Oil markets continue to defy expectations. leaving analysts divided over price portents for the rest of the year.
Oil prices have topped $17 for the first time since November, continuing a month long rally that lifted crude from recent 5 year lows. Nymex light sweet crude (LSC) for June delivery climbed to $17.24/bbl at Apr. 25 closing amid reports of low crude stocks and continued disruption of Nigerian production caused by civil disorder (see story, p. 46). That's up more than $3 since Mar. 28 and the highest since a Nov. 4 close of $17.40. Reports of the U.N. and Iraq accelerating an arms monitoring program that could lead to a lifting of the oil embargo sliced 330 off the Nymex LSC Apr. 26.
Calling recent oil market developments "bizarre," Merrill Lynch noted oil prices were weak in the winter when they weren't supposed to be-especially in light of a severe North American winter-and are firming now at a time of seasonally low oil demand when prices typically weaken. The analyst thinks the winter weakness stems from a conscious effort by oil companies to cut inventories to the lowest feasible level in light of expectations of continued low prices following OPEC's recent quota rollover.
However, Merrill Lynch and other analysts peg the second quarter stockbuild at an above average 1-1.5 million b/d, pointing to a reversal of market psychology spurring a change in attitude toward stock levels coupled with prospects that underlying demand may be stronger than expected.
So Merrill Lynch says its earlier prediction of WTI at $20/bbl by year end could be accelerated.
On the other hand, Purvin & Gertz claims traders are buying current barrels not on the basis of short term fundamentals but in expectation of higher prices in later months.
Purvin & Gertz contends the market balance is still shaky and market fundamentals don't warrant a strong price recovery before midyear at the earliest, so it pegs spot WTI at $15.81-15.93/bbl in June.
A bearish market outlook has led Moody's Investors Service to downgrade or review for potential downgrade the credit ratings of a number of petroleum companies: ARCO, Enterprise, Oxy, Maxus, Elf, and Oryx.
Despite the recent uptick in the oil market outlook. Moody's sees Brent near the lower end of $13-18 in the medium term.
Low oil prices have taken their toll on some companies' first quarter earnings, but strength in natural gas demand and prices and downstream sectors buoyed others.
Texaco's first quarter E&P earnings plunged to $75 million from $133 million a year ago as it realized a drop in crude prices of $4.44/bbl in comparing the two periods. ARCO's profits dropped to $82 million from $177 million while its average U.S. crude price fell to $7.83/bbl from $12.31. Apache's 43% boost in natural gas production to 387 MMcfd and 10/Mcf rise in gas prices fueled a ninefold earnings increase despite its 30% drop in average crude prices. Lyondell posted record earnings for the quarter, reflecting a 10% climb in olefins sales, higher petrochemical margins, and increased refining throughput and margins despite substantial turnaround downtime.
Here are some 1994 vs. 1993 first quarter earnings, in millions of dollars and losses in parentheses: Exxon 1,160 vs. 1,185, Mobil 535 vs. 490, Chevron 388 vs. 501, Texaco 202 vs. 281, ARCO 149 vs. 260, Phillips 127 vs. 61, Marathon 110 vs. 8, Norsk Hydro 100.5 vs. 72.7, TransCanada 94.7 (Canadian) vs. 87.3, Amerada Hess 83.7 vs. 32.9, Coastal 81.1 vs. 25, Unocal 54 vs. 11, Tosco 38.9 vs. 14.8, Ashland 33 vs. 1, Sun 27 vs. 40, Union Texas 27 vs. 22, FINA 25 vs. 0.08, Kerr-McGee 24 vs. 22, Lyondell 22 vs. (8), Total North America 12.9 vs. (5.3), Freeport McMoRan 12.4 vs. (55), Diamond Shamrock 12.2 vs. (9.2), Apache 9.4 vs. 1, LL&E 6.2 vs. 2.9, Quaker State 5.6 vs. 3.4, and Oxy (40) vs. 80.
U.S. propane use hit record levels in the second half of the winter heating season, drawing down more than 27 million bbl from stocks vs. a previous record of almost 26 million bbl in January-March 1977.
