As giant oil companies like ExxonMobil and ConocoPhillips get set to report what will probably be another round of eye-popping quarterly profits, just where is all that money going?
The companies insist they're trying to find new oil that might help bring down gas prices, but the money they spend on exploration is nothing compared with what they spend on stock buybacks and dividends.
It's good news for shareholders, including mutual funds and retirement plans for millions of Americans, but no help to drivers already making drastic cutbacks to offset the high cost of fuel.
The five biggest international oil companies plowed about 55% of the cash they made from their businesses into stock buybacks and dividends last year, up from 30% in 2000 and just 1% in 1993, according to Rice University's James A. Baker III Institute for Public Policy.
The percentage they spend to find new deposits of fossil fuels has remained flat for years, in the mid-single digits.The issue has become more sensitive as lawmakers and Americans frustrated by high gas prices have balked at gaudy reports of oil industry profits.
Oil prices are set on the open market, not by the oil industry. But that hasn't stopped public protests, a series of congressional grillings for top oil executives, and a failed attempt by lawmakers to slap Big Oil with a windfall profits tax.
In the first three months of this year, ExxonMobil Corp., the world's biggest publicly traded oil company, shelled out $8.8 billion on stock buybacks alone, compared with $5.5 billion on exploration and other capital projects.
ConocoPhillips has already told investors that its stock buybacks for April to June of this year will come to about $2.5 billion — nine times what it spent on exploration.
Stock buybacks are common throughout corporate America, not just for Big Oil. They shrink the amount of stock on the open market, essentially increasing its value and giving individual shareholders a bigger stake in the company.
But some critics say Big Oil focuses too much on boosting stock prices, in an industry that sometimes ties executive pay to stock price.
And in focusing on buybacks and dividends over exploring for new oil, some critics say, oil companies jeopardize its already dwindling share of world supply.
"If you're not spending your money finding and developing new oil, then there's no new oil," said Amy Myers Jaffe, an energy expert at Rice University who's studied spending patterns of the major oil companies.
Investor-owned companies like ExxonMobil and Chevron hold less than 10% of global oil and gas reserves, way down from past decades. And finding new oil has become harder and more expensive.
State-run oil companies, like those in Saudi Arabia and Venezuela, control about 80% of oil reserves — and at today's prices, it's not surprising they're keeping a tight grip on what they have. Scarce equipment and hard-to-find labor also pose problems.
No one questions that Big Oil is rolling in cash. The cash the biggest oil companies bring in from running their businesses, or operating cash flow, is four times what it was in the early 1990s.
"It becomes a management decision," said Howard Silverblatt, a senior index analyst at Standard & Poor's. "It's not like they're going to the board and saying, 'Well, I can do one or the other or the other.' The balance sheets are flush with cash."
So what's Big Oil to do?
The companies say they are doing what they can to find more fossil fuels around the world, but the easy oil is gone. Exploring these days may mean expensive projects in thousands of feet of water in the Gulf of Mexico or costly ventures pulling petroleum from Canada's vast oil-sands deposits.
TransCanada Corp. and ConocoPhillips Co. just said they'd spend $7 billion to nearly double the amount of crude flowing through a pipeline from Canada's tar sands to the U.S. Gulf Coast.
And analysts point out that because there's no guarantee oil prices will stay in the stratosphere, oil companies should approach exploration projects with caution.
"There's only so much money you can throw at it without being ridiculous," said Joseph Stanislaw, a senior adviser to Deloitte LLP's Energy & Resources practice. "I think they're doing what they can."
It's also important to remember it can take several years before a company produces the first barrel of oil from a new field.
One example is an oil field in the Gulf of Mexico called Thunder Horse. Operated by BP and partly owned by ExxonMobil, the platform only last month began producing oil and gas — nine years after the field's discovery.
At its peak, the multibillion-dollar project is designed to produce 250,000 barrels of oil and 200 million cubic feet of natural gas each day, which would make it the Gulf's largest producer.
"When you look at the spending that's going on, the companies are bringing on a lot of long-term discoveries," said John Parry, a senior analyst with John S. Herold Inc.
At ConocoPhillips, the capital spending budget for 2008, which includes exploration and production, is $15.3 billion, more than double the spending of five years ago.
"Could we spend $20 billion or $25 billion? Absolutely," spokesman Gary Russell said. "Could we do it effectively, in a way that provides ultimate value to our shareholders? Probably not."
ExxonMobil, known for its disciplined approach to investing in energy projects, has drawn criticism for its reluctance to invest in alternative energy sources like wind and solar power.
The company expects to spent $25 billion to $30 billion on capital and exploration projects each of the next five years. Last year, it spent about $32 billion on share buybacks.
"You fund your investments that make sense," said spokesman Alan Jeffers. "You have criteria, and you have to meet that to be a good investment for the shareholder. And then if you've got cash that's left over, you're going to return it to the shareholder because it's theirs."
ExxonMobil often touts its $100 million contribution to Stanford University's Global Climate and Energy Project. By contrast, BP says it plans to spend $8 billion over the next decade developing alternative energy using wind, hydrogen and other means.
Big Oil isn't alone buying back large amounts of stock, but the companies are certainly some of the biggest indulgers.
A boom in stock buybacks has been underway in corporate America since 2004. In the first quarter of this year, Exxon, ConocoPhillips and Chevron were all among the top 10 companies for share buybacks in the S&P 500.
In Washington, one Democratic proposal would impose a 25% tax on "unreasonable" profits of the top five oil companies, which together made more than $120 billion in 2007, and put the money toward a trust fund for investment in alternative energy sources. Republicans say it's a gimmick that won't help at the pump and will discourage domestic oil production.
But Sen. Charles Schumer, D-N.Y., said the fervor for stock buybacks is a clear sign Big Oil isn't interested in new production or alternative energy.
Showing posts with label Oil Company News. Show all posts
Showing posts with label Oil Company News. Show all posts
Monday, July 28, 2008
Saudi willing to increase crude output
JIDDAH, Saudi Arabia (AP) - Facing strong U.S. pressure and global dismay over oil prices, Saudi Arabia said Sunday it will produce more crude this year if the market needs it. But the vague pledge fell far short of U.S. hopes for a specific increase and may do little to lower prices immediately.
For now, the current ``oil shock'' leaves Western countries with little choice but to move toward nuclear power and change their energy-consumption habits, Britain's prime minister warned at a rare meeting of oil-producing and consuming nations.
Saudi Arabia - the world's top crude exporter - called the gathering Sunday to send a message that it, too, is concerned by high oil prices inflicting economic pain worldwide.
