The leveraged and inverse ETFs have to go out and buy or short stock each day based on the demand for the shares
Late-day volatility explained
Tuesday, December 16, 2008
You may have noticed a trading trend in the past few months: All to frequently, the final hour of the trading day coincided with a big jump in volatility, with major indexes either plunging or soaring between 3 p.m. and 4 p.m.
You're not alone. The Wall Street Journal recently covered this topic, and Bespoke Investment Group actually crunched some numbers and came up with a theory about why this is occurring right now.
The numbers go like this: If the S[amp]amp;P 500 has been in positive territory for more than half of the day, the average gain in the final hour has been 1.04 per cent. That's quite a spike for one hour of trading. At the same time, if the S[amp]amp;P 500 has been in positive territory for less than 50 per cent of the day, the opposite occurs: The index has plunged by an average of 1.2 per cent in the final hour.
This is a fairly recent development. The average high-low spread of the S[amp]amp;P 500 – or the percentage difference between its high point and low point – between 3 p.m. and 4 p.m. was 1.8 per cent between June and December. But for November alone the spread was an amazing 3 per cent.
Bespoke believes the reason for this surge in volatility is the popularity of leveraged and inverse exchange traded funds – baskets of stocks that will deliver two- or even three-times the moves in their underlying indexes.
“The leveraged and inverse ETFs have to go out and buy or short stock each day based on the demand for the shares,” Bespoke said.
“If the market is trading lower for most of the day, the inverse ETFs are most likely having to short stock at the end of the day to match demand – hence lower prices from 3 to 4. If the market is trading positive for the majority of the day, the ultra long ETFs may be buying shares or the inverse ones are covering at the end of the day.”
© Copyright The Globe and Mail
Tuesday, December 16, 2008
You may have noticed a trading trend in the past few months: All to frequently, the final hour of the trading day coincided with a big jump in volatility, with major indexes either plunging or soaring between 3 p.m. and 4 p.m.
You're not alone. The Wall Street Journal recently covered this topic, and Bespoke Investment Group actually crunched some numbers and came up with a theory about why this is occurring right now.
The numbers go like this: If the S[amp]amp;P 500 has been in positive territory for more than half of the day, the average gain in the final hour has been 1.04 per cent. That's quite a spike for one hour of trading. At the same time, if the S[amp]amp;P 500 has been in positive territory for less than 50 per cent of the day, the opposite occurs: The index has plunged by an average of 1.2 per cent in the final hour.
This is a fairly recent development. The average high-low spread of the S[amp]amp;P 500 – or the percentage difference between its high point and low point – between 3 p.m. and 4 p.m. was 1.8 per cent between June and December. But for November alone the spread was an amazing 3 per cent.
Bespoke believes the reason for this surge in volatility is the popularity of leveraged and inverse exchange traded funds – baskets of stocks that will deliver two- or even three-times the moves in their underlying indexes.
“The leveraged and inverse ETFs have to go out and buy or short stock each day based on the demand for the shares,” Bespoke said.
“If the market is trading lower for most of the day, the inverse ETFs are most likely having to short stock at the end of the day to match demand – hence lower prices from 3 to 4. If the market is trading positive for the majority of the day, the ultra long ETFs may be buying shares or the inverse ones are covering at the end of the day.”
© Copyright The Globe and Mail
Monday, December 15, 2008
"Does that mean that the stock market is gonna continue plunging as we've seen the last several months?" Pelley asks.
"Does that mean that the stock market is gonna continue plunging as we've seen the last several months?" Pelley asks. "Actually we're the most bullish we've been in 10 years of managing money. And the reason is because the stock market, for the first time I can say this, in years, has finally figured out how bad things are going to be. And the stock market is forward looking. And with U.S. stocks down nearly 50 percent from their highs, we're actually finding bargains galore. We think corporate America's on sale," Tilson says.
Second Mortgage Disaster On The Horizon?
Dec. 14, 2008(CBS) When it comes to bailouts of American business, Barney Frank and the Congress may be just getting started. Nearly two trillion tax dollars have been shoveled into the hole that Wall Street dug and people wonder where the bottom is.
As correspondent Scott Pelley reports, it turns out the abyss is deeper than most people think because there is a second mortgage shock heading for the economy. In the executive suites of Wall Street and Washington, you're beginning to hear alarm about a new wave of mortgages with strange names that are about to become all too familiar. If you thought sub-primes were insanely reckless wait until you hear what's coming.
One of the best guides to the danger ahead is Whitney Tilson. He's an investment fund manager who has made such a name for himself recently that investors, who manage about $10 billion, gathered to hear him last week. Tilson saw, a year ago, that sub-prime mortgages were just the start.
"We had the greatest asset bubble in history and now that bubble is bursting. The single biggest piece of the bubble is the U.S. mortgage market and we're probably about halfway through the unwinding and bursting of the bubble," Tilson explains. "It may seem like all the carnage out there, we must be almost finished. But there's still a lot of pain to come in terms of write-downs and losses that have yet to be recognized."
In 2007, Tilson teamed up with Amherst Securities, an investment firm that specializes in mortgages. Amherst had done some financial detective work, analyzing the millions of mortgages that were bundled into those mortgage-backed securities that Wall Street was peddling. It found that the sub-primes, loans to the least credit-worthy borrowers, were defaulting. But Amherst also ran the numbers on what were supposed to be higher quality mortgages.
"It was data we'd never seen before and that's what made us realize, 'Holy cow, things are gonna be much worse than anyone anticipates,'" Tilson says.
The trouble now is that the insanity didn't end with sub-primes. There were two other kinds of exotic mortgages that became popular, called "Alt-A" and "option ARM." The option ARMs, in particular, lured borrowers in with low initial interest rates - so-called teaser rates - sometimes as low as one percent. But after two, three or five years those rates "reset." They went up. And so did the monthly payment. A mortgage of $800 dollars a month could easily jump to $1,500.
Now the Alt-A and option ARM loans made back in the heyday are starting to reset, causing the mortgage payments to go up and homeowners to default.
"The defaults right now are incredibly high. At unprecedented levels. And there’s no evidence that the default rate is tapering off. Those defaults almost inevitably are leading to foreclosures, and homes being auctioned, and home prices continuing to fall," Tilson explains.
"What you seem to be saying is that there is a very predictable time bomb effect here?" Pelley asks.
"Exactly. I mean, you can look back at what was written in '05 and '07. You can look at the reset dates. You can look at the current default rates, and it's really very clear and predictable what's gonna happen here," Tilson says.
Just look at a projection from the investment bank of Credit Suisse: there are the billions of dollars in sub-prime mortgages that reset last year and this year. But what hasn't hit yet are Alt-A and option ARM resets, when homeowners will pay higher interest rates in the next three years. We're at the beginning of a second wave.
"How big is the potential damage from the Alt As compared to what we just saw in the sub-primes?" Pelley asks.
"Well, the sub-prime is, was approaching $1 trillion, the Alt-A is about $1 trillion. And then you have option ARMs on top of that. That's probably another $500 billion to $600 billion on top of that," Tilson says.
Asked how many of these option ARMs he imagines are going to fail, Tilson says, "Well north of 50 percent. My gut would be 70 percent of these option ARMs will default."
"How do you know that?" Pelley asks.
"Well we know it based on current default rates. And this is before the reset. So people are defaulting even on the little three percent teaser interest-only rates they're being asked to pay today," Tilson says.
That second wave is coming ashore at a place you might call the "Repo Riviera" - Miami Dade County. Oscar Munoz used to sell real estate; now his company clears out foreclosed homes.
"Business is just going through the roof for us. Fortunately for us, unfortunately for the poor families who are going through this," Munoz explains.
"I wonder do you ever come to houses where the people are still here?" Pelley asks.
"Absolutely," Munoz says. "That's really a sad situation. I'd rather not meet the people."
Asked why not, Munoz says, "It’s not easy to come in and move a family out. It's just our job to do it for the bank. It's just the nature of what's going in the market right now."
Munoz says his company alone gets about 20 to 30 assignments per day. "And we're one of the few companies right now who are hiring. We have to hire people because the demand is so high," he tells Pelley.
People who've been evicted tend to leave stuff behind. The next house is usually much smaller. Banks hire Munoz to move the possessions out where, by law, they remain for 24 hours. Often the neighbors pick through the remains.
Once the homes are empty the hard part starts - trying to find buyers in a free-fall market.
Miami real estate broker Peter Zalewski talks like a man with a lot of real estate to move. "We have 110,000 properties for sale in South Florida today, 55,000 foreclosures, 19,000 bank owned properties. Sixty-eight percent of the available inventory is in some form of distress. They need someone to clean it up."
Asked what the name of his company is, Zalewski says, "It's called Condo Vultures Realty."
What does that mean?
"That in times of distress, and in times of downturn, there's opportunity. And you know, vultures clean up the mess. A lot of people seem to think they kill, but they don't actually kill, they clean," he says.
The killing, in Miami, was done by the developers back when it seemed that the party would never end. They sold hyper-inflated condos at what amounted to real estate orgies-sales parties for invited guests who were armed with option ARM and Alt-A loans. "There were red ropes outside. They had hired cameramen, and they had hired photographers to almost set the scene of a paparazzi," Zalewski remembers.
"They were hiring fake paparazzi? To make the customers feel like they were special?" Pelley asks.
"You were selling a lifestyle," Zalewski says.
Asked what roles these exotic mortgages played, Zalewski says, "They were essential. They were necessary. Without the Alt A or option ARM mortgage, this boom never would've occurred."
It never would have occurred because without the Alt As and the option ARMs, many buyers never would have qualified for a loan. The banks and brokers were getting their money up front in fees, so the more they wrote, the more they made.
"They stopped checking whether the income was even real. They turned to low and no-doc loans, so-called 'liar's loans' and jokingly referred to as 'ninja loans.' No income, no job, no assets. And they were still willing to lend," Tilson says.
