Thursday, June 10, 2010

A Bashed-up BP and a Desperate President

Just how much political capital is worth is one tough question? President Obama is playing a strange and desperate game in his repetitive bashing of BP over the Deepwater Horizon oil spill. A clear strategy seems to be emerging – whenever the President feels the heat, he calculates that a rant (sprinkled with real or staged anger) against BP will help. It makes for good political theatre and to a certain extent it plays out well to an American audience. Having trawled the blogosphere as well as key US news reports, I found very little, if any, mention of Transocean or Halliburton or the fact that it was a rig built, operated and managed by Americans.

Obama can’t bash BP and see all of the pain being felt across the Pond. As many commentators on either side of the Atlantic, including the BBC’s Business Editor Robert Peston, have noted nearly 40% of its shares are held in the US. The financial pain will and perhaps already is being felt in Britain – whether we’re talking pension funds or investment trust ISAs. But the Brit’s wallets, Gulf Coastline Residents and wildlife would not be the only ones to suffer.

Long-term investors are not panicking (yet!) according to my investigations. If anything, from what I hear in the City, many opine now would be a “good time to buy BP shares” on the cheap. One mute point is that crude oil is trading in the circa of US$71 – 77 per barrel in recent weeks. It stood at $74-plus levels the last time I checked. It is not as if crude futures are trading at sub $10 levels, and the US is the only market BP operates in?

I would stress that no one denies the Deepwater Horizon Gulf oil spill is an appalling tragedy in more ways than one. However, drilling in the Gulf is crucial for the energy security of the United States. Obama acknowledged just as much in a speech in March prior to this incident. This morning the International Energy Agency (IEA) opined that a long-term impact on future off-shore supply was unlikely in wake of the incident.

“The longer-lasting impact of Deepwater Horizon on U.S. oil supplies may depend on whether operational negligence on the part of companies or regulators, or rather shortcomings in current operating procedures and regulatory structures, were the key cause. The former might suggest a less profound impact on future oil supply than the latter,” the agency said.

Additionally, the IEA made another interesting comment. It said the US government was now belatedly following the steps taken by the UK after the Piper Alpha disaster (1988) - but noted that scores of new offshore fields were developed in the subsequent demand.

In the interim, what’s influencing markets’ sentiment about BP momentarily is that both the US President and the company’s executives sound desperate given the battering they’ve taken in recent weeks. Neither is helping either which is a real shame.

© Gaurav Sharma 2010. Logo Courtesy © BP Plc

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