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7:29am EDT
3. NASA to help on Toyota probe
7:06am EDT
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5. REFILE-UPDATE 4-Mini-Big Bangs created in cosmos origins project
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2:41pm EDT
UPDATE 5-Vale, Nippon agree 90 pct iron price hike-source
Mon Mar 29, 2010 9:23pm EDT
Stocks
Vale S.A.
VALE5.SA
R$ 49.49
+0.00+0.00%
5:29pm GMT-0300
Vale S.A.
VALE.N
$32.29
+0.29+0.91%
12:00am GMT-0300
POSCO
005490.KS
₩528,000.00
-9,000.00-1.68%
9:09pm GMT-0300
* Nippon, Vale agree to $100-$110/tonne for Apr-Jun-source
* Deal creates quarterly deal, boost move to spot pricing
* May help set floor for talks with Chinese
(Changes dateline, recasts with source confirmation)
By Brian Ellsworth and Yuko Inoue
RIO DE JANEIRO/TOKYO March 30 (Reuters) - Brazilian mining
giant Vale has reached tentative quarterly iron ore price deals
with Asian steel companies that would boost prices by about 90
percent, sources with knowledge of the talks said.
The move could mark the first quarterly pricing deal for Vale
(VALE5.SA)(VALE.N), the world's top iron ore producer, which for
years defended the decades-old benchmark system but recently said
it was adopting more flexible marketing.
Vale and Nippon Steel, Japan's biggest steel producer and the
world's second largest, have reached a basic agreement to pay
$100-$110 per tonne of iron ore in the April-June quarter, a
source told Reuters. Nippon Steel declined to comment.
That would also mean a roughly 90 percent price hike for
South Korea's Posco (005490.KS), which negotiates jointly with
Nippon Steel.
The near doubling in negotiated iron ore prices would set an
important benchmark for purchases by China, analysts said, and
points towards sharply higher steel prices globally for a range
of industries including auto manufacturing and construction.
The Nikkei newspaper reported earlier on Tuesday that Nippon
Steel and Vale had a provisional agreement for $105 a tonne, but
that negotiations would continue towards a final deal by the end
of next month, to be applied retroactively to April 1.
"If that's the case, it's excellent, even though the market
was already expecting $100 to $110. This will strongly increase
revenues," said Pedro Galdi, an analyst with SLW Corretora.
A Vale spokeswoman said the firm would not comment on the
Nikkei report.
Big miners have been pushing for a big price hike to reflect
a doubling in the spot iron ore price since September.
Sumitomo Metal, Japan's No. 3 steelmaker, has also reached a
tentative deal to pay 90 percent more for iron ore, another
source with knowledge of its talks with Vale said. A spokesman
for JFE Holdings (5411.T), Japan's second-largest steelmaker,
said it was still in negotiations and had not yet reached a deal.
The world's top three miners, Vale and Anglo-Australians BHP
Billiton (BHP.AX) and Rio Tinto (RIO.AX) are pushing to change
the rigid benchmark system into a derivative-driven system
similar to other global commodities such as oil.
Some steel mills have resisted the call to move towards spot
pricing, particularly in Europe. But the acceptance by relatively
conservative steel mills such as Nippon and Posco, shows the
growing strength of that trend.
"The chance of returning to an annual benchmark system for
iron ore is very slim, at least for now, because of the tight
market conditions," a Japanese steel industry source with
knowledge of the talks said.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic suite on iron ore: r.reuters.com/zed75j
More coverage of iron ore pricing: [ID:nSGE62B0DU]
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
CONTRACT? WHAT CONTRACT?
"The long-term contract worked for 90 years very well for
both sides, for both the client and the miner," Vale CEO Roger
Agnelli told reporters in Sao Paulo, without commenting on
whether or not Vale had closed contracts with steelmakers.
"I think that model that we are proposing and talking about
with clients, of quarterly averages, is helpful for us to be able
to complete our investment projects."
Analysts say Chinese clients began buying on the spot market
when prices fell below benchmark after the global financial
crisis broke out but insisted miners honor the benchmark as spot
prices soared toward the current level.
"Last year when we thought we had a contract, most of our
clients just looked at us and said 'Contract? What contract?'"
Agnelli said.
Vale has for months insisted that benchmark prices informally
agreed upon last year no longer reflect the reality of supply and
demand.
Mills argue steel prices have not recovered sufficiently and
demand is too weak to pass on to clients their increased costs of
iron ore and coking coal.
Vale shares were up 1.77 percent at 49.41 reais on the Sao
Paulo stock exchange, while American Depository Shares in New
York were up 3.93 percent to $32.00.
CHINA TALKS, CHINA RISK
An acceptance of the aggressive price-hike by relatively
conservative Asian steel mills suggests that price may become a
baseline for purchases of iron ore by China.
"We also anticipate that Chinese iron ore prices will settle
at least as high, if not higher than other Asian players," said
consulting group Steel Market Intelligence in a research note.
