Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Big Oil Is Cashing In on the Iraq Crisis

By

US and other foreign-owned oil companies are using the crisis to step up drilling.

PrintPRINT
The spike in instability in several oil-producing regions around the world is threatening to knock some production offline, but it is also boosting profits for drillers operating in trouble-free zones. Oil prices have hit their highest levels in almost nine months as places like Iraq, Syria, Ukraine and Libya continue to experience violence and political upheaval. For companies with heavy investments in these regions, the situation is perilous, but for oil companies elsewhere, the higher price is good news.
 
This past weekend, militants from the radical Sunni organization ISIS gained control over another town in Iraq, along the Syrian border. As news of their victory was still being reported, Brent crude closed just below $115 per barrel (June 22), and West Texas Intermediate (WTI) rose to nearly $107.

Oil markets could be looking at an extended period of elevated prices, which is bad news for companies with billions invested in Kurdistan or other parts of Iraq. ExxonMobil (NYSE:XOM) and BP (NYSE:BP) already started evacuating some of their workers from southern Iraq, despite the fact that militants remain north of Baghdad.

But for companies drilling far from the violence -- in Texas for example -- a $5 per barrel increase in prices can be the difference between whether or not an oil project is economically viable.

Oil companies are using the opportunity to step up drilling. The Eagle Ford shale in southern Texas, for example, saw four more oil rigs and one gas rig come into operation over the past week. Across the US, the number of oil rigs in use reached 1,545 -- the highest level since record keeping began in 1987.

Total dollars invested are also expected to reach record levels. Oil services firm Baker Hughes, Inc. (NYSE:BHI) projects that oil and gas companies will pour $165 billion into exploration and production this year.
 
"There is room for additional upside amid the current commodity price environment and the potential for increased capital deployment into the US markets stemming from geopolitical risk internationally, notably Iraq," said James West, an analyst with Barclays, according to Bloomberg News. In other words, trouble in the Middle East is profitable for drillers in Texas.

Of course, it is not just oil companies in the US that are profiting from expensive oil. Higher prices mean more revenue for petro states such as Saudi Arabia, Russia, and even smaller exporters like Malaysia and Bahrain. In Russia, for example, the ruble rose to its highest level in over three weeks on June 19, and the MICEX -- Russia's major stock exchange -- continues to rebound after falling on the crisis in Ukraine.

At the same time, it is possible to have too much of a good thing. In an interview with Monitor Global Outlook, Mohammed Ali Yasin, the managing director of the National Bank of Abu Dhabi, explained the downside of a sudden oil price spike to Persian Gulf states, even though they rake in more money. "I don't believe that political tension anywhere near the GCC would be good for any country. These spikes are usually temporary and political instability will down-weigh any increase in revenue. Foreign investors will put a premium and will expect higher returns in order to come here," he said.

An unexpected surge in prices could provide welcome budgetary relief to states on the Arabian Peninsula, which are still trying to recover from Arab Spring unrest. But over the long term, instability will hurt oil-dependent economies.

This article was written by Nick Cunningham of Oilprice.com.
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE