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Russia's Gazprom predicts $250 oil in 2009
By Tom Bergin
DEAUVILLE, France, June 10 (Reuters) - Russia's Gazprom, the supplier of a quarter of Europe's natural gas, expects the price of crude oil to almost double within 18 months and to take gas prices higher with it.
"We think it will reach $250 a barrel in the foreseeable future," Chief Executive Alexei Miller told reporters at a presentation in France, adding high demand rather than speculation was the primary factor for high hydrocarbon prices.
A spokesman said the company, which is also one of Russia's largest crude producers, expected the price to hit the $250/barrel level sometime in 2009.
Gazprom exports gas to Europe at prices linked to oil products. Miller said the current gas price was $410 per 1,000 cubic metres and Alexander Medvedev, Miller's deputy, said prices were likely to rise to reflect the higher cost of crude.
Analysts said that using the $250/barrel forecast and the conversion factors cited by Medvedev at the presentation, one would arrive at a gas price of $1,500 per 1,000 cubic metres.
"It's crazy ... maybe they know something we don't," said one analyst, who bemoaned the lack of analysis to back up the forecast.
"Usually one give a lot of analysis to back up that kind of forecast," he said.
The comments came as the oil price sat at around $134 a barrel, a few dollars short of last week's record level.
State-controlled Gazprom plans to double oil production by 2020. This goal could be reached sooner through the acquisition of a stake in TNK-BP, Russia's third-largest oil producer, and industry sources said Gazprom was interested.
Medvedev said Gazprom will only consider investing in TNK-BP after its shareholders have settled a dispute over control of the company.
TNK-BP is half owned by oil major BP and half owned a group of Russian billionaires who have criticised management at the company.
DIVERSIFICATION IS USELESS
Miller criticised European efforts to reduce reliance on Russia, which analysts expect to provide a third of EU gas in the years ahead, and slammed attempts to limit Gazprom's ability to buy gas distribution assets in the bloc.
Miller said it was Gazprom's strategy to be vertically integrated with operations from the well-head to the consumer in Europe and other continents.
Some European politicians have expressed concern about Gazprom buying up downstream assets in the EU saying the Kremlin could use these assets to exert political influence in the future but Medvedev said the investments were commercial.
"Why should we invest money to create the possibility to shut off the gas supply?" he said at the presentation in the resort town of Deauville in northern France.
Miller said attempts to improve security of EU energy supplies by diversifying energy suppliers would be counterproductive and Medvedev added that Russia could also follow the principle of diversification, potentially steering supplies away from Europe.
"If you diversify suppliers, it will not solve the problem," Medvedev said.
Gazprom, already the world's largest gas producer with a stock market value of over $330 billion, expects to triple in size to become a $1 trillion company within seven to 10 years, Miller said.
It will be investing heavily to achieve this, with total investments estimated at $30 billion for 2008 and set to rise in the years after that, company officials said.
Earlier, Miller told Le Figaro newspaper that by 2020, Gazprom sees about half of its gas production coming from new fields in arctic seas, Yamal peninsula in Western Siberia and the Far East.
Miller said Gazprom did "not exclude" making major acquisitions in France but organic growth was the priority for now. (Writing by Andrew Callus; Additional reporting by Astrid Wendlandt in Paris; Editing by Louise Ireland)
That is not good at all and it will impact our way of life and financially survival. Read this one too.
Think oil prices hurt now? Just wait
Nick Carey
DALLAS, Texas (Reuters) - Sky-high oil prices are causing pain at the pump, but bills for air conditioning this summer and heating next winter -- combined with rising food costs -- promise to squeeze U.S. consumers even more.
With gas at $4.00 a gallon, households already have less to spend on a new grill at Home Depot; a vacation at Walt Disney's Disney World; a new TV from Best Buy Co; or a new "hog" from Harley-Davidson Co.
And there are no signs things will get better soon for the consumer, long the driving force of U.S. economic growth.
