Oil markets were at their most volatile during and after the Baker/Aziz talks in Geneva.
European markets traded throughout morning and afternoon sessions of the long awaited Jan. 9 meeting between the U.S. and Iraq. From $26.28/bbl at the start of the day Brent fell to $23.60, reflecting optimism filtering through from Geneva.
But once it was clear that hostilities had not been averted, there was near panic with Brent recovering all the losses and ending the following day's trading at $26.95/bbl. Nymex crude swung more than $7 Jan. 9, reaching $31/bbl before settling at $27.26, up 90 on the day but down more than $1 on the week.
The fact that prices did not more than make good the previous day's declines also reflects the strength of the supply situation confirmed by the latest IEA market report. Those data also suggest that if the crisis is resolved without significant further loss of oil supplies, a major effort on OPEC production restraint will be needed to avoid another price collapse.
OECD crude stocks of 3.424 billion bbl at the first of 1991 are the highest since 1982, says IEA. In addition, exporters are holding 50-60 million bbl of unsold oil afloat or onshore.
IEA revised its projection of a 500,000 b/d drawdown for December to a 200,000 b/d stockbuild. It put December oil supplies outside centrally planned economies at 54.3 million b/d, the highest in 8 months. That represents a net 300,000 b/d increase from November, mainly from the U.A.E., Venezuela, and Indonesia. Saudi output was unchanged at 8.2 million b/d.
IEA expects OECD consumption to be unchanged at 38.4 million -E/d in the first quarter but to fall 1.57,, to 37.2 million b/d for the full year. OECD oil consumption fell by about 37, in the fourth quarter to 38.1 million b/d vs. 1989. A 1.3 million b/d fall in consumption in North America and Europe was partly offset by a 100,000 b/d rise in the OECD Pacific area.
DOE has extended a finding allowing major U.S. oil companies to continue to submit proprietary data to IEA to help it monitor effects of the Persian Gulf crisis on the international oil market. DOE's original finding expired Dec. 31. The extension, which IEA had requested, will end June 31.
Meantime, the U.S.S.R. plans to cut the number of its citizens in Iraq to 160 by Jan. 15 from about 1,000 in late December. That compares with about 7,000 Soviet workers and military advisers there before Iraq invaded Kuwait Aug. 2.
The U.S.S.R. concedes that a number of Soviet oil field workers are reluctant to leave Iraq despite the war danger because of high pay they receive in hard currency instead of rubles.
Denmark will be self-sufficient in oil in 1991. It currently produces 85% of the oil and gas it needs and is expected to reach 91% self-sufficiency in oil in early 1991, says A.P. Moeller. If Dagmar and Kraka fields meet expectations after going on stream this year, Danish crude output could surpass its consumption, compared with production equaling less than 2% of consumption in 1973.
Yemen may have another oil discovery, reports Canadian Occidental. A brief drillstem test of its first wildcat on the Masila block yielded an undisclosed volume of 36 gravity crude from an interval at 8,802-38 ft.
More testing is planned. Partners are Consolidated Con-tractors International Co. SAL and Pecten Yemen Co.
Despite the shaky situation in the U.S.S.R., international companies continue to seek petroleum joint ventures there.
Exxon is talking to C. Itoh about a joint venture to develop Sakhalin Island oil and gas reserves.
The venture could include new refining capacity to handle increased Sakhalin production. Japanese sources say the two companies could invest as much as $5 billion in a Sakhalin venture. Exxon says talks are only preliminary.
Spain's Cepsa is talking to the Soviets about participating in a $1 billion modernization of three Soviet refineries with a combined capacity of 840,000 b/d. The Soviets want to boost efficiency and increase output of light products at the 400,000 b/d Novykuybyshevsk, 240,000 b/d Syranj, and 200,000 b/d Saratov refineries. Cepsa would provide technical and financial aid and may collaborate in sale of products in western Europe.
The entire output of the 100,000 b/d Leuna refinery in eastern Germany will be sold under BP's brand through a deal among Deutsche BP AG. Leuna-Werke AG, and Intrac Handels GmbH, Berlin. The three formed a jointly owned company to handle refinery output and purchase products from other sources and will form a separate marketing company under the deal. In addition, the three formed an operating company to provide a 60,000 b/d tanker truck loading facility to be completed in spring 1992.
The push toward privatization in the petroleum sector continues to gather momentum (see South America Report. p. 33).
Portugal soon will announce terms for partial privatization of state owned Petrogal. The government reportedly plans to raise at least $700 million by selling 45-49% of Petrogal's share to the public and will retain a controlling interest in the company. Among likely bidders are Spain's Repsol and Cepsa.
Petrogal, with about 75% of the domestic products market, operates refineries with a combined capacity of about 300,000 b/d at Lisbon, Leca de Palmeira, near Porto, and Sines. The government earlier sold a 72% interest in top Portuguese plastics producer Empresa de Polimeros de Sines to Neste Oy and awarded Neste a 15 year contract to manage state owned Cia. Nacional Petroquimica, which operates Portugal's only ethylene cracker.
Meantime, Catalana de Gas SA, Spain's leading private gas company, and the Portuguese group Vista Alegro SARL formed a joint venture, Calgas Lda., to promote gas use in Central Portugal.
Gaz de France and Iran's National Gas Corp. will carry out a prefeasibility study to determine whether it is possible to bring Iranian gas to Europe at a competitive price at the turn of the century. Transportation options include a pipeline through Turkey and southern Europe or as LNG. Gaz de France says the project will require a joint venture with other gas utilities in Europe that have yet to be contacted.
Canada's NEB is requiring Westcoast Energy Ltd. to amend its system of allocating pipeline space to shippers.
Shippers who do not sign long term service agreements needed to support a facility expansion will no longer be removed from the pipeline queue. Shippers who agree to long term deals and won capacity on a new expansion will be allowed to move to the head of the queue. Westcoast ships gas in British Columbia and to border points for export to California.
More U.S. companies are hiking E&D spending. Chevron will boost capital and exploratory spending by about $800 million to $5.1 billion in 1991, up about 20% from 1990 levels. Much of the investment will go for projects that will help limit U.S. dependence on Middle East oil. The budget, which includes Chevron's share of spending by affiliates, is based on oil prices forecasted much lower than today's prices.
A PaineWebber survey of overall E&D spending by 13 majors, 15 independents, and 4 national oil companies, shows outlays will rise by 15% in the U.S. and 7-8% outside the U.S.
Majors plan to hike drilling budgets by an average 6% and independents an average 15%, pointing to a relatively strong North American rig count in 1991, PaineWebber says.
Despite a softer than expected performance for U.S. natural gas in 1990, PaineWebber expects 1991 to show a healthy increase in U.S. gas drilling.
Although a warm 1989-90 winter caused U.S. gas demand to drop 1.5-2% in January 1990 vs. a predicted gain of 2-3%, the gas bubble still is about 1-2 tcf--or about 5-6% of deliverability--owing to U.S. production of 16-17 tcf/year vs. replacement, excluding revisions, of only 7-12 tcf/year. PaineWebber's drilling budget survey of 25 majors and independents showed 75% said more than 60% of 1991 outlays will go for gas drilling.
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