Instead, the meeting highlighted the sharp disagreement between producers like Saudi Arabia and consuming countries like Britain and the United States over the core factors driving steep price hikes. Oil closed near $135 a barrel on Friday - almost double the price a year ago.
The cost of gasoline also has become a sore point in the U.S. presidential race, with President Bush and presumed Republican nominee John McCain calling on Congress to lift its long-standing ban on offshore oil and gas drilling. Barack Obama, the presumptive Democratic nominee, has said such moves will do nothing to ease American consumers' pain short-term.
The U.S. and other nations argue that oil production has not kept up with increasing demand, especially from China, India and the Middle East. But Saudi Arabia and other OPEC countries say there is no shortage of oil and instead blame financial speculation and the falling U.S. dollar.
Saudi Oil Minister Ali al-Naimi said the kingdom is willing to produce more than the 9.7 million barrels of oil a day it had already planned to produce in July - if the market requires it.
But the Saudi oil minister also blamed speculators and asserted supply is not the problem.
``In today's environment, I am convinced that supply and demand balances and crude oil production levels are not the primary drivers of the current market situation,'' al-Naimi said. Officials and energy executives from more than 35 countries thronged a large hall where he spoke.
King Abdullah also said Saudi Arabia is not the culprit.
The king cited several factors driving ``the unjustified, swift rise in oil prices'' including ``speculators who play the market out of selfish interests,'' plus higher consumption by developing countries and higher taxes in some countries.
U.S. Energy Secretary Samuel Bodman, however, said earlier that U.S. officials had found no evidence speculators are driving up prices.
Saudi officials have consistently said the country would provide enough oil to supply the market. The kingdom announced a 300,000 barrel per day production increase in May and said before the start of the Jiddah meeting that it would add another 200,000 barrels per day in July, raising total daily output to 9.7 million barrels.
Both announcements had already been factored into oil prices before Sunday's meeting - and neither did much to stem their rise. Total worldwide crude production is about 85 million barrels per day.
The Saudi output increase is ``going to help a little bit, maybe reduce prices just a little,'' New Mexico Gov. Bill Richardson, a Democrat and former President Bill Clinton's energy secretary, said on CNN's ``Late Edition'' program. ``It won't be significant.''
It remained unclear if Sunday's announcements would have any greater effect.
At least one analyst said he thought they would only spur prices higher.
The oil market has been in a holding pattern to see if Saudi Arabia would take more aggressive steps toward boosting output, said Stephen Schork, an oil market analyst and trader in Villanova, Pa. The market's likely to view the announcement as a sign it will not, he said.
``We don't know anything more today that we didn't know Friday,'' said Schork, who predicted ``$150 (a barrel) here we come.''
Linda Rafield, senior oil analyst at energy trade publication Platts, said she expected the reaction to be less dramatic.
``I don't see prices going into freefall at the start of trading this evening, but I don't see the bulls being given any reason to bid prices back up to the $140 level,'' she said.
Bush has visited Saudi Arabia twice this year to push the country's king to increase oil production but has little to show for the effort.
To address long-term concerns about supply, al-Naimi said Saudi Arabia also is willing to invest to boost its spare oil production capacity above the current 12.5 million barrels per day planned for the end of 2009 - again, if the market requires it.
That reversed previous indications the country would not go beyond that figure.
British Prime Minister Gordon Brown echoed U.S. officials' calls for commitments of specific production increases. Such actions would help ensure that ``instead of uncertainty and unpredictability, there is greater certainty, and instead of instability, there is greater stability,'' he said.
But he and Bodman also urged consuming countries to increase energy efficiency and invest in alternative sources of fuel. Brown said the high prices - what he termed an ``oil shock'' - leave industrialized countries with few choices but turning more to nuclear power and lowering energy consumption.
A joint statement issued by participants also urged countries to improve energy efficiency. The vaguely worded statement also promoted investment in spare capacity and called for improved transparency and regulation of financial markets, but provided few specifics - again highlighting the confusion and disagreements over the core causes of oil's price surge.
Abdullah called for the creation of a $1 billion energy initiative to help poor countries combat fuel prices and said Saudi Arabia would contribute $500 million to provide loans to finance development and energy projects.
Associated Press reporters Donna Abu-Nasr in Jiddah and Adam Schreck and John Wilen in New York contributed to this report.
For now, the current ``oil shock'' leaves Western countries with little choice but to move toward nuclear power and change their energy-consumption habits, Britain's prime minister warned at a rare meeting of oil-producing and consuming nations.
Saudi Arabia - the world's top crude exporter - called the gathering Sunday to send a message that it, too, is concerned by high oil prices inflicting economic pain worldwide.
Instead, the meeting highlighted the sharp disagreement between producers like Saudi Arabia and consuming countries like Britain and the United States over the core factors driving steep price hikes. Oil closed near $135 a barrel on Friday - almost double the price a year ago.
The cost of gasoline also has become a sore point in the U.S. presidential race, with President Bush and presumed Republican nominee John McCain calling on Congress to lift its long-standing ban on offshore oil and gas drilling. Barack Obama, the presumptive Democratic nominee, has said such moves will do nothing to ease American consumers' pain short-term.
The U.S. and other nations argue that oil production has not kept up with increasing demand, especially from China, India and the Middle East. But Saudi Arabia and other OPEC countries say there is no shortage of oil and instead blame financial speculation and the falling U.S. dollar.
Saudi Oil Minister Ali al-Naimi said the kingdom is willing to produce more than the 9.7 million barrels of oil a day it had already planned to produce in July - if the market requires it.
But the Saudi oil minister also blamed speculators and asserted supply is not the problem.
``In today's environment, I am convinced that supply and demand balances and crude oil production levels are not the primary drivers of the current market situation,'' al-Naimi said. Officials and energy executives from more than 35 countries thronged a large hall where he spoke.
King Abdullah also said Saudi Arabia is not the culprit.
The king cited several factors driving ``the unjustified, swift rise in oil prices'' including ``speculators who play the market out of selfish interests,'' plus higher consumption by developing countries and higher taxes in some countries.
U.S. Energy Secretary Samuel Bodman, however, said earlier that U.S. officials had found no evidence speculators are driving up prices.
Saudi officials have consistently said the country would provide enough oil to supply the market. The kingdom announced a 300,000 barrel per day production increase in May and said before the start of the Jiddah meeting that it would add another 200,000 barrels per day in July, raising total daily output to 9.7 million barrels.
Both announcements had already been factored into oil prices before Sunday's meeting - and neither did much to stem their rise. Total worldwide crude production is about 85 million barrels per day.
