The New Crude Oil Benchmark That Could Change the Oil Market’s Price Dynamics

by Sheena Martin, Contributing Editor Tuesday, November 24, 2009

Earlier this month, the world’s largest oil producer set the table for a move away from traditional light, sweet crude oil.

Saudi Aramco, the state-owned company of Saudi Arabia has decided to drop West Texas Intermediate (NYMEX: WTI) as the basis for pricing its oil sold to the U.S. market. The Saudis priced off WTI for 15 years.

Why? Well, quite simply, WTI crude oil is dangerously volatile – as evidenced by the drop from $150 per barrel to $30 crude over the past year.

In its place, Saudi Aramco will start using the Argus Sour Crude Index (ASCI), which measures heavier oil with higher sulfur content. Traditionally, heavy, sour crude is cheaper than WTI. Heavy

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With two sets of U.S. weekly oil statistics due out Tuesday and Wednesday expected to confirm fears of high inventories due to low demand, the price of oil dipped to the bottom of its 12-week range. A Reuter’s poll showing a 500,000 barrel inventory increase in the week to September 25 compounded middle distillate forecasts showing a 1.1 million barrel rise.

CEO of Saudi Aramco, Saudi Arabia’s state-run oil company, Khalid Al-Falih indicated Monday that demand from emerging markets and an uptick in China would not offset the loss in demand for oil for some time. Al-Falih also suggested that global consumption would not flag irrevocably and that higher oil prices were needed to fund concurrent development projects.

With the FTSEurofirst 300 broadly falling, U.S. and Brent crude futures were below $65 and $64 respectively by midmorning, Sept. 29. A rebound to $66.59 and $65.71 respectively followed at noon, due

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Dow Chemical Co. (DOW) completed the sale of its Netherlands-based crude oil refinery to Paris-based Total SA (TOT), one of the six major global oil companies, for about $800 million. The refinery is a key supplier of refined products, including diesel, to the European market. The move is in line with Dow’s strategy of divesting non-core assets. The deal received regulatory approval last month.

The Midlands, Michigan-based chemical company stated that the divestiture will increase its financial flexibility, improve cash flow and will help pay down debt. The company plans to use the proceeds from the deal to pay down debt, which was raised for the Rohm and Haas acquisition.

The Rohm and Haas acquisition increased Dow’s net debt from $8 billion to $22 billion in the first half of 2009. This resulted in a significant net cash deficit of $19 billion during the period. However, Dow Chemical has become

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ConocoPhillips (COP), along with Saudi Aramco, will resume bidding for the construction of a 400 thousand barrels per day (MBbl/d) refinery at Yanbu Industrial City in Saudi Arabia.Initial offers have been issued to various local and global contractors for early work, and major packages include a coker unit, crude facility, gasoline unit, hydrocracker, tank farm, offsite pipelines and high voltage electrical packages. These offers are expected to be awarded in November this year, while the remainder is due in the second quarter of 2010.The proposed refinery will be capable to process heavy crude supplied by Saudi Aramco, and is expected to produce high-quality, ultra-low sulfur refined products. The new refinery's capacity to process heavy crude would further boost COP's margin capture rates.In a situation when overall market conditions are favorable, a refinery construction -- which will be able to produce ...

Despite the sharp deterioration in the macro backdrop in the last few months, ConocoPhillips (

Despite the sharp deterioration in the macro backdrop in the last few months, ConocoPhillips (COP) remains well positioned to navigate the current downturn. We estimate that the company will remain free cash flow positive even in a low oil price environment in 2009, without needing to change significantly its investment plans.ConocoPhillips has significantly strengthened its upstream portfolio over the last few years through its Burlington and LUKOIL transactions, and remains a premier domestic refining player. Recent alliances with the Abu Dhabi National Oil Company (ADNOC), Saudi Aramco, and Australia's Origin Energy are catalysts for the company's future growth.On valuation grounds, the stock is compellingly cheap, particularly following the recent sell-off. Our recommendation is Buy and our target price is $80 per share.Read the full analyst report on COP "COP" Free Stock Analysis: Buy? Sell? Hold?...

The IEA confirms what I've been saying all along: There isn't enough oil supply on the planet to meet demand. And that's not about to change anytime soon. A new oil supply crunch looms as oil companies have put the brakes on sorely needed investment to increase oil production to satisfy future demand and to offset the accelerating declines of today's aging fields. This at a time when opportunities to invest are more constrained than ever. Bullish for oil? You bet. My longer-term target of $200 oil remains intact.   Energy agency warns of supply crunchNovember 12, 2008, LONDON (AP) — The International Energy Agency on Wednesday called for massive investment in producing more oil to prevent a supply squeeze in coming years, saying energy demand will rise 1.6 percent a year on average between 2006 and 2030.The IEA's base scenario for energy demand has fallen due to

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I spent the weekend at the Washington D.C., Money show. The show has shrunk from last year, and the opinions ranged from "this is an incredible time to buy" to "Aaaaaaiiiiiii!!!!!" I'll have more about that in Wednesday's Money and Markets column.This morning, the market is rising on news of a $586 stimulus plan in China and a new A.I.G. bailout in Washington. I'm not sure why the market thinks this is good news. Last time I looked, the Federal Debt had soared to such levels that each American now owes over $32,000. I think that's unsustainable, as long as the US dollar holds its present value.In other words, it would be a lot easier to bear if that debt was only (in relative terms) $3,200. That's not so scary, is it? I wonder if Uncle Sam is thinking the same thing. The Russians

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Like a boxer who has a habit of dropping his hands, America finally caught one on the chin. The U.S. economy is flat on its back, and the financial markets are leaning down into its face yelling out a 10-count. But the U.S. economy isn’t “out for the count” yet. It will struggle back to its feet. But if the economy hopes to stay on its feet, it will have to devise new tactics. The old, sloppy tactics of credit-financed consumption won’t work anymore.

The biggest change in the American economy over the last few decades has been the transition from making things to making loans. We Americans abandoned the manufacturing industries that once powered our economy and devoted ourselves to merely financial activities. We became experts in “financial origami.” Precisely when and why this happened will be something for historians to debate. But sometime in the 1990s, the percentage of

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Houston, Texas-based ConocoPhillips (COP) ranks 3rd in the U.S. and 5th worldwide among the publicly traded energy companies.

ConocoPhillips has significantly strengthened its upstream portfolio over the last few years through its Burlington and LUKOIL transactions and remains a premier domestic refining player. Recent alliances with the Abu Dhabi National Oil Company (ADNOC), Saudi Aramco, and Australia's Origin Energy are catalysts for the company's future growth.

On valuation grounds, the stock is compellingly cheap, particularly following the recent sell-off. We are reiterating our Buy recommendation for the stock ahead of the company's third-quarter results. Our estimates and price objective remain unchanged.

Read the full analyst report on COP

"COP" Free Stock Analysis: Buy? Sell? Hold?Zacks Investment Research