Is there a future for oil and Exxon Mobil?

After six years of rising oil prices, they have in recent weeks taken a roller coaster ride down.
This is good news for the end consumer but not for the oil industry who is no longer recording countless profits.

Since this summer, oil prices have fallen by an incredible 70% from about $150/barrel to about $50/barrel today. After observing these facts, Exxon Mobil still stays optimistic and remains confident that it can handle the slowdown better than its rivals.

However, this confidence might evaporate quickly as the new president of the United states, Barack Obama is convinced of moving away from the dependence on oil and adapting in the long run to more renewable energy sources.

Will the business model of Exxon Mobile, which has been proven very successful over the past years keep being competitive in the years to come? And will their strategy of brutal honesty about the need for oil and gas to power economies for decades to come turn out to be true?

For now, Exxon Mobil is worth about $375 billion, being the world’s largest corporation, it’s credit rating is better than most governments and it is the most profitable American business, with earnings of 14.8 billion in the third quarter. Can anyone do better?

Unrealistic statement from G-20 Summit

On Saturday, 15 November, the leaders of the group of Twenty held a meeting in order to discuss the challenges the world economy and financial markets are facing.
Many measures has been taken in the past but they all seemed very vague, unrealistic and turn out to be inefficient. Leaders of different countries around the world agreed after this meeting to continue their effort to try and support the global economy, stabilise financial markets and this by working together and taking joint actions.

In this meeting, the leaders did not recognise the fact that they made some fundamental mistakes but pointed their fingers towards policy-makers, regulators and supervisors, in short, the international institutions such as the ECB, the FED, etc.

The states are said to continue their efforts and “take whatever further actions are necessary to stabilize the financial system”. However, I find that this type of expression is very ambiguous and unrealistic. People, I think, will step-by-step lose confidence in the governments and international institutions as they are not able to keep the promises they have made in the past but still continue to make.

Points of action such as helping emerging and developing countries gain access to finance in these hard times is, again a point of discussion. I can not understand how these countries are planning to help others, if they can not even help themselves. Developed countries, currently facing one of the worst recession of the history, should think about their own problems and solving them instead of thinking about problems other countries are facing and trying to solve them first.

The future of Citigroup

The current situation of Citigroup is not looking too promising. Citigroup was seen as one of the strongest banks to survive the current financial crisis; but the last week has been disastrous for the bank.

The merger of Citicorp and Travellers Group, about ten years ago, brought Citigroup along. Since then, the group has been able to survive many turmoil periods. But now, it is different, the problems that Citigroup is currently facing are due to the failure of the merger between Citigroup and Wachovia in September 2008, which would have made Citigroup into one of America’s dominant lenders.
The failure to successfully conclude this deal led to the steady decline of Citigroup’s share price. However, after fear this week that Citigroup might require a government bail out, the share price collapsed which led to the vaporisation of half of Citigroup’s market value.

Rumours go around that Citigroup has never had the ability to fully integrate all its divisions and let them work as one company. This disability costs a lot of money as this company could not take advantage of economies of scope and this in a period of crisis is likely to signify the end of Citigroup.

In order to try and save Citigroup from bankruptcy, actions will have to be taken. Will Citigroup be split in the future, are pieces of this bank going to be sold or will the whole entity be sold at once? Other options include a federally forced merger, or nationalisation of the bank. Only the future will tell.

Bail out in the auto industry needed al over the world

The question is; should the different governments such as the US government bail out Detroit and the Chinese government bail out JAC Motors or Geely?

History has taught us that two different scenarios are possible when the governments are bailing out national car manufacturers. The first scenario involves the UK car manufacturer Leyland who received from £11 billion from the UK government in the ’70 and ’80 before going out of business in 2005. The other, more successful story involves the French car manufacturer Renault. Renault, who needed a bailout from the French government in the 1980s of $5.1 billion in today’s money, re-invested this money into the company to help design new models. These odels turned out to be a great success which has ultimately led to Renault being highly profitable today.