"We continue to believe that China's main assertion, that as
the largest buyer of iron ore they should be paying a lower
price, is flawed."
It added China will likely pay a premium for buying iron ore
given the perceived political risks of doing business there.
A Shanghai court on Monday sentenced four Rio Tinto
executives to prison terms of seven to 14 years on charges of
accepting bribes and stealing commercial secrets, ending a saga
that began in the middle of tense 2009 iron benchmark talks and
led to those talks unraveling without a formal agreement.
[ID:nSGE62S0CI]
China's rapid economic growth, coupled with the financial
crisis, upended the iron ore business by making Beijing the most
powerful buyer -- letting its quasi-state steel giants and dozens
of importers overturn established market protocol.
(Additional reporting by Denise Luna in Rio De Janeiro and Anand
Basu in Bangalore)
(Editing by Rene Pastor)
After reading this article, people also read:
* Vale, Sumitomo Mtl agree to iron ore hike-sourceMar 29, 2010
* UPDATE 2-Zale gets month-long breather from Citi on penaltyMar 30, 2010
* UPDATE 1-Australia PM says serious questions over Rio trialsMar 29, 2010
* U.S. fund Touradji bets on LME nickel - tradersMar 30, 2010
* UPDATE 1-US trade panel to review Rambus patent decisionMar 25, 2010
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Wall Street cabal seen derailing serious swap reform
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o Dark side of Japan’s pet boom
Opinion
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Complacency seeps in as Fed stops buying MBS
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1. Sex infection gonorrhea risks becoming "superbug"
29 Mar 2010
2. Obama to sign new student aid initiative
7:29am EDT
3. NASA to help on Toyota probe
7:06am EDT
4. Sex virus blamed for rise in head and neck cancers
26 Mar 2010
5. REFILE-UPDATE 4-Mini-Big Bangs created in cosmos origins project
2:41pm EDT
1. Obama to sign new student aid initiative
7:29am EDT
2. Sex infection gonorrhea risks becoming "superbug"
29 Mar 2010
3. Small, dark Easter eggs may be good for your heart
9:44am EDT
4. Sex virus blamed for rise in head and neck cancers
26 Mar 2010
5. REFILE-UPDATE 4-Mini-Big Bangs created in cosmos origins project
2:41pm EDT
UPDATE 5-Vale, Nippon agree 90 pct iron price hike-source
Mon Mar 29, 2010 9:23pm EDT
Stocks
Vale S.A.
VALE5.SA
R$ 49.49
+0.00+0.00%
5:29pm GMT-0300
Vale S.A.
VALE.N
$32.29
+0.29+0.91%
12:00am GMT-0300
POSCO
005490.KS
₩528,000.00
-9,000.00-1.68%
9:09pm GMT-0300
* Nippon, Vale agree to $100-$110/tonne for Apr-Jun-source
* Deal creates quarterly deal, boost move to spot pricing
* May help set floor for talks with Chinese
(Changes dateline, recasts with source confirmation)
By Brian Ellsworth and Yuko Inoue
RIO DE JANEIRO/TOKYO March 30 (Reuters) - Brazilian mining
giant Vale has reached tentative quarterly iron ore price deals
with Asian steel companies that would boost prices by about 90
percent, sources with knowledge of the talks said.
The move could mark the first quarterly pricing deal for Vale
(VALE5.SA)(VALE.N), the world's top iron ore producer, which for
years defended the decades-old benchmark system but recently said
it was adopting more flexible marketing.
Vale and Nippon Steel, Japan's biggest steel producer and the
world's second largest, have reached a basic agreement to pay
$100-$110 per tonne of iron ore in the April-June quarter, a
source told Reuters. Nippon Steel declined to comment.
That would also mean a roughly 90 percent price hike for
South Korea's Posco (005490.KS), which negotiates jointly with
Nippon Steel.
The near doubling in negotiated iron ore prices would set an
important benchmark for purchases by China, analysts said, and
points towards sharply higher steel prices globally for a range
of industries including auto manufacturing and construction.
The Nikkei newspaper reported earlier on Tuesday that Nippon
Steel and Vale had a provisional agreement for $105 a tonne, but
that negotiations would continue towards a final deal by the end
of next month, to be applied retroactively to April 1.
"If that's the case, it's excellent, even though the market
was already expecting $100 to $110. This will strongly increase
revenues," said Pedro Galdi, an analyst with SLW Corretora.
A Vale spokeswoman said the firm would not comment on the
Nikkei report.
Big miners have been pushing for a big price hike to reflect
a doubling in the spot iron ore price since September.
Sumitomo Metal, Japan's No. 3 steelmaker, has also reached a
tentative deal to pay 90 percent more for iron ore, another
source with knowledge of its talks with Vale said. A spokesman
for JFE Holdings (5411.T), Japan's second-largest steelmaker,
said it was still in negotiations and had not yet reached a deal.
