bank run blog

Based upon a deal being negotiated with the government oil ministry in Iraq, several of the world’s largest petroleum producing companies will gain exclusive access to Iran’s vast oil fields for thefirst time since oil production was nationalized by the former Iraqi regime more than 30 years ago.

When approved, the no-bid oil field servicing contracts will give Exxon, Shell and BP initial access to Iraq’s producing oil fields. It was these same companies who were members of a small cartel of companies that established the Iraq Petroleum Company that had exclusive control of oil production in Iraq between 1925 and 1961 and who lost oil production contracts when Iraq’s oil fields were placed under the control of a the state run Iraqi National Oil company. 36 companies were selected to receive contracts. Several companies from China, India and Russia were excluded from the deals.

The no-bid contracts are novel in the oil-producing world in that they are simple pay-for-service contracts as opposed to agreements held between the petroleum companies and other nations, which generally are licenses to drill for oil. The contracts are intended to be a stopgap measure to get Iraq’s oil fields producing as the Iraqi Oil Law is being debated by the Iraqi National Assembly. The oil companies would be paid directly in oil instead of cash.

The Iraqi government is negotiating the agreements, ostensibly, outside of the influence of the occupying US government, but as previously reported by redstateupdate.net, the Iraqi Oil Law was drafted in cooperation with the same oil companies now receiving no-bid contracts, and the US required that the Iraqi Oil Ministry include representatives of western oil production firms in its membership. Although the deals currently being negotiated will last for only one or two years, experts agree that being the first companies to have access to oil production in Iraq will certainly give the companies an advantage in consummating future deals with the government.

Iraq also awarded 6 service contracts to state owned oil companies from nations including Turkey and Pakistan. The ministry hopes to increase oil production by half over the next few years as new oil fields in the country are exploited. It is estimated that Iraq’s oil reserves exceed 300 billion barrels.

cross posted at

redstateupdate.net

Blaming higher fuel costs, United Airlines announced that it intends to lay off nearly 1000 pilots and reduce domestic flights. The airline said in a statement;

“As we reduce the size of our fleet and take actions company wide to enable United to compete in an environment of record fuel prices, we must take the difficult but necessary step to reduce the number of people we have to run our business.”

Reuters reported that United’s redundancy plan would, “involve nearly 15 percent of United’s 6,518 pilots. The carrier has said it plans to cut its staff by 1,400 to 1,600 as it aims to reduce domestic capacity by 14 percent in the fourth quarter.”

United is only one of several airlines that is simultaneously cutting staff and services in an effort to squeeze profit out of air travel in the face of fuel costs that have doubled in less than a year.

Spirit Airlines recently revealed plans to lay off or move 60 percent of its flight attendants and 45 percent of it’s pilots and close hubs in New York and San Juan in a notice to union members that is required by law prior to job reductions. Chief executive Lawrence W. Kellner advised employees of Continental Airlines early this month that he anticipated cutting 3000 jobs and retiring 67 airplanes. American Airlines announced a reduction of 1000 jobs in April and a 12 percent reduction in domestic flights.

see stories-
International Herald Tribune : United Airlines to lay off 950 pilots as it reduces capacity
Florida Times Union : Continental Cuts Jobs and Grounds Jets
New York Times : Spirit Airlines planning job cuts due to soaring fuel prices

Economists have estimated that up to 40 percent of US business models are severely threatened by rising gas and oil prices. While it is obvious that the transportation and logistics industries (trucking, airlines, rail freight, Fedex) are extremely vulnerable to $4—or $5— gasoline, many other sectors will be significantly impacted. Small businesses are particularly at risk, as in this piece from the Associated Press :

“Cramming into a rusty, creaky van and playing dive bars and house parties is a summer ritual for many young musicians and ambitious independent bands trying to get exposure, make a living and maybe build a solid future in music.

But like everything else that requires lengthy time on the road, filling up at $4 a gallon or more is taking a toll.”

According to the report, bands are curtailing or even canceling their tours, which used to be a reliable, if modest, source of revenue :

“The tough choices being made at the bottom of the music industry food chain are just one more hit to the business already reeling from declining album sales because of digital music.

Gary Bongiovanni, editor-in-chief of Pollstar, a trade publication covering the concert business, said the cost of fuel is affecting all levels, but the ‘people being most affected are new bands touring on the subsistence level. They don’t have the popularity to charge higher ticket prices because of higher fuel costs.’”

Associated Press : High fuel prices put brakes on indie band tours

The Department of Transportation reported that Americans drove 1.4 billion fewer highway miles in April 2008 than they drove in April 2007. The six straight consecutive month of less highway miles driven by Americans coincides with several months of record breaking high gas prices, now peaking in between 4 and 5 dollars a gallon at locations across the US. The drop in highway miles driven in April was three times greater than the yearly drop in March.

So far in 2008 Americans have driven 30 billion fewer miles than last year. The DOT also reported a significant rise in mass transportation ridership over the same period.

see stories-
CNN News : Americans drove 1.4 billion fewer highway miles
Central Florida News : Report: Americans Drive 30 Billion Fewer Miles

The Associated Press is reporting outrageous volatility in the oil futures market today :

“Crude oil futures swung wildly on Monday, rising to a record and then tumbling as investors wrestled with whether they should put stock in Saudi Arabia’s promise to boost production. Retail gas prices rose to a record $4.08 a gallon.”

The AP was at a loss to explain the instability :

“With little in the way of news to explain oil’s turnabout, analysts pointed to Saudi Arabia’s weekend decision to boost production and to Tuesday’s expiration of crude options, which are agreements to buy or sell futures at higher or lower prices.”

Britain’s Financial Times, however, linked the morning spike in oil prices explicitly to the weakness of the US dollar in the lead sentence of its story :

“Oil surged to a fresh record high on Monday as a bout of dollar weakness helped offset reports that Saudi Arabia was planning to raise crude output.”

The FT also noted the growing list of experts who don’t see any way for Ben Bernanke to significantly raise interest rates, given the fragility of the consumer economy and the disarray in the financial sector :

“Widespread expectations that US interest rates would soon be on the way up – largely triggered by hawkish comments on inflation by the Federal Reserve – had already been challenged by relatively tame consumer prices data on Friday.

Ethan Harris, economist at Lehman Brothers, said the Fed would continue to talk tough, although rising unemployment would prevent an actual rate hike.

‘We believe any hike should be seen as a gesture to the markets rather than the start of a sustained tightening cycle,’ he said. ‘We continue to believe the Fed is more likely to cut than raise rates early next year.’”

Associated Press : Oil hits new record, then reverses on worries

Financial Times : Oil reaches record as dollar falls