Mounting crises in key oil exporters are keeping markets jittery.
Fears over Nigeria's spreading oil strike have driven oil prices up more than $1 with further hikes expected.
Brent for August reached $18.33/bbl at close of trading July 13 vs. $17.08 July 7. Nymex crude closed July 13 at $20.15/bbl, up $1.03 on the week.
Nigeria's oil unions reportedly turned down a government offer of talks on July 13, instead vowing to force an end to military rule.
"There is no going back. All of us are in it. The strike is total," said Wariebe Agamene, president of the National Union of Petroleum & Natural Gas Workers (Nupeng), Reuters reported.
The strike was sparked when Nigeria's military government jailed opposition leader Moshood Abiola on charges of treason (OGJ, July 11, Newsletter). Due in court July 14 to seek bail, Abiola is unlikely to succeed, but his lawyers hope to use the occasion to rally antigovernment support.
Nupeng, which represents 150,000 blue collar workers in Nigeria's downstream operations, started the strike, causing widespread fuel shortages.
Early last week, striking employees shut down the 125,000 b/d Warri refinery by cutting off the plant's power supply. On July 12, senior upstream employees making up the Pengassan union joined the strike, with an eye toward industry reforms as well as political demands.
As of July 13, Nigerian oil output was unaffected, but production losses are increasingly seen as inevitable. Shell Nigeria is taking contingency measures to maintain output, including bringing in management and contractors to help take up the slack left by striking workers.
Geoff Pyne, oil market analyst at UBS Securities, London, said traders' concerns are growing because Nigeria is a huge supplier, exporting 1.6 million b/d, of which 750,000 b/d is sent to the U.S. Pyne expects the price to rise further, because the strike is about politics, not pay. Both sides took strong positions from which they can't afford to back down. "The military government is in a no win position, which is what the strikers want."
On July 13 Pyne said loadings were beginning to be disrupted. One major expecting to load a cargo at a terminal apparently had been turned away that morning, he said. "The picture has been of steady crude oil supply and increasing demand for some time," said Pyne. "Now the potential for missed supplies from Nigeria is great."
Threats to world oil supply may not seem as substantial now in Algeria and Yemen, but those strife-tom nations also pose market concerns.
Attacks on expatriate workers continue in Algeria, with last week's murders of four Russians and one Romanian who were expat employees of Sonatrach. The killings were blamed on Muslim extremists seeking overthrow of Algeria's ruling military junta. That brought to a total of 51 the number of foreigners killed in 30 months of political violence since the government voided elections Islamic fundamentalists claim they won.
Last September, the Armed Islamic Group gave foreigners 1 month
to leave the country or face death for collaborating with the government. Oil technicians apparently are being especially targeted because Algeria gets most of its income from oil exports.
And some analysts see northern Yemen's apparent victory over the secessionist south as pyrrhic, with the prospect of a drawn out guerrilla war discouraging investment and future development for a long time.
While the victorious government of President Salih last week moved to mend fences with neighbors and declare a general amnesty after the 2 month war ended with the fall of Aden, concerns for future peace rest on whether the Islamic fundamentalists in San'a will allow a coalition government that incorporates the defeated socialists from the south.
Prospects of supply disruptions are overriding market concerns over OPEC production.
A jump in OPEC production to more than 25 million b/d the first time this year has had no effect on the supply/demand balance. Estimates by Middle East Economic Survey (MEES) put June OPEC output at 25.02 million b/d vs. 24.76 million b/d in May and its 24.52 million b/d quota. MEES blamed most of the June rise on Iran's 195,000 b/d hike. Average second quarter Iranian output was pegged at 3.565 million b/d vs. its 3.6 million b/d quota. Pyne said the market perceives Iran as struggling to make quota, with 2 months' output below quota for every 1 month above - noticeable only if a good Iranian month coincides with overproduction elsewhere in OPEC.