The world's top three miners, Vale and Anglo-Australians BHP
Billiton (BHP.AX) and Rio Tinto (RIO.AX) are pushing to change
the rigid benchmark system into a derivative-driven system
similar to other global commodities such as oil.
Some steel mills have resisted the call to move towards spot
pricing, particularly in Europe. But the acceptance by relatively
conservative steel mills such as Nippon and Posco, shows the
growing strength of that trend.
"The chance of returning to an annual benchmark system for
iron ore is very slim, at least for now, because of the tight
market conditions," a Japanese steel industry source with
knowledge of the talks said.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic suite on iron ore: r.reuters.com/zed75j
More coverage of iron ore pricing: [ID:nSGE62B0DU]
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
CONTRACT? WHAT CONTRACT?
"The long-term contract worked for 90 years very well for
both sides, for both the client and the miner," Vale CEO Roger
Agnelli told reporters in Sao Paulo, without commenting on
whether or not Vale had closed contracts with steelmakers.
"I think that model that we are proposing and talking about
with clients, of quarterly averages, is helpful for us to be able
to complete our investment projects."
Analysts say Chinese clients began buying on the spot market
when prices fell below benchmark after the global financial
crisis broke out but insisted miners honor the benchmark as spot
prices soared toward the current level.
"Last year when we thought we had a contract, most of our
clients just looked at us and said 'Contract? What contract?'"
Agnelli said.
Vale has for months insisted that benchmark prices informally
agreed upon last year no longer reflect the reality of supply and
demand.
Mills argue steel prices have not recovered sufficiently and
demand is too weak to pass on to clients their increased costs of
iron ore and coking coal.
Vale shares were up 1.77 percent at 49.41 reais on the Sao
Paulo stock exchange, while American Depository Shares in New
York were up 3.93 percent to $32.00.
CHINA TALKS, CHINA RISK
An acceptance of the aggressive price-hike by relatively
conservative Asian steel mills suggests that price may become a
baseline for purchases of iron ore by China.
"We also anticipate that Chinese iron ore prices will settle
at least as high, if not higher than other Asian players," said
consulting group Steel Market Intelligence in a research note.
"We continue to believe that China's main assertion, that as
the largest buyer of iron ore they should be paying a lower
price, is flawed."
It added China will likely pay a premium for buying iron ore
given the perceived political risks of doing business there.
A Shanghai court on Monday sentenced four Rio Tinto
executives to prison terms of seven to 14 years on charges of
accepting bribes and stealing commercial secrets, ending a saga
that began in the middle of tense 2009 iron benchmark talks and
led to those talks unraveling without a formal agreement.
[ID:nSGE62S0CI]
China's rapid economic growth, coupled with the financial
crisis, upended the iron ore business by making Beijing the most
powerful buyer -- letting its quasi-state steel giants and dozens
of importers overturn established market protocol.
(Additional reporting by Denise Luna in Rio De Janeiro and Anand
Basu in Bangalore)
(Editing by Rene Pastor)
After reading this article, people also read:
* Vale, Sumitomo Mtl agree to iron ore hike-sourceMar 29, 2010
* UPDATE 2-Zale gets month-long breather from Citi on penaltyMar 30, 2010
* UPDATE 1-Australia PM says serious questions over Rio trialsMar 29, 2010
* U.S. fund Touradji bets on LME nickel - tradersMar 30, 2010
* UPDATE 1-US trade panel to review Rambus patent decisionMar 25, 2010
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FreeCreditScore.com
Scottrade® Online Trading
$7 Equity Trades, No Limit. Switch To Scottrade -Receive Up To $100
www.Scottrade.com
Online Forex Practice Account
Risk-Free Forex Practice Account. Free Software. Get Started Now.
GFTforex.com
Six Ways for Retirees to Reduce Taxes
Have more income to spend when you pay less tax. Free guide for retirees.
www.retirement-income.net
More from Reuters
Photo
Ireland hits banks with hefty penalty, to inject billions
DUBLIN (Reuters) - Ireland hit its banks with a hefty penalty to take loans off their hands and said they needed at least 22 billion euros ($30 billion) in extra funds to recover from a property collapse that was worse than feared.
* U.S. probes near collision of airliner, small plane
* Supreme Court hands victory to mutual fund industry
* Final suspect in raid on U.S. militia group arraigned | Video
* Chrysler on track to break-even in 2010
* Google says China's "great firewall" blocked search | Video
» More Top News
A scientist drinks a glass of champagne after the first successful collisions at full power at the Compact Muon Solenoid (CMS) experience control room of the Large Hadron Collider (LHC) at the European Organisation for Nuclear Research (CERN) in Meyrin, near Geneva March 30, 2010. Scientists at the CERN research centre will begin trying on Tuesday to make particles collide at ultra-high power and close to the speed of light to create mini-versions of the "Big Bang" that gave birth to the universe. REUTERS/Denis Balibouse
A toast to mini-Big Bangs
Physicists have succeeded in smashing sub-atomic particles into each other with record energy, creating mini-Big Bangs like the explosion that gave birth to the universe. Full Article | Slideshow
* What is the Big Bang?