"But help me out here. How does that make sense for the lender? It would seem to be reckless, in the extreme," Pelley remarks.
"It was," Tilson agrees. "But the key assumption underlying, the willingness to do this was that home prices would keep going up forever. And in fact, home prices nationwide had never declined since the Great Depression."
On the way up, everyone wanted in. No one expected to feel any pain. People like acupuncturist Rula Giosmas became real estate speculators.
Giosmas says she bought about six properties in this last five-year period as investments. She says she put 20 percent down on each. Now they're all financed with option ARM loans.
Asked what she understood about the loans, Giosmas says, "Well, unfortunately, I didn't ask too many questions. I mean in the old days, I would shop around. But because of the frenzy, and I was so busy looking to buy other properties, I didn't really focus on shopping around for mortgage brokers."
"But if you're investing in real estate, you're buying multiple properties, you should be asking a lot of questions," Pelley remarks. "Why didn't you ask?"
"I was busy. I was really busy looking at property all the time, all day long," she replies.
She also acknowledges that she didn't read the paperwork. Now she’s losing money on every property.
"You know that there are people watching this interview who are saying, 'You know, she was just foolish. She was greedy and foolish. She was buying small apartment buildings and wasn't paying enough attention to how they were financed,'" Pelley points out.
"My full-time job is I'm an acupuncturist. So, this was just a side thing," she says.
Giosmas says she was misled and she hopes to renegotiate her loans. But many other buyers have simply walked away from their properties. One Miami luxury building was a sellout, but when 60 Minutes visited, a quarter of the condos were in foreclosure.
Zalewski says one of those condos was originally purchased in October 2006 for $2.4 million. Now he says the asking price from the lender is $939,000.
And there are tough years to come because, just like the sub-primes, the Alt-A and option ARM mortgages were bundled into Wall Street securities and sold to investors.
Sean Egan, who runs a credit rating firm that analyzes corporate debt, says he expects 2009 to be miserable and 2010 also miserable and even worse.
Fortune Magazine cited Egan as one of six Wall Street pros who predicted the fall of the financial giants.
"This next wave of defaults, which everyone agrees is inevitably going to happen, how central is that to what happens to the rest of the economy?" Pelley asks.
"It's core. It's core, because housing is such an important part. We're not going to get the housing industry back on track until we clear out this garbage that's in there," Egan explains.
"That hasn't cleared out yet. We haven't seen the bottom," Pelley remarks.
"It's getting worse," Egan says. "There are some statistics from the National Association of Realtors, and they track the supply of housing units on the market. And that's grown from 2.2 million units about three years ago, up to 4.5 million units earlier this year. So you have the massive supply out there of units that need to be sold."
"What with the housing supply increasing that much, what does it mean?" Pelley asks.
"It means that this problem, the economic difficulties, are not going to be resolved in a short period of time. It's not gonna take six months, it's not gonna 12 months, we're looking at probably about three, four, five years, before this overhang, this supply overhang is worked through," Egan says.
In the next four years, eight million American families are expected to lose their homes. But even after the residential meltdown, Whitney Tilson says blows to the financial system will keep coming.
"The same craziness that occurred in the mortgage market occurred in the commercial real estate markets. And that's taking a little longer to show. But there are gonna be big losses there. Credit cars, auto loans. You name it. So, we're still, you know, we're maybe halfway through the mortgage bubble. But we may only be in the third inning of the overall bursting of this asset bubble," Tilson says.
"Does that mean that the stock market is gonna continue plunging as we've seen the last several months?" Pelley asks.
"Actually we're the most bullish we've been in 10 years of managing money. And the reason is because the stock market, for the first time I can say this, in years, has finally figured out how bad things are going to be. And the stock market is forward looking. And with U.S. stocks down nearly 50 percent from their highs, we're actually finding bargains galore. We think corporate America's on sale," Tilson says.
The stock market will still have a lot of figuring to do with more troubling news on the horizon. The mortgage bankers association says one out of 10 Americans is now behind on their mortgage. That's the most since they started keeping records in 1979.
Produced by David Gelber and Joel Bach
© MMVIII, CBS Worldwide Inc. All Rights Reserved.
Feedback Terms of Service Privacy Statement
Second Mortgage Disaster On The Horizon?
Dec. 14, 2008(CBS) When it comes to bailouts of American business, Barney Frank and the Congress may be just getting started. Nearly two trillion tax dollars have been shoveled into the hole that Wall Street dug and people wonder where the bottom is.
As correspondent Scott Pelley reports, it turns out the abyss is deeper than most people think because there is a second mortgage shock heading for the economy. In the executive suites of Wall Street and Washington, you're beginning to hear alarm about a new wave of mortgages with strange names that are about to become all too familiar. If you thought sub-primes were insanely reckless wait until you hear what's coming.
One of the best guides to the danger ahead is Whitney Tilson. He's an investment fund manager who has made such a name for himself recently that investors, who manage about $10 billion, gathered to hear him last week. Tilson saw, a year ago, that sub-prime mortgages were just the start.
"We had the greatest asset bubble in history and now that bubble is bursting. The single biggest piece of the bubble is the U.S. mortgage market and we're probably about halfway through the unwinding and bursting of the bubble," Tilson explains. "It may seem like all the carnage out there, we must be almost finished. But there's still a lot of pain to come in terms of write-downs and losses that have yet to be recognized."
In 2007, Tilson teamed up with Amherst Securities, an investment firm that specializes in mortgages. Amherst had done some financial detective work, analyzing the millions of mortgages that were bundled into those mortgage-backed securities that Wall Street was peddling. It found that the sub-primes, loans to the least credit-worthy borrowers, were defaulting. But Amherst also ran the numbers on what were supposed to be higher quality mortgages.
"It was data we'd never seen before and that's what made us realize, 'Holy cow, things are gonna be much worse than anyone anticipates,'" Tilson says.
The trouble now is that the insanity didn't end with sub-primes. There were two other kinds of exotic mortgages that became popular, called "Alt-A" and "option ARM." The option ARMs, in particular, lured borrowers in with low initial interest rates - so-called teaser rates - sometimes as low as one percent. But after two, three or five years those rates "reset." They went up. And so did the monthly payment. A mortgage of $800 dollars a month could easily jump to $1,500.
Now the Alt-A and option ARM loans made back in the heyday are starting to reset, causing the mortgage payments to go up and homeowners to default.
"The defaults right now are incredibly high. At unprecedented levels. And there’s no evidence that the default rate is tapering off. Those defaults almost inevitably are leading to foreclosures, and homes being auctioned, and home prices continuing to fall," Tilson explains.
"What you seem to be saying is that there is a very predictable time bomb effect here?" Pelley asks.
"Exactly. I mean, you can look back at what was written in '05 and '07. You can look at the reset dates. You can look at the current default rates, and it's really very clear and predictable what's gonna happen here," Tilson says.
Just look at a projection from the investment bank of Credit Suisse: there are the billions of dollars in sub-prime mortgages that reset last year and this year. But what hasn't hit yet are Alt-A and option ARM resets, when homeowners will pay higher interest rates in the next three years. We're at the beginning of a second wave.
"How big is the potential damage from the Alt As compared to what we just saw in the sub-primes?" Pelley asks.
"Well, the sub-prime is, was approaching $1 trillion, the Alt-A is about $1 trillion. And then you have option ARMs on top of that. That's probably another $500 billion to $600 billion on top of that," Tilson says.
Asked how many of these option ARMs he imagines are going to fail, Tilson says, "Well north of 50 percent. My gut would be 70 percent of these option ARMs will default."
"How do you know that?" Pelley asks.
"Well we know it based on current default rates. And this is before the reset. So people are defaulting even on the little three percent teaser interest-only rates they're being asked to pay today," Tilson says.
That second wave is coming ashore at a place you might call the "Repo Riviera" - Miami Dade County. Oscar Munoz used to sell real estate; now his company clears out foreclosed homes.
"Business is just going through the roof for us. Fortunately for us, unfortunately for the poor families who are going through this," Munoz explains.
"I wonder do you ever come to houses where the people are still here?" Pelley asks.
"Absolutely," Munoz says. "That's really a sad situation. I'd rather not meet the people."
Asked why not, Munoz says, "It’s not easy to come in and move a family out. It's just our job to do it for the bank. It's just the nature of what's going in the market right now."
Munoz says his company alone gets about 20 to 30 assignments per day. "And we're one of the few companies right now who are hiring. We have to hire people because the demand is so high," he tells Pelley.
People who've been evicted tend to leave stuff behind. The next house is usually much smaller. Banks hire Munoz to move the possessions out where, by law, they remain for 24 hours. Often the neighbors pick through the remains.
Once the homes are empty the hard part starts - trying to find buyers in a free-fall market.
Miami real estate broker Peter Zalewski talks like a man with a lot of real estate to move. "We have 110,000 properties for sale in South Florida today, 55,000 foreclosures, 19,000 bank owned properties. Sixty-eight percent of the available inventory is in some form of distress. They need someone to clean it up."
Asked what the name of his company is, Zalewski says, "It's called Condo Vultures Realty."
What does that mean?
"That in times of distress, and in times of downturn, there's opportunity. And you know, vultures clean up the mess. A lot of people seem to think they kill, but they don't actually kill, they clean," he says.
The killing, in Miami, was done by the developers back when it seemed that the party would never end. They sold hyper-inflated condos at what amounted to real estate orgies-sales parties for invited guests who were armed with option ARM and Alt-A loans. "There were red ropes outside. They had hired cameramen, and they had hired photographers to almost set the scene of a paparazzi," Zalewski remembers.
"They were hiring fake paparazzi? To make the customers feel like they were special?" Pelley asks.
"You were selling a lifestyle," Zalewski says.
