green finish today, page-37

Hi All

The economics themselves are pretty simple supply and demand. At the moment there is too much of the former and not enough of the latter. Europe remains a basket case and will do so until someone shakes Angela Merkel hard enough for her to realise they must inflate their way out of debt. Japan, too, is moribund and sadly will remain so; it's debt is terminal. And until just recently, the mighty engine of America has been idling at best.

At the same time, better technologies have driven a new oil supply boom. In those circumstances the POO simply must fall.

But a cursory look at a 50-year oil price graph shows we are actually coming off an historic high and that maybe seventy bucks is not as disastrous as it's being portrayed. I don't know the quantum of the margins in oil, but I suspect they are pretty healthy when you look at desert cities like Dubai and Premier League teams bought as playthings. So perhaps the price can withstand a fall back to something like the index.

We can say with some confidence, though, that falling prices will at some point reduce supply by weeding out the marginal producers. And we do know that economies turn; America is starting to fire and China and India continue their ascent into the world's middle class. Our hope is that those two factors coincide, say, three years from now as Senegal ramps up. Oh, and that we still have some working interest in our asset.

The real impact on us at the moment is not so much the POO but it's severe impact on market sentiment. But markets always overshoot on sentiment and will do so again this time. If I have a short-term concern, it is one shared by a couple of you in recent days: that the tumble in our price means our next spike is coming from a long way back and will consequently be lower than we anticipated a month ago.

Hang in there, guys, the news from FAN and SNE will be good, at least as expressed by two of the partners - there is good reason for COP to be subdued in the hope of snaffling a controlling percentage at at a bargain price. Interesting times indeed.

OOO