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The Coming Boom in Oil Service 23 comments
by: Bruce Vanderveen March 24, 2010 | about: BHI / DO / HAL / IEZ / NOV / OIH / RIG / SII / SLB / XES Bruce Vanderveen 146
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Share0 With a deafening roar the greenish black gunk spewed 150 feet into the air, drenching men and machinery alike. Welcome to east Texas in 1901. The Spindletop oil discovery produced some 100,000 barrels/day (they expected 5), more oil than anyone knew what to do with at that time. The gusher heralded the start of the great east Texas oil boom. By 1903 the price of a barrel of oil was 3 cents.
But 1901 is so very long ago. Oil is now $80/barrel, gasoline $2.80/gallon, and both are heading up. A voracious, continually growing, worldwide fleet of 600 million plus vehicles, each suck up their quota every day with no end in sight. Oil companies drill through miles of rock and salt, often under thousands of feet of sea water, all doing so in a desperate attempt to find more of the elusive black stuff.
Now, in 2009, the easy pickings are mostly gone. Salt domes like Spindletop are tapped dry (Spindletop itself quit producing in the 1930's). Lots of hydrocarbons remain in the earth, but they are increasingly difficult to extract. Consider:
The U.S. (lower 48): Texas produces more oil than any other U.S. state but production peaked at 3.5 million barrels/day in the early 1970's. Now, Texas production is below 1 million barrels/day and steadily dropping. With the exception of North Dakota and the Gulf of Mexico, the same is true for the rest of the U.S.
Alaska: Prudhoe Bay, the largest oil field in North America, has produced some 13 billion barrels since 1977. BP plc estimated that as of August 2006 only some 2 billion barrels of recoverable oil was left in Prudhoe Bay.
Canada: Canada is the U.S.'s largest oil supplier. I covered Canadian oil production in a previous SA article. It covered the same scenario: conventional oil production is in decline. Potential exists in oil sands and shale, but environmental issues cloud the promise.
Mexico: The woes of Cantarell, one time the second fastest producing oil field in the world (behind Saudi Arabia's Ghawar), are legendary. Production peaked at 2.1 million barrels/day in 2003, and by 2009 it was at 774 thousand barrels/day and falling rapidly. Schlumberger (SLB) is now working with Pemex to slow the decline in Mexican production.
An interesting aside: It is thought that Cantarell exists only because of an asteroid strike some 65 million years ago (the same one that wiped out the dinosaurs). The strike created a large rubble field deep in the earth with good porosity in which oil collected.
The North Sea: North Sea oil production peaked in 1999 and A Wall Street Journal article on January 13, 2010, said about North Sea fields:
... oil and gas fields are in steep decline and nearing the end of their production lives.
The Middle East: The Middle East, especially Saudi Arabia, is somewhat of an unknown. The Saudis, currently pumping 8 million barrels per day, claim to have 4 million barrels per day of spare capacity. But, can you believe the notoriously secretive kingdom? Even assuming the Saudis are right, a worldwide economic resurgence could easily absorb this extra capacity. Ghawar, Saudi Arabia's, and the world's, largest oil field, needs increasingly large water injections to keep the oil flowing. Among other Middle Eastern states only Iraq may be able to ramp up production (and then only if it is able to keep the violence under control).
There is always the risk of geopolitical issues flaring up in the Middle East. Currently, things are relatively calm, and we have $80/barrel oil. Iranian Shiites have aspirations on Sunni oil, Al Qaeda is still around, and Israeli/Arab issues go unresolved. If any of the above flare up you can say goodbye to $80 oil - I don't need to tell you which direction it will go.
Elsewhere: Brazil, Russia, Africa, Indonesia, Venezuela are all large oil producers. All, except Brazil, have plateauing or declining production and/or exports. Several large off shore fields have been discovered in Brazil recently, but they are miles deep in the ocean, under salt and rock.
Throw a worldwide money printing binge into the mix, as governments try to inflate away their debts, and it seems certain the dollar denominated assets such as oil must rise.
This article is not meant to prove or even argue peak oil. Rather, the point is no matter what or who is right about peak oil, it will take more and more effort (read oil service) to keep oil flowing.
The oil services sector supplies the expertise that supports the massive worldwide infrastructure continually turning raw petroleum into useful products, such as the gasoline you put into your car. Whether it be horizontal shale, deep sea basins, getting more out of older fields, transportation or refining, none of it would happen without the oil services sector.
Oil Service Companies
Schlumberger (SLB) is a dominant player, and with a market capitalization of over $75 billion, it dwarfs competitors such as Haliburton (HAL) and Baker Hughes (BHI). Schlumberger is a quality leader in almost all aspects of the oil service industry. Recent acquisitions of Smith International (SII) and Nexus Geosciences enhance expertise in drilling and seismic services. If you were to pick just one, Schlumberger would probably be the best choice.
