Archive for the ‘Oil’ Category


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Widowmaker’ Oil Trade Lives Up to Its Name

OIL COMMODITIES MARKETS ECONOMY INTEREST RATES INFLATION FUEL PRICES GASOLINE FUTURES NYSE FTSE
CNBC.com
| 12 May 2011 | 03:10 AM ET
Big oil traders who bet on a rise in gasoline prices relative to heating oil ahead of the summer driving season may have thought they broke the curse of a “widowmaker” trade even as oil prices crashed.
They were dead wrong. Some of the traders who shun the big, directional bets that hedge funds love have crowded into a common springtime trade: betting gasoline futures on the New York Mercantile Exchange (NYMEX) will hold at a premium to heating oil futures as consumption accelerates into the summer.
They have been counting their winnings since March, when the spread staged its biggest seasonal rise since 2007.
The surge accelerated earlier this week as the Mississippi River swelled, threatening refinery operations in Louisiana and Tennesse.
But then came Wednesday, when gasoline futures collapsed in the biggest absolute drop in more than two years.
The spread dropped by over 17 cents, the biggest one-day move since September 2009.
“There will be widows. Some people got pretty whipsawed. But that trade is not for the faint of heart,” said Stephen Schork, editor of the Schork Report.
Indeed, lately it’s been a stomach-churning ride. The spread has moved by more than 6 cents in either direction in four of the past eight trading sessions; prior to last week it moved by such a margin only nine times in two years.
First, the U.S. Energy Information Administration came out with data showing an unexpected build in gasoline stocks as the threat level for refineries from the Mississippi river abated.
This, coupled with mounting concerns that gasoline pump prices near the critical $4 a gallon level will cause U.S. consumers to balk, pushed many bulls to the exit.
RBOB gasoline at one point slumped by over 30 cents or 8.95 percent.
The price drop was so big it triggered a five-minute trading halt in all three oil major contracts for the first time since Sept. 22, 2008.
Victims
The “widowmaker” trade tends to be popular among trading houses and hedge funds which house some of the biggest speculative traders in the market.
One victim is said to have lost $500 million on a single bet in the summer of 2008 when gasoline failed to reach a premium to heating oil, contrary to the usual pattern.
On Wednesday, traders said a big Europe-based oil trading company was forced to stop out, or reverse its long position on gasoline to prevent further losses.
Volumes spiked to the highest level in hitory as dealers rushed to place orders.
“If you were long you were happy this time yesterday and you’re probably not so happy now,” said an oil trader with a European bank. “The flood story freaked everyone out. The market attracted tourists and then we overshot.”
U.S. refineries, which ramped up their gasoline production by 111,000 barrels-per-day last week, according to the EIA, are also set to take a hit if the slump in the futures market is carried to spot markets over the coming few days.
The price crash in theory wiped off more than $5 in profits for every barrel of crude processed into gasoline.
Traders who sensed that the price may have been reaching a peak were relieved on Wednesday to have sold near the top.
The signs were already there. Gasoline demand has been on a continuous slump since the second week of April according to EIA’s 4-week average gasoline supply data.
“Luckily, I sold this morning. I’m too scared to watch it,” said a gasoline trader with a bank.
Before Wednesday’s crash, gasoline was trading at a record premium to heating oil, according to Reuters data going back to 2008.
Others saw the plunge as symptomatic of a new oil trading environment, characterized by huge price swings following last week’s record drop in oil prices, for no obvious reason.
In percentage terms gasoline price fell by less than crude in last week’s price crash, but on Wednesday they led the whole complex lower, analysts said.
“Last week’s steep slide has increased volatility in the market, and we are still responding skittishly to that.
Often in the period after a crash like that things become a little more volatile,” said Gene McGillian, analyst at Tradition Energy.
Flagship commodity fund Astenbeck II run by top Phibro trader Andrew Hall was one name that suffered a double-digit loss last week as oil prices tumbled.

commodities – ‘Widowmaker’ Oil Trade Lives Up to Its Name – CNBC

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Clive Capital On the Commodity Slam…sorry,we mean, Outlook

Until we learn which hedge funds REALLY got clobbered, Chris Levett’s $5 billion Clive Capital, which lost $400 million, will be known as the hedge fund that just got clobbered by the commodities dump.

