World Oil Prices to Increase Further

April 26, 2008
By Benjamin Train

This year, oil is king.

Below, I have posted two stories that the BBC have posted this weekend that show where we are headed.

How high can the price of oil go? $125 to $200 per barrel are the target numbers that speculators have cited. What will the result of high oil prices have on the World economies have? A major shift in the supply and delivery method of all products, food, travel, and World economies. I also believe, that you are only seeing the beginning.

All the above was my personal opinion. My opinion should have no bearing on your investments.


Oil firms in Nigeria cut output
http://news.bbc.co.uk/2/hi/africa/7368436.stm

Industrial action and attacks from militants have forced the two biggest oil companies in Nigeria to cut their production.

Exxon Mobil and Royal Dutch Shell are both reducing output, which is helping to keep oil prices near record highs.

Militant groups in the Niger Delta have blown up a section of a Shell pipeline, in the fourth such attack in the last seven days.

And workers at an Exxon Mobil plant began a strike over pay and conditions.

The company said production was affected, but would not say by how much.

Volatile markets

But as Nigeria is the world's eighth largest oil exporter, it is certain to worry the volatile global oil markets.


The BBC's correspondent in Lagos, Alex Last, says that strikes in the country rarely last very long, but that attacks on the pipelines which criss-cross the forests and creeks of the delta are almost impossible to stop.

A faction loyal to the imprisoned militant leader, Henry Okah, has said it is responsible for the latest attacks.

The group is keen to gain attention, as Mr Okah is being tried in secret for treason and gun-running.

The Movement for the Emancipation of the Niger Delta promised further violence.

"Our candid advice to the oil majors is that they should not waste their time repairing any lines, as we will continue to sabotage them", the militants said in a statement.

Demand is high for Nigeria's oil, which is easily refined.

But production is now running about 25% short of the official capacity of 2.5 million barrels a day.

Exxon Mobil said it was operating at "partial production" following the industrial action, while Shell said it may not be able to meet its target of shipping 169,000 barrels a day from the country over the next few weeks, after the militants' attacks.

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Major oil pipeline to close down
http://news.bbc.co.uk/2/hi/uk_news/scotland/tayside_and_central/7368318.stm


A pipeline which delivers 30% of the UK's daily oil output will be shut down overnight, it has been announced.

BP's Forties pipeline will be completely shut by 0600 BST on Sunday as, a strike by workers at the Grangemouth oil refinery begins.

The pipeline, which brings in 700,000 barrels of oil a day from the North Sea, is powered from Grangemouth.

Meanwhile, on the eve of the strike, UK ministers again urged the public not to panic buy fuel.

Workers at Grangemouth, Scotland's only refinery, will walk out for 48 hours after talks broke down following a pensions dispute with operator Ineos.

A BP spokeswoman said: "We've been advised by Ineos that they can continue to provide steam and power right up until the strike begins, which means that we expect that the pipeline will be shut down overnight.

"It will be completely shut down by 0600 on Sunday."

Meanwhile, UK Business Secretary John Hutton said people changing their buying habits were causing shortages.

He told the BBC's Today programme: "My message is that if people stick to their normal pattern of purchasing fuel there shouldn't be any trouble.

"If there are temporary shortages, we can get those forecourts supplied as quickly as possible and that's what the fuel companies are determined to do."

Production at Grangemouth ceased on Friday afternoon ahead of the strike of up to 1,200 workers.

Drivers on whether a possible fuel shortage is likely to affect them. Meanwhile Unite, the union representing refinery workers, said talks with management about safety provision during the walkout were ongoing.

Grangemouth powers the BP Kinneil processing plant, which receives about 725,000 barrels of crude oil and 80 million cubic metres of gas a day from the Forties pipeline, in the North Sea.

More than 70 platforms in the North Sea could be forced to stop production and industry body Oil and Gas UK said closing the pipeline could cost an estimated £50m a day in lost production - with the Treasury taking half that hit.

Scotland's First Minister Alex Salmond earlier said BP was releasing stocks from Grangemouth diesel which should help ease supply problems.

He added that substantial fuel cargoes, from ports including Rotterdam and Gothenburg, were "more than enough" to supply Scotland for next week.

