Saddam Hussein's threats to attack Middle East oil fields and Israel if economic sanctions start to strangle Iraq have sent 11 prices soaring.
Brent closed Sept. 27 at $40.15/bbl for 15 day delivery, up more than $4 on the week.
In Rotterdam, premium gasoline prices Sept. 27 soared to $445/metric ton from $415 the week before, gas oil prices to about $345/ton from $294, and heavy fuel oil to $140/ton from $126.
The oil price spike prompted attempts to talk down the price with assurances there are no real shortages of crude supplies. European-Community Energy Commissioner Antonio Cardoso Cunha says supplies are plentiful and stocks high, blaming the price jump on speculators. The price hikes could not be justified, Cardoso said, adding that for now the EC has no plans to curb market speculation.
European Petroleum Industry Association countered by noting the oil pricing mechanism is not in the hands of oil companies and that companies do not favor unusually high oil prices or large price fluctuations. Europia notes spot markets are linked to futures markets, which reflect anticipation of factors more than the status quo and thus are very sensitive to statements by different players. It adds that futures markets aren't representative of actual trading and are open to all investors.
The buildup of added OPEC supplies has proven better than expected, IEA says. It sees OPEC production in September at 22 million b/d vs. 19.9 million b/d in August and preinvasion output of 23.2 million b/d. But IEA predicts only a further 200,000 b/d increase in OPEC output this year.
IEA put Saudi production in September at 7.3 million b/d and an average 7.5 million b/d in the fourth quarter. Venezuelan flow jumped to 2.3 million b/d in September from 2 million b/d and is expected to stay at that level the rest of the year. U.A.E. production reached 2 million b/d in September and is expected to average 2.1 million b/d in the fourth quarter.
Nigeria hiked output to 1.8 million b/d last month from 1.7 million b/d before the invasion and will add another 100,000 b/d in the fourth quarter, says IEA. Libyan production rose 100,000 b/d to 1.4 million b/d last month, a level sustainable through yearend. Iranian output, well below quota of 2.9 million b/d in July, climbed to 3.4 million b/d in September, but IEA sees it averaging only 3.2 million b/d in the fourth quarter.
Markets also are puzzled over reports of technical problems in sustaining Saudi flow at 7.5 million b/d. Reports from the Persian Gulf said pipeline corrosion had cut throughput by 900,000 b/d. However, industry sources in London say there was no confirmation and liftings seemed unaffected.
One company puts Saudi sustainable production at 7.5 million b/d, with output last month at about 7.4 million b/d and expected to rise to 7.8 million b/d in October, a level it thinks the Saudis won't exceed.
Against a background of deteriorating relations between Saudi Arabia and Jordan, Saudi Aramco has cut oil deliveries to Jordan's Zarqa refinery through the Trans-Arabia Pipeline.
Saudi Arabia earlier agreed to supply 33,000 b/d to Jordan, about half the country's daily requirements, in a bid to wean Jordan from dependence on Iraqi supplies.
Aramco said supplies were halted because Jordan was not paying its bills and deliveries would resume if back payments were made. Jordan has been offered oil from Libya, Algeria, and Iran to make good shortfalls caused by the loss of Iraqi supplies.
Arabian Oil Co.'s Khafji platform in the Offshore Neutral Zone between Kuwait and Saudi Arabia is producing normally, says Keiichin Konaga, AOC vice-president.
Personnel at AOC's Kuwait office are confined within the Iraqi occupied area. AOC remains in close touch with staff offshore, who would be evacuated promptly in an emergency.
Romania has joined its former mentor, the U.S.S.R., in labor woes threatening oil supplies (OGJ, Sept. 24, Newsletter).
Its biggest port, Constanta, has been hit by a walkout of dockworkers and seamen, crippling crude imports and hindering supply boat runs to Black Sea rigs and platforms. Black Sea crude flow, slated to rise this year substantially above the 1989 level of 15,000 b/d, is below plan and didn't offset onshore production declines in first half 1990. Walkouts in factories and public transit sector followed big hikes in gasoline prices.
Bucharest says economic reform is lagging badly, production is falling in all industrial sectors including oil, and Romania urgently needs most favored nation status from the U.S.
Concerns about the operating efficiency of a full scale SPR drawdown are unjustified, says Merrill Lynch.
Reports of equipment problems at SPR sites seem exaggerated, and SPR oil is about the same sulfur content and higher gravity than the average crude run in U.S. refineries, the analyst says. And Jones Act waivers can overcome concerns over supply of U.S. flag vessels to move oil in a crisis, it says.
President Bush last week announced a 5 million bbl SPR drawdown to quell oil market fears and earlier signed into law a bill expanding the SPR target fill to 1 billion bbl from 750 million bbl (See Watching Washington, p. 37). The SPR currently holds about 590 million bbl. The law authorizes DOE to lease oil for SPR storage and requires a 3 year test of storage of refined products in areas dependent on products imports.
The government may be backing away from DOE claims the U.S. could hike production by as much as 200,000 b/d in 1991 (see story, p. 38). EIA last week projected U.S. oil production will decline by about 100,000 b/d in 1991 from 1990 levels--in turn a slide of 360,000 b/d from 1989 production--if oil prices remain at $25/bbl. That hews closely to OGJ's projection of a slide of 145,000 b/d in U.S. oil output in 1991 (OGJ, Sept. 17, p. 21). With oil at $25/bbl crimping demand, EIA also sees U.S. net crude imports sliding 130,000 b/d and product imports by about 310,000 b/d in 1991, the first drop in total net petroleum imports since 1985.
API says despite the cutoff of Iraqi/Kuwaiti oil supplies, total U.S. petroleum imports in August averaged 8,878,000 b/d, up 4.17, from a year ago. In August, U.S. crude production averaged 7,182,000 b/d, down 4.8% from a year ago, and U.S. refineries operated at 92.9% utilization vs. 89.3% a year ago.
President Bush soon will ask Congress for authority to negotiate a comprehensive free trade agreement with Mexico, expected to facilitate sales of U.S. oil equipment to Mexico but probably not allow exploration in Mexico by U.S. firms.
Canada, which already has an FTA with the U.S., is expected to participate in the talks, clearing the way for common standards and trading rules in all three countries by 2000.
The Senate has rejected a bill by Richard Bryan (D-Nev.) requiring automakers to increase vehicle fleet fuel economy 20% in model year 1995 and another 20% in model year 2001. Bryan said he will reintroduce the measure in the new Congress in January.
The bill would have increased average gasoline mileage of new cars to 40 mpg by 2000 from the current 27.5 mpg. The Bush administration and automakers lobbied hard against Bryan's bill, which they said set unrealistic requirements.
President Bush has sent Congress a list of proposals he said would lower cost of the pending Clean Air Act revision by $3 billion to $22 billion/year in 2005.
Administration officials complain to congressional conferees that reformulated gasoline provisions in both House and Senate bills "are needlessly inflexible and present enormous implementation problems ... (and) will result in unnecessary increases in the price of gasoline to consumers and in potential supply disruptions without producing commensurate environmental benefits."
The administration says the legislation should establish gasoline standards, not dictate formulas, and complains about the goals and lead times outlined for oxygenated fuels production.
Rep. John Dingell (D-Mich.) says the bill must be finished by Oct. 6-10 for it to pass before Congess adjourns Oct. 20-27. Dingell is guardedly optimistic a bill will pass, although conferees have reached agreement on only about half the issues.
Copyright 1990 Oil & Gas Journal. All Rights Reserved.