Clive was “at a loss to explain what had caused crude oil markets to be “annihilated,” Clive’s management said, according to the FT.
We assume Levitt’s will bounce back. But for some smaller funds, what happened last week was game over.
Until then, check out what Clive Capital was saying about commodities in October.
Below is a summary from their October letter to investors. We published Clive’s macro view in November.
From Clive Capital’s October letter to investors:
Energy
— Bullish on gas, power, and emissions
  • Estimates for U.S. onshore oil production growth are continually revised up
  • In Asia, Chinese oil demand continues to beat expectations
  • With floating inventories of crude and products continuing to whittle away, oil fundamentals appear to be tightening. Onshore commercial inventories would be the next to draw, which should be supportive to oil spreads in general.
  • Ethanol shortages in 2011 look increasingly possible, which would be supportive for gasoline, particularly in Brazil and the U.S.
  • Gas is expected to remain in a competitive position versus Coal all winter long and throughout 2011.
  • Germany will reach 2008 level power consumption by the end of 2011 if current growth trend is sustained.
Precious Metals
— Bullish on Precious Metals Growing fears over the value of the major paper currencies as well as the persistence of ultra low real rates across the world should be bullish for Precious Metals as a group going forward. We made no major changes to our Gold positioning and should continue to benefit from a move higher in prices… PGM’s also rallied in October; with Palladium outperforming Platinum and seeing Palladium prices reach 9-year highs. The longer-term bullish supply story is not only a function of constrained supply but also of increased cost pressures (particularly in the face of a strong South African Rand and power tariff increases), which are reducing producer profit margins despite these higher prices. On the demand side, tighter emissions legislation around the world has been a positive driver for many years. The implementation of regulations for off-road vehicles (e.g. those used in agriculture, construction) in Europe and North America in 2011 as well as demand from stationary fuel cells should add two further demand components to markets that are already struggling/unable to supply enough metal for all the other uses.
Base Metals
Bullish on Copper and Tin Market balances for 2011 are pointing towards market deficits in Copper, Tin and Lead while Nickel and Zinc should see small surpluses… Copper mine supply is expected to expand by less than 500kt in 2011 (compared to annual refined production of around 19mt)… To put this into perspective, global demand is expected to expand by around 700kt (with the bulk of that growth coming from China and using very conservative assumptions for the G3). As such, there is a strong likelihood that the market will record an even bigger deficit in 2011 than the estimated 300-400kt deficit in 2010. Add in the growing likelihood of physically backed Base Metal ETFs and one could easily envisage a scenario where several metals, particularly Copper and Tin, trade well into record territory in 2011 while others, such as lead, Zinc and Nickel (which are still well below their respective 2007/08 peaks) will see prices rising closer to those prior highs.

Read more: http://www.businessinsider.com/check-out-what-clive-capital-was-saying-about-commodities-before-the-annilhilation-2011-5#ixzz1LrXHGfGX

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Clive Capital On Commodity Outlook


Also read:

Clive Capital Investor Letter on the Commodity Slam 

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In this 1970 photo released by the Public Archive of Sao Paulo State, Dilma Rousseff is seen in a police photo. Rousseff, who is running for president in Brazil’s Oct. 3, 2010 elections, was a key player in an armed militant group that resisted Brazil’s 1964-85 military dictatorship, and was imprisoned and tortured for it. She is a cancer survivor and a former minister of energy and chief of staff to the current President Luiz Inacio Lula da Silva. (AP Photo/Public Archive of Sao Paulo State)




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Air & Space Magazine

The 727 that Vanished

A case pursued by the FBI, the CIA, the U.S. Departments of State and Homeland Security, CENTCOM, and the sister of Ben Padilla.