The recent oil price upsurge didn't come soon enough to bolster recent petroleum company earnings. Kidder Peabody expects second quarter profits to slide for most of the companies it tracks, noting that although WTI jumped 30% since the end of first quarter, the second quarter average price still was 8% below last year's level. And because refiners were unable to fully recover the crude price hike, average refining margins fell from last year's levels in all major markets-from a drop of 10% in the U.S. Midcontinent to a Plunge of 60% on the U.S. Gulf Coast.
Prospects are for higher oil prices in 1995-96 based on a bullish demand outlook. Salomon Bros. thinks the growth in world petroleum demand in 1995 could be explosive-as much as 1.5-2 million b/d, laying the groundwork for higher oil prices and reintegration of Iraqi exports. It jumped its 1995 WTI forecast to $20/bbl, up 500 from its earlier forecast.
And the brightening outlook for oil prices underpins increased upstream spending. World outlays for oil and gas E&P this year will rise 3.6% to $54.8 billion from last year's level, according to Salomon Bros.' midyear survey. That's comparable to a projection of 4.1% indicated at yearend 1993, despite a sharply reduced expectation of what oil prices will average this year - currently $16.36/bbl vs. $17.72 in December. Spending hikes in North America account for the entire increase, with the latest estimates showing rises in E&P spending of 7.7% in the U.S. and 17.4% in Canada. Upstream outlays are expected to slip 0.3% outside North America. The strongest showing is by U.S. independents, with plans to hike budgets 20.9% from last year. Most promising, says the analyst, are preliminary indications for 1995 budgets. At least 55% of survey respondents project further E&P budget hikes worldwide in 1995 with 22.8% calling for increases of more than 10%.
There are other encouraging signs for U.S. oil and gas companies. President Clinton told Rep. Bill Archer (R-Tex.) he will follow up on proposals made at a June 16 meeting with oil state lawmakers (OGJ, June 27, P. 21). He wrote Archer he wants to "identify policies that can extend the margin of economic production while ensuring revenue neutrality," such as extending the life of stripper wells and royalty relief for marginal, deepwater Gulf of Mexico fields.
Clinton asked the Office of Management and Budget to ensure that oil industry rulemakings examine costs and benefits of all available regulatory options and select approaches that maximize net benefits.
Clinton also supports ending the ban on Alaskan North Slope (ANS) oil exports if it can be done "without triggering other concerns, such as trade related problems or adverse consequences for the U.S. maritime industry."
If Congress allows ANS exports, it would boost the price of California and ANS oil production $1-2/bbl, says Samuel Van Vector, president of Economic Insight Inc., a Portland, Ore., consulting firm.
Van Vector, preparing a report on the subject for the Cato Institute, notes that if ANS producers are required to export the oil in U.S. tankers, "it takes a lot of the benefit away" (OGJ, July I 1, P. 28).
Chevron and partners continue to be stymied in efforts to tanker Offshore California crude to market while awaiting construction of a new pipeline, despite evidence of a pipeline bottleneck to Los Angeles (OGJ, May 23, P. 34).
California Coastal Commission last week again denied an interim tankering permit for the Point Arguello group until a new pipeline project has permits in hand - a condition that can't be met before March 1995 at the earliest. Chevron claims its financial backing and throughput deal with Pacific Pipeline for a 130 mile, 130,000 b/d pipeline from Kern County to Los Angeles met state criteria and cites transport problems caused by the indefinite shutdown of Four Corners' Line 1 due to earthquake damage. Los Angeles refiners say lack of pipeline capacity and crimped tankering is causing a big jump in trucking Point Arguello and San Joaquin Valley crude. Chevron is keeping Point Arguello output at 70,000-80,000 b/d to cover operating costs but must pay higher transport costs to move more than half that volume to Texas and Illinois via the All-American pipeline and by truck to Los Angeles.
Copyright 1994 Oil & Gas Journal. All Rights Reserved.