IMF World Economic Forecast

IMF slashes world growth forecast

The International Monetary Fund (IMF) has said that the world economy will grow much more slowly in the next two years as a result of the credit crunch.

In its latest economic forecast, the IMF says that world economic growth will slow to 3.7% in 2008 and 2009, 1.25% lower than growth in 2007.

The downturn will be led by the US, which the IMF believes will go into a "mild recession" this year.

Growth in the UK will slow sharply to 1.6% in both 2008 and 2009.

It said that the UK economy would be affected by a weakening housing market, the contraction of the financial sector, and the impact on UK exports of weaker growth in the US and Europe.

Its UK forecast is substantially below the Treasury forecast of around 2% growth this year and 2.5% next year made at the time of the March Budget.

'Worst since Great Depression'

The IMF admits that the global downturn might be still more severe than it is currently predicting, and says that there is a one in four chance of a "global recession" when world growth falls below 3%.

"The financial market crisis that erupted in August 2007 has developed into the largest financial shock since the Great Depression," the report says.

The world downturn will be led by problems in the US housing market, but the IMF warns that excessive house price inflation in some European countries, including Spain, Ireland and the UK, has made them more vulnerable to a slowdown.

House prices have already fallen by around 10% in the US by some measures, and the IMF says that they may be over-valued by more than 20% in the UK, Ireland and Spain.

It is forecasting further falls in US house prices of 14% to 20% this year.

The head of the International Labour Organisation (ILO) said that crisis required measures to protect workers from the downturn.

"We need to find a better balance between the democratic voice of society, the productive dynamic of the market and the regulatory function of the state", ILO Director-General Juan Somavia said in a statement to the IMF meeting.

US recession

The IMF forecasts that the US economy will grow by just 0.5% during 2008 and will actually contract in the first half of the year.

Its recovery will be slow, with growth of only 0.6% forecast in 2009.

"The US economy will tip into a mild recession in 2008 as a result of mutually reinforcing housing and financial market cycles, with only a gradual recovery in 2009, reflecting the time needed to resolve underlying balance sheet strains," the report notes.

It says that, comparing the US economy year-on-year from the four quarter of 2007 to the fourth quarter of 2008. it will be 0.7% smaller, as the recession bites in the first half of this year.

And it warns that with the scale of the credit losses to the financial sector approaching $1 trillion (£500bn), there is a risk that the crisis could get worse.

"The greatest risk comes from the still-unfolding events in financial markets," it says, warning that the current credit squeeze could "mutate into a full-blown credit crunch".

The IMF says that losses are spreading from sub-prime mortgage assets to other sectors, such as commercial property, consumer credit, and company debt.

The IMF also says that given the potential severity of the problems, "additional initiatives to support the US housing market, including the use of the public balance sheet, could help reduce uncertainties about the evolution of the US financial system" although it warned that "care would be needed to avoid undue moral hazard".

The US Congress and the Bush administration are currently deadlocked over plans for further aid to the housing sector, with Democrats in both branches of Congress proposing an expansion of financial support for home owners facing foreclosure.

European impact

The biggest impact of the US slowdown is likely to felt in Europe, which is the biggest trading partner with the US.

"Activity in the other advanced economies will be sluggish in both 2008 and 2009 in the face of trade and financial spillovers," the IMF says.

It is predicting growth in the eurozone of just 1.4% in 2008 and 1.2% in 2009, with Europe's largest economy, Germany, growing by just 1% in 2009, a sharp revision of its forecast just three months ago.

And it says that in light of the slowdown, the European Central Bank -which has kept interest rates unchanged due to concern about inflation - "can afford some easing of its policy stance".

And it suggests that in future, central banks should take more account of rising house prices when setting interest rates, in effect "leaning against the wind" to prevent house prices moving out of "normal valuation ranges".

This is an implicit criticism of the US Federal Reserve which kept interest rates at 1% for several years under former chairman Alan Greenspan.

Worldwide impact

The IMF says that the big emerging market countries like China and India which are growing rapidly will be less affected by the slowdown, although they will be affected by a slowdown in trade among the rich countries.

