OGJ NEWSLETTER

Oct. 15, 1990
Rumor sets the price of oil today. U.S. crude futures prices went on another wild roller coaster ride last week in response to false rumors emanating from the Persian Gulf crisis. Reports of U.S. troops being sent into Kuwait pushed Nymex crude to more than $41 in early trading Oct. 10, countered by another false alarm about Saddam being shot that in turn pulled the closing price down almost $2 vs. a record $40.40 closing Oct. 9. The Oct. 10 close of $38.69/bbl was up almost $5 on the week.

Rumor sets the price of oil today.

U.S. crude futures prices went on another wild roller coaster ride last week in response to false rumors emanating from the Persian Gulf crisis. Reports of U.S. troops being sent into Kuwait pushed Nymex crude to more than $41 in early trading Oct. 10, countered by another false alarm about Saddam being shot that in turn pulled the closing price down almost $2 vs. a record $40.40 closing Oct. 9. The Oct. 10 close of $38.69/bbl was up almost $5 on the week.

Oil prices could show softening in the weeks ahead to the lower $30s/bbl or less, says Washington oil geopolitics analyst Mel Conant. He sees the prospect for a negotiated settlement of the crisis at 50-50 vs. 75-25 a month ago, as diplomatic initiatives by Presidents Gorbachev and Mitterand elicit signals from Baghdad and Washington that a way may be found for Saddam to pull out of Kuwait, leading to a possible settlement on Iraqi Kuwaiti issues. If negotiations occur, Conant says, "Look for a very protracted period of possibly several years of searching for acceptable ways out of the current confrontation with oil prices drifting downward in a range of $30-25/bbl...it looks less like war unless Saddam Hussein provokes it."

Venezuelan President Carlos Andres Perez wants a U.N. conference among oil producing and consuming nations to calm oil markets, stabilize prices, and design an international energy strategy, beginning with a meeting between IEA and OPEC.

Perez says OPEC and industrialized nations shouldn't allow sudden changes in world oil prices that damage consumers and producers and "only favor speculators who are indifferent to the welfare of nations and the world economy." Venezuela will gain another $2 billion in oil export revenues this year because of higher oil prices stemming from the Persian Gulf crisis.

Venezuela's Maraven plans to develop more productive capacity for bitumen and heavy oil in the Zuata area of Anzoategui state in order to hike production of its Orimulsion bitumen water emulsion boiler fuel. Maraven's goal is 400,600 b/d of Zuata bitumen by 1996. In the near term, it targets 35,000 b/d of bitumen to supply 50,000 b/d of Orimulsion. For 1992, the goal is 140,000 b/d of bitumen and 200,000 b/d of Orimulsion.

Meantime, Florida Power & Light will begin a test burn of Orimulsion at one of its 11 power plants, a 400,000 kw unit, giving the fuel entry into the U.S. Britain's PowerGen and Japan's Chubu are using Orimulsion on a limited commercial basis.

At the same time, unconfirmed press reports in Caracas contend technical problems may keep Venezuelan crude output increases short of the government's target of 500,000 b/d by 100,000 b/d. Venezuela's production has just topped 2 million b/d.

Nigeria is another OPEC member trying to boost its productive capacity with foreign help the next few years. It will offer 136 blocks covering 253,000 sq km in the Niger Delta, Benin, Anambra, Chad, and Benue basins Nigeria's first open competitive bidding for exploration acreage. Nigeria hopes to hike its oil reserves to 20 billion bbl by 1995 from 16 billion bbl.

Moscow has averted a labor strife that threatened to cut deliveries of western Siberia crude to Moscow's refinery by 10% because it failed to construct housing and other facilities in the Tyumen Province oil center of Nizhnevartovsk.

Moscow promised in 1985 to build 100,000 sq m of buildings in Nizhnevartovsk, but later reneged, saying construction enterprises were needed in Moscow to cope with its housing shortage. Nizhnevartovsk's oil and gas association withdrew the threat after Moscow's city council agreed to continue construction work in Nizhnevartovsk along the lines of the 1985 deal.