  • By Tim Wright
  • Air & Space Magazine, September 01, 2010

Seven years after her brother disappeared from Quatro de Fevereiro International Airport in Angola, Benita Padilla-Kirkland is trying to persuade the FBI to re-open his case. She believes she has the “new information” agents told her they require. But she suspects that the agency already has more information than agents will admit to.
Kirkland’s brother, Ben Charles Padilla, a certified flight engineer, aircraft mechanic, and private pilot, disappeared while working in the Angolan capital, Luanda, for Florida-based Aerospace Sales and Leasing. On May 25, 2003, shortly before sunset, Padilla boarded the company’s Boeing 727-223, tail number N844AA. With him was a helper he had recently hired, John Mikel Mutantu, from the Republic of the Congo. The two had been working with Angolan mechanics to return the 727 to flight-ready status so they could reclaim it from a business deal gone bad, but neither could fly it. Mutantu was not a pilot, and Padilla had only a private pilot’s license. A 727 ordinarily requires three trained aircrew.
According to press reports, the aircraft began taxiing with no communication between the crew and the tower; maneuvering erratically, it entered a runway without clearance. With its lights off and its transponder not transmitting, 844AA took off to the southwest, and headed out over the Atlantic Ocean. The 727 and the two men have not been seen since.
Who was flying 844AA? Had something happened to make Padilla take that desperate chance? Or was someone waiting inside the airplane? Leased to deliver diesel fuel to diamond mines, the 727 carried 10 500-gallon fuel tanks and a few passenger seats in its cabin. Less than two years after the 9/11 terrorist attacks, the 727’s freakish departure triggered a frantic search by U.S. security organizations for what intelligence sources said could have been a flying bomb.
Retired U.S. Marine General Mastin Robeson, commander of U.S. forces in the Horn of Africa when 844AA went missing, says word of the 727 “came up through the intelligence network.” According to Robeson, U.S. Central Command (CENTCOM) considered moving U.S. fighter aircraft to Djibouti on the Red Sea coast, where the Combined Joint Task Force shares a base with the French military. Robeson continues: “It was never [clear] whether it was stolen for insurance purposes&hellipby the owners, or whether it was stolen with the intent to make it available to unsavory characters, or whether it was a deliberate concerted terrorist attempt. There was speculation of all three.”
Speculation that the theft of 844AA posed a terrorist threat ended, though it’s unclear why. Perhaps National Geospatial-Intelligence Agency technicians saw signs of a crash in satellite imagery—debris or an oil slick in the Atlantic, for example—or evidence that a large aircraft had landed on one of a half-dozen unpaved, 8,000-foot runways in the Congo, north of Angola. Agency spokesperson Susan Meisner would not comment, saying that the NGIA was not the lead agency in the case. (A CIA spokesperson also declined comment, as did a spokesperson from the Department of Homeland Security. FBI agents also refused comment, citing national security concerns.) Perhaps the speculation ended more gradually, after weeks without clues or sightings stretched into months. The disturbed hornet’s nest of a global security alert—the searches, bulletins, and interrogations—quieted, and in 2005, the FBI closed its case. I have filed Freedom of Information Act requests with the CIA and FBI and have followed in at least some of the FBI’s footsteps, interviewing the people who flew 844AA to Angola and worked with it there, hoping to understand how a 727 could just disappear.
IT REALLY WAS in beautiful condition,” Keith Irwin says of the airliner he acquired in Miami in February 2002. Irwin, 57, a South African entrepreneur who ran a series of information technology companies and, until 2000, a small tourist airline with flights from South Africa to Mozambique, had come to Miami to pick up a different aircraft altogether. Representing a joint venture with a South African company called Cargo Air Transport Systems, Irwin had arranged to lease a 727 and two flight crews—pilot, first officer, and flight engineer—for a year. The air transport company had signed a contract to supply fuel to diamond mines in Angola, where a long civil war had made transporting goods by road almost impossible. The 727, therefore, was to have been delivered with fuel tanks installed in the cabin. The joint venture was backed by a single investor, who had deposited $450,000 in a U.S. bank. Irwin’s job was to manage the flight operations, but the deal for the airplane fell through. Irwin ended up with fuel tanks and no airplane.