The rate of growth of imports into rich countries is expected to slow sharply, leading to a cut in the rate of growth of exports by developing countries.

And it warns that the spillover will more severe in Latin America or in countries linked to the dollar, which has declined sharply on world currency markets.

U.S. Dollar Forecast

By Kenneth Rogoff
Professor of Economics and Public Policy at Harvard University
formerly chief economist at the IMF


CAMBRIDGE - As the world's financial leaders meet in Washington this month at the World Bank-International Monetary Fund annual meeting, perhaps they should be glad there is no clear alternative to the dollar as the global currency standard. If the euro were fully ready for prime time, we might well be seeing it's dollar exchange rate jump to over 2.00, and not just to 1.65 or 1.70, as it seems poised to do anyway. You can't treat your customers as badly as the United States has done lately if they can go elsewhere.

Over the past six years, the value of the trade-weighted dollar has fallen by more than a quarter, as the US has continued to rack up historically unprecedented trade deficits. With a soft economy, a badly compromised financial system, and serious concerns about rising inflation, the long-term dollar trend is downward, however the current crisis ends. And it is not over.

The Federal Reserve's bailout of the financial system is unlikely to stand up unless banks find fresh capital, and lots of it. Ultra-rich sovereign wealth funds have the cash to rescue US banks. But they are unlikely to want to do so at this point, even if the US political system allowed it. Instead, as the credit crunch and housing price decline continue, an epic mortgage bailout appears increasingly likely, possibly costing US taxpayers a trillion dollars or more.

The problem is that after so many years of miserable returns on dollar assets, will global investors really be willing to absorb another trillion dollars in US debt at anything near current interest rates and exchange rates?

US debt hardly looks like a bargain right now, even without the sinking dollar. Far-flung military misadventures continue to stretch the country's fiscal resources, with costs potentially running into many trillions of dollars, according a recent study by Linda Bilmes and Joseph Stiglitz.

Next year will almost certainly see a massive rise in US corporate defaults, even though many firms entered the recession with relatively strong balance sheets. State and municipal finances are in even worse shape. With tax revenues collapsing due to falling home prices and incomes, dozens of US municipalities could well go into receivership, as New York City did in the 1970's. US municipal bonds are already trading at huge risk premia, and the first big government default hasn't even hit yet.

Of course, if the dollar were to fall off its perch as the world's dominant currency any time soon, the euro would be the only serious alternative. The Yuan may well supplant the dollar in the second half of this century. But China's draconian capital controls and massive financial repression currently disqualify it from anchoring the global economic system.

Fortunately for the dollar, the euro, too, seems to have its problems.

European banks remain balkanized, with a patchwork of national regulators seeking to promote their own champions. European governments' debt may all be denominated in euro, but German and Italian debt are hardly the same thing, so the government euro-bond market lacks the depth and liquidity of the US Treasury Bill market.

Moreover, international investors can buy and sell real estate far more easily in the US than in most of Europe. And the absence of a Europe-wide fiscal policy creates significant uncertainty about how the European Central Bank would finance itself if it suddenly faced large losses on junk bank debt after a big bailout.

But the euro does have growing strengths. At current market exchange rates, the European Union is now larger economically than the US. New central and eastern European members are bringing enormous dynamism and flexibility. At the same time, the ECB has gained considerable credibility from its handling of the global credit crisis. Indeed, if the euro zone can persuade Great Britain to become a full-fledged member, thereby acquiring one of the world's two premier financial centers
(London), the euro might really start to look like a viable alternative to the dollar.

In 1971, as the dollar collapsed towards the end of the post-World War II fixed exchange-rate system, US Treasury Secretary John Connally famously told his foreign counterparts that "the dollar is our currency, but your problem." And the dollar's exalted global status has survived ever since, despite many episodes of neglect and abuse.

World currency standards have enormous inertia. The British pound only forfeited its role to the US dollar after more than 50 years of industrial decline and two world wars. But it could happen a lot faster this time. As central bankers and finance ministers ponder how to intervene to prop up the dollar, they should also start thinking about what to do when the time comes to pull the plug.


Posted as a courtesy to increase visibility of the most important condition in the United States and abroad.