Asked what roles these exotic mortgages played, Zalewski says, "They were essential. They were necessary. Without the Alt A or option ARM mortgage, this boom never would've occurred."
It never would have occurred because without the Alt As and the option ARMs, many buyers never would have qualified for a loan. The banks and brokers were getting their money up front in fees, so the more they wrote, the more they made.
"They stopped checking whether the income was even real. They turned to low and no-doc loans, so-called 'liar's loans' and jokingly referred to as 'ninja loans.' No income, no job, no assets. And they were still willing to lend," Tilson says.
"But help me out here. How does that make sense for the lender? It would seem to be reckless, in the extreme," Pelley remarks.
"It was," Tilson agrees. "But the key assumption underlying, the willingness to do this was that home prices would keep going up forever. And in fact, home prices nationwide had never declined since the Great Depression."
On the way up, everyone wanted in. No one expected to feel any pain. People like acupuncturist Rula Giosmas became real estate speculators.
Giosmas says she bought about six properties in this last five-year period as investments. She says she put 20 percent down on each. Now they're all financed with option ARM loans.
Asked what she understood about the loans, Giosmas says, "Well, unfortunately, I didn't ask too many questions. I mean in the old days, I would shop around. But because of the frenzy, and I was so busy looking to buy other properties, I didn't really focus on shopping around for mortgage brokers."
"But if you're investing in real estate, you're buying multiple properties, you should be asking a lot of questions," Pelley remarks. "Why didn't you ask?"
"I was busy. I was really busy looking at property all the time, all day long," she replies.
She also acknowledges that she didn't read the paperwork. Now she’s losing money on every property.
"You know that there are people watching this interview who are saying, 'You know, she was just foolish. She was greedy and foolish. She was buying small apartment buildings and wasn't paying enough attention to how they were financed,'" Pelley points out.
"My full-time job is I'm an acupuncturist. So, this was just a side thing," she says.
Giosmas says she was misled and she hopes to renegotiate her loans. But many other buyers have simply walked away from their properties. One Miami luxury building was a sellout, but when 60 Minutes visited, a quarter of the condos were in foreclosure.
Zalewski says one of those condos was originally purchased in October 2006 for $2.4 million. Now he says the asking price from the lender is $939,000.
And there are tough years to come because, just like the sub-primes, the Alt-A and option ARM mortgages were bundled into Wall Street securities and sold to investors.
Sean Egan, who runs a credit rating firm that analyzes corporate debt, says he expects 2009 to be miserable and 2010 also miserable and even worse.
Fortune Magazine cited Egan as one of six Wall Street pros who predicted the fall of the financial giants.
"This next wave of defaults, which everyone agrees is inevitably going to happen, how central is that to what happens to the rest of the economy?" Pelley asks.
"It's core. It's core, because housing is such an important part. We're not going to get the housing industry back on track until we clear out this garbage that's in there," Egan explains.
"That hasn't cleared out yet. We haven't seen the bottom," Pelley remarks.
"It's getting worse," Egan says. "There are some statistics from the National Association of Realtors, and they track the supply of housing units on the market. And that's grown from 2.2 million units about three years ago, up to 4.5 million units earlier this year. So you have the massive supply out there of units that need to be sold."
"What with the housing supply increasing that much, what does it mean?" Pelley asks.
"It means that this problem, the economic difficulties, are not going to be resolved in a short period of time. It's not gonna take six months, it's not gonna 12 months, we're looking at probably about three, four, five years, before this overhang, this supply overhang is worked through," Egan says.
In the next four years, eight million American families are expected to lose their homes. But even after the residential meltdown, Whitney Tilson says blows to the financial system will keep coming.
"The same craziness that occurred in the mortgage market occurred in the commercial real estate markets. And that's taking a little longer to show. But there are gonna be big losses there. Credit cars, auto loans. You name it. So, we're still, you know, we're maybe halfway through the mortgage bubble. But we may only be in the third inning of the overall bursting of this asset bubble," Tilson says.
"Does that mean that the stock market is gonna continue plunging as we've seen the last several months?" Pelley asks.
"Actually we're the most bullish we've been in 10 years of managing money. And the reason is because the stock market, for the first time I can say this, in years, has finally figured out how bad things are going to be. And the stock market is forward looking. And with U.S. stocks down nearly 50 percent from their highs, we're actually finding bargains galore. We think corporate America's on sale," Tilson says.
The stock market will still have a lot of figuring to do with more troubling news on the horizon. The mortgage bankers association says one out of 10 Americans is now behind on their mortgage. That's the most since they started keeping records in 1979.
Produced by David Gelber and Joel Bach
© MMVIII, CBS Worldwide Inc. All Rights Reserved.
Feedback Terms of Service Privacy Statement
Kingdom's Oil Minister Tells 60 Minutes U.S. Oil Addiction Is Here To Stay Due To Lack Of Alternatives
Saudi Arabia Bullish On Oil's Future
Dec. 7, 2008(CBS) The good news is that the price of oil is falling - a lot; it's also the bad news if you're determined that the U.S. should kick its addiction to foreign oil. President-elect Barack Obama says now is the time to do that, even with the economy in recession.
But Saudi Arabia, the world's largest oil supplier - with the U.S. as its number one customer - is pulling all the levers and spending billions to keep the oil age going.
60 Minutes correspondent Lesley Stahl went to Saudi Arabia a few weeks ago to meet one of the most powerful men in the world, Ali Al-Naimi, the Saudi oil minister and de facto head of the OPEC oil cartel.
"If most Americans had an opportunity to sit down with the oil minister of Saudi Arabia, the thing they would like to know is where you think the price of oil's gonna be, say, in about six months. Is it gonna be up or down?" Stahl asked.
"You want my classic answer?" Al-Naimi replied.
"No. I want your honest appraisal…and your judgment," Stahl asked.
"My honest judgment is if I were to know what the price of oil six months from now, I would be in Las Vegas. Okay?" Al-Naimi said, smiling.
He may be smiling, but this is a man with serious heartburn and vertigo. The price of oil has been soaring and sinking up and down uncontrollably. Asked why oil prices spiked to $147 a barrel in July, Al-Naimi told Stahl, "Basically, there was what's called a 'fear premium.'"
"And the fear was that Saudi Arabia itself had peaked out. That you'd reached your ceiling of how much available oil is left in your overall reserve. So, what's the truth?" Stahl asked.
"The truth is here is the kingdom with more than 260 billion barrels. And I firmly believe that the potential to add another 200 billion barrels of oil are there to be found," Al-Naimi said.
If the oil minister of Saudi Arabia had one message, it was that there is no need for those fears.
And to make the point, the Saudis let 60 Minutes see facilities that will increase the country's capacity from about 10 million barrels a day to more than 12 million. And they're going to the ends of the Earth to do it.
One of those desolate places is Shaybah, a desert wilderness where temperatures can reach 135 degrees. The Saudis say that 18 billion barrels of oil lie beneath the red sand dunes, more than four times the proven reserves of Alaska.
To tap into it, the kingdom's national oil company, Saudi Aramco, had to build an oasis there. Awayyid Al-Shammari oversees the mega-project at Shaybah, an area of the kingdom known as the "Empty Quarter."
"We're on soft sand. We're not talking about a hard surface here," Stahl remarked.
"Yeah," Al-Shammari acknowledged. "The logistics are impossible. The first thing we had to do is build our own road in order to access this field."
"Once that was done, we had to remove one hundred million cubic feet of sand just to make the runway that we are currently using," he explained. "We had to remove a sand dune in order to connect two flat areas to do that."
Al-Shammari said they also had to build a pipeline 400 miles in length. "And you can imagine the challenge of building that pipeline in a topography like this."
But it was nothing compared to accessing the oil at Shaybah itself, which was discovered in 1968. For 30 years, it was considered too hard to extract. "Now with sand dunes this high, it's almost impossible. And the economics just didn't make it at the time until the development of the horizontal drilling," Al-Shammari explained.
Horizontal drilling is where you place a derrick on firm ground and then dig down with a drill bit that snakes horizontally under the sand dunes, with branching tentacles like a fish bone. The drill bits can travel out for as much as five miles.
The Shaybah facility is now being expanded to extract a total of 750,000 barrels a day of high-grade, Arab extra-light crude.
Al-Shammari says the facility is almost done and should go online early next year.
On the other side of the kingdom, there's an even bigger mega project at a field known as Khurais. It is also scheduled to go online next year.
"This is the biggest oil project in history," project manager Khalid Abdulqader said.
He told 60 Minutes 1.2 million barrels a day will be tapped from that field, more than the entire daily production of some OPEC countries like Qatar and Indonesia.
The oil will be stored in massive tanks, some seven stories high. One of those large tanks is 300 feet across and the length of a football field. And like just about everything at Khurais, even the tanks have the latest bells and whistles.
"This is a floating roof. So, when oil comes in, the whole roof will go up," Abdulqader explained. "And the stair also will rise up with it."
There's more oil in the Khurais field than in the entire United States. It's the largest oil facility to come online anywhere in the world in nearly three decades with, the Saudis say, 27 billion barrels of oil.
Abdulqader said it will take more than 50 years to deplete the field.
Khurais, like the sand dunes, presented a technological challenge. The field has very little natural pressure, which is necessary to bring the oil to the surface. So to force the oil up, they're injecting seawater down deep underground.
"We will inject about 84 million gallon per day of seawater," Abdulqader said.
They built a pipeline from the sea to the field to deliver the water - a distance of about 150 miles.
The complexity and vastness of the project is staggering, with 26 contractors, 106 subcontractors and 22,000 workers from around the world, who have laid thousands of miles of pipeline and cables.
These two mega projects, plus three others are costing Saudi Arabia a total of $60 billion over five years and they're not borrowing any of it - it’s all being paid for in cash.
