By Duncan Sutherland – Exclusive to Crude Investing News
With apologies to Chinua Achebe

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Market news:

With barrel prices descending near $60 on the NYMEX, the market is profoundly unsettled. Pessimists suggest that a prolonged recession will further depress demand and cause further price declines. Optimists like BP CEO Tony Hayward believe that current prices will rejuvenate demand and help the industry recover.

Along with OPEC production cuts and healthy company numbers, (both discussed below) the market is clearly disjointed. The tenor of discussions in the business pages and networks lately suggests that Yeats was right, and the centre cannot hold. Recession or recovery, echo boom or bust, few are predicting prolonged instability somewhere between these extremes. Benchmark’s read on the situation is just that. Out and out collapse of oil prices is unlikely without a worldwide depression, but the current economic climate does not suggest a quick return to the giddy highs of the spring and summer. As such, now is not the time to abandon the oil sector or pour money into new investments, but to hold on to existing investments and take a breather.

Company news:

Though the numbers may not presage such good times ahead, a number of oil companies are reporting increased profits for the third quarter. Suncor (TSX:SU), BP (NYSE:BP), and Royal Dutch Shell (NYSE:RDS.A) are all sending encouraging signs that third quarter results will be short of last quarter’s records, but still quite strong.

Canada’s Imperial Oil Ltd. (TSX:IMO) reported third-quarter earnings of $1.4 billion, largely due to high oil prices and better refining and gasoline sales margins. Imperial saw its shares rise on the news, as it had outperformed most observers’ projections.

Shell is making use of weaker prices to squeeze better terms out of oil-service companies. If Shell can successfully sign medium to long term oil-service contracts at these lower prices, the company will be in very good shape once prices start to recover.

International news:

Canada’s new cabinet suggests that new environmental policies are in the offing. Replacing the combative former Environment Minister John Baird with the Jim Prentice has earned positive reviews across the Canadian media. (see here, here, and here)

With a President Obama looking increasingly likely, and environmental policy being perceived as a Conservative weakness, Prime Minister Harper’s decision indicates that big change is in the offing for the carbon emission policy.

Meanwhile, Ecuador’s President Rafael Correa has not been reading the business pages. The Economist, The Financial Times, the New York Times and other venerable publications have been suggesting that dropping prices will weaken the international leverage, domestic popularity and negotiating positions of oil-rich autocrats, Mr. Correa’s government is taking a hard line.

The country is to boot Spanish-Argentine oil major Repsol YPF (NYSE:REP) after the company refused to radically alter its terms of operations from a per barrel royalty to a service contract. Mr. Correa runs the risk of scaring off other potential partners and taking a significant hit to government revenues if Repsol does not resume operations soon.

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