There were no major supply outages or price spikes during the season of severe weather plaguing much of the nation. Even with the record drawdown, U.S. stocks were at 24 million bbl after the season ended, pointing to an above average preseason level of 61.3 million bbl.
U.S. polystyrene prices could be on the rise again, says Bonner & Moore, Houston. FINA is seeking to boost PS resin prices by 2/lb effective May 15, and rumors are that Dow Chemical supports the move, says B&M, adding, "With the price of styrene monomer still rising, other PS producers are also expected to support the move, which should be successful." The analyst expects the price hike to be delayed to May 30-June 1.
Energy Sec. Hazel O'Leary says U.S. utility companies, transportation firms, and manufacturers should be able to reduce greenhouse gas emissions to 1990 levels by 2000.
CO2 emissions were 1.37 billion metric tons last year vs. 1.24 billion tons in 1990. But the Union of Concerned Scientists and other groups claim the administration's program will achieve only a third of the needed cuts.
The groups want tougher fuel economy standards for new cars and a pay-at-the-pump auto insurance program, under which all premiums would he collected through a surcharge on gasoline. They say that would encourage conservation and make premiums proportionate to mileage driven.
U.S. oil imports will total nearly 9 million b/d this year, exceeding 50% of domestic consumption the first time, while U.S. oil flow drops 4.3% to 6.6 million b/d, predicts IPAA. It pegs U.S. oil imports at 10.7 million b/d in 2000, while U.S. oil output slumps to 5.78 million b/d by 2000.
Jack up demand in the Gulf of Mexico likely will increase another 5-10% this year. But the continuing migration of jack ups into the gulf will outpace demand, putting a damper on day rates, says Marine Drilling Cos. Inc., Sugar Land, Tex. Offshore Data Services Inc., Houston, says 98 jack ups were working in the gulf at the beginning of April compared with 84 a year ago, putting respective utilization rates at 74% and 73%.
Jack up day rates have risen only slightly, to $22,000/day for cantilevered units rated to 250 ft of water from a high of $20,000/day 1 year ago.
A national labor union is campaigning to organize Canadian rig workers. Communications, Energy & Paperworkers Union of Canada (CEP) said workers have called the union to raise concerns on health, safety, work hours, and wages. An attempt by CEP 5 years ago to organize rig workers was unsuccessful. Canadian Association of Oilwell Drilling Contractors does not expect the current drive to succeed.
Caodc said the health and safety record has improved significantly since 1989, and work available for rig crews has doubled.
Malaysia's Petronas was to have started up the country's newest refinery, a 120,000 b/d plant built in Malacca, at presstime last week.
Oil was being circulated in some units to test for leaks last week, with the first hot trials expected to follow soon.
Initial runs of light, low sulfur crude are to be about 20,000 b/d but will fluctuate later to as much as 80,000 b/d. The plant will sharply reduce Malaysia's imports of gas oil and high sulfur fuel oil. Minor glitches delayed start-up from the original Apr. 10 scheduled date.
Russian state gas company Gazprom will offer as much as 10% of its shares to foreign investors, notably western companies, says Deputy Chairman Valery Remizov. He notes it is too early to say when and where the shares will be offered.
Russia's government launched a series of Gazprom share auctions Apr. 25 that will involve 60 regional sales to Russian citizens.
Algeria's cabinet reshuffle has seen Amar Makhloufi promoted to minister of industry and energy from the deputy role.
His predecessor, Ahmed Benbitour, was appointed minister of finance. Mohamed Babaghayou, Sonatrach director of exploration and research, said the new minister, a petroleum engineer and former planning director, has been involved in implementing recent hydrocarbon policies and the main strategy of encouraging foreign investment would be continued.
Algeria is proceeding with its second licensing round in which it has attracted 20 foreign operators (OGJ, May 24, 1993, p. 28). The new government, plagued by civil unrest and economic crisis, has promised tough austerity measures in return for more help from foreign creditors.