Still, Saudi costs for producing oil are the lowest in the world: according to Ali Al-Naimi, the cost to produce one barrel is less than $2.
Saudi Arabia reportedly needs to sell oil for at least $55 dollars a barrel to cover the cost of running the country. Fossil fuels finance 75 percent of the country's entire domestic spending budget, but oil is selling for below that breakeven price.
Asked if this drop in price worries him, Al-Naimi said, "Oh, I am not a worrier. I get concerned. But I don't worry."
"The concern is this: any price must be good for the producer, for the consumer, for the investor, the oil companies," he told Stahl.
"So, you're saying if the price goes too low then production will fall. And in the end, we'll be squeezed. We won't have enough oil…to run our country," Stahl remarked.
"Price will skyrocket," Al-Naimi predicted.
What he wants is an end to the wild swings in price, which is why - to keep the price from further plummeting - he agreed to a cut of 1.5 million barrels a day in the October meeting of OPEC.
"The point is that Saudi Arabia wanted the 1.5 [cut of million barrels]. This was not something jammed down your throat?" Stahl asked.
"No, no, no. By the way, nothing gets jammed down our throats," Al-Naimi replied.
"But Iran wanted more?" Stahl asked.
"Well, I mean, different countries want different levels, different cuts. But in the final analysis, reason prevails," Al-Naimi said. "This is Saudi Arabia's influence on OPEC."
It's an influence so strong now that he was able to quash Iran's attempt to double the price of oil, which Tehran needs to support its budget, including its nuclear program and the bankrolling of militias like Hezbollah and Hamas. Still, Al-Naimi says oil is no longer used as weapon.
"Iran tries to keep the price way up; and Venezuela's trying to keep the price way up. You don't consider that oil as a weapon?" Stahl asked.
"If you looked at these countries you just named, every one of them would like to sell every barrel they can," Al-Naimi commented.
"At as high a price as they can get away with," Stahl remarked.
"Right," Al-Naimi said.
"The sense out of the OPEC meeting to a lot of people was by cutting production your purpose was to get the price up again. And that would hurt the world which is suffering an economic crisis. And the world means everywhere," Stahl said.
"I can assure you that price was the least on our mind. I say that in all honesty," Al-Naimi replied.
"But the sense is you were oblivious to the concerns of the world facing this economic crisis. You didn’t care about the recession, the credit problems or anything like that," Stahl said.
"That is really a very unfair criticism. What did governments do when the financial crisis happened? They took measures to bring stability back to the financial market. And we see, because of our responsibility, a future crisis in the oil market. Should we not take preemptive measures to prevent it? And I think the answer is yes, we should. It's incumbent on us not to see the oil market destroyed," Al-Naimi said.
The Saudis recently announced the price they would like to see oil selling for, $75 a barrel. That's about 50 percent higher than the current price.
Saudi Aramco was originally an American company. It goes way back to the 1930s when two American geologists from Standard Oil of California discovered oil in the Saudi desert.
Standard Oil formed a consortium with Texaco, Exxon and Mobil, which became Aramco. It wasn't until the 1980s that Saudi Arabia bought them out and nationalized the company. Today, Saudi Aramco is the custodian of the country's sole source of wealth and power.
Over 16,000 people work at the company's massive compound, which is like a little country with its own security force, schools, hospitals, and even its own airline.
According to Abdallah Jum’ah, Saudi Aramco's president and CEO, Aramco is the world’s largest oil producing company.
And it's the richest company in the world, worth, according to the latest estimate, $781 billion.
Jum'ah gave 60 Minutes a tour of the company's command center, where engineers scrutinize and analyze every aspect of the company's operations on a 220-foot digital screen.
"Every facility in the kingdom, every drop of oil that comes from the ground is monitored in real time in this room," Jum'ah explained. "And we have control of each and every facility, each and every pipeline, each and every valve on the pipeline. And therefore, we know exactly what is happening in the system from A to Z."
A large map shows all the oil fields in Saudi Arabia, including Ghawar, the largest on-shore oil field in the world, and Safaniya, the largest off-shore oil field in the world; green squares on the map monitor supertankers on the high seas in real time.
"What you see today is a company that is as professionally sound as any international oil company," Al-Naimi told Stahl.
Before he became oil minister, Al-Naimi ran Saudi Aramco for 11 years. He was the first Saudi president and CEO.
"You have, as you just said, one of the most efficient, cutting-edge 21st century companies in the world…within one of the most religious conservative countries in the world. It’s almost a paradox. We were surprised by this?" Stahl asked.
"I don't think there's any real surprise," Al-Naimi replied. "Many people have images of Saudi Arabia, but they really change their views and images when they come and visit Saudi Arabia."
But to western eyes, it is a paradox. Skyscrapers, traffic jams and shopping malls co-exist with ancient tribal customs. The king - and the Koran - reign supreme, and women everywhere are required to cover themselves in black from head to toe; even Stahl had to wear an abaya, a women's garment worn in parts of the Islamic world.
The rules apply everywhere it seems, except for the women at Saudi Aramco. When the U.S. oil companies came to Saudi Arabia in the 1940s and 50s, the Americans moved into the area with their families and developed neighborhoods to suit their tastes and their way of life. They created a replica of American suburbia; you could be in the outskirts of Houston or Los Angeles.
"It's almost like it's an enclave within Saudi Arabia. It's different from the rest of the country," Stahl remarked. "Very different. It kept a lot of the American ways, right?"
"Yes, of course. They are good ways. There is nothing wrong with…these are excellent ways," he replied.
"But, I was so surprised to see the culture there. Because for instance, I saw men and women working side by side. I saw women driving cars there, which you don't see," Stahl pointed out.
Al-Naimi says it's not strange to him: he's a product of that culture, having risen through the ranks. He started out as a 12-year-old office boy in 1947, when it was said that to get oil all you needed to do was ladle it out of the sand.
It was never that easy, according to Aramco CEO Jum’ah. "It takes a lot of effort. The oil is a gift from God. The recovery of oil is really the work of men. And this is part of it here."
Aramco engineers are making sure that not one drop of oil is overlooked: computers are receiving data, via satellite, from sensors mounted on drill bits that are burrowing deep into the oil fields all over Saudi Arabia. Engineers are sending instant messages that actually guide the drill bits.
"He is now directing that drill bit to go into the best areas of the reservoirs. And suck that oil from it, and not leave any oil behind," Jum'ah explained.
He says the drill bit is a bit like a snake, going down and following where the oil is. "And mind you, this is happening 400 to 500 miles from here geographically. And we are sending that drill bit also two or three miles in the ground."
Jum'ah says that with this technology, they're able to recover ten times more oil than before. But global demand is dwindling, and even Americans, the world's leading gas guzzlers, are buying less.
"In the last ten months American droves 78 billion fewer miles than they did in the 10 months last year, same ten months. This is a quite a dramatic decrease in driving," Stahl remarked.
"Well, to put it in better numbers, I think your consumption dropped by a million barrels," Al-Naimi replied.
He told Stahl he doesn't think this decrease in demand is permanent.
Al-Naimi says the U.S. is Saudi Arabia's number one customer. And the question is: what will Aramco do to keep it that way? One thing is discourage the move toward electric cars by trying to alleviate our concerns about the environment.
They showed 60 Minutes their new $4 million experimental combustion engine they hope will increase gas mileage while it lowers CO-2 emissions.
"What we want to see is that there is an emphasis on also making this oil greener, and making the fossil fuels in general greener, because they're going to be with us for the long haul," Jum'ah said.
"Let me be blunt, okay? And ask you to be candid: is it Aramco’s hope to prevent a switch away from oil? Somebody said, 'The country is the oil business.' You absolutely need to do this for your own survival," Stahl remarked.
But Jum'ah asked what was wrong with that.
"I didn't say anything’s wrong with it. But it’s a fact. You'd admit it's a fact," Stahl asked.
"Yeah, we admit a fact that yes, we depend on the oil industry. We want it to help us, you know, to develop our economy and develop the economy of the world. So what is good for the wellbeing of Saudi Arabia should be good for the wellbeing of the world, too. So there's nothing wrong with that," he said.
"So what do you say to people out there, like Al Gore and now Mr. Obama, that say we have to devote ourselves, devote ourselves, to reducing our dependence on oil?" Stahl asked.
"My answer to this is we have to be realistic. We don't have the alternatives today," Jum'ah said.
"If there are alternatives, be my guest and come and bring them in. They are not there."
"You're saying whatever the world does in terms of wind, nuclear, coal, we're still going to need oil, and a lot of it?" Stahl asked.
"You're still going to need oil, and…a lot of it," he replied.
"Politicians use this all the time that. We're addicted, addicted to foreign oil. And addiction has a dark connotation, because if you’re addicted, there’s a suggestion that there’s a drug dealer who’s trying to keep you hooked. And it’s in the air that you want to keep us hooked," Stahl said to Minister Al-Naimi.
"There is nothing addictive about oil. If you look back 100 years, what would the world be without it?" he asked.
"Even President Bush, who's an oilman, even he has said we're addicted to this, and we have to get off this oil," Stahl pointed out.
"But listen to what the professionals say and what do they advise: it’s not going to happen today. It’s not going to happen ten years from now. It’s probably not going to happen 20 years from now. It’s not going to happen 30 years from now. Okay?" Because you are still going to be using fossil fuels," Al-Naimi predicted.
Rather than oil pushers, the Saudis see themselves as good global citizens who are trying to save the world from a catastrophic oil shortage. But, as Al-Naimi told 60 Minutes, the kingdom is hedging its bets.
He told Stahl the kingdom is doing research on solar energy, as sunshine is more than abundant in Saudi Arabia.
And he says it won't hurt their oil industry, but supplement it. "Our vision is that we will be exporters of gigawatts of electricity. We will be exporting both: barrels of oil and gigawatts of power."
