News

November 10, 2008

That Was The Week That Was … In The USA

By John Melville

It was an historic week for US politics, with the election of Barack Obama as the new US president. His victory comes with a bag of mixed messages for the oil industry. The good news is that he is planning to attack the economic downturn head-on, to get the US and the world economy back on track, which should benefit oil demand. But there is a lot of uncertainty about what his economic program might bring. US oil companies reckon that windfall taxes, even with falling oil prices, might be in the offing. They also worry about Obama's goal to promote alternative fuels and fight climate change, which would make hydrocarbon fuels more expensive. For now, the oil market is telling companies not to worry too much. The futures price curve on the New York Mercantile Exchange is telling investors that oil three or eight years out will be US$90 per barrel – even though prompt oil can be bought at around US$60. Oil will be expensive in the future because oil demand will, again, outstrip supply, says the consensus.

Many investors think that the industry has seen the worst and that change is coming – and these investors are not just looking at the forward price curve for oil, which in fact is a bad predictor of the future oil price. In the past ten days, US share prices of mid-tier oil firms have bounced back by 10 per cent to 20 per cent. For sure, they are still down between 30 per cent and 50 per cent over the year-to-date, but the bottom might have been touched. What made many companies look like...