Soon after this dispute was settled, the association said it will recommend a partial strike Oct. 20 and a wider walkout by 80,000 members Oct. 30 if new demands for higher wages and better working conditions are not met.

Leaders of the U.S.S.R.'s former European satellites, whose economies are in shambles because of critical fuel shortages, are going to Moscow to plead for increased Soviet oil deliveries. They have had little success because the U.S.S.R.'s liquid fuel shortages persist, and as much Soviet oil as possible is being exported to the West for hard currencies.

Andrei Lukanov, chairman of Bulgaria's council of ministers, recently returned to Sofia with Moscow's promise of increasing crude deliveries to 146,000 b/d for September and the hope that level would be maintained through yearend. In 1989, Bulgaria imported more than 231,000 b/d of crude and 24,000 b/d of products from the U.S.S.R. Before the Persian Gulf crisis, Bulgaria received $1.2 billion/year worth of crude from Iraq. Bulgaria has asked for western aid to alleviate "catastrophic" consequences of its participation in sanctions against Iraq.

French firms are involved in East German privatization.

Gaz de France may participate in privatization of the East German gas utility Verbundnetz Gas (VNG) where West German companies Ruhrgas and BEB have a 45% holding. GDF will either take a direct stake in the company or provide know-how on gas distribution and underground storage.

Electricite de France will lead a group of European electric utilities, including companies from Belgium and Spain, that will take a 15% stake in East Germany's electricity companies, to be privatized as a single entity Jan. 1, 1991.

Fears mount of U.S. winter heating fuel shortages.

EIA sees no relief for propane supplies. EIA says propane stocks were 56 million bbl at the end of September vs. 59 million bbl a year ago. In August, propane stocks were the lowest for that time of year in more than 20 years. Because data don't include secondary/tertiary stocks, EIA thinks price concerns may have driven unusually big volumes into tertiary storage.

Adding to supply woes are a wet growing season and a possible late harvest, hiking U.S. Midwest propane demand.

ICF Resources Inc., Fairfax, Va., sees regulatory delays possibly causing serious gas shortages and loss of customer confidence in the industry. ICF gas analyst William Hederman contends that, "If elements of the gas industry continue to snipe ad infinitum at new pipeline projects, the industry will lose a wonderful opportunity for market expansion that currently exists...If the gas industry cannot put new steel in the ground in a timely manner, I predict that curtailments will make headlines again, perhaps in the winter of 1991 or 1992. While the shortages might not resemble those of the 1970s, the marketing damage will last a decade or more."

Hederman proposes a voluntary honor code among gas industry companies under which they would agree not to manipulate the regulatory approval process to hinder competition.

Plains Resources Inc., Fort Worth, is the first independent to endorse a NARO proposal before TRC to limit sale of Texas gas below replacement cost. "Texas can no longer afford to permit irresponsible marketers of natural gas to waste its natural resources," said Plains Pres. Patrick Collins, calling for the measure's adoption in other producing states.

The U.S. Supreme Court has declined to hear a lawsuit challenging FERC's allocation of take or pay settlement costs between pipelines and distributors. A federal circuit court had ruled FERC could not allocate some TOP costs to distributors because that would amount to a retroactive change in rates.

Ingaa says the ruling involves $3.5 billion in pipeline costs. FERC is studying its options.

Congress has rejected a plan to out the U.S. budget deficit that would have increased gasoline taxes 10cts/gal, taxed gasoline and other products another 2cts/gal, and granted oil and gas E&P tax credits (OGJ, Oct. 8, p. 30). After rejecting that package, Congress agreed on a Democratic budget resolution containing only broad outlines of a deficit plan, directing committees to draft specific tax and spending changes. Congress and the administration also agreed on stopgap funding to keep the government running through Oct. 19. Oil lobbyists say the next plan likely will contain higher gasoline and/or other product prices but are unsure if E&P incentives will survive.

Copyright 1990 Oil & Gas Journal. All Rights Reserved.