THE WALL STREET JOURNAL: The Petroleum Puzzle Of Business and Politics (ShellNews.net) Posted 20 April 05

THE MORNING BRIEF

By JOSEPH SCHUMAN

The price of oil, already one of the biggest question marks among global economic indicators, is becoming increasingly harder to track, with supply and demand so fraught with political nuance and the competition for new sources.

For example, the multinationals that make up Big Oil -- Exxon Mobil, BP, Royal Dutch/Shell, ChevronTexaco and Total -- have generally been reaping record profits at a time when crude prices have reached one record after another, even if they have fallen off a bit in the last two weeks. Closing at $50.37 a barrel in New York yesterday -- down from $58 early this month – oil is still trading at a price that would have been exorbitant a year ago, if well short of what it cost during the shock of the early 1980s when adjusted for inflation. But Exxon, Shell and their main rivals are mostly profiting from sales of oil and gas produced from fields acquired on the cheap long ago, when prices were far lower. And in the race for new sources, the oil giants are often getting beat by smaller Western oil producers looking to make it big or state-controlled companies from the likes of China and India that are venturing beyond their borders for oil, The Wall Street Journal reports.

"To avoid shrinking, publicly traded oil companies need to discover or buy enough new stores of fossil fuel each year to at least replenish what they're pumping out of the ground. But the cost of replenishment is going up with oil prices," the Journal says. "The governments that control the big remaining pools of easy-to-tap fossil fuel are eyeing the windfall from today's prices and deciding they want a bigger share of profit for themselves." Meanwhile, some of these governments -- Venezuela, Nigeria and Kazakhstan among them -- are trying to renegotiate to retroactively boost their take from existing contracts.

China is both a competitor in the hunt for future petroleum flows and one of the biggest factors in the tightening supply-and-demand margin of recent years. It is also one of the oil market's biggest sources of uncertainty, the New York Times writes. Parts of the country are running short of diesel and other fuel oil, which the Times attributes to the clash between China's Communist past and its increasingly capitalist present: Government-set retail prices being so low, businesses are supplying less in the face of high world oil prices. And such disruptions in Chinese markets make it harder for traders elsewhere to interpret the effects abroad. The puzzle "is how Chinese households, factory owners and refinery managers will react when the government eventually liberalizes prices, which is expected in the next few weeks," the Times says.

The economic growth that drives such a complicated petro-thirst also makes China -- and India -- an attractive partner for energy sales from Iran, which needs all the friends it can get. Iran is trying to muster its vast oil and gas resources to bolster its standing "as it faces the threat of global sanctions from the United States and Europe because of suspicions that it is turning its nuclear program to weapons production," the Times reports. "This renewed push to turn underground riches into political power complicates the Bush administration's attempt to isolate Iran, which holds 10% of the world's oil deposits and has the second-largest gas reserves."

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