The Saudi output increase is ``going to help a little bit, maybe reduce prices just a little,'' New Mexico Gov. Bill Richardson, a Democrat and former President Bill Clinton's energy secretary, said on CNN's ``Late Edition'' program. ``It won't be significant.''
It remained unclear if Sunday's announcements would have any greater effect.
At least one analyst said he thought they would only spur prices higher.
The oil market has been in a holding pattern to see if Saudi Arabia would take more aggressive steps toward boosting output, said Stephen Schork, an oil market analyst and trader in Villanova, Pa. The market's likely to view the announcement as a sign it will not, he said.
``We don't know anything more today that we didn't know Friday,'' said Schork, who predicted ``$150 (a barrel) here we come.''
Linda Rafield, senior oil analyst at energy trade publication Platts, said she expected the reaction to be less dramatic.
``I don't see prices going into freefall at the start of trading this evening, but I don't see the bulls being given any reason to bid prices back up to the $140 level,'' she said.
Bush has visited Saudi Arabia twice this year to push the country's king to increase oil production but has little to show for the effort.
To address long-term concerns about supply, al-Naimi said Saudi Arabia also is willing to invest to boost its spare oil production capacity above the current 12.5 million barrels per day planned for the end of 2009 - again, if the market requires it.
That reversed previous indications the country would not go beyond that figure.
British Prime Minister Gordon Brown echoed U.S. officials' calls for commitments of specific production increases. Such actions would help ensure that ``instead of uncertainty and unpredictability, there is greater certainty, and instead of instability, there is greater stability,'' he said.
But he and Bodman also urged consuming countries to increase energy efficiency and invest in alternative sources of fuel. Brown said the high prices - what he termed an ``oil shock'' - leave industrialized countries with few choices but turning more to nuclear power and lowering energy consumption.
A joint statement issued by participants also urged countries to improve energy efficiency. The vaguely worded statement also promoted investment in spare capacity and called for improved transparency and regulation of financial markets, but provided few specifics - again highlighting the confusion and disagreements over the core causes of oil's price surge.
Abdullah called for the creation of a $1 billion energy initiative to help poor countries combat fuel prices and said Saudi Arabia would contribute $500 million to provide loans to finance development and energy projects.
Associated Press reporters Donna Abu-Nasr in Jiddah and Adam Schreck and John Wilen in New York contributed to this report.
Friday, July 25, 2008
Attacks shake oil and gold prices
Crude oil and gold bullion prices have lost some of the sharp gains seen immediately after the devastating terrorist attacks in the US.
Gold is often bought up as a safe option for investors facing great uncertainty in the stock markets.
And the oil price typically moves higher when there is a rise in tension in the Middle East, because of fears over security of supply.
The Middle East holds two-thirds of the world's crude oil reserves, but the threat of an immediate supply shortage eased on Wednesday.
Asia prices
Thursday saw crude prices fall back from prices established on Monday, with October Dubai - the benchmark for Asian oil operators - dropping about 60 cents to $25.75. Wednesday trading had pushed the price up to $31 a barrel
None of these things change Opec's decision to guarantee the stability of the oil market
Ali Rodriguez
In London, crude futures slid lower on Wednesday after a massive surge on Tuesday.
By the close, October crude oil was trading 3.6% lower at $28.00 after having leapt 13% at one point on Tuesday.
"The US may need to take action against the perpetrators of this act and the uncertainty lies in the fact that the violators may lie within or nearby oil-producing countries," said Peter Cockcroft, corporate adviser to the UK's Premier Oil.
Further significant movements in oil prices on expected to depend on indications of what form any retaliation from the US will take.
But the oil producing cartel Opec has already said it is committed to ensuring stable oil supplies following the attack and that Middle East supplies are not affected at present.
And analysts have confirmed that the cartel has plenty of spare capacity to meet demand, soothing the markets.
It's going crazy here. It's worse than the Gulf War
Rob Laughin, oil trader, on Tuesday
"None of these things change Opec's decision to guarantee the stability of the oil market," said Ali Rodriguez, secretary general of the cartel.
Tuesday's trading had been characterised by panic, with one London-based oil broker, Rob Laughin telling BBC News Online: "It is going crazy here. It is worse than the Gulf War."
Rush for gold
Gold had been out of favour for some years, seeing steady price falls. But the crisis recreated its status as a safe alternative for investors.
There was pure panic. The gold price went through the roof
Neil Stacey, trader at Cazenove
Still, the initial surge on Tuesday began to settle back, with volumes slowly returning to normal.
The markets were subdued: "It's just a case of waiting and seeing...a lot of liquidity has been taken out of the market because there is no trade in the US now," said one trader.
In Asia, the bullion price at 0117 GMT was $279.25 an ounce, steady from the close in London.
Joburg price leap
On Tuesday, gold had soared nearly 6% after the attacks, with the London benchmark price climbing to $287 in the afternoon from $271 in the morning.
Robin Bahr, metals analyst at Standard Bank, London, said: "There is panic buying of metals, gold and oil - it is complete pandemonium."
In Johannesburg, a big world centre for gold trading, gold prices had leapt to $289.9 an ounce on Tuesday, from $271.15.
Nymex evacuated
The New York Mercantile Exchange (Nymex) - the world's largest physical commodities exchange - will not open for trade on Wednesday following Tuesday's attacks, although no decision has yet been made on whether to start electronic screen trade in the US.
A Nymex spokeswoman said she understood there had been no damage to the exchange building itself which is situated just a few hundred metres from the World Trade Center.
The exchange had not yet opened for business when the planes hit the World Trade Center at about 0900 local time, but its trading floor was immediately evacuated and trade suspended.
Nymex is mulling whether to start electronic trade of crude oil, petroleum products and precious metals on its electronic system later on Wednesday, and has consulted with the industry to make a decision.
Gold is often bought up as a safe option for investors facing great uncertainty in the stock markets.
And the oil price typically moves higher when there is a rise in tension in the Middle East, because of fears over security of supply.
The Middle East holds two-thirds of the world's crude oil reserves, but the threat of an immediate supply shortage eased on Wednesday.
Asia prices
Thursday saw crude prices fall back from prices established on Monday, with October Dubai - the benchmark for Asian oil operators - dropping about 60 cents to $25.75. Wednesday trading had pushed the price up to $31 a barrel
None of these things change Opec's decision to guarantee the stability of the oil market
Ali Rodriguez
In London, crude futures slid lower on Wednesday after a massive surge on Tuesday.
By the close, October crude oil was trading 3.6% lower at $28.00 after having leapt 13% at one point on Tuesday.