"For the areas of the economy that rely on heating oil, high fuel prices are going to be another blow to the consumer this winter," said Jack Kyser, chief economist at the LA County Economic Development Corp.
"The hotter states will feel the pinch during the summer months but in the mid-America states where you get hot summers and cold winters, it's going to be very uncomfortable," he said.
"This is going to eat into the disposable income of American consumers -- supposing they have any left."
Oil prices, now $130 a barrel, have risen six-fold since 2002. On Wednesday, heating oil reached a record high above $3.90 a gallon and the price is expected to stay high.
Heating oil, which cost $3.29 a gallon in January, will likely cost $3.83 in December, according to the government's Energy Information Administration.
Those costs come at a time of rising food prices, forcing people to spend more on basics as wages fail to keep up. The effects on the economy could be profound.
"The American consumer will continue to pay for fuel, food and heat," said University of Maryland economist Peter Morici.
"But they will give everything else up," he said. "That's going to make it harder to sell the average consumer a television, a suit, or even a meal at a restaurant."
HARD TIMES
This could become an especially depressing reality in July and August, when back-to-school shopping starts, and in November, when holiday shopping gets under way.
Without strong sales during both of those shopping seasons, retailers including Wal-Mart, Target, J.C. Penney and Sears could post bleak results for the last two quarters of 2008 and the first quarter of 2009.
For many years, the consumer has been the engine of U.S. growth, accounting for around 70 percent of the economy.
But much recent spending has been done on credit, leaving Americans with a negative savings rate.
Now that consumers have been hit by the double-whammy of a weak economy and higher costs, the question is how much damage the engine has sustained and how long it will take to fix it.
Peter Schiff, president of money manager Euro Pacific Capital, warns that after years of profligate spending, the "chickens are finally coming home to roost".
"Our whole phony standard of living is imploding," he said. "We have borrowed and spent ourselves into oblivion."
"It's amazing that people can't figure out that America is broke."
WINTER OF DISCONTENT
Diane Swonk, chief economist of Mesirow Financial, says one of her biggest concerns for the short term is that the Bush administration's tax rebates, which were designed to stimulate the economy, will be used by consumers to fill their tanks and use air conditioning as usual rather than cutting back.
Many retailers, like Wal-Mart and Sears and supermarkets Kroger and Supervalu, have offered customers incentives to spend their rebate checks with them.
President George W. Bush signed into law a $152 billion fiscal stimulus package earlier this year to provide tax rebates to 130 million Americans. Some $107 billion of the total was allocated for households.
"The tax rebate is going to be a double-edged sword for consumers," Swonk said. "When the heating bills start coming in the fall things will not look so good."
"That should contribute to a contraction in consumer spending in the fourth quarter," she added.
Swonk said that among the industries that will continue to feel the pinch is the auto industry, a major employer.
That likely means that Thursday's announcement by Ford Motor Co that it was abandoning its long-touted goal of returning to profitability by 2009 will be followed by more bad news from Detroit.
With Ford and General Motors shares getting a battering on Thursday, investors were asking if the long-term prognosis of the Detroit automakers was becoming even bleaker.
"The economic circumstances are not good for Ford and they are not good for any of the automakers really; this isn't anything that is a Ford exclusive," said Erich Merkle, director of forecasting for consulting firm IRN Inc.
Edward Leamer, head of the UCLA Anderson Forecast Center, said that thanks to the combination of high spending in recent years and rocketing fuel costs, the consumer-engine of U.S. economic growth is close to failing.
"The global markets are telling us we are not as wealthy as we think we are and that we have spent beyond our means," he said. But Leamer said while the engine may be broken, the U.S. economic model is not: it just needs a new engine.
Thanks to the "rosy spot" of exports helped by a weak dollar, plus strength in commodities like coal and grains, the UCLA Anderson Forecast Center predicts the U.S. economy will suffer only a mild recession this year.
But without that retail engine of growth, "our long-term prospect is for sluggish U.S. economic growth," Leamer said.
"Unfortunately, there is nothing on the horizon in the U.S. economy that will take over from the consumer."