That failure stranded six crewmen who had assembled in Miami. “The guys then were desperate for work,” says Irwin. “Most of those guys had not flown in a long time because of the 9/11 story. I said, ‘Look, I can take you on if we can find another aircraft.’ ” And Irwin met Maury Joseph, president of Aerospace Sales and Leasing, Inc. Joseph owned three 727s that had recently been retired by American Airlines. “All three aircraft were almost in mint condition,” says Irwin. “American Airlines had a very good maintenance program.”
New deal: Joseph sold 844AA to Irwin for $1 million and change. According to his records, he received a down payment of $125,000, and says he stipulated that the balance be paid within 30 days. He agreed to remove the passenger seats from the cabin and to allow Irwin to take the airliner to Africa. Irwin says he cannot remember the details of the agreement, but recalled it to be a lease arrangement. In any case, the joint venture made only two payments and defaulted.
Though the two men now differ over the terms of the contract, they agree on one detail: As a condition of the agreement, Irwin was required to take along one of Joseph’s employees, Mike Gabriel, whose job was to make sure that the deal was concluded. “I gave Mike $10,000 and told him to fly with them,” says Joseph. “Stay with the plane till you get the money, and then come on home, and if not, bring the plane home.”
On February 28, 2002, with most of the passenger seats removed and the 10 fuel tanks loaded, 844AA, still in the livery of American Airlines, with a blue stripe down the side and an AA logo fading on its tail, took off for Africa.
Because Irwin’s partners had not arranged a landing permit, it took two weeks for the crew to make their way to Quatro de Fevereiro International Airport, where they arrived on March 14. Irwin, who had not worked in Angola before, realized immediately that the deal was in trouble. The company hiring his partners for deliveries, Kuwachi Dundo, was supposed to pay $220,000 when the airplane and crew landed, but instead the company’s representative made excuses. (Irwin lost almost $140,000 in the first deal and had burned through the rest of the $450,000 by March.)
The crew endured accommodations in a dismal apartment without electricity or drinkable water, near an open sewer. (Gabriel and Irwin didn’t stay with the crew; they had rented an apartment in the back of a house owned by an Angolan air force general.) The only one of the men not troubled by the circumstances they found in Angola was Mike Gabriel. Gabriel, a dealer in aircraft parts and engines, had spent a considerable amount of time in West Africa, and was accustomed to the AK-47s the men saw everywhere, including stacked up behind the bar of a club they frequented. Most worrisome to the crew was that they were required to surrender their passports on arrival. Irwin explains that Kuwachi needed the passports to obtain Angolan licenses for the pilots and flight engineers.
“I was scared to death. I really thought I was going to die,” says Art Powell, one of the flight engineers with the project. Powell had been to Angola before and had spent a year working in Nairobi, Kenya, but this experience was different. He felt intimidated by the people who had hired the crew for the fuel-delivery job. His anxiety was intensified by the presence of a local “helper” who toted an AK-47. The helper was a guard whom Mike Gabriel says he hired because the crew repeatedly voiced concerns about safety.
When Kuwachi got wind of the crews’ unrest (several crew members have admitted that they were planning to steal the aircraft to escape to South Africa or return to the States), the company refused to return the passports. Irwin and members of the crew went to the U.S. Embassy; only then were the passports returned.
By Angolan regulations, Irwin says, 844AA was controlled by the clients who hired it. Prohibited from flying the aircraft out of the country, Irwin booked airline seats and flew the crew members to South Africa. From there, two of the men immediately flew home to the United States. One says he is still owed $17,000. The other four crewmen, still hoping for the money they’d been promised, stayed on.
By April, Irwin was extricating himself from the deal made by Cargo Air Transport Systems and had found a new backer, an Angolan who arranged deliveries for a different client. Irwin and the remaining crew returned to Luanda and began flying the shipments for the new company. Mike Gabriel placed the total number of flights made at 17.
“It’s the most dangerous flying in the world,” says a crewman who asked that his name be withheld because he fears for his career. A U.S. Air Force veteran, he likened the deliveries to flying into a combat zone. When they approached the airfields, the crew tried to stay at an altitude above small-arms fire for as long as possible, then spiraled down to land.
“I’ve been a [flight deck crew member] for 30 years,” he says. “For me, it was an opportunity to make a couple of bucks… and when everything started falling apart, I probably hung on twice as long as common sense dictated. But I had too much invested at that point to bail out.”
