China (Platts) -- Nov 5 - 11, 2008
By reporters at Platts, the energy information division of the McGraw-Hill Companies. For more information about Platts' information products in China, contact Platts at china@platts.com, or call its representative office in Guangzhou at (+86) 20 2881 6588.
The global energy markets were fairly stable over the past seven days, with benchmark WTI crude oil prices briefly punching below $60/barrel before gravitating back to the mid-$60's range.
By Tuesday (November 11), WTI was being traded in Asia at $61.48/barrel, having come almost full circle from a week ago, when prices had settled at $63.30/barrel.
The mood remained bearish Tuesday as the shine came off China's massive economic stimulus package barely days after it was announced.
Stock markets around Asia opened lower on Tuesday, as markets quickly turned back into bear mode - despite China lining up with the rest of the world in offering strong financial packages designed to inject more health into the world economy.
In the equities markets, South Korean share prices opened 1.7% lower Tuesday; Australian share prices fell 2.7% in early trade and Japan's Nikkei stock index fell 1.28%.
An expanded US rescue of insurance giant AIG, bankruptcy protection sought by major electronics retailer Circuit City and a dismal broker forecast for General Motors kept a pall over US stocks, AFP reported.
The latest level for WTI was a far cry from $94.63/barrel recorded a year earlier.
As of this week, prices have come off almost 60% from the all-time high of $145.31/b in early July this year.
With fundamentals largely unchanged, market participants were pondering the implications of the newly elected Obama administration for US energy policy.
Renewed strength of US Democratic Party signals change in energy policy
With US President-elect Barack Obama waiting in the wings, and House Speaker Nancy Pelosi controlling an expanded Democrat majority, liberals see an opportunity to remake US energy policy, from cutting industry tax breaks, slowing climate change and promoting renewable resources.
Democrats, for the first time since 1992 when President Bill Clinton was elected, control both the House and Senate with the strongest majorities in nearly two decades.
In the days running up to the election, Republicans warned that giving Democrats control of both Congress and the White House would allow them to govern unchecked.
Republican candidates argued that Democrats were likely to use their new-found power to reinstate restrictions on offshore drilling, which were allowed to lapse in October.
Obama has said he would slash US oil use by getting the government, as well as the private sector, to invest heavily in new energy technologies such as plug-in hybrid electric vehicles.
His focus on clean, domestic energy, coupled with the promise to aggressively confront climate change through a mandatory cap on industrial greenhouse gas emissions, will mark a major departure from the Bush administration.
While Obama may not be able to accomplish all of his priorities, they collectively signal to heavy industry and all fossil fuel companies that the eight years of having a strong ally in the White House will end shortly.
Obama has vowed to pursue several priorities in the short-term, including his proposal for a $115 billion economic stimulus package that would help consumers amid high domestic fuel prices (though prices have tumbled recently).
Obama has also vowed to crack down on speculative trading in the energy markets, and to swap out light, sweet crude in the Strategic Petroleum Reserve and replace it with heavy crude in an effort to reduce prices.
Obama had pledged on the campaign trail "to act boldly to transform our entire economy - from our cars and our fuels to our factories and our buildings."
The solid gains that Democrats made in the Senate could help Obama pass a host of these major energy policies, which Republicans had managed to block in the past.
These include rolling back billions of dollars in tax breaks for major oil companies, and strengthening federal oversight of speculative trading in the oil and natural gas markets.
Last year, for example, Senate Majority Leader Harry Reid had to jettison two Democrat- backed provisions from a comprehensive energy bill when Republicans blocked them.
One of the provisions would have required electric utilities to generate a certain percentage of their power from wind, solar and other renewable sources.
In addition, a Senate measure that would have stripped major integrated oil companies of billions of dollars in tax breaks to fund clean sources of energy had failed due to Republican opposition.
Such measures will have a better chance of success now that the Democrats are in firm control.
Still, Democrats'control of the White House and Congress may prove unwieldy, with too many competing interests among members, and an executive branch that both needs legislative support for its own agenda while guarding against lawmakers'own penchant for overreaching, say some analysts.
"Historically, governing parties are much more fractious against themselves," according to Reid Detchon of the United Nations Foundation. "It's easy to maintain unity when you're in the minority."
Moderate Democrats, known as "Blue Dogs," accounted for most of the party's gains in 2006 and 2008.
The Blue Dogs are unified by their desire to reduce the federal budget deficit, but many also support more domestic oil and gas drilling.
House Speaker Pelosi, a California Democrat, will have to keep Blue Dogs happy, said Detchon.
If moderate Democrats were to break ranks with their liberal brethren and vote with Republicans, they would have more than enough strength to defeat Pelosi, Detchon said.
Updated: November 11, 2008
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