By Tom Bergin
DEAUVILLE, France, June 10 (Reuters) - Russia's Gazprom, the supplier of a quarter of Europe's natural gas, expects the price of crude oil to almost double within 18 months and to take gas prices higher with it.
"We think it will reach $250 a barrel in the foreseeable future," Chief Executive Alexei Miller told reporters at a presentation in France, adding high demand rather than speculation was the primary factor for high hydrocarbon prices.
A spokesman said the company, which is also one of Russia's largest crude producers, expected the price to hit the $250/barrel level sometime in 2009.
Gazprom exports gas to Europe at prices linked to oil products. Miller said the current gas price was $410 per 1,000 cubic metres and Alexander Medvedev, Miller's deputy, said prices were likely to rise to reflect the higher cost of crude.
Analysts said that using the $250/barrel forecast and the conversion factors cited by Medvedev at the presentation, one would arrive at a gas price of $1,500 per 1,000 cubic metres.
"It's crazy ... maybe they know something we don't," said one analyst, who bemoaned the lack of analysis to back up the forecast.
"Usually one give a lot of analysis to back up that kind of forecast," he said.
The comments came as the oil price sat at around $134 a barrel, a few dollars short of last week's record level.
State-controlled Gazprom plans to double oil production by 2020. This goal could be reached sooner through the acquisition of a stake in TNK-BP, Russia's third-largest oil producer, and industry sources said Gazprom was interested.
Medvedev said Gazprom will only consider investing in TNK-BP after its shareholders have settled a dispute over control of the company.
TNK-BP is half owned by oil major BP and half owned a group of Russian billionaires who have criticised management at the company.
DIVERSIFICATION IS USELESS
Miller criticised European efforts to reduce reliance on Russia, which analysts expect to provide a third of EU gas in the years ahead, and slammed attempts to limit Gazprom's ability to buy gas distribution assets in the bloc.
Miller said it was Gazprom's strategy to be vertically integrated with operations from the well-head to the consumer in Europe and other continents.
Some European politicians have expressed concern about Gazprom buying up downstream assets in the EU saying the Kremlin could use these assets to exert political influence in the future but Medvedev said the investments were commercial.
"Why should we invest money to create the possibility to shut off the gas supply?" he said at the presentation in the resort town of Deauville in northern France.
Miller said attempts to improve security of EU energy supplies by diversifying energy suppliers would be counterproductive and Medvedev added that Russia could also follow the principle of diversification, potentially steering supplies away from Europe.
"If you diversify suppliers, it will not solve the problem," Medvedev said.
Gazprom, already the world's largest gas producer with a stock market value of over $330 billion, expects to triple in size to become a $1 trillion company within seven to 10 years, Miller said.
It will be investing heavily to achieve this, with total investments estimated at $30 billion for 2008 and set to rise in the years after that, company officials said.
Earlier, Miller told Le Figaro newspaper that by 2020, Gazprom sees about half of its gas production coming from new fields in arctic seas, Yamal peninsula in Western Siberia and the Far East.
Miller said Gazprom did "not exclude" making major acquisitions in France but organic growth was the priority for now. (Writing by Andrew Callus; Additional reporting by Astrid Wendlandt in Paris; Editing by Louise Ireland)
That is not good at all and it will impact our way of life and financially survival. Read this one too.
Think oil prices hurt now? Just wait
Nick Carey
DALLAS, Texas (Reuters) - Sky-high oil prices are causing pain at the pump, but bills for air conditioning this summer and heating next winter -- combined with rising food costs -- promise to squeeze U.S. consumers even more.
With gas at $4.00 a gallon, households already have less to spend on a new grill at Home Depot; a vacation at Walt Disney's Disney World; a new TV from Best Buy Co; or a new "hog" from Harley-Davidson Co.
And there are no signs things will get better soon for the consumer, long the driving force of U.S. economic growth.
"For the areas of the economy that rely on heating oil, high fuel prices are going to be another blow to the consumer this winter," said Jack Kyser, chief economist at the LA County Economic Development Corp.