The problem however with Chinese automakers is that they have borrowed in order to make heavy investments in the past years as their industry was booming; with more than 20% annual growth in six consecutive years. Now, conversely, car sales were negative compared to last year and car manufacturers need government money in order to pay off their debts and stay in business. The government has not agreed to any specific sort of help but car manufacturers such as Geely Automobile Holdings are desperate to receive any help.

For Detroit, it will be interesting to see whether or not the US government will help this car manufacturer. If it does, it is crucial that the government assists the company in the spending of the money and the new management as this company needs both money and assistance and not one or the other.

Crude oil prices plunge

Crude oil prices have fallen dramatically from their record high of $147.27 a barrel in July and are down today to $65.50. This drop can be explained by the current global crisis which has hit the wider economy and dampens fuel demand. Aramco, the biggest oil producing company has been forced to review its expansion projects. This is a good illustration of how the global recession is affecting the oil-rich Gulf.

But in order to minimize the volatility of the crude oil price, the OPEC agreed last month to slow down its output by 1.5 million barrels a day, Saudi Arabia is one of the countries that already reduced its exports. Still yesterday, this approach of reducing supply seemed to stop the fall and increased the oil price with 10.36 percent, the largest one-day gain since September 22. Also on Tuesday the dollar got crushed in anticipation of what would turn out to be a Presidential elect Obama blow-out. And because oil is traded in dollars, a lower dollar make oil less expensive for holders of other currencies and tends to pressure the price of crude higher. This gain of Tuesday, however, melted away today when the oil price dropped by 7 percent.

Predictions about the future price of crude oil are hard to make. Demand and supply will determine the price. President Obama is working on both supply and demand. He does not seem to allow many supply increases as he is not in favour of off shore and Artic National Wildlife Refuge drilling. However, if we can believe him, he will also work on the reduction of demand. This will be done by letting America save more oil than the country is currently importing from the Middle East and Venezuela by putting 1 million electric cars on the road.

Will Denmark be the next country to adopt the Euro?

Although the Danish government had recommended the introduction of the Euro in 2000 as it met all the economic convergence criteria for joining the Euro, the Danish population was not ready yet and rejected the introduction of the Euro in their country.

Today the stakes are different. Prime Minister Anders Fogh Rasmussen thinks that the current economic problems have made the Danish population aware of the problems concerned with keeping their currency and he therefore announced last week that a second referendum might take place soon in order to ask the Danish population again about their attitude towards the introduction of the Euro. According to the Danish newspaper, Politiken, 52% of Danes would vote in favour of the introduction of the Euro.

The main reason for this change had been the acceleration -two increases in one month- of the base rate by the National bank of Copenhagen to 5,5%. These measures had to be taken in order to stabilise the heavily pressurised Danish krone. The Danish base rate is therefore currently 1,75% higher then the base rate in the Euro zone.

Mr Rasmussen said at the European Liberal Democrats annual conference in Stockholm that "the euro ensures political and economical stability in Europe and the current financial turmoil makes it evident that Denmark has to join the Euro."

The difference between Fortis and Fortis Bank

The connection between the Fortis and Fortis Bank has finally come to an end.
Concretely this means that the activities of Fortis Bank should no longer have an effect on the share price Fortis and the other way around; the share price of Fortis has no longer an effect on the operations of Fortis Bank.

Fortis Bank, a stand alone company, still owned by the Belgian government until the 15th of December 2008, when 75% will be sold to BNP Baribas, now wants to offer more transparency towards their clients concerning the recent turmoil the company went trough. In order to do this, the company launched a completely new website on which it claims to communicate openly towards and with its clients.

However, the link between the two companies is still not final when it comes to the upper management. Mr. Dierickx is still in charge of both Fortis and Fortis Bank. When looking into the future, Fortis Bank wants to create a committee which would have a controlling function and in which two BNP Paribas members and two members of the Belgian government would take part.

As for Fortis which still is active on the Belgian and Dutch stock market, now incorporates international insurance activities, cash and bad credits from the former Fortis Group. Today there still is some confusion as to which company incorporates what, therefore it is said that one of the two will change names in some months to come to clear this up.