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Shell has produced a stunning financial performance over the second quarter of the year with profits soaring by 20% to $7.6bn (£3.7bn) on the back of very high refining margins and despite a fall in production.

The record results – amounting to some £1.5m an hour – underlined Shell’s current supremacy over arch-rival BP which barely lifted its profits when measured on the same basis.

They also outpaced US oil giant Exxon Mobil, which caught Wall St on the hop this afternoon with a fall in its quarterly profits instead of the expected rise. At $10.3bn, Exxon’s profits remain comfortably ahead of Shell’s, however.

The Anglo-Dutch group raised its dividend 14% to $0.36 per share and gave an upbeat assessment of future prospects.

“We continue to see competitive growth opportunities based on our technological strengths by making disciplined capital choices in an industry landscape of both higher energy prices and higher costs,” said chief executive Jeroen van der Veer.

The $7.6bn earnings were calculated on the current cost of supply basis used by major oil companies but included a net gain from divestments of $660m. Without that boost, Shell still comfortably beat City expectations even though revenues were almost flat at $85bn.

Problems in Nigeria and lower demand in Europe due to warmer weather left production falling in the second quarter to 3.1m barrels a day compared to 3.2m in the same period of 2006. Total oil production was actually up 1% but gas was down 6%.

Civil unrest in the Niger Delta has left Shell without the 195,000 barrels of oil a day it can produce there and the company admitted “no firm date can be given for a return to full production”.

The results were well received, with Shell’s “A” shares up by mid-morning, only to be caught up in the afternoon FTSE sell-off. The shares closed down 32p to £19.37.

Shell has been going through a strong period of recovery after it was hit by a scandal over the way it had been overstating its reserves to the US regulator, the Securities and Exchange Commission, and dismissed its then chief executive.

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The $100-a-barrel oil that Goldman Sachs Group Inc. said would prevail by 2009 may be only a few months away.

Jeffrey Currie, a London-based commodity analyst at the world’s biggest securities firm, says $95 crude is likely this year unless OPEC unexpectedly increases production, and declining inventories are raising the chances for $100 oil. Jeff Rubin at CIBC World Markets predicts $100 a barrel as soon as next year.

“We’re only a headline of significance away from $100 oil,” said John Kilduff, an analyst in the New York office of futures broker Man Financial Inc. “The unrelenting pressure of increased demand has left the market a coiled spring.” New disruptions of Nigerian or Iraqi supplies, or any military strike against Iran, might trigger the rise, Kilduff said in a July 20 interview.

Higher prices will increase revenue for energy producers from Exxon Mobil Corp. to PetroChina Co., while eroding profit at airlines including EasyJet Plc and railroads such as Union Pacific Corp. The U.S. and other oil-importing nations risk accelerating inflation, while higher energy costs threaten to restrain growth.

Benchmark crude oil futures ended last week at $75.57 a barrel on the New York Mercantile Exchange, up 51 percent since mid- January and twice the level of early 2003. A record number of options have been sold that give the buyer the right to buy crude oil at $100. The contracts, covering 50 million barrels, only pay off should oil go above the target price. September crude futures fell 89 cents to $74.90 at 11:16 a.m. in New York today.

Goldman’s View

Arjun Murti, a New York-based Goldman Sachs analyst who covers oil producers and refiners, roiled markets in March 2005 with a report saying prices could touch $105 a barrel during a “super spike” period because demand was stronger than anticipated. Price swings might also go as low as $50, Murti said at the time.

Currie, Goldman’s global head of commodities research in London, is predicting that oil prices will probably touch a record and stay at unprecedented levels for months or years. The all-time high for Nymex crude futures is $78.40 a barrel on July 14, 2006.

“Ultimately, the key to the outlook going forward is when will Saudi Arabia ramp up production,” he said in an interview. “If you have a situation in which inventories globally get drawn to critically low levels, the volatility in this market is likely to explode, which significantly increases the probability of $100 oil.” Oil might slip to $73.50 if OPEC were to start producing more now, he said.

The Organization of Petroleum Exporting Countries is scheduled to next meet in September. No members have called for a gathering before then. A decision to raise output at that time would lead to greater supplies toward the end of the year.

Accelerating Demand

The failure of near-record fuel prices to restrain global oil demand growth is what concerns Rubin, chief strategist at the brokerage unit of Canadian Imperial Bank of Commerce in Toronto.

“Prices have doubled, and demand is alive and well and accelerating,” Rubin said in a July 18 interview. “The argument that rising prices would choke demand and bring increased output is falling to the wayside.”

A National Petroleum Council study led by former Exxon Mobil chairman Lee Raymond, released last week, predicted a growing gap between production and demand for oil and gas during the next two decades. As recently as 2005, Raymond said oil prices had probably peaked and dismissed the possibility that supply and demand could not be brought back into balance.

“There are questions about whether the oil industry can keep up with demand,” U.S. Energy Secretary Samuel Bodman said last week, commenting on the Petroleum Council report.