And so, he says, the kingdom will still be in the energy business long after the sun sets on the age of oil.
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(CBS) But it was nothing compared to accessing the oil at Shaybah itself, which was discovered in 1968. For 30 years, it was considered too hard to extract. "Now with sand dunes this high, it's almost impossible. And the economics just didn't make it at the time until the development of the horizontal drilling," Al-Shammari explained.
Horizontal drilling is where you place a derrick on firm ground and then dig down with a drill bit that snakes horizontally under the sand dunes, with branching tentacles like a fish bone. The drill bits can travel out for as much as five miles.
The Shaybah facility is now being expanded to extract a total of 750,000 barrels a day of high-grade, Arab extra-light crude.
Al-Shammari says the facility is almost done and should go online early next year.
On the other side of the kingdom, there's an even bigger mega project at a field known as Khurais. It is also scheduled to go online next year.
"This is the biggest oil project in history," project manager Khalid Abdulqader said.
He told 60 Minutes 1.2 million barrels a day will be tapped from that field, more than the entire daily production of some OPEC countries like Qatar and Indonesia.
The oil will be stored in massive tanks, some seven stories high. One of those large tanks is 300 feet across and the length of a football field. And like just about everything at Khurais, even the tanks have the latest bells and whistles.
"This is a floating roof. So, when oil comes in, the whole roof will go up," Abdulqader explained. "And the stair also will rise up with it."
There's more oil in the Khurais field than in the entire United States. It's the largest oil facility to come online anywhere in the world in nearly three decades with, the Saudis say, 27 billion barrels of oil.
Abdulqader said it will take more than 50 years to deplete the field.
Khurais, like the sand dunes, presented a technological challenge. The field has very little natural pressure, which is necessary to bring the oil to the surface. So to force the oil up, they're injecting seawater down deep underground.
"We will inject about 84 million gallon per day of seawater," Abdulqader said.
They built a pipeline from the sea to the field to deliver the water - a distance of about 150 miles.
The complexity and vastness of the project is staggering, with 26 contractors, 106 subcontractors and 22,000 workers from around the world, who have laid thousands of miles of pipeline and cables.
These two mega projects, plus three others are costing Saudi Arabia a total of $60 billion over five years and they're not borrowing any of it - it’s all being paid for in cash.
Still, Saudi costs for producing oil are the lowest in the world: according to Ali Al-Naimi, the cost to produce one barrel is less than $2.
(CBS) Saudi Arabia reportedly needs to sell oil for at least $55 dollars a barrel to cover the cost of running the country. Fossil fuels finance 75 percent of the country's entire domestic spending budget, but oil is selling for below that breakeven price.
Asked if this drop in price worries him, Al-Naimi said, "Oh, I am not a worrier. I get concerned. But I don't worry."
"The concern is this: any price must be good for the producer, for the consumer, for the investor, the oil companies," he told Stahl.
"So, you're saying if the price goes too low then production will fall. And in the end, we'll be squeezed. We won't have enough oil…to run our country," Stahl remarked.
"Price will skyrocket," Al-Naimi predicted.
What he wants is an end to the wild swings in price, which is why - to keep the price from further plummeting - he agreed to a cut of 1.5 million barrels a day in the October meeting of OPEC.
"The point is that Saudi Arabia wanted the 1.5 [cut of million barrels]. This was not something jammed down your throat?" Stahl asked.
"No, no, no. By the way, nothing gets jammed down our throats," Al-Naimi replied.
"But Iran wanted more?" Stahl asked.
"Well, I mean, different countries want different levels, different cuts. But in the final analysis, reason prevails," Al-Naimi said. "This is Saudi Arabia's influence on OPEC."
It's an influence so strong now that he was able to quash Iran's attempt to double the price of oil, which Tehran needs to support its budget, including its nuclear program and the bankrolling of militias like Hezbollah and Hamas. Still, Al-Naimi says oil is no longer used as weapon.
"Iran tries to keep the price way up; and Venezuela's trying to keep the price way up. You don't consider that oil as a weapon?" Stahl asked.
"If you looked at these countries you just named, every one of them would like to sell every barrel they can," Al-Naimi commented.
"At as high a price as they can get away with," Stahl remarked.
"Right," Al-Naimi said.
"The sense out of the OPEC meeting to a lot of people was by cutting production your purpose was to get the price up again. And that would hurt the world which is suffering an economic crisis. And the world means everywhere," Stahl said.
"I can assure you that price was the least on our mind. I say that in all honesty," Al-Naimi replied.
"But the sense is you were oblivious to the concerns of the world facing this economic crisis. You didn’t care about the recession, the credit problems or anything like that," Stahl said.
"That is really a very unfair criticism. What did governments do when the financial crisis happened? They took measures to bring stability back to the financial market. And we see, because of our responsibility, a future crisis in the oil market. Should we not take preemptive measures to prevent it? And I think the answer is yes, we should. It's incumbent on us not to see the oil market destroyed," Al-Naimi said.
The Saudis recently announced the price they would like to see oil selling for, $75 a barrel. That's about 50 percent higher than the current price.
(CBS) Saudi Aramco was originally an American company. It goes way back to the 1930s when two American geologists from Standard Oil of California discovered oil in the Saudi desert.
Standard Oil formed a consortium with Texaco, Exxon and Mobil, which became Aramco. It wasn't until the 1980s that Saudi Arabia bought them out and nationalized the company. Today, Saudi Aramco is the custodian of the country's sole source of wealth and power.
Over 16,000 people work at the company's massive compound, which is like a little country with its own security force, schools, hospitals, and even its own airline.
According to Abdallah Jum’ah, Saudi Aramco's president and CEO, Aramco is the world’s largest oil producing company.
And it's the richest company in the world, worth, according to the latest estimate, $781 billion.
Jum'ah gave 60 Minutes a tour of the company's command center, where engineers scrutinize and analyze every aspect of the company's operations on a 220-foot digital screen.
"Every facility in the kingdom, every drop of oil that comes from the ground is monitored in real time in this room," Jum'ah explained. "And we have control of each and every facility, each and every pipeline, each and every valve on the pipeline. And therefore, we know exactly what is happening in the system from A to Z."
A large map shows all the oil fields in Saudi Arabia, including Ghawar, the largest on-shore oil field in the world, and Safaniya, the largest off-shore oil field in the world; green squares on the map monitor supertankers on the high seas in real time.
"What you see today is a company that is as professionally sound as any international oil company," Al-Naimi told Stahl.
Before he became oil minister, Al-Naimi ran Saudi Aramco for 11 years. He was the first Saudi president and CEO.
"You have, as you just said, one of the most efficient, cutting-edge 21st century companies in the world…within one of the most religious conservative countries in the world. It’s almost a paradox. We were surprised by this?" Stahl asked.
"I don't think there's any real surprise," Al-Naimi replied. "Many people have images of Saudi Arabia, but they really change their views and images when they come and visit Saudi Arabia."
But to western eyes, it is a paradox. Skyscrapers, traffic jams and shopping malls co-exist with ancient tribal customs. The king - and the Koran - reign supreme, and women everywhere are required to cover themselves in black from head to toe; even Stahl had to wear an abaya, a women's garment worn in parts of the Islamic world.
The rules apply everywhere it seems, except for the women at Saudi Aramco. When the U.S. oil companies came to Saudi Arabia in the 1940s and 50s, the Americans moved into the area with their families and developed neighborhoods to suit their tastes and their way of life. They created a replica of American suburbia; you could be in the outskirts of Houston or Los Angeles.
"It's almost like it's an enclave within Saudi Arabia. It's different from the rest of the country," Stahl remarked. "Very different. It kept a lot of the American ways, right?"
"Yes, of course. They are good ways. There is nothing wrong with…these are excellent ways," he replied.
"But, I was so surprised to see the culture there. Because for instance, I saw men and women working side by side. I saw women driving cars there, which you don't see," Stahl pointed out.
Al-Naimi says it's not strange to him: he's a product of that culture, having risen through the ranks. He started out as a 12-year-old office boy in 1947, when it was said that to get oil all you needed to do was ladle it out of the sand.
(CBS) It was never that easy, according to Aramco CEO Jum’ah. "It takes a lot of effort. The oil is a gift from God. The recovery of oil is really the work of men. And this is part of it here."
Aramco engineers are making sure that not one drop of oil is overlooked: computers are receiving data, via satellite, from sensors mounted on drill bits that are burrowing deep into the oil fields all over Saudi Arabia. Engineers are sending instant messages that actually guide the drill bits.
"He is now directing that drill bit to go into the best areas of the reservoirs. And suck that oil from it, and not leave any oil behind," Jum'ah explained.
He says the drill bit is a bit like a snake, going down and following where the oil is. "And mind you, this is happening 400 to 500 miles from here geographically. And we are sending that drill bit also two or three miles in the ground."
Jum'ah says that with this technology, they're able to recover ten times more oil than before. But global demand is dwindling, and even Americans, the world's leading gas guzzlers, are buying less.
"In the last ten months American droves 78 billion fewer miles than they did in the 10 months last year, same ten months. This is a quite a dramatic decrease in driving," Stahl remarked.
"Well, to put it in better numbers, I think your consumption dropped by a million barrels," Al-Naimi replied.
He told Stahl he doesn't think this decrease in demand is permanent.
Al-Naimi says the U.S. is Saudi Arabia's number one customer. And the question is: what will Aramco do to keep it that way? One thing is discourage the move toward electric cars by trying to alleviate our concerns about the environment.
They showed 60 Minutes their new $4 million experimental combustion engine they hope will increase gas mileage while it lowers CO-2 emissions.
"What we want to see is that there is an emphasis on also making this oil greener, and making the fossil fuels in general greener, because they're going to be with us for the long haul," Jum'ah said.