"The US may need to take action against the perpetrators of this act and the uncertainty lies in the fact that the violators may lie within or nearby oil-producing countries," said Peter Cockcroft, corporate adviser to the UK's Premier Oil.
Further significant movements in oil prices on expected to depend on indications of what form any retaliation from the US will take.
But the oil producing cartel Opec has already said it is committed to ensuring stable oil supplies following the attack and that Middle East supplies are not affected at present.
And analysts have confirmed that the cartel has plenty of spare capacity to meet demand, soothing the markets.
It's going crazy here. It's worse than the Gulf War
Rob Laughin, oil trader, on Tuesday
"None of these things change Opec's decision to guarantee the stability of the oil market," said Ali Rodriguez, secretary general of the cartel.
Tuesday's trading had been characterised by panic, with one London-based oil broker, Rob Laughin telling BBC News Online: "It is going crazy here. It is worse than the Gulf War."
Rush for gold
Gold had been out of favour for some years, seeing steady price falls. But the crisis recreated its status as a safe alternative for investors.
There was pure panic. The gold price went through the roof
Neil Stacey, trader at Cazenove
Still, the initial surge on Tuesday began to settle back, with volumes slowly returning to normal.
The markets were subdued: "It's just a case of waiting and seeing...a lot of liquidity has been taken out of the market because there is no trade in the US now," said one trader.
In Asia, the bullion price at 0117 GMT was $279.25 an ounce, steady from the close in London.
Joburg price leap
On Tuesday, gold had soared nearly 6% after the attacks, with the London benchmark price climbing to $287 in the afternoon from $271 in the morning.
Robin Bahr, metals analyst at Standard Bank, London, said: "There is panic buying of metals, gold and oil - it is complete pandemonium."
In Johannesburg, a big world centre for gold trading, gold prices had leapt to $289.9 an ounce on Tuesday, from $271.15.
Nymex evacuated
The New York Mercantile Exchange (Nymex) - the world's largest physical commodities exchange - will not open for trade on Wednesday following Tuesday's attacks, although no decision has yet been made on whether to start electronic screen trade in the US.
A Nymex spokeswoman said she understood there had been no damage to the exchange building itself which is situated just a few hundred metres from the World Trade Center.
The exchange had not yet opened for business when the planes hit the World Trade Center at about 0900 local time, but its trading floor was immediately evacuated and trade suspended.
Nymex is mulling whether to start electronic trade of crude oil, petroleum products and precious metals on its electronic system later on Wednesday, and has consulted with the industry to make a decision.
Oil spill plan
The commercial ship-to-ship transfer of crude oil in the bay is a matter of ongoing concern for both authorities.
The type of crude oil transferred in Lyme Bay is similar to that of the tanker the Prestige which caused widespread environmental damage when it foundered off the coast of Spain last year.
Staff from both county councils, the Department of Transport and the Maritime and Coastguard Agency are meeting to discuss how best to protect the World Heritage Site.
This type of oil is very difficult to tackle once it gets into the marine environment
Richard Hill, Devon County Council
Recently Lyme Bay has been used extensively by tankers travelling from the Baltic to the Far East, with each operation transferring up to two million barrels of oil over a two-week period.
Richard Hill from Devon County Council believes oil trade coming out of the Baltic is likely to double to 80 million tons every year.
"This is obviously going to have a knock on effect in areas like Lyme Bay where ship to ship transfers take place," said Mr Hill.
"We've seen from the Prestige that this type of oil is very difficult to tackle once it gets into the marine environment and will require large scale emergency arrangements to clean up any oil spill in the event of a disaster."
The type of crude oil transferred in Lyme Bay is similar to that of the tanker the Prestige which caused widespread environmental damage when it foundered off the coast of Spain last year.
Staff from both county councils, the Department of Transport and the Maritime and Coastguard Agency are meeting to discuss how best to protect the World Heritage Site.
This type of oil is very difficult to tackle once it gets into the marine environment
Richard Hill, Devon County Council
Recently Lyme Bay has been used extensively by tankers travelling from the Baltic to the Far East, with each operation transferring up to two million barrels of oil over a two-week period.
Richard Hill from Devon County Council believes oil trade coming out of the Baltic is likely to double to 80 million tons every year.
"This is obviously going to have a knock on effect in areas like Lyme Bay where ship to ship transfers take place," said Mr Hill.
"We've seen from the Prestige that this type of oil is very difficult to tackle once it gets into the marine environment and will require large scale emergency arrangements to clean up any oil spill in the event of a disaster."
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Oil prices at 10-year high
Oil prices have risen to their highest level in a decade, with Brent crude oil trading at around thirty-two dollars a barrel in London.
The rise follows a series of reports indicating low oil stocks in the United States and north-western Europe -- the main oil-consuming countries.
Further problems have been caused by confusion over how much oil is available from OPEC, the Organisation of Petroleum Exporting Countries.
Saudi Arabia said in June it was increasing its production to stabilise prices, but lately there have been expectations that the Saudis might cut back their output. The BBC business reporter says the prices could continue their rise until it is known what OPEC members are going to do about their production levels.
The rise follows a series of reports indicating low oil stocks in the United States and north-western Europe -- the main oil-consuming countries.
Further problems have been caused by confusion over how much oil is available from OPEC, the Organisation of Petroleum Exporting Countries.
Saudi Arabia said in June it was increasing its production to stabilise prices, but lately there have been expectations that the Saudis might cut back their output. The BBC business reporter says the prices could continue their rise until it is known what OPEC members are going to do about their production levels.
Oil trade strengthen US-Russian ties
The first ever direct shipment of Russian oil to the US has reached the port of Houston.
The delivery of 2 million barrels of crude oil, which arrived on the super tanker Astro Lupus, was organised by Yukos, Russia's second largest oil company.
In the 1970s, Moscow used Venezuela as an intermediary for reaching North America's oil market.
The current deal is the first ever direct sale, and Russian and US officials hope it will not be the last.
"Experimental" delivery
Yukos' chief executive, Mikhail Khodorkovsky, said the shipment was "merely experimental" and that its profitability had yet to be estimated.
The firm sees the shipment as part of the Russia-US "energy dialogue" launched in May when US President George Bush visited Moscow.
Yukos' oil well
Russia's oil industry needs money
Mr Bush and Russian President Vladimir Putin promised to work together to "reduce volatility and enhance predictability" in world oil markets.
Both countries are seen as wanting more Russian oil to enter the US, which has been reliant for imports mostly on countries in the Opec producers' cartel.
But Russia, which is not an Opec member, is believed to have mapped a future in denting the cartel's market share.