Gasoline Sales Rise

Gasoline pump prices averaging more than $3 a gallon across the U.S., the consumer of 25 percent of the world’s oil, haven’t dented sales. Deliveries of gasoline were a record 9.23 million barrels a day in the first half of this year, according to a July 18 report from the American Petroleum Institute in Washington.

“It appears that high prices are acceptable to the American consumer,” said Robert Ebel, chairman of the energy program at the Center for Strategic and International Studies in Washington. “People want the house with a yard and white-picket fence so they are moving further and further out of the cities. They have to just get up earlier and drive further.”

Outside the U.S., demand increases are being led by India and China, where growing economies mean more cars and trucks and more factories that burn oil and gas.

Consumption between now and the end of the year will increase by 3.6 million barrels a day because of seasonal shifts. The rise is equal to the daily production of Kuwait and Oman combined, and it comes after OPEC twice in the past year cut production to support prices.

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Oil prices in New York surged higher on Tuesday, supported by tight US gasoline supplies, North Sea maintenance and geopolitical tensions, traders said.

New York’s main oil futures contract, light sweet crude for delivery in August, touched 75.35 dollars per barrel — which was last seen on August 10, 2006. It later stood at 74.19, up 22 cents from Monday’s close.

In London, Brent North Sea crude for September delivery fell on profit-taking, losing 45 cents to 75.84 dollars per barrel.

“Any correction in crude (prices) … will be relatively short-lived as the bias still seems higher,” said Man Energy analyst Edward Meir.

On Monday prior to its expiry, the Brent August contract had struck 78.40 dollars per barrel, nudging its record high of 78.64 dollars.

Prices have soared this week as speculators ploughed into the market amid heightened concerns over tight US supplies of gasoline or petrol.

The US Department of Energy was due Wednesday to release its traditional weekly snapshot of energy stockpiles.

Gasoline inventories are under strain at the moment because of the ongoing US driving season, when many Americans take to the roads to reach their summer holiday destinations.

That in turn is expected to put severe pressure on global crude supplies.

“Many analysts believe that there is more potential on the upside for the oil prices, especially with OPEC persistently shrugging off calls for the group to cut existing supply curbs,” said Sucden analyst Andrey Kryuchenkov.

The International Energy Agency has called for the OPEC producers’ cartel to pump more crude, notably during the driving season.

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Oil rose above $74 a barrel on concerns about the closure of a North Sea pipeline and a sense that more operating refineries will increase demand for oil. However, analysts question how long oil can continue rising in the face of plummeting gas futures.

The average national price of a gallon of gas dipped 0.4 cent overnight, to $3.05, according to AAA and the Oil Price Information Service. Prices rose through the spring, peaking at $3.227 in late May, on concerns about gasoline supplies. Prices then fell steadily to $2.949 a gallon in early July before refinery problems in the Midwest again sent the national average upward.

While one refinery, a 108,000-barrel-per-day facility in Coffeyville, Kan., remains closed after a flood, others have rebounded quickly from unexpected outages over the past week. A BP PLC refinery in Whiting, Ind., returned a 250,000 barrel-per-day piece of equipment to service, and a pipeline linking Texas to Illinois was reopened after a leak forced its closure on Sunday.

That news, coming after a government report last week that showed gasoline inventories grew sharply, sent gas for August down 9.86 cents to settle at $2.1262 a gallon on the New York Mercantile Exchange. Late last week, gas futures tumbled more than 14 cents a gallon.

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What’s the connection between ethanol, the biofuel produced from corn, and a cherry vanilla ice-cream?

Answer: the first is responsible for pushing up the price of the other.

This month, the price of milk in the United States surged to a near-record in part because of the increasing costs of feeding a dairy herd. The corn feed used to feed cattle has almost doubled in price in a year as demand has grown for the grain to produce ethanol.

Christina Seid, whose family have been making ice-cream at the Chinatown Ice Cream Factory for 28 years, said yesterday that she expected to have to raise her prices, along with all competitors in the short term. “We are holding out as long as we can, but prices will rise,” Ms Seid said.

Amy Green’s Ivanna Cone ice-cream emporium in Lincoln, Nebraska, has already raised its prices for a small cone to $3.50 before tax, up from $2.95 a few months ago. She also estimates that she is paying $150 more a week for the butterfat that she uses in her ice-cream.

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The price of oil jumped to an 11-month high yesterday, moving even closer to record levels hit last summer as fears mounted over shortages in supply.
Speculation in the world’s most actively traded commodity, rapidly rising demand and reports that production would slow over the next five years pushed Brent crude up to $77.07 briefly during early-afternoon trading, within $2 of the all-time high of $78.65 set last August.

Investors said hedge funds and pension funds were key drivers behind the latest rally. “This rally is very much fund driven,” said Graham Sharp, director at Trafigura, a commodities trading group. “The entry of long-only hedge funds into the market is a major factor this time around. We wouldn’t rule out Brent hitting $80 this summer.”