(CBS) "Let me be blunt, okay? And ask you to be candid: is it Aramco’s hope to prevent a switch away from oil? Somebody said, 'The country is the oil business.' You absolutely need to do this for your own survival," Stahl remarked.
But Jum'ah asked what was wrong with that.
"I didn't say anything’s wrong with it. But it’s a fact. You'd admit it's a fact," Stahl asked.
"Yeah, we admit a fact that yes, we depend on the oil industry. We want it to help us, you know, to develop our economy and develop the economy of the world. So what is good for the wellbeing of Saudi Arabia should be good for the wellbeing of the world, too. So there's nothing wrong with that," he said.
"So what do you say to people out there, like Al Gore and now Mr. Obama, that say we have to devote ourselves, devote ourselves, to reducing our dependence on oil?" Stahl asked.
"My answer to this is we have to be realistic. We don't have the alternatives today," Jum'ah said.
"If there are alternatives, be my guest and come and bring them in. They are not there."
"You're saying whatever the world does in terms of wind, nuclear, coal, we're still going to need oil, and a lot of it?" Stahl asked.
"You're still going to need oil, and…a lot of it," he replied.
"Politicians use this all the time that. We're addicted, addicted to foreign oil. And addiction has a dark connotation, because if you’re addicted, there’s a suggestion that there’s a drug dealer who’s trying to keep you hooked. And it’s in the air that you want to keep us hooked," Stahl said to Minister Al-Naimi.
"There is nothing addictive about oil. If you look back 100 years, what would the world be without it?" he asked.
"Even President Bush, who's an oilman, even he has said we're addicted to this, and we have to get off this oil," Stahl pointed out.
"But listen to what the professionals say and what do they advise: it’s not going to happen today. It’s not going to happen ten years from now. It’s probably not going to happen 20 years from now. It’s not going to happen 30 years from now. Okay?" Because you are still going to be using fossil fuels," Al-Naimi predicted.
Rather than oil pushers, the Saudis see themselves as good global citizens who are trying to save the world from a catastrophic oil shortage. But, as Al-Naimi told 60 Minutes, the kingdom is hedging its bets.
He told Stahl the kingdom is doing research on solar energy, as sunshine is more than abundant in Saudi Arabia.
And he says it won't hurt their oil industry, but supplement it. "Our vision is that we will be exporters of gigawatts of electricity. We will be exporting both: barrels of oil and gigawatts of power."
And so, he says, the kingdom will still be in the energy business long after the sun sets on the age of oil.
Dec. 7, 2008(CBS) The good news is that the price of oil is falling - a lot; it's also the bad news if you're determined that the U.S. should kick its addiction to foreign oil. President-elect Barack Obama says now is the time to do that, even with the economy in recession.
But Saudi Arabia, the world's largest oil supplier - with the U.S. as its number one customer - is pulling all the levers and spending billions to keep the oil age going.
60 Minutes correspondent Lesley Stahl went to Saudi Arabia a few weeks ago to meet one of the most powerful men in the world, Ali Al-Naimi, the Saudi oil minister and de facto head of the OPEC oil cartel.
"If most Americans had an opportunity to sit down with the oil minister of Saudi Arabia, the thing they would like to know is where you think the price of oil's gonna be, say, in about six months. Is it gonna be up or down?" Stahl asked.
"You want my classic answer?" Al-Naimi replied.
"No. I want your honest appraisal…and your judgment," Stahl asked.
"My honest judgment is if I were to know what the price of oil six months from now, I would be in Las Vegas. Okay?" Al-Naimi said, smiling.
He may be smiling, but this is a man with serious heartburn and vertigo. The price of oil has been soaring and sinking up and down uncontrollably. Asked why oil prices spiked to $147 a barrel in July, Al-Naimi told Stahl, "Basically, there was what's called a 'fear premium.'"
"And the fear was that Saudi Arabia itself had peaked out. That you'd reached your ceiling of how much available oil is left in your overall reserve. So, what's the truth?" Stahl asked.
"The truth is here is the kingdom with more than 260 billion barrels. And I firmly believe that the potential to add another 200 billion barrels of oil are there to be found," Al-Naimi said.
If the oil minister of Saudi Arabia had one message, it was that there is no need for those fears.
And to make the point, the Saudis let 60 Minutes see facilities that will increase the country's capacity from about 10 million barrels a day to more than 12 million. And they're going to the ends of the Earth to do it.
One of those desolate places is Shaybah, a desert wilderness where temperatures can reach 135 degrees. The Saudis say that 18 billion barrels of oil lie beneath the red sand dunes, more than four times the proven reserves of Alaska.
To tap into it, the kingdom's national oil company, Saudi Aramco, had to build an oasis there. Awayyid Al-Shammari oversees the mega-project at Shaybah, an area of the kingdom known as the "Empty Quarter."
"We're on soft sand. We're not talking about a hard surface here," Stahl remarked.
"Yeah," Al-Shammari acknowledged. "The logistics are impossible. The first thing we had to do is build our own road in order to access this field."
"Once that was done, we had to remove one hundred million cubic feet of sand just to make the runway that we are currently using," he explained. "We had to remove a sand dune in order to connect two flat areas to do that."
Al-Shammari said they also had to build a pipeline 400 miles in length. "And you can imagine the challenge of building that pipeline in a topography like this."
But it was nothing compared to accessing the oil at Shaybah itself, which was discovered in 1968. For 30 years, it was considered too hard to extract. "Now with sand dunes this high, it's almost impossible. And the economics just didn't make it at the time until the development of the horizontal drilling," Al-Shammari explained.
Horizontal drilling is where you place a derrick on firm ground and then dig down with a drill bit that snakes horizontally under the sand dunes, with branching tentacles like a fish bone. The drill bits can travel out for as much as five miles.
The Shaybah facility is now being expanded to extract a total of 750,000 barrels a day of high-grade, Arab extra-light crude.
Al-Shammari says the facility is almost done and should go online early next year.
On the other side of the kingdom, there's an even bigger mega project at a field known as Khurais. It is also scheduled to go online next year.
"This is the biggest oil project in history," project manager Khalid Abdulqader said.
He told 60 Minutes 1.2 million barrels a day will be tapped from that field, more than the entire daily production of some OPEC countries like Qatar and Indonesia.
The oil will be stored in massive tanks, some seven stories high. One of those large tanks is 300 feet across and the length of a football field. And like just about everything at Khurais, even the tanks have the latest bells and whistles.
"This is a floating roof. So, when oil comes in, the whole roof will go up," Abdulqader explained. "And the stair also will rise up with it."
There's more oil in the Khurais field than in the entire United States. It's the largest oil facility to come online anywhere in the world in nearly three decades with, the Saudis say, 27 billion barrels of oil.
Abdulqader said it will take more than 50 years to deplete the field.
Khurais, like the sand dunes, presented a technological challenge. The field has very little natural pressure, which is necessary to bring the oil to the surface. So to force the oil up, they're injecting seawater down deep underground.
"We will inject about 84 million gallon per day of seawater," Abdulqader said.
They built a pipeline from the sea to the field to deliver the water - a distance of about 150 miles.
The complexity and vastness of the project is staggering, with 26 contractors, 106 subcontractors and 22,000 workers from around the world, who have laid thousands of miles of pipeline and cables.
These two mega projects, plus three others are costing Saudi Arabia a total of $60 billion over five years and they're not borrowing any of it - it’s all being paid for in cash.
Still, Saudi costs for producing oil are the lowest in the world: according to Ali Al-Naimi, the cost to produce one barrel is less than $2.
Saudi Arabia reportedly needs to sell oil for at least $55 dollars a barrel to cover the cost of running the country. Fossil fuels finance 75 percent of the country's entire domestic spending budget, but oil is selling for below that breakeven price.
Asked if this drop in price worries him, Al-Naimi said, "Oh, I am not a worrier. I get concerned. But I don't worry."
"The concern is this: any price must be good for the producer, for the consumer, for the investor, the oil companies," he told Stahl.
"So, you're saying if the price goes too low then production will fall. And in the end, we'll be squeezed. We won't have enough oil…to run our country," Stahl remarked.
"Price will skyrocket," Al-Naimi predicted.
What he wants is an end to the wild swings in price, which is why - to keep the price from further plummeting - he agreed to a cut of 1.5 million barrels a day in the October meeting of OPEC.
"The point is that Saudi Arabia wanted the 1.5 [cut of million barrels]. This was not something jammed down your throat?" Stahl asked.
"No, no, no. By the way, nothing gets jammed down our throats," Al-Naimi replied.
"But Iran wanted more?" Stahl asked.
"Well, I mean, different countries want different levels, different cuts. But in the final analysis, reason prevails," Al-Naimi said. "This is Saudi Arabia's influence on OPEC."
It's an influence so strong now that he was able to quash Iran's attempt to double the price of oil, which Tehran needs to support its budget, including its nuclear program and the bankrolling of militias like Hezbollah and Hamas. Still, Al-Naimi says oil is no longer used as weapon.
"Iran tries to keep the price way up; and Venezuela's trying to keep the price way up. You don't consider that oil as a weapon?" Stahl asked.
"If you looked at these countries you just named, every one of them would like to sell every barrel they can," Al-Naimi commented.
"At as high a price as they can get away with," Stahl remarked.
"Right," Al-Naimi said.
"The sense out of the OPEC meeting to a lot of people was by cutting production your purpose was to get the price up again. And that would hurt the world which is suffering an economic crisis. And the world means everywhere," Stahl said.
"I can assure you that price was the least on our mind. I say that in all honesty," Al-Naimi replied.
"But the sense is you were oblivious to the concerns of the world facing this economic crisis. You didn’t care about the recession, the credit problems or anything like that," Stahl said.
