Will the Saudis continue to show patience to avoid a further oil price slide amid quotabreaking by fellow OPEC members?
Market nervousness about continuing crude oil oversupply sent prices into a new downturn last week.
The slide, sparked by API reports of another rise in U.S. stock levels, was accelerated by IEA's estimate that OPEC production fell only 400,000 b/d in May.
Brent for July delivery reacted by plunging to $15.65/bbl at June 6 closing from $16.80 before the reports. Nymex WTI for July fell to $16.92/bbl June 6, down $1.16 on the week.
IEA confirmed other reports that OPEC's early May pledge to cut output by 1.45 million b/d was not materializing. No one in the market seriously expected OPEC output to decline to 22.05 million b/d, as agreed in Geneva earlier in the month, but IEA's estimate of 23.4 million b/d for May was disappointing.
The cause: an unexpected surge in Iranian and Iraqi liftings at the end of April, leading IEA to hike its OPEC output estimate for that month to 23.8 million b/d from 23.5 million b/d. OPEC used the latter figure as the basis for cuts in May-July.
Bulk of the May production cuts came from Saudi Arabia at 400,000 b/d. The U.A.E., Nigeria, and Indonesia each made 100,000 b/d cuts, as did Gabon due to civil strife. Iran, Iraq, and Kuwait were each 200,000 b/d above agreed May-July quotas.
Markets now are watching Saudia Arabia to see whether the OPEC delinquents will be given a chance to mend their ways in June before any action--as in the past, a sharp output hike--is taken by the Saudis.
Meantime, IEA puts the call on OPEC oil at 20.6 million b/d this quarter and 22.1 million b/d in the third quarter, assuming no change in stocks. As prices continue to slide, however, refiners will continue to build stocks, which now are 11.5%, or 40 million bbl, above year ago levels. IEA puts the 1990 call on OPEC oil up about 1 million b/d from 1989.
Chem Systems Ltd. sees a big jump in European oil and gas use for the power generation in the 1990s because of air quality concerns and the scale down of nuclear plant construction.
Europe's power demand for gas could triple to 3.5 tcf/year by 2000 from 1980 levels. Overall European gas demand is projected to climb to 12.7 tcf in 2000 from 8.6 tcf in 1989, excluding volumes needed to cut polluting solid fuel use in the former Soviet bloc and early closure of nuclear plants in Sweden.
CSL expects increased oil use to meet part of that demand, projecting demand for heavy fuel oil to increase 1.5%/year in the 1990s, dramatically reversing the trend of the 1980s.
Arab oil exporting countries are talking with European Community officials about increasing imports of Arab oil and gas. Cardoso Cunha, EC commissioner for energy, talked about increasing EC imports of Arab oil at a seminar in Fez, Morocco, last week. The previous week Cunha discussed an Algeria-Morocco-Europe gas line with Sadek Boussena, Algeria's oil minister and OPEC chairman.
U.S. refiners' recently fat margins will slim down in the weeks ahead, says Salomon Bros.
Citing a U.S. Gulf 3-2-1 crack spread that soared to almost $10/bbl at the end of May from $1.50 in mid-February despite modest demand growth, the analyst notes that spring refinery turnarounds that had squeezed supplies and boosted margins are being completed. Stocks at the end of May rose slightly, their first climb in almost 8 weeks. Salomon sees the crack spread more than halved by early September from current levels.
A growing shortfall of Pacific Rim refining capacity has spurred units of Royal Dutch/Shell to expand processing capacity in Singapore and Japan.
Shell Eastern Petroleum plans to restart a mothballed 70,000 b/d distillation unit at its 258,000 b/d Singapore refinery. The unit, on standby since 1987, is to be back on stream in the second half at a cost of $6.52 million. Shell started up a new 28,000 b/d resid cracker in March and is commissioning a 4,200 b/d alky unit.
Showa Shell Sekiyu completed a 21,500 b/d continuous catalyst regeneration reformer at its 95,000 b/d Kawasaki refinery to replace two existing reformers. Showa Shell will also spend $26.32 million to add benzene capacity of 40,000 tons/year at Kawasaki and 60,000 tons/year at its Yokkaichi refinery.
British Gas will decide in the fall on development of Miskar gas field off Tunisia.
BG is testing a sixth appraisal and estimates reserves now at about 1 tcf. BG has an 807, stake in the field acquired through its purchase of Tenneco assets, with state owned ETAP holding the remainder. Key to development is outcome of negotiations over gas sales, earmarked for power generation and meant to replace Algerian gas from the TransMed pipeline.
The Altamont group has firm agreements to transport 533 MMcfd of gas from Alberta on its proposed 620 mile, 179 MMcfd pipeline from the U.S.-Canadian border through Montana to Opal, Wyo., where it would interconnect with the Kern River system to California. Start-up is targeted for 1993. Altamont's contracts are with Amoco 103 MMcfd, Entech 51 MMcfd, Petro-Canada 51 MMcfd, Shell Canada 103 MMcfd, SoCalCas 200 MMcfd, and Tenngasco 26 MMcfd. Letters of interest cover another 490 MMcfd.
The continuing recovery of E&D offshore and outside the U.S.--accompanied by companies' moves into new, more complex, and often unknown geophysical environments--is spurring Western Atlas International to keep upgrading technological capability.
It let a contract for about 890 million to a Norwegian shipbuilder for three advanced seismic vessels, to be delivered to its Western Geophysical unit in second half 1991.
MMS has sent North Carolina Gov. James Martin a study on Mobil Oil Corp.Is plans to drill a wildcat about 45 miles off the state's coast (OGJ, Mar. 5, p. 22), describing the report as "the most comprehensive body of environmental information ever assembled on a proposed exploration well in the history of the U.S. offshore drilling program."
Martin has 60 days to review the report. Public hearings are set for July in Manteo and Morehead City, N.C.
Industry is lobbying against a proposal administration and congressional budget negotiators are considering to tax burning of fossil fuels.
The carbon tax would phase in beginning in 1991, increasing to $3.25/bbl on crude, 400/Mcf on gas, and $15/ton on coal by 1995, and raise more than $30 billion in that period,
Rep. Mike Synar (D-Okla.), chairman of a House government operations subcommittee, plans summer hearings on FERC regulatory delays he says are "creating havoc" in the gas industry.
In terms of generating action, "We're looking at an agency that is just flat broke," Synar said. FERC Chairman Martin Allday denied his agency is unreasonably slow to act and must follow procedures laid down by Congress. "We're busting our backsides over here day and night," he said.
The Supreme Court has agreed to review a lower court's decision striking down FERC Order 451 (OGJ, Sept. 25, 1989, p. 35). NGSA welcomed the court's action, noting 451 is "reasonable, well structured, and has made a significant contribution in moving the natural gas industry to a competitive environment."
Allday was not with FERC when 451 was drafted but pressed Justice to appeal to the high court. He said, "We believe our position in that situation was right. To have it come out another way would be chaotic." He added if 451 isn't sustained, FERC will have "a heck of a problem" reversing the results.
EPA plans deeper cuts in gasoline volatility for summer 1992 that would cost refiners $464 million/year and hike prices by about lo/gal. New summertime limits would be 7.7 psi Rvp in warmer states and 9 psi in the rest.
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