Maintenance work on oilfields in the North Sea has tightened supplies and helped push Brent, seen as the best indicator of the global market, significantly higher.
The unexpected closure of a North Sea pipeline this month cut oil output from at least one group of fields, operator ConocoPhillips said. Chevron’s Erskine field, which produced an average of 10,705 barrels a day in March, has also been affected by the shutdown.

The market has been jittery all week after the release of the International Energy Agency’s medium-term oil market report warning that demand would increase faster than expected over the next five years while production would struggle to keep up. Traders are nervously awaiting the IEA’s latest monthly report out today, which will give an updated snapshot of global oil demand and stocks.

Data from the US Energy Information Administration showed gasoline stocks in the world’s largest consuming country remained 8.2m barrels lower than a year ago, and the summer driving season there is expected to last at least another month.

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Iran asked Japanese refiners to switch to the yen to pay for all crude oil purchases, after Iran’s central bank said it is reducing holdings of the U.S. dollar.

Iran wants yen-based transactions “for any/all of your forthcoming Iranian crude oil liftings,” according to a letter sent to Japanese refiners that was signed by Ali A. Arshi, general manager of crude oil marketing and exports in Tehran at the National Iranian Oil Co. The request is for all shipments “effective immediately,” according to the letter, dated July 10 and obtained by Bloomberg News.

The yen rose on speculation for an increase in demand for the currency, the result of Japan’s annual 1.24 trillion yen ($10.1 billion) of oil imports from Iran. Central bankers in Venezuela, Indonesia and the United Arab Emirates have said they will invest less of their reserves in dollar assets because of the weakening currency.

“What else can Japan do but to accept the request, once the oil producer sent its wish?” said Hirofumi Kawachi, an analyst at Mizuho Investors Securities Co. in Tokyo. “The tensions between the U.S. and Iran are escalating, and it’s Iran’s measure to hedge risk.”

A spokesman for Iran’s oil ministry in Tehran said he could neither confirm nor deny that the letter had been sent. Most Japanese oil refiners have until now used U.S. dollars to pay Iran for oil, said the spokesman, who declined to be identified by name because of government policy.

Yen Advances

The yen advanced to 122.07 per dollar at 2:30 p.m. in New York, from 122.42 late yesterday.

Iran is cutting its U.S. dollar reserves to less than 20 percent of total foreign currency holdings, and will buy more euros and yen as tensions with the U.S. increase, Central Bank Governor Ebrahim Sheibany said on March 27.

The United Nations Security Council is preparing for another round of sanctions against Iran because of the nation’s nuclear research.

The Islamic republic, holder of the world’s second-largest oil and gas reserves, has refused to halt uranium enrichment that it says is for use in nuclear power plants to produce electricity. The U.S. says Iran seeks instead to develop an atomic bomb. Enriched uranium can be used to make nuclear fuel or build nuclear weapons.

Iran isn’t alone in wanting to drop the dollar for pricing oil. Russia has been examining plans to price the Urals oil export blend in rubles to curb currency risks. The nation plans to open the Energy Stock Exchange in St. Petersburg in the first half of next year to trade oil in rubles, UBS AG reported June 14.

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Exxon Mobil Corp. (XOM) exxon mobil corp com shares rallied to a record high of $89.73 during Thursday’s strong broader market surge, pushing the oil giant’s market capitalization past the heady $500 billion threshold. Exxon Mobil is the most valuable publicly-traded company in the world, well ahead of General Electric and Microsoft (MSFT) Also on Thursday, GE topped the $400 billion mark, while Microsoft hovered under $300 billion. Nevertheless, Exxon Mobil’s current market cap has yet to acheive the levels of leading tech companies Microsoft and Cisco Systems in 2000

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Oil prices settled above the psychologically important $70 a barrel mark on Friday for the first time since August 2006 on worries about gasoline supplies in the heart of the summer driving season.
 
Light, sweet crude for August delivery rose $1.11 to settle at $70.68 a barrel on the New York Mercantile Exchange after rising as high as $71.06 earlier in the session. Oil last closed above $70 a barrel on Aug. 31.

At the pump, gas prices continued to defy analyst expectations by falling 0.4 cent overnight to a national average price of $2.971 a gallon, according to AAA and the Oil Price Information Service. Retail gas prices, which typically lag futures markets, peaked at $3.227 a gallon on May 24.

Analysts have predicted for weeks that retail gas prices are bound to stop falling, and could even rise again, as demand picks up during the summer driving season. Demand is especially strong between the July 4 and Labor Day holidays.

Crude futures had fallen as low as $67.77 on Tuesday, the day before a government report showed gasoline fell when analysts had been expecting a big build. That Wednesday report fueled the late week rally into $70 territory.

The discovery of an unexploded car bomb in west London also boosted prices, analysts said.

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