Transocean (RIG) and Diamond Offshore (DO) specialize in offshore contract drilling, while National Oilwell Varco (NOV) is more a "nuts and bolts" type company, designing, manufacturing and selling products used for the production and transportation of petrochemicals.
Exchange Traded Funds (ETFs)
If you wish to avoid corporate risk consider oil service ETFs. Three of the larger ones are: iShares Dow Jones US Oil Equipment Index ETF (IEZ), Oil Services HOLDRs (OIH), SPDR S&P Oil and Gas Equipment Services ETF (XES).
iShares Dow Jones US Oil Equipment Index ETF
IEZ has holdings in over 40 companies and is market-cap weighted. The three largest holdings: Schlumberger, Haliburton, and National Oilwell Varco comprise almost 40% of capitalization.
Since holdings are weighed by market capitalization, IEZ keeps most of your investment in the the larger, high quality companies, yet still gives some exposure to the smaller ones.
IEZ has a market cap. of $407 million and an expense ratio of .47%.
Oil Services HOLDRs
Like IEZ, OIH is concentrated in the larger oil service area. Transocean is the top holding at 15%. There are only 16 securities in this ETF. The three largest: Transocean, Schlumberger and Haliburton total around 35% of holdings.
If you are considering investing in OIH you should be aware of the unusual features of the HOLDR Merrill Lynch products. Here is a good article on how they differ from most ETFs. Since you can only invest in round lots of OIH, you will need a minimum of $12,100 more or less at current prices to invest.
OIH has a market cap. of $2.28 billion and an expense ratio of .06%. The expense ratio is low because of the unique way that it is calculated (see the above article link for an explanation).
SPDR S&P Oil and Gas Equipment Services ETF
This oil and gas equipment and services ETF holds 24 securities, but no one security comprises more than 5-6% of holdings. Smith International is currently the largest holding. Although XES has many of the same companies as IEZ and OIH, there is a greater weighting of smaller to midsize companies in XES.
XES has a market cap. of $342 million and an expense ratio of .35%.
A Cautionary Note:
If you believe a double dip recession, crash, or even signifigant market decline are on the horizon, you may wish to stay away from this volatile sector. The sector shows even more volatility than oil prices do.
Disclosure: Author long XES
About the author: Bruce Vanderveen Bruce Vanderveen is a financial author and real estate investor based in the Tampa, Florida area. Bruce has been in the markets some 30 years and presents a down-to-earth, sometimes humorous, approach in his writing. Bruce also is studying copy writing, promotional writing for websites. Bruce... More Company: Freelance Copywriting
Blog: Market Perspectives
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• On Canadian Black Gold • U.S. Oil Production Is Now Up • SunTrust: Not Such a Solid Investment Related stocks: BHI, DO, HAL, IEZ, NOV, OIH, RIG, SII, SLB, XES
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The Coming Boom in Oil Service 23 comments
by: Bruce Vanderveen March 24, 2010 | about: BHI / DO / HAL / IEZ / NOV / OIH / RIG / SII / SLB / XES Bruce Vanderveen 146
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Share0 With a deafening roar the greenish black gunk spewed 150 feet into the air, drenching men and machinery alike. Welcome to east Texas in 1901. The Spindletop oil discovery produced some 100,000 barrels/day (they expected 5), more oil than anyone knew what to do with at that time. The gusher heralded the start of the great east Texas oil boom. By 1903 the price of a barrel of oil was 3 cents.
But 1901 is so very long ago. Oil is now $80/barrel, gasoline $2.80/gallon, and both are heading up. A voracious, continually growing, worldwide fleet of 600 million plus vehicles, each suck up their quota every day with no end in sight. Oil companies drill through miles of rock and salt, often under thousands of feet of sea water, all doing so in a desperate attempt to find more of the elusive black stuff.
Now, in 2009, the easy pickings are mostly gone. Salt domes like Spindletop are tapped dry (Spindletop itself quit producing in the 1930's). Lots of hydrocarbons remain in the earth, but they are increasingly difficult to extract. Consider:
The U.S. (lower 48): Texas produces more oil than any other U.S. state but production peaked at 3.5 million barrels/day in the early 1970's. Now, Texas production is below 1 million barrels/day and steadily dropping. With the exception of North Dakota and the Gulf of Mexico, the same is true for the rest of the U.S.
Alaska: Prudhoe Bay, the largest oil field in North America, has produced some 13 billion barrels since 1977. BP plc estimated that as of August 2006 only some 2 billion barrels of recoverable oil was left in Prudhoe Bay.
Canada: Canada is the U.S.'s largest oil supplier. I covered Canadian oil production in a previous SA article. It covered the same scenario: conventional oil production is in decline. Potential exists in oil sands and shale, but environmental issues cloud the promise.