"That is really a very unfair criticism. What did governments do when the financial crisis happened? They took measures to bring stability back to the financial market. And we see, because of our responsibility, a future crisis in the oil market. Should we not take preemptive measures to prevent it? And I think the answer is yes, we should. It's incumbent on us not to see the oil market destroyed," Al-Naimi said.
The Saudis recently announced the price they would like to see oil selling for, $75 a barrel. That's about 50 percent higher than the current price.
Saudi Aramco was originally an American company. It goes way back to the 1930s when two American geologists from Standard Oil of California discovered oil in the Saudi desert.
Standard Oil formed a consortium with Texaco, Exxon and Mobil, which became Aramco. It wasn't until the 1980s that Saudi Arabia bought them out and nationalized the company. Today, Saudi Aramco is the custodian of the country's sole source of wealth and power.
Over 16,000 people work at the company's massive compound, which is like a little country with its own security force, schools, hospitals, and even its own airline.
According to Abdallah Jum’ah, Saudi Aramco's president and CEO, Aramco is the world’s largest oil producing company.
And it's the richest company in the world, worth, according to the latest estimate, $781 billion.
Jum'ah gave 60 Minutes a tour of the company's command center, where engineers scrutinize and analyze every aspect of the company's operations on a 220-foot digital screen.
"Every facility in the kingdom, every drop of oil that comes from the ground is monitored in real time in this room," Jum'ah explained. "And we have control of each and every facility, each and every pipeline, each and every valve on the pipeline. And therefore, we know exactly what is happening in the system from A to Z."
A large map shows all the oil fields in Saudi Arabia, including Ghawar, the largest on-shore oil field in the world, and Safaniya, the largest off-shore oil field in the world; green squares on the map monitor supertankers on the high seas in real time.
"What you see today is a company that is as professionally sound as any international oil company," Al-Naimi told Stahl.
Before he became oil minister, Al-Naimi ran Saudi Aramco for 11 years. He was the first Saudi president and CEO.
"You have, as you just said, one of the most efficient, cutting-edge 21st century companies in the world…within one of the most religious conservative countries in the world. It’s almost a paradox. We were surprised by this?" Stahl asked.
"I don't think there's any real surprise," Al-Naimi replied. "Many people have images of Saudi Arabia, but they really change their views and images when they come and visit Saudi Arabia."
But to western eyes, it is a paradox. Skyscrapers, traffic jams and shopping malls co-exist with ancient tribal customs. The king - and the Koran - reign supreme, and women everywhere are required to cover themselves in black from head to toe; even Stahl had to wear an abaya, a women's garment worn in parts of the Islamic world.
The rules apply everywhere it seems, except for the women at Saudi Aramco. When the U.S. oil companies came to Saudi Arabia in the 1940s and 50s, the Americans moved into the area with their families and developed neighborhoods to suit their tastes and their way of life. They created a replica of American suburbia; you could be in the outskirts of Houston or Los Angeles.
"It's almost like it's an enclave within Saudi Arabia. It's different from the rest of the country," Stahl remarked. "Very different. It kept a lot of the American ways, right?"
"Yes, of course. They are good ways. There is nothing wrong with…these are excellent ways," he replied.
"But, I was so surprised to see the culture there. Because for instance, I saw men and women working side by side. I saw women driving cars there, which you don't see," Stahl pointed out.
Al-Naimi says it's not strange to him: he's a product of that culture, having risen through the ranks. He started out as a 12-year-old office boy in 1947, when it was said that to get oil all you needed to do was ladle it out of the sand.
It was never that easy, according to Aramco CEO Jum’ah. "It takes a lot of effort. The oil is a gift from God. The recovery of oil is really the work of men. And this is part of it here."
Aramco engineers are making sure that not one drop of oil is overlooked: computers are receiving data, via satellite, from sensors mounted on drill bits that are burrowing deep into the oil fields all over Saudi Arabia. Engineers are sending instant messages that actually guide the drill bits.
"He is now directing that drill bit to go into the best areas of the reservoirs. And suck that oil from it, and not leave any oil behind," Jum'ah explained.
He says the drill bit is a bit like a snake, going down and following where the oil is. "And mind you, this is happening 400 to 500 miles from here geographically. And we are sending that drill bit also two or three miles in the ground."
Jum'ah says that with this technology, they're able to recover ten times more oil than before. But global demand is dwindling, and even Americans, the world's leading gas guzzlers, are buying less.
"In the last ten months American droves 78 billion fewer miles than they did in the 10 months last year, same ten months. This is a quite a dramatic decrease in driving," Stahl remarked.
"Well, to put it in better numbers, I think your consumption dropped by a million barrels," Al-Naimi replied.
He told Stahl he doesn't think this decrease in demand is permanent.
Al-Naimi says the U.S. is Saudi Arabia's number one customer. And the question is: what will Aramco do to keep it that way? One thing is discourage the move toward electric cars by trying to alleviate our concerns about the environment.
They showed 60 Minutes their new $4 million experimental combustion engine they hope will increase gas mileage while it lowers CO-2 emissions.
"What we want to see is that there is an emphasis on also making this oil greener, and making the fossil fuels in general greener, because they're going to be with us for the long haul," Jum'ah said.
"Let me be blunt, okay? And ask you to be candid: is it Aramco’s hope to prevent a switch away from oil? Somebody said, 'The country is the oil business.' You absolutely need to do this for your own survival," Stahl remarked.
But Jum'ah asked what was wrong with that.
"I didn't say anything’s wrong with it. But it’s a fact. You'd admit it's a fact," Stahl asked.
"Yeah, we admit a fact that yes, we depend on the oil industry. We want it to help us, you know, to develop our economy and develop the economy of the world. So what is good for the wellbeing of Saudi Arabia should be good for the wellbeing of the world, too. So there's nothing wrong with that," he said.
"So what do you say to people out there, like Al Gore and now Mr. Obama, that say we have to devote ourselves, devote ourselves, to reducing our dependence on oil?" Stahl asked.
"My answer to this is we have to be realistic. We don't have the alternatives today," Jum'ah said.
"If there are alternatives, be my guest and come and bring them in. They are not there."
"You're saying whatever the world does in terms of wind, nuclear, coal, we're still going to need oil, and a lot of it?" Stahl asked.
"You're still going to need oil, and…a lot of it," he replied.
"Politicians use this all the time that. We're addicted, addicted to foreign oil. And addiction has a dark connotation, because if you’re addicted, there’s a suggestion that there’s a drug dealer who’s trying to keep you hooked. And it’s in the air that you want to keep us hooked," Stahl said to Minister Al-Naimi.
"There is nothing addictive about oil. If you look back 100 years, what would the world be without it?" he asked.
"Even President Bush, who's an oilman, even he has said we're addicted to this, and we have to get off this oil," Stahl pointed out.
"But listen to what the professionals say and what do they advise: it’s not going to happen today. It’s not going to happen ten years from now. It’s probably not going to happen 20 years from now. It’s not going to happen 30 years from now. Okay?" Because you are still going to be using fossil fuels," Al-Naimi predicted.
Rather than oil pushers, the Saudis see themselves as good global citizens who are trying to save the world from a catastrophic oil shortage. But, as Al-Naimi told 60 Minutes, the kingdom is hedging its bets.
He told Stahl the kingdom is doing research on solar energy, as sunshine is more than abundant in Saudi Arabia.
And he says it won't hurt their oil industry, but supplement it. "Our vision is that we will be exporters of gigawatts of electricity. We will be exporting both: barrels of oil and gigawatts of power."
And so, he says, the kingdom will still be in the energy business long after the sun sets on the age of oil.
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(CBS) But it was nothing compared to accessing the oil at Shaybah itself, which was discovered in 1968. For 30 years, it was considered too hard to extract. "Now with sand dunes this high, it's almost impossible. And the economics just didn't make it at the time until the development of the horizontal drilling," Al-Shammari explained.
Horizontal drilling is where you place a derrick on firm ground and then dig down with a drill bit that snakes horizontally under the sand dunes, with branching tentacles like a fish bone. The drill bits can travel out for as much as five miles.
The Shaybah facility is now being expanded to extract a total of 750,000 barrels a day of high-grade, Arab extra-light crude.
Al-Shammari says the facility is almost done and should go online early next year.
On the other side of the kingdom, there's an even bigger mega project at a field known as Khurais. It is also scheduled to go online next year.
"This is the biggest oil project in history," project manager Khalid Abdulqader said.
He told 60 Minutes 1.2 million barrels a day will be tapped from that field, more than the entire daily production of some OPEC countries like Qatar and Indonesia.
The oil will be stored in massive tanks, some seven stories high. One of those large tanks is 300 feet across and the length of a football field. And like just about everything at Khurais, even the tanks have the latest bells and whistles.
"This is a floating roof. So, when oil comes in, the whole roof will go up," Abdulqader explained. "And the stair also will rise up with it."
There's more oil in the Khurais field than in the entire United States. It's the largest oil facility to come online anywhere in the world in nearly three decades with, the Saudis say, 27 billion barrels of oil.
Abdulqader said it will take more than 50 years to deplete the field.
Khurais, like the sand dunes, presented a technological challenge. The field has very little natural pressure, which is necessary to bring the oil to the surface. So to force the oil up, they're injecting seawater down deep underground.
"We will inject about 84 million gallon per day of seawater," Abdulqader said.
They built a pipeline from the sea to the field to deliver the water - a distance of about 150 miles.
The complexity and vastness of the project is staggering, with 26 contractors, 106 subcontractors and 22,000 workers from around the world, who have laid thousands of miles of pipeline and cables.
These two mega projects, plus three others are costing Saudi Arabia a total of $60 billion over five years and they're not borrowing any of it - it’s all being paid for in cash.
Still, Saudi costs for producing oil are the lowest in the world: according to Ali Al-Naimi, the cost to produce one barrel is less than $2.