The US, meanwhile, is seen as keen on decreasing its dependence on the Middle East for oil.
Mr Khodorkovsky told BBC News Online that Yukos and its rivals would be able to fill the gap in the market if Opec cut its production.
Growing contender
A recovery in production in the past three years has elevated Russia to third place in the world oil production league, with exports narrowly behind those of Saudi Arabia.
And production is likely to rise further, by 7-8% this year, after Russia this month ends an output restriction imposed as part of a global effort to boost the crude price.
Yukos itself expects a 20% increase in production this year to 1.4 million barrels per day.
The company, praised by investors for its unusual - by Russian standards - transparency and corporate governance practices, is looking for new markets.
Projects outside Russia range from oil refineries in Germany to a pipeline in China.
Yet, while linked to Europe by pipelines, the continent is not seen by Yukos as its main target for expansion.
The EU is cautious in letting Russia increase exports to Europe, Mr Khodorkovsky says.
Expensive project
Even exporting to the US is not quite as straightforward as it might seem.
According to some estimates, the cost of transportation may be as high as $1.50 per barrel, leaving producers with a profit of $1-$1.50 per barrel at best.
Russia has no deep-water ports, so the oil was transported from Black Sea terminals in small tankers to an Aegean Port where it was loaded onto the Astro Lupus.
It not surprising that Yukos has failed to promise more US shipments in the near future.
The firm's rivals have dismissed the venture as a "public relations action".
Cash squeeze
Not that shipment represents Russia's only challenge.
The country's currently explored oil fields are expected to run dry in 20-25 years, and Russia's oil industry does not have enough money to explore new ones.
And amid all the talk of opening up the country, Russian officials are seen as trying to keep foreign investors away from the most profitable oil projects.
The level of direct foreign investment in Russia's oil industry is a mere $4.5bn.
Most of that goes to high-risk and costly offshore projects in the Pacific, and the construction of a pipeline connecting Caspian oil fields to Black Sea ports.
The Russia-US "energy dialogue", of which the Yukos' shipment to Huston was the first visible sign, might yet see the country's oil industry open up for future investors.
The delivery of 2 million barrels of crude oil, which arrived on the super tanker Astro Lupus, was organised by Yukos, Russia's second largest oil company.
In the 1970s, Moscow used Venezuela as an intermediary for reaching North America's oil market.
The current deal is the first ever direct sale, and Russian and US officials hope it will not be the last.
"Experimental" delivery
Yukos' chief executive, Mikhail Khodorkovsky, said the shipment was "merely experimental" and that its profitability had yet to be estimated.
The firm sees the shipment as part of the Russia-US "energy dialogue" launched in May when US President George Bush visited Moscow.
Yukos' oil well
Russia's oil industry needs money
Mr Bush and Russian President Vladimir Putin promised to work together to "reduce volatility and enhance predictability" in world oil markets.
Both countries are seen as wanting more Russian oil to enter the US, which has been reliant for imports mostly on countries in the Opec producers' cartel.
But Russia, which is not an Opec member, is believed to have mapped a future in denting the cartel's market share.
The US, meanwhile, is seen as keen on decreasing its dependence on the Middle East for oil.
Mr Khodorkovsky told BBC News Online that Yukos and its rivals would be able to fill the gap in the market if Opec cut its production.
Growing contender
A recovery in production in the past three years has elevated Russia to third place in the world oil production league, with exports narrowly behind those of Saudi Arabia.
And production is likely to rise further, by 7-8% this year, after Russia this month ends an output restriction imposed as part of a global effort to boost the crude price.
Yukos itself expects a 20% increase in production this year to 1.4 million barrels per day.
The company, praised by investors for its unusual - by Russian standards - transparency and corporate governance practices, is looking for new markets.
Projects outside Russia range from oil refineries in Germany to a pipeline in China.
Yet, while linked to Europe by pipelines, the continent is not seen by Yukos as its main target for expansion.
The EU is cautious in letting Russia increase exports to Europe, Mr Khodorkovsky says.
Expensive project
Even exporting to the US is not quite as straightforward as it might seem.
According to some estimates, the cost of transportation may be as high as $1.50 per barrel, leaving producers with a profit of $1-$1.50 per barrel at best.
Russia has no deep-water ports, so the oil was transported from Black Sea terminals in small tankers to an Aegean Port where it was loaded onto the Astro Lupus.
It not surprising that Yukos has failed to promise more US shipments in the near future.
The firm's rivals have dismissed the venture as a "public relations action".
Cash squeeze
Not that shipment represents Russia's only challenge.
The country's currently explored oil fields are expected to run dry in 20-25 years, and Russia's oil industry does not have enough money to explore new ones.
And amid all the talk of opening up the country, Russian officials are seen as trying to keep foreign investors away from the most profitable oil projects.
The level of direct foreign investment in Russia's oil industry is a mere $4.5bn.
Most of that goes to high-risk and costly offshore projects in the Pacific, and the construction of a pipeline connecting Caspian oil fields to Black Sea ports.
The Russia-US "energy dialogue", of which the Yukos' shipment to Huston was the first visible sign, might yet see the country's oil industry open up for future investors.
World Economy Oil Prices
The past months have witnessed soaring oil prices in international markets, which have come on top of increases in the previous three years. In the third week of August world trade prices of crude oil nearly touched $50 per barrel before settling somewhat lower. But further increases are not ruled out in the near future.
While crude oil prices have been rising since March this year, thus far the month of August has seen the most rapid increase, as Chart 1 shows. The most recent increases have been driven by a number of factors. The most important factor, of course, is the continued resistance of the Iraqi people to the US military occupation. The inability thus far of the US army to contain the armed struggle of the militia of Muqtada al Sadr and others despite using blatant violence even against civilians, along with the growing sabotage of oil facilities and destruction of oil pipelines in Iraq, has reduced exports and led to expectations of uncertain future supplies from that country.
In addition, the threats of terrorist attacks in the world's largest oil producer, Saudi Arabia, are growing and also have been increasingly realised in recent months. The nervousness this has created in world markets has not been neutralised by OPEC's promises of boosting production. More recently, the travails of the giant Russian oil company Yukos have also contributed to rising oil prices.
Normally, some of this supply uncertainty would be considered as inevitable and would have only a marginal effect on markets. At present, however, these factors, as well as other potential issues such as instability in Venezuela or strikes in Norway, or indeed any changes in any oil-producing country, can have substantial effects on prices at the margin and cause sudden price spikes. This is because world demand for oil rules very high at present. In consequence, current oil production is extremely close to current capacity, and there is little margin for major increases in supply in the near future.
