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Toronto Star: Respected researcher says oil bubble to burst (‘Shell… massive fraud’)

Decline in industrial world consumption and thorough routing of speculators could lead to $30 U.S. a barrel

Feb 19, 2007 04:30 AM
David Olive 

Jeff Rubin, excitable chief economist at CIBC World Markets, got the Cassandra treatment early this month after downgrading oil stocks because, in his view, governments are bent on “demand-destruction aimed at reducing oil consumption in an effort to abate greenhouse-gas emissions.” Nonsense, muttered the Street, which has seen Rubin’s scarems go awry before.

But how’s this for scary? Last week, the crystal-ball gazers at respected independent research firm Sanford C. Bernstein & Co. of New York said they see oil as low as $30 (U.S.) per barrel oil on the horizon – down 47 per cent from current levels, and 62 per cent off last summer’s peak.

Evidence? A decline in industrial world consumption, of 0.6 per cent last year, for the first time since the 1980s. A recent drop in the growth rate of Chinese demand. And the rout of speculators whose zeal alone accounted for more than one-third of the price run-up.

“We believe such speculative activity created perhaps the biggest artificial distortion of a market since the technology bubble of the late 1990s,” says Bernstein.

Speaking of bubbles, it was during that earlier bubble that Bernstein was ahead of the curve in warning that Nortel Networks Corp. was vastly over-priced.

Beyond hype. Fast Forward, which confesses to owning stock in Exxon Mobil Corp. since 1980, is bemused by attacks on the firm over its recently posted record 2006 profit of more than $39 billion (U.S.). With memories of the 18-year-old Valdez disaster always fresh on their minds, environmentalists lit into the longtime global-warming denier, while some Democrats in the U.S. Congress predictably cried “price gouger!”

This isn’t the place to explain that oil prices are set not by oil companies but the primal forces of supply, demand and speculative impulses in global trading markets. And we are partial to Sen. Hillary Clinton’s vow to capture some of those “excess” oil profits for a new fund that would finance alternative-fuel development.

What does puzzle us a bit is the comparative lack of attention to ConocoPhillips’ record $15.5 billion profit, and Royal Dutch Shell PLC’s record $25 billion profit. Yes, that’s the Shell, a self-proclaimed global-warming leader, that sacked its then-CEO, Sir Phil Watts, in 2004 over a massive fraud in reporting grossly inflated reserves. Which was not long after Watts was knighted for his environmental leadership.

Or take BP PLC, paired with Shell as one of Big Oil’s two most enlightened firms in accepting the reality of climate change, and still running its image-polishing “Beyond Petroleum” ads despite being as reliant on the oil and gas business as it ever was. BP’s performance record in the past two years includes a tragic 2005 explosion that killed 15 workers and injured hundreds more at a Texas City refinery where maintenance was lax due to cost cutting; the shutdown of a third of its Prudhoe Bay production in Alaska last year after an oil spill revealed an austerity-driven failure to properly maintain its pipeline network in one of the world’s most ecologically sensitive regions; and separate U.S. regulatory probes into alleged propane price-fixing and dubious energy trading practices.

Which finally resulted in the recent BP board decision to push CEO Lord Browne out of the corner office in July, more than a year ahead of the environment-movement hero’s scheduled departure, and with a rumoured $140 million severance send-off.

With great fanfare, General Electric Co. has transformed itself into an “eco-imagination” conglomerate, exploring ecologically benign alternatives to fossil fuels in each of its business segments. Last week it was revealed that GE has been quietly but fiercely lobbying the U.S. Environmental Protection Agency to weaken proposed anti-smog controls for its train locomotives, a market GE dominates in North America.

Chutzpah prize: One of GE’s feel-good “eco-imagination” ads features a GE-powered train winding through the pristine wilderness. Oy.

Okay, Exxon Mobil hasn’t yet recruited Al Gore as a keynoter at an executive retreat. But it hasn’t killed anyone, either, or faked its reserves, allegedly conspired with rivals to bilk consumers, or put 8 per cent of U.S. oil supplies in jeopardy at the height of the oil-price run up, either. So by all means demonize Exxon Mobil – especially for the absurd government subsidies it rakes in along with the rest of Big Oil. But could we do so in the context of the firm’s hypocrisy-deficit?

Media gripesters: Could it be that journalists, a notoriously thin-skinned bunch, absorb that unfortunate trait from media owners? Really, is there a more prickly bunch than the super-litigious Conrad Black, the incessantly whiny Leonard and David Asper, and Pierre Karl Péladeau, above? Infallible masters of the universe all, they have no match among industry titans for righteous indignation when their transparent self-interest is questioned, most often when (all-too-mildly) upbraided for falling short of their Cancon commitments and stiffing the Canadian Television Fund on mandated fees.

So were we surprised when Péladeau last week vowed to launch a $2.1 million (Canadian) defamation lawsuit against a Radio-Canada official quoted in Le Devoir describing Péladeau as “behaving like a hooligan”? Well, no, not after Peladeau’s run-ins with Abitibi-Consolidated Inc. boss Robert Weaver (to whom Péladeau’s Quebecor Inc. had sold its controlling stake in the Donohue Inc. paper business), and a Quebec actor who made the mistake of parodying Pèladeau on Quebecor’s TVA network.

What we did wonder was why Canada’s Big Five bank CEOs, to pick a random example, never react with lawsuits when their egos are bruised – most recently when they were scolded last week by federal finance minister Jim Flaherty for allegedly failing to honour home-mortgage insurance policies of fallen soldiers in Afghanistan.

You think you know someone. When they first met, in June 2001, George W. Bush said of Vladimir Putin, “I looked the man in the eye. I was able to get a sense of his soul.” Since that agreeable tête-a-tête, Putin exiled political rival Mikhail Khodorkovsky to a prison camp in Siberia and nationalized his oil firm, the giant Yukos (earlier this month, Khodorkovsky was charged with the additional offence of embezzling $25 billion from Yukos – an improbable sum, given that Khodorkovsky’s peak net worth was an estimated $15 billion.

The Russian autocrat – sorry, president – is widely viewed as the instigator of Putin critic Alexander Litvinenko’s bizarre death by radioactive polonium 210 poisoning in London last year. Putin has balked at Western European efforts to rein in Iran’s nuclear ambitions. And now he’s musing about creating an OPEC-style cartel in natural gas, with Russia, Iran and Qatar – which together hold 58.2 per cent of world gas reserves – as founding members.

But hey, character assessments are always tough. If Michael Moore had been on his best behaviour during a similar encounter, Bush might have mistaken him for one of Dick Cheney’s hunting buddies. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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