Many of the runways, says Mike Gabriel, aren’t paved and aren’t like the ones U.S. crews are accustomed to. “On some, you land uphill, then go downhill, then uphill again,” he says.
At one airstrip, the anonymous crewman says, just before 844AA arrived, a 727 flying for a competing company crashed on landing and skidded off the runway. Although the crew survived, he says, some local residents were killed. “We gave [the other flight crew] a lift out of there but not before going over to their airplane and stealing some parts that we needed. That’s when I decided it was time to go home.”
Before he left, he says, a “big African showed up with a briefcase full of hundred-dollar bills. It was payday.” Besides paying the crew, the money was supposed to pay off accumulated airport fees and fuel costs.
“After that,” the crewman says, “I created a family emergency&hellip. I said, ‘My mother is sick.’ ” He promised he’d return in two weeks and left. “I had no intentions of going back, of course. I didn’t get anywhere near full pay, but I got enough that I could pay my bills and make it not completely worthless.”
By the end of April, all of the Americans except Mike Gabriel had left.
Irwin hired a local crew and continued to deliver fuel to the mines, but he was ready to leave too. The civil war in Angola had ended. Competition among fuel haulers, Irwin says, had intensified, and he was growing more uncomfortable with the delivery deals. His partners were claiming part ownership of the aircraft, but Maury Joseph had not been paid. Joseph, meanwhile, sent a crew to swap an engine from the 727. Finally, Irwin says, he was being followed—by a local man named Antonio, who, Irwin believes, was working for one of his partners. “I would turn around,” Irwin says, “and spot Antonio watching me from a car.”
Irwin began wedging a chair under the door handle of his hotel room “just like you see in the movies.” One night, he heard a key card slide into the slot on the door. The lock released. “I started yelling and whoever it was ran,” he says. The hotel security guards questioned the night clerk and learned that he had accepted a bribe to provide the key card. Irwin left the country the next day and didn’t go back.
Maury Joseph fired Mike Gabriel some time that spring. “He kept convincing me that next week, next month…,” Joseph says, referring to the outstanding balance owed on the airplane.
In May 2002, the only part of the original 844AA project left at the Luanda airport was 844AA.
THE SON OF A FLORIDA MILLWRIGHT, Ben Charles Padilla Jr. was always mechanically gifted, says sister Benita Padilla-Kirkland, and from the time he was a boy, he loved airplanes. In his mid-20s he learned to fly and became certified as an airframe-and-powerplant mechanic. He lived in south Florida with two children, one his own, and a fiancée of 15 years. (Efforts to contact her were unsuccessful.) Though the two weren’t married, Padilla gave her power of attorney in his absence and made her the executor of his estate, according to Padilla-Kirkland, and left her almost everything in his will.
“He certainly knew the airplane,” says Maury Joseph. Padilla was a freelancer, who had worked for Joseph on two jobs before traveling to Angola to repossess 844AA. Padilla had worked extensively in Africa. He helped Joseph ferry a 727 to Nigeria for a sale and during the negotiations stayed to explain the aircraft systems. “If you said, ‘Go to Cambodia and do this’ or ‘Go to Indonesia and do this’ or ‘Go to South America and do this’ he would do it. [When in Nigeria] I was with Ben daily for a month or more,” says Joseph. “You become fairly close to somebody when you’re with them day and night.” Joseph trusted him.
But another employer formed a different opinion. Jeff Swain, who works near Miami in international aircraft sales and leasing, had hired Padilla in the late 1990s for an airline he was operating in Indonesia—and fired him. “We had certain standards of conduct we expected from flight engineers,” Swain says, adding, when pressed, “He was too involved in chasing the local girls. It was an unstructured environment, and he just went bad.” Swain says that after Padilla was fired, he stayed on in Indonesia for two months and racked up a $10,000 bill that he told the hotel the airline would pay. “We finally had him deported,” says Swain.
Padilla once showed Swain a photograph of a woman with small children and told him it was his wife in Mozambique, but Swain says, “I never believed it was real. Ben was always marveling everyone with his bullshit stories.” One of Padilla’s friends also saw a photograph of a wife, but insists that she lived in Tanzania. Another acquaintance was told that Padilla had a wife in Indonesia.
Benita Padilla-Kirkland says she’s heard the stories, but believes her brother would have told her if he’d had another family. She doesn’t doubt the relationships, but is convinced that Padilla was helping to support people he’d befriended. “There might have been more than one of those situations,” she says.
