Thursday, November 15, 2001

Oil prices surprise Ashland Inc. chairman

By Mike Boyer
The Cincinnati Enquirer

        The always volatile oil market continues to befuddle even industry executives.

        Ashland Inc. chairman and chief executive officer Paul Chellgren said Wednesday that if anyone had suggested that two months after the United States embarked on a war in the Middle East crude oil prices would be down 25 percent, “you could have won a lot of money off of me.”

        Yet, that's how much prices have fallen since the Sept. 11 attacks as the slowing economy continues to add to industry oversupply.

        Crude oil for December delivery fell as much as $2.12, or 9.8 percent, to $19.55 a barrel Wednesday on the New York Mercantile Exchange, the biggest decline since Sept. 24 and the lowest price since July 22, 1999.

        The drop came amid signs that the Organization of Petroleum Exporting Countries wasn't succeeding in convincing non-OPEC producers to go along with production cuts to restore prices.

        Mr. Chellgren said the oil cartel traditionally has difficulty enforcing price discipline in soft oil markets.

        “It's supply and demand 101,” he said, adding that doesn't mean OPEC has lost its ability to influence world oil prices.

        Ashland's wholly-owned highway construction, specialty chemical and Valvoline businesses are heavily dependent on oil prices. Its single largest business is its 38 percent stake in Marathon Ashland Petroleum, the nation's sixth-largest oil refiner.

        While falling oil prices are good news for consumers, the price uncertainty creates problems for petroleum marketers and refiners such as MAP.

        Last month, Ashland announced record profits of $406 million, or $5.77 a share, excluding unusual items for the September fiscal year because of sharply higher operating profits from MAP.

        Mr. Chellgren said Ashland expects another good year this year, although probably not ahead of last year's record because of the weak oil prices.

        Over the last several years, he told analysts, Ashland has successfully grown total earnings by balancing oil marketing and refining profits against those in its wholly-owned businesses.


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