Foreign Reports - Changing Realities of The Oil Market

Changing Realities of The Oil Market

By the early 1980s, the nature of the world oil business began to change in a number of different ways, all of which affected how Foreign Reports would be able to continue to provide services to its client base. The major international oil companies were gradually losing their equity ownership of Middle East oil production and many needed to forge different kinds of relationships with producing governments. In addition, a new class of players in the oil market was gradually emerging as interest and liquidity grew in the futures market. World oil prices had been practically a secret in the early days of Foreign Reports and had been remarkably stable in general during the firm’s first 16 years, but it would be another ten years before price volatility would become a major reason for the firm to develop another service for its clients.

OPEC did not institute its first quotas until 1982, just as crude oil prices were beginning to come under downward pressure in the market. When prices did eventually start to crash in late November 1985, no other reporting service in the industry had so closely chronicled how that crash would materialize as Foreign Reports had done. The firm had watched intensely how then Saudi Petroleum Minister Ahmed Zaki Yamani had wrestled over new ways to price Saudi Arabia’s oil as he cruised the Mediterranean on his yacht during August 1985. Foreign Reports was the first to report that Yamani, just before that Labor Day, had got off his yacht and signed “net-back pricing deals” with his main international customers. These deals that would cut all previous supports for crude oil prices and lead prices from the high $20s to the single digits within nine months. Incredibly, in those early days of the NYMEX, futures prices did not start to decline until the day after Thanksgiving.

As the pace and sophistication of NYMEX trading has accelerated greatly since those days, and as access to the incredible amounts of information over the internet has exploded, the services that Foreign Reports has offered have also changed, while still staying with time-tested methods: follow the narrative; know the actors; know their characters; understand the rules; understand cultures and histories; pay ever increasing attention to separating the wheat from the chaff in an information-laden age; and communicate concisely and clearly.