WHAT IN FEBRUARY 2002 had been a retired airliner in excellent condition had by fall become a junker worth only the price of its engines. And Maury Joseph found a buyer for them: Jeff Swain. Swain says that Irwin and the crews had ruined the airplane. “It would never be of any value again,” he says. “You can’t put water tanks full of fuel in an airplane and expect it to be good. Totally stupid. But it had really good engines on it—maybe 1,000 cycles since new.”
In November 2002, Joseph and Ben Padilla flew to Nigeria to deliver a 727, and Joseph hired Padilla to fly to Angola the following April to pay the outstanding fines and hire mechanics to return the 727 to service. “If [the company that contracted for fuel deliveries] wasn’t paying Mr. Irwin, you can assume he wasn’t paying anybody,” says Joseph. “He probably hadn’t paid the fuel bill. He didn’t pay the navigation fees, the landing fees, and certainly wasn’t paying the parking fees at the airport. So all of those became things that we had to resolve and I had to pay all those.”
Padilla worked with Air Gemini, a Luanda-based airline that operated a repair station. The return-to-service process was progressing steadily, according to Joseph, and in May 2003, acting as Joseph’s agent, Padilla hired a pilot and copilot from Air Gemini to help him deliver the aircraft to Johannesburg, South Africa, where Joseph was waiting with his new customer. A day or two before the aircraft was to leave Luanda, Padilla made plans with Air Gemini to take the aircraft from the company hangar out to the main runway, where he intended to run the three engines up to full power for a systems check.
Late in the morning on May 26, when Joseph and Swain were expecting 844AA to land, Joseph took a call from an Air Gemini employee, who demanded to know why another crew had flown the airplane out of Luanda. “He was kind of hard on me,” Joseph says. After the shock wore off, he telephoned the U.S. Embassy in South Africa to report the disappearance, then called his wife back in Florida to tell her to call the FBI. From Washington, D.C., the Department of State, notified by the U.S. Embassy in Angola, sent a message to every American embassy in Africa: Alert aviation officials that an airliner has been stolen, and call every airport with a runway long enough to handle a 727.
For the U.S. government, fraud was one theory that could explain the aircraft’s disappearance. “Part of the intelligence was that the airplane was in a bad state of repair,” says General Robeson. “That was one of the speculations, that it was an insurance fraud situation. You know, ‘Oops, my plane was hijacked/stolen by terrorists and now I can do an insurance claim on it.’ So, that was probably as valid of an explanation when all was said and done as anything. But we just left it as an unknown.”
Among intelligence officials, the suspicions of fraud may have been aroused by knowledge of an incident in Maury Joseph’s past. During the 1990s, Joseph was CEO of a cargo airline named Florida West (which later went bankrupt). The Securities and Exchange Commission charged him in a civil case with falsifying financial statements and defrauding investors. The court imposed a fine and barred Joseph from acting as an officer in a publicly held company.
But Joseph, when contacted by the FBI, volunteered to take a lie-detector test, and Swain, who was there when Joseph took the call from Air Gemini, is certain that Joseph had nothing to do with the airplane’s disappearance. “Look, nobody was more amazed by this situation than Maury,” Swain says. He describes Joseph as utterly confused by the information that the airplane was gone.
The suspicion that Ben Padilla could have played any part in an insurance fraud angers his younger brother. “If anybody would say to me that my brother was involved with this,” says Joe Padilla, his voice tightening, “they’re full of it. ’Cuz I know my brother. He’s not gonna do nothing crooked. I know that for a fact.” He is convinced that more than one person was already on board, waiting, and that they forcibly took the aircraft, and killed Ben and John Mutantu.
“I keep hoping against hope that maybe he’s tucked away somewhere,” says Benita Padilla-Kirkland. The new information she passed along to the FBI was a possible sighting of the aircraft, one of many reported over the years.
Mike Gabriel believes the airplane crashed in the Atlantic Ocean soon after takeoff. One crew member from the fuel delivery operation thinks the Angolan air force shot it down with a missile. A Luandan pilot says the word there is that the aircraft went north and vanished near Kinshasa, Congo. One of Ben Padilla’s friends says the airplane was disassembled for parts in Bujumbura, Burundi, on Tanzania’s western border.
Picking through the fragments of 844AA’s history, I found a story of broken deals, disappointments, and betrayals, but no real clues to the aircraft’s destination that day in 2003. We may never know for sure where it went. It is the largest aircraft ever to have disappeared without a trace.
Tim Wright is a writer living in Richmond, Virginia.

