Back to the future

On Halloween the spectre of an economic downturn is providing thrills and chills. But for those who get into commodities at the right time, historic trends predict profits

I often dreamt of time travel as a young man.


The openings to make money seemed endless, but of course too fantastic. Until this week.


A tiny window of opportunity appeared when oil companies announced record profits on the back of the summer boom in fuel prices.

Economic downturn may be biting. But oil demand will return before the decade is out, and so will the substantial gains to those investors who buy in at the right time.


BP announced underlying post-tax profits of $8.9bn (£5.6bn) for the third quarter on Tuesday, almost $2bn ahead of predictions. 
Shell and Exxon Mobil followed BP by revealing record quarterly profits.
Royal Dutch Shell posted a 71% rise in profits, with earnings of $10.9bn (£6.6bn) for the third quarter of 2008, up from $6.4bn the previous year.
Exxon Mobil, the world's largest oil company, smashed its own record for the highest quarterly income from a US firm, by returning a profit of $14.83bn.


But it’s not all about oil price.
Exxon's previous quarter yielded profits of $11.6bn, which was it self a US record.
That was partly thanks to the Texas-based company's upstream exploration and production, which benefited from a 48 per cent growth in earnings to $9.35bn, despite an 8 per cent fall in output. 
Exploration opportunities for the major industry players could be a key to further growth in an environment where credit remains in short supply, particularly to the smaller players.

The market place is ripe for cash-rich bargain hunters looking to invest in abandoned investigative ventures and rigs.


The profits/losses relationship remains tied to the market value. The summer price-boom saw oil hit the high of $147 a barrel in July, but it has since fallen by 50 per cent, a remarkable turnaround, even in these remarkable times. 
Prices fell again on Thursday, along with other commodities (gold fell 2.2 per cent to $738 a troy ounce, copper by 7.9 per cent to $4,210 a tonne, aluminium by 3.5 per cent to $2,060 a tonne, and nickel plummeted 11 per cent to $11,750.)


The markets continued to struggle amid further indications that the global economy is falling toward recession, particularly in the US. 
Nymex December West Texas Intermediate fell $3 to $64.50 a barrel, while ICE December Brent lost $3.02 to $62.45 a barrel after hitting a high of $68.35.


The International Grains Council reported world export prices for wheat fell to their lowest levels since early 2007 during October. 
Global downturn has impacted on demand causing the rapid decline in oil, but for those who believe the good times will eventually return (who realistically does not?) this week’s profits offer something to hang on to: an insight of what’s to come.


The continued scale of oil company profits will inevitably bring pressure for prices to be reduced at the pump, but with oil now trading at $70 a barrel, the pressure will not be maintained. Calls for companies to be subjected to a windfall tax will certainly be dropped by the time the next quarterly figures are announced. Those figures might make grim reading, but do not lose hope. 
It’s back to the future for the wise investor.