Oil Demand Remains Low

29 July 2009 - Xenia Rainey (Which Way To Pay)


Oil Demand Remains Low


Oil demand is still weak despite the significant increase in the price of a barrel since December.  Back then, the price dipped to $30 and is now just below $70, where it continues to hover.

The peaks and troughs that the oil industry has experienced since this time last year is still causing an effect. 

BP, the oil giant, has reported profit cuts in the second quarter.  Yesterday, the company said it had replacement cost profit of $3.14 billion – which, despite being less than half the level of last year is still a good 30 per cent higher than the previous quarter.

Production did rise in the last three months to June but even developed countries’ demand is down – a drop of around 3 million bpd (barrels per day) has been reported.

As BP chief executive Tony Hayward put it: “It has been….turbulent…[but] BP continues to steer a steady course through choppy waters.”  Indeed, BP has done well in light of the recession by scaling down and becoming “more efficient”. 

BP has already met this year’s target for cash saving – at $2 billion – by making thousands of job cuts, lower energy bills and foreign exchange benefits.

On the shares front, BP paid a dividend of 28 cents per share in the first half.  The group’s gearing is at 22 per cent thanks to net debt at $27.1 billion, while net cash at $6.8 billion, up 21 per cent since the last quarter.

So while the lower oil prices have taken out more than half of the company’s profits, they are expecting an extra $1 billion in cost savings and they are overall doing well given the circumstances. 

BP does not expect larger increases in the oil price, but forecasts a long and drawn out recovery.  Meanwhile, financial watchdogs in both the UK and the USA are already at loggerheads on what the role of the futures trader has in relation to oil price fluctuations.

Traders have been blamed for last year’s oil spikes and also the sharp rise in price this year (since December 2008).

In the USA there have already been hearings on the problem and it is widely expected that changes will be made – such as limits on investments in the energy sector and less privacy on hedge funds.

In the UK so far, there has been less inclination to close in on the speculatory nature of the futures trading market.  While the issue has been covered by the FSA, it concluded that it found no direct link between speculation and oil prices being driven up.




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