© Smithsonian Institution

The 727 that Vanished | History of Flight | Air & Space Magazine

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OPEC Reaching Comfortable Middle Age, Turns 50 Tomorrow With Oil at $75

OPEC Turns 50 Years Old
A ceremony for the new OPEC headquarters in Austria on March 17, 2010. Photographer: Vladimir Weiss/Bloomberg

The Organization of Petroleum Exporting Countries turns 50 years old tomorrow, having survived a tumultuous history of wars, embargoes and in-fighting. The world’s oldest and largest energy producer group is now enjoying prices close to the $75 a barrel level that its largest member Saudi Arabia considers “ideal.”
OPEC’s Timeline:
Sept. 14, 1960: The organization was born in Baghdad. The five founding members — Iran, Iraq, Kuwait, Saudi Arabia and Venezuela — created the group during a five-day meeting in the Iraqi capital, dedicated to “the coordination and unification of the petroleum policies of Member Countries and the determination of the best means of safeguarding their interests.”
Sept. 1, 1965: The group moved its headquarters from Geneva to Vienna, where its secretariat is now based. Between 1961 and 1971 the following six countries join: Qatar, Indonesia, Libya, the United Arab Emirates, Algeria and Nigeria.
October, 1973: The six-month Arab oil embargo pitted OPEC’s Arab members against the U.S. and Israel in a politically-motivated suspension of exports that pushed prices above $12 a barrel. The Paris-based International Energy Agency was created in 1974 by consumer nations, in response to the oil price shock. Ecuador and Gabon join OPEC in 1973 and 1975, respectively, only to leave the group later.
Dec. 20, 1975: Ilich Ramirez Sanchez, known as Carlos the Jackal, took more than 60 hostages during a raid on OPEC’s Vienna headquarters to protest against treatment of Palestinians by Israel.
October, 1978: Protests and strikes in OPEC member Iran against ruling Shah Reza Pahlavi, deposed the following year in a revolution, cut the country’s oil production within three months to a 27-year low.
Sept. 23, 1980: Iraq invaded Iran in the first war between OPEC members. During the eight-year conflict, with its attacks on oil-tankers in the Persian Gulf, group production plunged to a 20-year low.
October, 1981: OPEC members agreed to maintain oil prices within a range of $32 to $38 a barrel.
August, 1985: Saudi Arabia abandoned the system of “posting” oil prices to one in favor of letting the retail value of refined products such as gasoline determine the cost of crude.
1986: OPEC members switched to a new pricing system in which futures contracts traded on exchanges in New York and London effectively determined the cost of oil shipments.
Aug. 2, 1990: Iraq’s invasion of Kuwait marked the second war among OPEC members. Repelled the following year by a U.S.-led coalition, withdrawing Iraqi troops set fire to Kuwait’s oil wells.
Nov. 29, 1997: At a meeting in Jakarta, OPEC raised production quotas for the first time in four years as the Asian financial crisis unfolds, sending prices as low as $10 the following December. Analysts often refer to the event as “the Ghost of Jakarta.”
June 24, 1998: OPEC was assisted by non-members including Mexico, Russia and Norway in cutting production as demand collapsed, helping revive prices. The coordinated action followed initial talks between Saudi Arabia, Venezuela and Mexico.
March 19, 2003: Aircraft and missile attacks on Iraq begin, followed by a U.S. and U.K. troop invasion that subsequently topples Saddam Hussein’s government in Baghdad.
Jan. 1, 2007: Angola joined OPEC, its first new member since the 1970s. In November, Ecuador re-joined the organization following a 15-year absence.
Sept. 10, 2008: Indonesia exited the oil group after becoming a net importer, leaving the total number of members at 12.
Dec. 18, 2008: OPEC announced the largest production cut in its history as the financial crisis sent prices plunging from a record $147.27 a barrel in July, 2008, to near $30 by the year- end. Oil prices then climb 78 percent during 2009.
Sept. 14, 2010: In happy middle age, OPEC turns 50, with oil prices near $75 a barrel and above $70 a barrel for all but two weeks of this year.
To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