Mexico: The woes of Cantarell, one time the second fastest producing oil field in the world (behind Saudi Arabia's Ghawar), are legendary. Production peaked at 2.1 million barrels/day in 2003, and by 2009 it was at 774 thousand barrels/day and falling rapidly. Schlumberger (SLB) is now working with Pemex to slow the decline in Mexican production.
An interesting aside: It is thought that Cantarell exists only because of an asteroid strike some 65 million years ago (the same one that wiped out the dinosaurs). The strike created a large rubble field deep in the earth with good porosity in which oil collected.
The North Sea: North Sea oil production peaked in 1999 and A Wall Street Journal article on January 13, 2010, said about North Sea fields:
... oil and gas fields are in steep decline and nearing the end of their production lives.
The Middle East: The Middle East, especially Saudi Arabia, is somewhat of an unknown. The Saudis, currently pumping 8 million barrels per day, claim to have 4 million barrels per day of spare capacity. But, can you believe the notoriously secretive kingdom? Even assuming the Saudis are right, a worldwide economic resurgence could easily absorb this extra capacity. Ghawar, Saudi Arabia's, and the world's, largest oil field, needs increasingly large water injections to keep the oil flowing. Among other Middle Eastern states only Iraq may be able to ramp up production (and then only if it is able to keep the violence under control).
There is always the risk of geopolitical issues flaring up in the Middle East. Currently, things are relatively calm, and we have $80/barrel oil. Iranian Shiites have aspirations on Sunni oil, Al Qaeda is still around, and Israeli/Arab issues go unresolved. If any of the above flare up you can say goodbye to $80 oil - I don't need to tell you which direction it will go.
Elsewhere: Brazil, Russia, Africa, Indonesia, Venezuela are all large oil producers. All, except Brazil, have plateauing or declining production and/or exports. Several large off shore fields have been discovered in Brazil recently, but they are miles deep in the ocean, under salt and rock.
Throw a worldwide money printing binge into the mix, as governments try to inflate away their debts, and it seems certain the dollar denominated assets such as oil must rise.
This article is not meant to prove or even argue peak oil. Rather, the point is no matter what or who is right about peak oil, it will take more and more effort (read oil service) to keep oil flowing.
The oil services sector supplies the expertise that supports the massive worldwide infrastructure continually turning raw petroleum into useful products, such as the gasoline you put into your car. Whether it be horizontal shale, deep sea basins, getting more out of older fields, transportation or refining, none of it would happen without the oil services sector.
Oil Service Companies
Schlumberger (SLB) is a dominant player, and with a market capitalization of over $75 billion, it dwarfs competitors such as Haliburton (HAL) and Baker Hughes (BHI). Schlumberger is a quality leader in almost all aspects of the oil service industry. Recent acquisitions of Smith International (SII) and Nexus Geosciences enhance expertise in drilling and seismic services. If you were to pick just one, Schlumberger would probably be the best choice.
Transocean (RIG) and Diamond Offshore (DO) specialize in offshore contract drilling, while National Oilwell Varco (NOV) is more a "nuts and bolts" type company, designing, manufacturing and selling products used for the production and transportation of petrochemicals.
Exchange Traded Funds (ETFs)
If you wish to avoid corporate risk consider oil service ETFs. Three of the larger ones are: iShares Dow Jones US Oil Equipment Index ETF (IEZ), Oil Services HOLDRs (OIH), SPDR S&P Oil and Gas Equipment Services ETF (XES).
iShares Dow Jones US Oil Equipment Index ETF
IEZ has holdings in over 40 companies and is market-cap weighted. The three largest holdings: Schlumberger, Haliburton, and National Oilwell Varco comprise almost 40% of capitalization.
Since holdings are weighed by market capitalization, IEZ keeps most of your investment in the the larger, high quality companies, yet still gives some exposure to the smaller ones.
IEZ has a market cap. of $407 million and an expense ratio of .47%.
Oil Services HOLDRs
Like IEZ, OIH is concentrated in the larger oil service area. Transocean is the top holding at 15%. There are only 16 securities in this ETF. The three largest: Transocean, Schlumberger and Haliburton total around 35% of holdings.
If you are considering investing in OIH you should be aware of the unusual features of the HOLDR Merrill Lynch products. Here is a good article on how they differ from most ETFs. Since you can only invest in round lots of OIH, you will need a minimum of $12,100 more or less at current prices to invest.
OIH has a market cap. of $2.28 billion and an expense ratio of .06%. The expense ratio is low because of the unique way that it is calculated (see the above article link for an explanation).
SPDR S&P Oil and Gas Equipment Services ETF
This oil and gas equipment and services ETF holds 24 securities, but no one security comprises more than 5-6% of holdings. Smith International is currently the largest holding. Although XES has many of the same companies as IEZ and OIH, there is a greater weighting of smaller to midsize companies in XES.
XES has a market cap. of $342 million and an expense ratio of .35%.
A Cautionary Note:
If you believe a double dip recession, crash, or even signifigant market decline are on the horizon, you may wish to stay away from this volatile sector. The sector shows even more volatility than oil prices do.
