OGJ NEWSLETTER

Are increased production and falling demand continuing to build pressure for an oil price collapse in 1991?

Oil prices are unlikely to average more than $26/bbl by fourth quarter 1991 regardless of the situation in the Persian Gulf, contends the Center for Global Energy Studies, London.

Its scenarios for oil prices: A settlement spurs a drop to $13/bbl in fourth quarter 1991 from $29/bbl in the first quarter, a stalemate to $20 from $33, and a short but destructive war to $26 from $71.

The center also urges governments to reconsider the role of strategic oil stocks in a crisis, contending government control over most of the world's primary stocks leaves oil companies little room to maneuver in a crisis. The center thinks recent government reluctance to release stocks might have contributed to a shortage of prompt oil for companies, forcing them to bid up prices. Governments must clearly define what constitutes a crisis and instill more flexibility in how government stocks could be used to dampen price spikes, it says.

Meantime, a renewed outbreak of war jitters last week, spurred by frenzied U.S. lobbying to gain U.N. approval for a strike against Iraq if it doesn't withdraw from Kuwait, set crude prices in motion again.

Brent for 15 day delivery jumped almost $4 on the week to close Nov. 27 at $34.88/bbl, slipping almost 60 the next day amid calls by U.S. allies for more patience on sanctions. Product prices followed suit in the same span, as Rotterdam gasoline rose $17 to $304/ton, and gas oil climbed $15 to $301/ton.

Libya denies trying to sell Iraqi crude disguised as Libyan on the open market, responding to Bonn's warnings to German oil companies in that regard (OGJ, Nov. 26, Newsletter).

U.A.E. Oil Minister Mana Said al-Otaiba, longest serving OPEC minister, has been replaced in a cabinet reshuffle with Yusuf Omeir Yusuf.

Saudi Arabia's push to boost its downstream business at home and abroad continues apace.

Samarec has taken the first step in plans to upgrade and revamp Saudi refineries. Bids are out for modernizing and boosting cat cracker capacity to 18,000 b/d from 11,000 b/d at the 95,000 b/d Jeddah refinery. Samarec plans to spend $1.4 billion at Jeddah, Riyadh (134,000 b/d), and Yanbu's domestic plant (170,000 b/d) to boost octane capacity and prepare for introducing domestically low lead gasoline followed by unleaded. It also is mulling outlays for revamps at export refineries at Rabigh (350,000 b/d), Yanbu (250,000 b/d), and Jubail (250,000 b/d).

Saudi Aramco has agreed in principle to form a joint venture refining company with Ssangyong Oil Refining Co. in South Ko- rea. Aramco will supply as much as 175,000 b/d to Han Saudi

Oil Refining Co., which will process the crude in Ssangyong's refineries and market products in the Far East. Aramco through Star Enterprise has a 50% stake in Texaco's U.S. East and Gulf Coast downstream business, for which it provides all crude.

Eastern European nations hit hard by the oil price spike still scramble to obtain oil supplies.

Czechoslovakia will begin pumping shut-in Moravian oil, says official CTK news agency. Under Communist price controls, the light, sweet, low paraffin oil had sold for about $8.20/bbl.

With price decontrol scheduled for Jan. 1, the Moravian oil will sell for about $40/bbl. CTK did not disclose reserves or productive capacity in the central Czechoslovakian region.

Meantime, Iran will sell 2.9 million bbl of crude to Czechoslovakia through yearend and 21.9-43.8 million bbl in 1991 in exchange for industrial equipment and plants.

The Czechs hope to cut crude imports to 280,000 b/d from a projected 320,000 b/d in 1990 and still further in 1991.

Romania has proposed refining 160,000 b/d of U.A.E. oil for marketing domestically and in neighboring countries.

Romania, with 700,000 b/d of refining capacity but only 200,000 b/d of oil production, seeks a permanent Persian Gulf supply source because of falling Soviet oil exports. The Romanian proposal includes possible joint ventures with the emirates.

The U.K. government takes a pessimistic view of U.K. offshore production in 1991. While industry sources have been expecting output to rise after the 1990 slowdown, Britain's Chancellor of the Exchequer says output probably won't top 1990 levels, estimated at 1.89 million b/d, a level reflecting a sharp summer drop during platform safety improvement programs.

During July-September, the U.K. became a net importer of crude says County Natwest Woodmac, Edinburgh. Britain returned to self-sufficiency in October, when production jumped to 1.888 million b/d from 1.72 million b/d in September.

The analysts say net U.K. exports should continue until the offshore safety and construction program resumes in first half 1991, when there will be shutdowns of Brent, Forties, and Ninian pipelines originally scheduled for 1990.

Dala Djupgas Produktions AB plans to spud in March 1991 a 6 km deep test, 1 Stenberg, in the center of Sweden's Siljan crater. An earlier well, 1 Gravberg, drilled 22,000 ft through granite to evaluate an abiogenic gas origin theory, recovered 84 bbl of a substance analyzed as crude oil, the company says.

It contends surface tests indicate presence of a reservoir 6 km deep at the crater's center.

Alberta is considering changes to a royalty rebate program under attack by industry. Industry critics say the royalty credit scheme, which cuts benefits to companies as oil prices rise, is unfair to gas producers. They say gas producers who are experiencing stagnant prices could lose substantial incentive credits in 1991 if oil prices remain high. The program is expected to pay about $300 million in rebates in 1990. Alberta is considering amendments to improve the program for gas producers.

Gulf Canada cut production to 226 b/d from 1,000 b/d in a Saskatchewan horizontal well that is the subject of a court ruling affecting horizontal well spacing (OGJ, Nov. 19, Newsletter).

The province has put more than 50 horizontal well applications on hold since the decision, which Gulf is appealing.

Drilling is on a strong upswing in the U.S. Salomon Bros. notes drilling permits in 29 states it monitors rose 4.5% to 3,673 in October, the fourth consecutive monthly rise, a 27.3% jump from October 1989, and the biggest total since November 1987.

Big increases in Texas, Oklahoma, Louisiana, and California last week paced the biggest 1 week jump in the Baker Hughes active rig count since the oil price collapse.

The tally jumped 72 units to 1,175, up 13.37,, from a year ago and matching an increase the week of Dec. 16, 1985, when it totaled 1,983. Within 3 months of the earlier 72 rig increase, plunging oil prices had halved the rig count.

Drilling is fueling much of a big hike in Texaco capital spending. Texaco plans to spend about $3.1 billion in 1991, up $200 million from 1990 and $800 million from 1989.

About two thirds of Texaco 1991 spending will go to E&P.

President Bush and Mexican President Carlos Salinas de Gortari last week discussed expanding Mexico's drilling and production sector for U.S. service and supply companies.

Treasury Sec. Brady says under the plan, the Ex-Im Bank would guarantee a $1.5 billion line of credit for Pemex and another $5 billion the next 5 years. Mexico's constitution bars foreign oil firms from holding leases or owning oil production.

EPA and Alaska say Exxon will have to return to Prince William Sound next summer for continued oil spill cleanup and restoration work. About Dec. 28 they plan to issue a 1991 draft work plan and another plan for long term restoration.

Several federal and state agencies have opened an Anchorage oil spill public information center to make available scientific and other data related to the 1989 Exxon Valdez spill.