World demand for oil has been fuelled not only by growth in the US, but also by strong demand from other countries. China's imports of crude oil have increased by more than 40 per cent since the beginning of 2004. This is not all for current consumption rather it reflects stockpiling by the Chinese government, a shift from holding excess dollar reserves to holding oil reserves.
Even the US government is continuing to add to its Strategic Petroleum Reserve, rather than depleting it in order to reduce oil prices. The Bush administration has made it clear it would not intervene to release any of these stocks unless the oil prices goes to levels of $55-60 per barrel before the November elections.
Market analysts do predict that the current high levels of OPEC production (which was 29.8 million barrels per day in July, only 0.5 million barrels below total OPEC crude oil production capacity) are likely to push prices below $40 per barrel by the last quarter of 2004. Nevertheless, it is unlikely that 2005 will witness a sharp decline in crude oil prices, simply because world demand is expected to continue to grow and keep inventories tight. Global oil demand is currently projected by the US Department of Energy to exceed 2 million barrels per day this year as well as in 2005.
So if oil prices do continue to rise, what are the implications? Some observers have already sounded the alarm bells. OPEC itself has predicted that the global economic recovery could be in jeopardy in prices remain at current levels (around $40 per barrel) for the next two years. An OPEC report projects that this would reduce growth in Europe and the US by between 0.2 and 0.4 percentage points.
Asian economists have been even more pessimistic. Kim Hak-Su, the Executive Secretary of UN-ESCAP (the United Nation's Economic and Social Commission for Asia and the Pacific) has suggested that oil prices of around $40 per barrel would mean a 0.5 percentage point reduction of growth in the region, and $50 per barrel would mean a 1 percentage point reduction.
Such projections usually hinge around the perceived trade-off between growth and inflation, and are predicated on the assumption that oil prices increases will lead to more general inflation. Governments attempting to combat inflation will then embark upon contractionary fiscal and monetary policies, which will bring down inflation but also imply lower rates of aggregate economic growth.
It is correct to assume that governments across the world remain obsessed with inflation control, because the political economy configurations that have led to the domination of finance still persist. However, the prior assumption, that oil price hikes necessarily lead to higher inflation, may not be so valid any more.
Certainly it is true that for a very long period in fact almost the whole of the second half of the 20th century oil prices showed a strong relationship to aggregate inflation rates in the world economy. Between 1970 and 2000, for example, world trade prices and oil prices were strongly positively correlated and in the largest economy, the US, the Consumer Price Index inflation tracked movements in world oil prices.
However, there is evidence that such a relationship may be changing. Chart 2 indicates the annual percentage changes in world oil prices and average inflation rates in industrial and developing countries, especially since 1996.
Two things stand out quite sharply in this chart. The first is that oil prices were exceptionally volatile over this period, rising and falling dramatically. The second is that such fluctuations appear to have had little impact on aggregate inflation rates in either developed or developing countries. Rather, such inflation rates have been relatively stable and even fallen slightly compared to the earlier decade.
So what has changed in the world economy to cause such an apparently established relationship to break down? To begin with, it is worth remembering that even the currently high oil prices are still well below their real levels in the 1970s, when the oil price shocks generated stagflation. But there are other forces which have reduced the responsiveness of the general price level to energy prices.
The first important factor is the reduced dependence of the industrial economies upon oil imports, at least in quantitative terms. For the group of industrial countries in the OECD, net oil imports accounted for 2.4 per cent of GDP in 1978, but have since fallen continuously, to amount to only 0.9 per cent of GDP in 2002.
But the second factor may be even more significant. This is a distributional shift, whereby the burden of adjustment to higher oil prices is essentially borne by workers across the world and non-oil primary commodity producers in the developing countries. This means that even though energy is a universal intermediate good, its price rise does not cause prices of many other commodities and especially the money wage - to increase accordingly. This in turn enables aggregate inflation levels to remain low even though oil prices may be increasing.
It is well-known that the period since the early 1990s has been once of a substantial decline in the bargaining power of workers vis-à-vis capital in most of the world, and this has been reflected in declining wage shares of national income and real wages that are either stagnant or growing well below productivity increases. This provides a significant amount of slack in terms of the ability of employers to bear other input cost increases. In addition, this disempowerment of workers also means that such input cost increases can be passed on without attracting demands for commensurate increases in money wages in the current period.
Along with the working class, the peasantry and other non-oil primary commodity producers have also been adversely affected and been forced to take on some of the burden of adjustment. Indeed, even manufacturing producers from developing countries have been forced in a situation where intense competitive pressure has ensured that they cannot pass on all their input cost increases.
Chart 3 indicates the annual changes in the world trade prices of oil, non-oil primary commodities and manufactured goods. It is evident that the prices of other primary commodities have generally been more depressed, falling between 1995 and 1999, and barely increasing even in years when world oil prices rose sharply. Similarly manufactured goods prices also have hardly increased, and have also been falling in absolute terms over much of this period. Only in the period since 2001 is there some evidence of all three sets of prices moving together.
So does this mean that the oil price is no longer an issue of concern for those interested in the aggregate growth of the world economy? Not at all; in fact, such a conclusion would not only be unwarranted, it could also be extremely misleading.
It is clear from the preceding argument that the adverse impact of oil prices upon inflation can only be contained by suppressing and reducing the incomes of workers everywhere and peasants in the developing world. But there are limits to the extent to which such incomes can continue to be reduced, since such a process has already been under way for some years, and it cannot be intensified in most countries without causing social unrest and political instability.
This means that continuing high prices of oil are likely to place governments across the world in a dilemma. If they continue with the practices of the recent past of forcing the majority of the people to bear the burden, they risk losing legitimacy with the people. In any case these policies have become so unpopular and are meeting with more and more distrust and resistance. This is of special significance in those developed countries (including the US and UK) where elections are due in the near future. But it is also true of some developing countries (including India) where the balance of political forces may be shifting in some small degree in favour of the working class and peasantry after more than a decade of extreme tilt in the opposite direction.
So this particular strategy has its limits. However, the alternative strategy, of using contractionary monetary policies to bring down aggregate inflation, would also be extremely unpopular since it would add to unemployment and material insecurity which are already at high levels.
It appears that if governments are to take into account this requirement of popular legitimacy, they must be prepared to live with higher inflation in the medium term. How far this is compatible with the domination of international finance capital is something that remains to be seen.