Disclosure: Author long XES
About the author: Bruce Vanderveen Bruce Vanderveen is a financial author and real estate investor based in the Tampa, Florida area. Bruce has been in the markets some 30 years and presents a down-to-earth, sometimes humorous, approach in his writing. Bruce also is studying copy writing, promotional writing for websites. Bruce... More Company: Freelance Copywriting
Blog: Market Perspectives
146
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FollowingFollowSend Message Share this page
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Share 7 Print this article Email this article
Related Articles
• On Canadian Black Gold • U.S. Oil Production Is Now Up • SunTrust: Not Such a Solid Investment Related stocks: BHI, DO, HAL, IEZ, NOV, OIH, RIG, SII, SLB, XES
Related themes: Exploration & Production, Natural Gas, Oil & Gas Majors, Oil & Gas Transport, Oil Price
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Wall Street Breakfast: Must-Know News
Oracle F3Q10 (Qtr End 02/28/10) Earnings Call Transcript
Cramer's Lightning Round - One of the Best Buying Opportunities Ever (3/23/10)
High Conviction: An Offshore Driller Poised to 'Gush Free Cash Flow'
Goldman Sachs SIRIously Bullish
Airline Employee Pay Raise Demands: Not Just Pie in the Sky
When Is the Right Time to Sell Dividend Stocks?
Editors' PicksSouth Korea ETF Sinking Alongside S. Korea Ship Today
Greece: Why Europe's Support Plan Won't Fix the Problem
U.S. Bank Reserve Levels: Excess, Prudent or Insufficient?
As Retail Banks' Credit Problems Ease, What Will Drive Growth?
Credit Market Overview: The Energy-Numbers Muddle Is All Good for Wall Street
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Wednesday, March 17, 2010
outro texto do banco suiço
texto sobre o que a historia pode nos ensinar, copiado aqui para melhor visualização, do cre dit suis se.
How Investors Can Learn From History
Michael O'Sullivan, Head of Equity Research UK, Richard Kersley, Head of Global Research Product
11.02.2010 Stock markets often seem to move in mysterious ways, especially in times of uncertainty. The Credit Suisse Investment Returns Yearbook brings some light into the mystery by analyzing the equity and bond returns in 19 countries, over a period of more than 100 years. The study is the result of a collaboration between the Credit Suisse Research Institute and the London Business School.
Related Links:
Credit Suisse Global Investment Returns Yearbook 2010
The volatility in financial markets since 2007 has at times been the most extreme in eighty years and in general has lead both private and institutional investors to search for indicators and research tools that will give a sense of where markets may go in the future. Indeed, taking 2009 as an example, where equity markets fell by over 25 percent in the first two months of the year and then embarked on a spectacular rally, it is understandable that the outlook for 2010 and beyond is still uncertain.
In Search of a Long-Run Perspective
In this context, one research project that helps bring a sense of perspective here is the Credit Suisse Investment Returns Yearbook, which is published by the Credit Suisse Research Institute in collaboration with Professors Paul Marsh and Elroy Dimson of the London Business School. The Yearbook is based on an extensive database of equity and bond returns that reaches back over 100 years and spans 19 countries (Finland and New Zealand have been added this year). In this way, the Yearbook helps to put into long-run perspective the current outlook for asset prices at a time of global economic recovery and high levels of country indebtedness. In addition it allows us to take the measure of the Credit Crisis by comparison to other turbulent periods such as the 1930's and 1970's.
Equities Beat Bonds Over the Long-Term
Granted the size and breadth of the data collected by Professors Dimson and Marsh, this is an extensive and global analysis that goes beyond what can be contained in this Yearbook, so an accompanying volume called the Global Investment Returns Sourcebook contains detailed tables, charts, listings, background, sources and references for every country.
Looking ahead through 2010 we believe that the analysis of equity risk and bond maturity premia in the Yearbook is all the more relevant to investors as valuations, volatility and the business cycle begin to approach more 'normal' levels. Going back to 1900, annualized real returns for world equities have outperformed bonds by close to 3.4 percent, and we feel that is a good guide to the levels of risk premia we are likely to see in coming years.
Will Emerging Markets Outperform?
More specifically, in the context of the already strong growth in Emerging markets and the rebuilding of developed economies two articles by Professors Dimson and Marsh examine firstly what kinds of return and risk levels should we expect from Emerging market equities and secondly what the relationship between stock returns and economic growth is.
While Emerging market equity returns in 2010 were spectacular, our analysis suggests that through history Emerging market returns have been closer to developed markets than many investors would now expect. The crucial issue in our view is the extent to which Emerging markets have undergone a structural improvement in terms of their riskiness and the levels of economic growth they now enjoy.
Markets Tend to Rebound as Economies Heal
The second article in the Yearbook helps to shed some light here. While we observe a positive correlation between long-term economic growth and stock returns, per capita GDP growth has a negative correlation with both stock returns and dividend growth. If anything stock market moves are a much better indicator of future GDP growth. In fact, an investment strategy of investing in countries that have shown weakness in economic growth has historically earned high returns.