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Venezuela’s oil exports down 16% in second quarter

Aug 25, 2010

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Aug. 25 — Venezuela’s oil exports dropped 16% in this year’s second quarter, largely due to increased use of domestic fuels for electric power, according to a quarterly report by the central bank.

The report showed the country’s gross domestic product down by 1.9%, led by a 2% drop in oil sector GDP.

“The behavior of this activity in the quarter is mainly due to lower crude output, which was offset by the growth in refined products to satisfy higher demand in the internal market related to the use of thermoelectric plants for energy generation,” the bank said.

The bank’s report coincided with the latest statistics from the Organization of Petroleum Exporting Countries, which said oil exports brought Venezuela revenue of around $54.2 billion in 2009, down nearly 40% from $89.1 billion in 2008.

OPEC blamed the fall in international oil prices across global markets for the country’s drop in revenue, with Venezuela’s basket price for 2009 averaging $57.08/bbl, down from $86.49/bbl in 2008.

However, Venezuela’s export revenues could decline as the country plans to take advantage of its hefty reserves of oil and gas to increase its use of thermoelectric power over hydropower during the next 5 years.

Venezuela now relies on hydropower for 80% of its electricity supply, while thermoelectric plants only supply 20%. Caracas wants to bring that ratio to 50-50 by 2015, according to official media.

Electricity shortage
The Agencia Venezolana de Noticias (AVN) reported the balance is needed as Venezuela faced shortages of electricity earlier this year due to a drought that reduced the power generation at main hydropower plants.

AVN last week reported water levels at the country’s main hydroelectric dam, Guri, are 3.04 m below optimum levels. The Guri plant supplies 70% of Venezuela’s electricity, but a drought brought water levels so low that the government was forced to introduce rationing across the country.

According to AVN, Venezuela aims to install 15,000 Mw of new electricity capacity over the next 5 years, of which 12,000 Mw would be generated by thermoelectric plants, while 3,000 Mw would come from new hydropower plants.

But that plan could create problems of its own. While more thermoelectric power could insulate Venezuela from electricity shortages due to drought, the use of more oil and gas could substantially reduce the country’s exports, its main source of foreign exchange.

In fact, Venezuela depends on oil for more than 90% of its export income, and a continued drop in revenues could affect its ability to meet spending and debt obligations.

PDVSA continues drilling
Meanwhile, Venezuela’s state-owned Petroleos de Venezuela SA this week said it began drilling in the Jusepin oil field with one of the rigs seized from Tulsa-based Helmerich & Payne Inc. earlier this year (OGJ Newsletter, July 12, 2010).

According to Venezuela’s Oil Minister Rafael Ramirez, who also serves as president of PDVSA, costs at the project have fallen more than 50% to $20,000/day from $43,000/day when H&P ran it. PDVSA said the well drilled by the nationalized rig should produce 2,000 b/d of oil.

Contact Eric Watkins at hippalus@yahoo.com

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Resource stocks keep pressure on London
London equities continued to drift lower on Wednesday, as worries about the faltering outlook for sustained global growth kept stubborn selling pressure on resource stocks.
Mining and Oil companies took the biggest overall toll on the market. BHP Billiton conceded it was “cautious” on the short-term outlook for the world economy, which it expected to remain volatile for some time, although it added it was not expecting a double-dip recession.

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