(CBS) Saudi Arabia reportedly needs to sell oil for at least $55 dollars a barrel to cover the cost of running the country. Fossil fuels finance 75 percent of the country's entire domestic spending budget, but oil is selling for below that breakeven price.
Asked if this drop in price worries him, Al-Naimi said, "Oh, I am not a worrier. I get concerned. But I don't worry."
"The concern is this: any price must be good for the producer, for the consumer, for the investor, the oil companies," he told Stahl.
"So, you're saying if the price goes too low then production will fall. And in the end, we'll be squeezed. We won't have enough oil…to run our country," Stahl remarked.
"Price will skyrocket," Al-Naimi predicted.
What he wants is an end to the wild swings in price, which is why - to keep the price from further plummeting - he agreed to a cut of 1.5 million barrels a day in the October meeting of OPEC.
"The point is that Saudi Arabia wanted the 1.5 [cut of million barrels]. This was not something jammed down your throat?" Stahl asked.
"No, no, no. By the way, nothing gets jammed down our throats," Al-Naimi replied.
"But Iran wanted more?" Stahl asked.
"Well, I mean, different countries want different levels, different cuts. But in the final analysis, reason prevails," Al-Naimi said. "This is Saudi Arabia's influence on OPEC."
It's an influence so strong now that he was able to quash Iran's attempt to double the price of oil, which Tehran needs to support its budget, including its nuclear program and the bankrolling of militias like Hezbollah and Hamas. Still, Al-Naimi says oil is no longer used as weapon.
"Iran tries to keep the price way up; and Venezuela's trying to keep the price way up. You don't consider that oil as a weapon?" Stahl asked.
"If you looked at these countries you just named, every one of them would like to sell every barrel they can," Al-Naimi commented.
"At as high a price as they can get away with," Stahl remarked.
"Right," Al-Naimi said.
"The sense out of the OPEC meeting to a lot of people was by cutting production your purpose was to get the price up again. And that would hurt the world which is suffering an economic crisis. And the world means everywhere," Stahl said.
"I can assure you that price was the least on our mind. I say that in all honesty," Al-Naimi replied.
"But the sense is you were oblivious to the concerns of the world facing this economic crisis. You didn’t care about the recession, the credit problems or anything like that," Stahl said.
"That is really a very unfair criticism. What did governments do when the financial crisis happened? They took measures to bring stability back to the financial market. And we see, because of our responsibility, a future crisis in the oil market. Should we not take preemptive measures to prevent it? And I think the answer is yes, we should. It's incumbent on us not to see the oil market destroyed," Al-Naimi said.
The Saudis recently announced the price they would like to see oil selling for, $75 a barrel. That's about 50 percent higher than the current price.
(CBS) Saudi Aramco was originally an American company. It goes way back to the 1930s when two American geologists from Standard Oil of California discovered oil in the Saudi desert.
Standard Oil formed a consortium with Texaco, Exxon and Mobil, which became Aramco. It wasn't until the 1980s that Saudi Arabia bought them out and nationalized the company. Today, Saudi Aramco is the custodian of the country's sole source of wealth and power.
Over 16,000 people work at the company's massive compound, which is like a little country with its own security force, schools, hospitals, and even its own airline.
According to Abdallah Jum’ah, Saudi Aramco's president and CEO, Aramco is the world’s largest oil producing company.
And it's the richest company in the world, worth, according to the latest estimate, $781 billion.
Jum'ah gave 60 Minutes a tour of the company's command center, where engineers scrutinize and analyze every aspect of the company's operations on a 220-foot digital screen.
"Every facility in the kingdom, every drop of oil that comes from the ground is monitored in real time in this room," Jum'ah explained. "And we have control of each and every facility, each and every pipeline, each and every valve on the pipeline. And therefore, we know exactly what is happening in the system from A to Z."
A large map shows all the oil fields in Saudi Arabia, including Ghawar, the largest on-shore oil field in the world, and Safaniya, the largest off-shore oil field in the world; green squares on the map monitor supertankers on the high seas in real time.
"What you see today is a company that is as professionally sound as any international oil company," Al-Naimi told Stahl.
Before he became oil minister, Al-Naimi ran Saudi Aramco for 11 years. He was the first Saudi president and CEO.
"You have, as you just said, one of the most efficient, cutting-edge 21st century companies in the world…within one of the most religious conservative countries in the world. It’s almost a paradox. We were surprised by this?" Stahl asked.
"I don't think there's any real surprise," Al-Naimi replied. "Many people have images of Saudi Arabia, but they really change their views and images when they come and visit Saudi Arabia."
But to western eyes, it is a paradox. Skyscrapers, traffic jams and shopping malls co-exist with ancient tribal customs. The king - and the Koran - reign supreme, and women everywhere are required to cover themselves in black from head to toe; even Stahl had to wear an abaya, a women's garment worn in parts of the Islamic world.
The rules apply everywhere it seems, except for the women at Saudi Aramco. When the U.S. oil companies came to Saudi Arabia in the 1940s and 50s, the Americans moved into the area with their families and developed neighborhoods to suit their tastes and their way of life. They created a replica of American suburbia; you could be in the outskirts of Houston or Los Angeles.
"It's almost like it's an enclave within Saudi Arabia. It's different from the rest of the country," Stahl remarked. "Very different. It kept a lot of the American ways, right?"
"Yes, of course. They are good ways. There is nothing wrong with…these are excellent ways," he replied.
"But, I was so surprised to see the culture there. Because for instance, I saw men and women working side by side. I saw women driving cars there, which you don't see," Stahl pointed out.
Al-Naimi says it's not strange to him: he's a product of that culture, having risen through the ranks. He started out as a 12-year-old office boy in 1947, when it was said that to get oil all you needed to do was ladle it out of the sand.
(CBS) It was never that easy, according to Aramco CEO Jum’ah. "It takes a lot of effort. The oil is a gift from God. The recovery of oil is really the work of men. And this is part of it here."
Aramco engineers are making sure that not one drop of oil is overlooked: computers are receiving data, via satellite, from sensors mounted on drill bits that are burrowing deep into the oil fields all over Saudi Arabia. Engineers are sending instant messages that actually guide the drill bits.
"He is now directing that drill bit to go into the best areas of the reservoirs. And suck that oil from it, and not leave any oil behind," Jum'ah explained.
He says the drill bit is a bit like a snake, going down and following where the oil is. "And mind you, this is happening 400 to 500 miles from here geographically. And we are sending that drill bit also two or three miles in the ground."
Jum'ah says that with this technology, they're able to recover ten times more oil than before. But global demand is dwindling, and even Americans, the world's leading gas guzzlers, are buying less.
"In the last ten months American droves 78 billion fewer miles than they did in the 10 months last year, same ten months. This is a quite a dramatic decrease in driving," Stahl remarked.
"Well, to put it in better numbers, I think your consumption dropped by a million barrels," Al-Naimi replied.
He told Stahl he doesn't think this decrease in demand is permanent.
Al-Naimi says the U.S. is Saudi Arabia's number one customer. And the question is: what will Aramco do to keep it that way? One thing is discourage the move toward electric cars by trying to alleviate our concerns about the environment.
They showed 60 Minutes their new $4 million experimental combustion engine they hope will increase gas mileage while it lowers CO-2 emissions.
"What we want to see is that there is an emphasis on also making this oil greener, and making the fossil fuels in general greener, because they're going to be with us for the long haul," Jum'ah said.
(CBS) "Let me be blunt, okay? And ask you to be candid: is it Aramco’s hope to prevent a switch away from oil? Somebody said, 'The country is the oil business.' You absolutely need to do this for your own survival," Stahl remarked.
But Jum'ah asked what was wrong with that.
"I didn't say anything’s wrong with it. But it’s a fact. You'd admit it's a fact," Stahl asked.
"Yeah, we admit a fact that yes, we depend on the oil industry. We want it to help us, you know, to develop our economy and develop the economy of the world. So what is good for the wellbeing of Saudi Arabia should be good for the wellbeing of the world, too. So there's nothing wrong with that," he said.
"So what do you say to people out there, like Al Gore and now Mr. Obama, that say we have to devote ourselves, devote ourselves, to reducing our dependence on oil?" Stahl asked.
"My answer to this is we have to be realistic. We don't have the alternatives today," Jum'ah said.
"If there are alternatives, be my guest and come and bring them in. They are not there."
"You're saying whatever the world does in terms of wind, nuclear, coal, we're still going to need oil, and a lot of it?" Stahl asked.
"You're still going to need oil, and…a lot of it," he replied.
"Politicians use this all the time that. We're addicted, addicted to foreign oil. And addiction has a dark connotation, because if you’re addicted, there’s a suggestion that there’s a drug dealer who’s trying to keep you hooked. And it’s in the air that you want to keep us hooked," Stahl said to Minister Al-Naimi.
"There is nothing addictive about oil. If you look back 100 years, what would the world be without it?" he asked.
"Even President Bush, who's an oilman, even he has said we're addicted to this, and we have to get off this oil," Stahl pointed out.
"But listen to what the professionals say and what do they advise: it’s not going to happen today. It’s not going to happen ten years from now. It’s probably not going to happen 20 years from now. It’s not going to happen 30 years from now. Okay?" Because you are still going to be using fossil fuels," Al-Naimi predicted.
Rather than oil pushers, the Saudis see themselves as good global citizens who are trying to save the world from a catastrophic oil shortage. But, as Al-Naimi told 60 Minutes, the kingdom is hedging its bets.
He told Stahl the kingdom is doing research on solar energy, as sunshine is more than abundant in Saudi Arabia.
And he says it won't hurt their oil industry, but supplement it. "Our vision is that we will be exporters of gigawatts of electricity. We will be exporting both: barrels of oil and gigawatts of power."
And so, he says, the kingdom will still be in the energy business long after the sun sets on the age of oil.