While crude oil prices have been rising since March this year, thus far the month of August has seen the most rapid increase, as Chart 1 shows. The most recent increases have been driven by a number of factors. The most important factor, of course, is the continued resistance of the Iraqi people to the US military occupation. The inability thus far of the US army to contain the armed struggle of the militia of Muqtada al Sadr and others despite using blatant violence even against civilians, along with the growing sabotage of oil facilities and destruction of oil pipelines in Iraq, has reduced exports and led to expectations of uncertain future supplies from that country.
In addition, the threats of terrorist attacks in the world's largest oil producer, Saudi Arabia, are growing and also have been increasingly realised in recent months. The nervousness this has created in world markets has not been neutralised by OPEC's promises of boosting production. More recently, the travails of the giant Russian oil company Yukos have also contributed to rising oil prices.
Normally, some of this supply uncertainty would be considered as inevitable and would have only a marginal effect on markets. At present, however, these factors, as well as other potential issues such as instability in Venezuela or strikes in Norway, or indeed any changes in any oil-producing country, can have substantial effects on prices at the margin and cause sudden price spikes. This is because world demand for oil rules very high at present. In consequence, current oil production is extremely close to current capacity, and there is little margin for major increases in supply in the near future.
World demand for oil has been fuelled not only by growth in the US, but also by strong demand from other countries. China's imports of crude oil have increased by more than 40 per cent since the beginning of 2004. This is not all for current consumption rather it reflects stockpiling by the Chinese government, a shift from holding excess dollar reserves to holding oil reserves.
Even the US government is continuing to add to its Strategic Petroleum Reserve, rather than depleting it in order to reduce oil prices. The Bush administration has made it clear it would not intervene to release any of these stocks unless the oil prices goes to levels of $55-60 per barrel before the November elections.
Market analysts do predict that the current high levels of OPEC production (which was 29.8 million barrels per day in July, only 0.5 million barrels below total OPEC crude oil production capacity) are likely to push prices below $40 per barrel by the last quarter of 2004. Nevertheless, it is unlikely that 2005 will witness a sharp decline in crude oil prices, simply because world demand is expected to continue to grow and keep inventories tight. Global oil demand is currently projected by the US Department of Energy to exceed 2 million barrels per day this year as well as in 2005.
So if oil prices do continue to rise, what are the implications? Some observers have already sounded the alarm bells. OPEC itself has predicted that the global economic recovery could be in jeopardy in prices remain at current levels (around $40 per barrel) for the next two years. An OPEC report projects that this would reduce growth in Europe and the US by between 0.2 and 0.4 percentage points.
Asian economists have been even more pessimistic. Kim Hak-Su, the Executive Secretary of UN-ESCAP (the United Nation's Economic and Social Commission for Asia and the Pacific) has suggested that oil prices of around $40 per barrel would mean a 0.5 percentage point reduction of growth in the region, and $50 per barrel would mean a 1 percentage point reduction.
Such projections usually hinge around the perceived trade-off between growth and inflation, and are predicated on the assumption that oil prices increases will lead to more general inflation. Governments attempting to combat inflation will then embark upon contractionary fiscal and monetary policies, which will bring down inflation but also imply lower rates of aggregate economic growth.
It is correct to assume that governments across the world remain obsessed with inflation control, because the political economy configurations that have led to the domination of finance still persist. However, the prior assumption, that oil price hikes necessarily lead to higher inflation, may not be so valid any more.
Certainly it is true that for a very long period in fact almost the whole of the second half of the 20th century oil prices showed a strong relationship to aggregate inflation rates in the world economy. Between 1970 and 2000, for example, world trade prices and oil prices were strongly positively correlated and in the largest economy, the US, the Consumer Price Index inflation tracked movements in world oil prices.
However, there is evidence that such a relationship may be changing. Chart 2 indicates the annual percentage changes in world oil prices and average inflation rates in industrial and developing countries, especially since 1996.
Two things stand out quite sharply in this chart. The first is that oil prices were exceptionally volatile over this period, rising and falling dramatically. The second is that such fluctuations appear to have had little impact on aggregate inflation rates in either developed or developing countries. Rather, such inflation rates have been relatively stable and even fallen slightly compared to the earlier decade.
So what has changed in the world economy to cause such an apparently established relationship to break down? To begin with, it is worth remembering that even the currently high oil prices are still well below their real levels in the 1970s, when the oil price shocks generated stagflation. But there are other forces which have reduced the responsiveness of the general price level to energy prices.
The first important factor is the reduced dependence of the industrial economies upon oil imports, at least in quantitative terms. For the group of industrial countries in the OECD, net oil imports accounted for 2.4 per cent of GDP in 1978, but have since fallen continuously, to amount to only 0.9 per cent of GDP in 2002.
But the second factor may be even more significant. This is a distributional shift, whereby the burden of adjustment to higher oil prices is essentially borne by workers across the world and non-oil primary commodity producers in the developing countries. This means that even though energy is a universal intermediate good, its price rise does not cause prices of many other commodities and especially the money wage - to increase accordingly. This in turn enables aggregate inflation levels to remain low even though oil prices may be increasing.
It is well-known that the period since the early 1990s has been once of a substantial decline in the bargaining power of workers vis-à-vis capital in most of the world, and this has been reflected in declining wage shares of national income and real wages that are either stagnant or growing well below productivity increases. This provides a significant amount of slack in terms of the ability of employers to bear other input cost increases. In addition, this disempowerment of workers also means that such input cost increases can be passed on without attracting demands for commensurate increases in money wages in the current period.
Along with the working class, the peasantry and other non-oil primary commodity producers have also been adversely affected and been forced to take on some of the burden of adjustment. Indeed, even manufacturing producers from developing countries have been forced in a situation where intense competitive pressure has ensured that they cannot pass on all their input cost increases.
Chart 3 indicates the annual changes in the world trade prices of oil, non-oil primary commodities and manufactured goods. It is evident that the prices of other primary commodities have generally been more depressed, falling between 1995 and 1999, and barely increasing even in years when world oil prices rose sharply. Similarly manufactured goods prices also have hardly increased, and have also been falling in absolute terms over much of this period. Only in the period since 2001 is there some evidence of all three sets of prices moving together.
So does this mean that the oil price is no longer an issue of concern for those interested in the aggregate growth of the world economy? Not at all; in fact, such a conclusion would not only be unwarranted, it could also be extremely misleading.
It is clear from the preceding argument that the adverse impact of oil prices upon inflation can only be contained by suppressing and reducing the incomes of workers everywhere and peasants in the developing world. But there are limits to the extent to which such incomes can continue to be reduced, since such a process has already been under way for some years, and it cannot be intensified in most countries without causing social unrest and political instability.