"The hotter states will feel the pinch during the summer months but in the mid-America states where you get hot summers and cold winters, it's going to be very uncomfortable," he said.
"This is going to eat into the disposable income of American consumers -- supposing they have any left."
Oil prices, now $130 a barrel, have risen six-fold since 2002. On Wednesday, heating oil reached a record high above $3.90 a gallon and the price is expected to stay high.
Heating oil, which cost $3.29 a gallon in January, will likely cost $3.83 in December, according to the government's Energy Information Administration.
Those costs come at a time of rising food prices, forcing people to spend more on basics as wages fail to keep up. The effects on the economy could be profound.
"The American consumer will continue to pay for fuel, food and heat," said University of Maryland economist Peter Morici.
"But they will give everything else up," he said. "That's going to make it harder to sell the average consumer a television, a suit, or even a meal at a restaurant."
HARD TIMES
This could become an especially depressing reality in July and August, when back-to-school shopping starts, and in November, when holiday shopping gets under way.
Without strong sales during both of those shopping seasons, retailers including Wal-Mart, Target, J.C. Penney and Sears could post bleak results for the last two quarters of 2008 and the first quarter of 2009.
For many years, the consumer has been the engine of U.S. growth, accounting for around 70 percent of the economy.
But much recent spending has been done on credit, leaving Americans with a negative savings rate.
Now that consumers have been hit by the double-whammy of a weak economy and higher costs, the question is how much damage the engine has sustained and how long it will take to fix it.
Peter Schiff, president of money manager Euro Pacific Capital, warns that after years of profligate spending, the "chickens are finally coming home to roost".
"Our whole phony standard of living is imploding," he said. "We have borrowed and spent ourselves into oblivion."
"It's amazing that people can't figure out that America is broke."
WINTER OF DISCONTENT
Diane Swonk, chief economist of Mesirow Financial, says one of her biggest concerns for the short term is that the Bush administration's tax rebates, which were designed to stimulate the economy, will be used by consumers to fill their tanks and use air conditioning as usual rather than cutting back.
Many retailers, like Wal-Mart and Sears and supermarkets Kroger and Supervalu, have offered customers incentives to spend their rebate checks with them.
President George W. Bush signed into law a $152 billion fiscal stimulus package earlier this year to provide tax rebates to 130 million Americans. Some $107 billion of the total was allocated for households.
"The tax rebate is going to be a double-edged sword for consumers," Swonk said. "When the heating bills start coming in the fall things will not look so good."
"That should contribute to a contraction in consumer spending in the fourth quarter," she added.
Swonk said that among the industries that will continue to feel the pinch is the auto industry, a major employer.
That likely means that Thursday's announcement by Ford Motor Co that it was abandoning its long-touted goal of returning to profitability by 2009 will be followed by more bad news from Detroit.
With Ford and General Motors shares getting a battering on Thursday, investors were asking if the long-term prognosis of the Detroit automakers was becoming even bleaker.
"The economic circumstances are not good for Ford and they are not good for any of the automakers really; this isn't anything that is a Ford exclusive," said Erich Merkle, director of forecasting for consulting firm IRN Inc.
Edward Leamer, head of the UCLA Anderson Forecast Center, said that thanks to the combination of high spending in recent years and rocketing fuel costs, the consumer-engine of U.S. economic growth is close to failing.
"The global markets are telling us we are not as wealthy as we think we are and that we have spent beyond our means," he said. But Leamer said while the engine may be broken, the U.S. economic model is not: it just needs a new engine.
Thanks to the "rosy spot" of exports helped by a weak dollar, plus strength in commodities like coal and grains, the UCLA Anderson Forecast Center predicts the U.S. economy will suffer only a mild recession this year.
But without that retail engine of growth, "our long-term prospect is for sluggish U.S. economic growth," Leamer said.
"Unfortunately, there is nothing on the horizon in the U.S. economy that will take over from the consumer."