US Equities Might Profit from Globalization
In addition, the Yearbook contains an assessment by Jonathan Wilmot, Chief Global Fixed Income Strategist for Investment Banking at Credit Suisse, of the fundamental outlook for the US stock market in the context of a globalised world. He notes that despite the impact of the credit crisis the US market is nearly three times bigger than the Emerging market universe in free float terms and is strongly linked to emerging world growth as nearly a quarter of total US profits and about 30 percent of S&P 500 sales are generated abroad. He concludes that the outlook for US equities is positive, given continuing globalization, emerging world growth and rapid technological change.
The articles and country profiles in the Yearbook make for fascinating reading and we hope that it helps to guide readers through still challenging markets. The Yearbook is now one of a number of regular publications from the Credit Suisse Research Institute, which links the internal resources of our extensive research teams with world-class external research.
How Investors Can Learn From History
Michael O'Sullivan, Head of Equity Research UK, Richard Kersley, Head of Global Research Product
11.02.2010 Stock markets often seem to move in mysterious ways, especially in times of uncertainty. The Credit Suisse Investment Returns Yearbook brings some light into the mystery by analyzing the equity and bond returns in 19 countries, over a period of more than 100 years. The study is the result of a collaboration between the Credit Suisse Research Institute and the London Business School.
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Credit Suisse Global Investment Returns Yearbook 2010
The volatility in financial markets since 2007 has at times been the most extreme in eighty years and in general has lead both private and institutional investors to search for indicators and research tools that will give a sense of where markets may go in the future. Indeed, taking 2009 as an example, where equity markets fell by over 25 percent in the first two months of the year and then embarked on a spectacular rally, it is understandable that the outlook for 2010 and beyond is still uncertain.
In Search of a Long-Run Perspective
In this context, one research project that helps bring a sense of perspective here is the Credit Suisse Investment Returns Yearbook, which is published by the Credit Suisse Research Institute in collaboration with Professors Paul Marsh and Elroy Dimson of the London Business School. The Yearbook is based on an extensive database of equity and bond returns that reaches back over 100 years and spans 19 countries (Finland and New Zealand have been added this year). In this way, the Yearbook helps to put into long-run perspective the current outlook for asset prices at a time of global economic recovery and high levels of country indebtedness. In addition it allows us to take the measure of the Credit Crisis by comparison to other turbulent periods such as the 1930's and 1970's.
Equities Beat Bonds Over the Long-Term
Granted the size and breadth of the data collected by Professors Dimson and Marsh, this is an extensive and global analysis that goes beyond what can be contained in this Yearbook, so an accompanying volume called the Global Investment Returns Sourcebook contains detailed tables, charts, listings, background, sources and references for every country.
Looking ahead through 2010 we believe that the analysis of equity risk and bond maturity premia in the Yearbook is all the more relevant to investors as valuations, volatility and the business cycle begin to approach more 'normal' levels. Going back to 1900, annualized real returns for world equities have outperformed bonds by close to 3.4 percent, and we feel that is a good guide to the levels of risk premia we are likely to see in coming years.
Will Emerging Markets Outperform?
More specifically, in the context of the already strong growth in Emerging markets and the rebuilding of developed economies two articles by Professors Dimson and Marsh examine firstly what kinds of return and risk levels should we expect from Emerging market equities and secondly what the relationship between stock returns and economic growth is.
While Emerging market equity returns in 2010 were spectacular, our analysis suggests that through history Emerging market returns have been closer to developed markets than many investors would now expect. The crucial issue in our view is the extent to which Emerging markets have undergone a structural improvement in terms of their riskiness and the levels of economic growth they now enjoy.
Markets Tend to Rebound as Economies Heal
The second article in the Yearbook helps to shed some light here. While we observe a positive correlation between long-term economic growth and stock returns, per capita GDP growth has a negative correlation with both stock returns and dividend growth. If anything stock market moves are a much better indicator of future GDP growth. In fact, an investment strategy of investing in countries that have shown weakness in economic growth has historically earned high returns.
US Equities Might Profit from Globalization
In addition, the Yearbook contains an assessment by Jonathan Wilmot, Chief Global Fixed Income Strategist for Investment Banking at Credit Suisse, of the fundamental outlook for the US stock market in the context of a globalised world. He notes that despite the impact of the credit crisis the US market is nearly three times bigger than the Emerging market universe in free float terms and is strongly linked to emerging world growth as nearly a quarter of total US profits and about 30 percent of S&P 500 sales are generated abroad. He concludes that the outlook for US equities is positive, given continuing globalization, emerging world growth and rapid technological change.
The articles and country profiles in the Yearbook make for fascinating reading and we hope that it helps to guide readers through still challenging markets. The Yearbook is now one of a number of regular publications from the Credit Suisse Research Institute, which links the internal resources of our extensive research teams with world-class external research.