This means that continuing high prices of oil are likely to place governments across the world in a dilemma. If they continue with the practices of the recent past of forcing the majority of the people to bear the burden, they risk losing legitimacy with the people. In any case these policies have become so unpopular and are meeting with more and more distrust and resistance. This is of special significance in those developed countries (including the US and UK) where elections are due in the near future. But it is also true of some developing countries (including India) where the balance of political forces may be shifting in some small degree in favour of the working class and peasantry after more than a decade of extreme tilt in the opposite direction.
So this particular strategy has its limits. However, the alternative strategy, of using contractionary monetary policies to bring down aggregate inflation, would also be extremely unpopular since it would add to unemployment and material insecurity which are already at high levels.
It appears that if governments are to take into account this requirement of popular legitimacy, they must be prepared to live with higher inflation in the medium term. How far this is compatible with the domination of international finance capital is something that remains to be seen.
Wednesday, July 2, 2008
Oil Market is Changing - IMF
The International Monetary Fund has published its twice yearly assessment of the world economic outlook.
That means it is the season for worrying about oil prices again.
Of course it is not just the IMF that frets about oil.
But it has been a concern in several of the Fund's global economic health checks in recent years.
So far, the oil price has not done serious economic damage.
'Economic fallout'
The global economy is indeed growing more slowly that last year, and the IMF does hold the oil price partly responsible for what it calls a 'soft patch'.
Consumers and business are spending more on filling their cars and lorries, and on heating their homes, offices and factories.
In spite of that, the IMF's forecast is for pretty robust growth - 4.3% this year and next for the world.
This does not look like the 1970s or early 1980s, when sharp rises in oil prices were followed by recessions.
But there was a warning from the IMF's chief economist Raghuvan Rajan, that the oil market may now be changing in a way that increases the risk of economic fallout.
The main factor driving the oil price higher so far has been strong economic growth.
The US and China for example have needed increasing amounts of energy to fuel their expanding economies. Strong demand for oil has driven prices higher.
'Different world'
Increasingly, though Mr Rajan says "the demand driven price increase is giving way to supply side effects".
He referred to the disruption to oil supplies caused by hurricane Katrina in the southern US and the possibility of further damage from hurricane Rita.
We live in a different world, he says.
There is not much spare capacity in the industry - among crude oil producers and among refiners who turn crude into products like petrol or aviation fuel that people can use.
It means that Mr Rajan is concerned that the oil price "might not have the same benign effect" that it has had up to now.
The oil crises of the 1970s and 1980s were caused by supply disruptions - following political developments and conflict in the Middle-East.
Mr Rajan sees us in a world where supply disruptions are again possible just because there is so little slack in the industry.
He is not predicting a repeat of those earlier crises. But he is clearly keeping a wary eye on the oil market.
That means it is the season for worrying about oil prices again.
Of course it is not just the IMF that frets about oil.
But it has been a concern in several of the Fund's global economic health checks in recent years.
So far, the oil price has not done serious economic damage.
'Economic fallout'
The global economy is indeed growing more slowly that last year, and the IMF does hold the oil price partly responsible for what it calls a 'soft patch'.
Consumers and business are spending more on filling their cars and lorries, and on heating their homes, offices and factories.
In spite of that, the IMF's forecast is for pretty robust growth - 4.3% this year and next for the world.
This does not look like the 1970s or early 1980s, when sharp rises in oil prices were followed by recessions.
But there was a warning from the IMF's chief economist Raghuvan Rajan, that the oil market may now be changing in a way that increases the risk of economic fallout.
The main factor driving the oil price higher so far has been strong economic growth.
The US and China for example have needed increasing amounts of energy to fuel their expanding economies. Strong demand for oil has driven prices higher.
'Different world'
Increasingly, though Mr Rajan says "the demand driven price increase is giving way to supply side effects".
He referred to the disruption to oil supplies caused by hurricane Katrina in the southern US and the possibility of further damage from hurricane Rita.
We live in a different world, he says.
There is not much spare capacity in the industry - among crude oil producers and among refiners who turn crude into products like petrol or aviation fuel that people can use.
It means that Mr Rajan is concerned that the oil price "might not have the same benign effect" that it has had up to now.
The oil crises of the 1970s and 1980s were caused by supply disruptions - following political developments and conflict in the Middle-East.
Mr Rajan sees us in a world where supply disruptions are again possible just because there is so little slack in the industry.
He is not predicting a repeat of those earlier crises. But he is clearly keeping a wary eye on the oil market.
Sunday, June 29, 2008
US Investigates Oil Markets
Oil giant BP is being questioned over its role in the alleged manipulation of global crude oil and petrol markets between 2002 and 2004.
It said it was co-operating in a crude oil inquiry by the US Commodity Futures Trading Commission (CFTC) and a Justice Department probe into petrol trades.
The investigations will further dent an already fragile reputation in the US.
BP faces questions over its leaky Alaskan oil pipeline and investigations into a fatal Texan oil refinery blast.
'Witch hunt'
Earlier this week, a Texan judge ordered BP chief executive John Browne to answer questions about the huge explosion, which killed 15 people in March 2005.
BP is appealing against the decision.
It is already facing legal action from the CFTC over charges that it tried to manipulate propane prices in 2004.
Energy traders, of which BP is one of the world's biggest, often use derivatives such as futures to bet on prices and manage the risk associated with major rises or falls.
"BP is known for being an extremely aggressive trader of crude, so it's an easy accusation to throw at them," said Bruce Evers, an oil analyst at Investec Henderson Crosthwaite.
"There seems to be almost a witch-hunt going on, with investigations into BP. I'm sure similar charges could be levelled at other companies."
It said it was co-operating in a crude oil inquiry by the US Commodity Futures Trading Commission (CFTC) and a Justice Department probe into petrol trades.
The investigations will further dent an already fragile reputation in the US.
BP faces questions over its leaky Alaskan oil pipeline and investigations into a fatal Texan oil refinery blast.
'Witch hunt'
Earlier this week, a Texan judge ordered BP chief executive John Browne to answer questions about the huge explosion, which killed 15 people in March 2005.
BP is appealing against the decision.
It is already facing legal action from the CFTC over charges that it tried to manipulate propane prices in 2004.
Energy traders, of which BP is one of the world's biggest, often use derivatives such as futures to bet on prices and manage the risk associated with major rises or falls.
"BP is known for being an extremely aggressive trader of crude, so it's an easy accusation to throw at them," said Bruce Evers, an oil analyst at Investec Henderson Crosthwaite.
"There seems to be almost a witch-hunt going on, with investigations into BP. I'm sure similar charges could be levelled at other companies."
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