Are oil prices headed for another crash in the spring? gliding fourth quarter demand in response to high oil prices and sluggish economies, coupled with a surprising surge in production, could spell a glut in early 1991 once the threat of war in the Persian Gulf has diminished.
Oil prices are starting to reflect that possibility, seeking $30/bbl instead of $40 even as the prospect grows of a U.S. led U.N. offensive against Iraq. European crude prices lost ground in last week's quiet trading. Brent for 15 day delivery dropped to $32.85/bbl on closing Nov. 14 from $35.05 the week before, and Dubai slipped to $27.70 from $29.55.
Rotterdam premium gasoline followed suit, slipping $27 to $313/ton on the week, but gas oil reflected the approach of winter, nudging up $6 to $296/ton.
U.S. DOE Sec. Watkins says world petroleum supplies will exceed demand by 500,000 b/d from December through spring, because of price induced conservation and slower worldwide economic activity. DOE estimates early November U.S. commercial crude stocks rose by 4.1 million bbl last week to 350.4 million bbl, or 14 million bbl more than levels a year ago. Distillate fuel oil stocks are up 13.9 million bbl from the end of October 1989.
Even the outlook of an OPEC member's state oil company reflects likely softness in 1991. Pdvsa Pres. Andres Sosa Pietri says none of his company's income projections for 1991 assumes OPEC will return to a quota system, which he sharply criticized before a Venezuelan congressional committee.
Pdvsa scenarios include: a short war resulting in Iraq's exit from Kuwait but with lingering Arab unrest leading to $25 26/bbl, a long war involving an invasion of Iraq keeping markets unstable through 1992, or a diplomatic solution.
If the current instability persists, Pdvsa sees oil prices at $28-30, plummeting to $19 with a crisis solution.
Sosa does not expect the U.S. or its major allies to fully withdraw from Saudi Arabia even after the conflict is resolved--with the result of a strong U.S. influence on future Saudi production. His remarks led former Venezuelan energy minister and Pdvsa president Humberto Calderon Berti to call for Sosa's firing for "meddling in political affairs."
Meantime, Venezuela's current Energy Minister Celestino Armas says OPEC studies carried out in June suggest an ideal crude price for producers and consumers alike would be $21 25/bbl.
Here's the gravity breakout of Pdvsa's planned crude output hike of 500,000 b/d by yearend: 63.4% heavy/extra heavy, 28% medium, 6% light, and 2.6% condensate. For Pdvsa's 1990 estimated production of 2.313 million b/d, that will break out at 859,000 b/d of light crudes, 847,000 b/d medium, 545,000 b/d heavy, 37,000 b/d extra heavy, and 25,000 b/d condensate.
And the production capacity buildup continues.
Saudi Aramco let a $300 million contract to a group of three Italian companies for further development of giant Safaniya oil field off Saudi Arabia near the Neutral Zone. Snamprogetti will design a fourth gas/oil separator platform to be built and installed by Belleli Saudi Heavy Industries and Saipem SpA. The unit is scheduled for completion in early 1994.
Mexico is suddenly flush with more oil revenues to pump into its moribund E&P effort. Mexico will net $8.894 billion in 1990 oil revenues vs. a budgeted $5.8 billion because of the oil price runup and a rise of 100,000 b/d in exports since August, says that country's mining and energy secretariat.
For 1990, Mexican oil exports are expected to drop 30,000 b/d to 1.329 million b/d vs. 1989. Once the temporary exports boost--spurred by the loss of Iraqi/Kuwaiti exports--is over, Mexico's exports are likely to dip to 1.235 million b/d and production to 2.495 million b/d. The lack of E&D has slashed Mexico's proved reserves to 66.4 billion bbl this year from 72.5 billion bbl in 1983, the secretariat says.
Qatar will cut crude production the next 3 months, however, as its three offshore fields are taken out of service for routine maintenance. Work will start on 10,000 b/d Idd el Shargi, then 60,000 b/d Maydam Mahzam, and finish with 135,000 b/d Bul Hanine, where the shutdown is to start in early 1991.
Production of 240,000 b/d from onshore Dukhan field will continue through winter.
Capital spending in the U.K. North Sea will jump by 1 billion in 1990-91, says U.K. Energy Minister Colin Moynihan, citing a government study. U.K. North Sea capital spending jumped by almost 45% in first half 1990 vs. a year ago.
The study by the National Economic Development Office, to be published later this year, projects capital spending of 4.7 billion in 1991 and 4.8 billion in 1992. Moynihan says the world offshore market, currently valued at $50-65 billion/year, is expected to rise to $80 billion by 2000.
Albania, most isolated of what once were the eastern bloc countries, is following the trend toward inviting help from foreign operators. The first production sharing contract in its unexplored Adriatic Sea could be announced before the end of this month. Foreign help is being sought to stem the rapid decline in onshore production.
Soviet and Turkmen Republic officials will discuss fiscal, exploration, and production terms and make data and maps available for viewing in the U.S. in advance of small tract competitive bidding. The Soviets and Wavetech Geophysical Inc., Denver, will hold an invitation to bid meeting Jan. 30, 1991, in Houston to be attended by high level representatives of the ministries of geology and oil and gas and several republics. A data source room will be available thereafter.
Competitive bidding for exploration tracts and production licenses is expected to start in late 1991.
Horizontal drilling programs in Saskatchewan remain under a legal cloud resulting from a court ruling in a dispute involving Gulf Canada. A Court of Queen's Bench judge ruled the government erred by granting a Gulf well a drainage area of four legal subdivisions when a typical drainage unit is only one legal subdivision. The court also ruled a complaint from Kennibar Resources Ltd. that its production might be harmed by the Gulf project should not have been dismissed without a fair hearing.
More than 40 permit applications for horizontal wells have been in limbo since the government stopped processing them Oct. 26 after the court ruling.
A Gulf appeal is expected to be heard in December. Saskatchewan will issue no more licenses until the ruling's effect on present and future horizontal wells is clear.
U.S. refiners soon will see the first published results of the Auto/Oil Air Quality Improvement Research Program.
Participants told an API press seminar the program will publish its first technical bulletin in mid-December. Data will cover tailpipe emissions from new and old vehicles burning 87 octane, 9 psi Rvp test fuels containing 1.6% benzene and 300 ppm sulfur. The tests cover content and temperature variations in these ranges: aromatics 20-45%, olefins 5-20%, MTBE 0-15%, and 90% distillation evaporative temperature 280-360 F.
Do U.S. election results suggest the tide of environmental extremism has peaked (see story, p. 38)?
Many observers point to the resounding defeat of California's Big Green initiative as evidence of that possibility. And the election of a strongly pro-E&D governor in Alaska, independent Wally Hickel, may improve state oil policies there.
However, newly elected California Republican Sen. Pete Wilson has consistently opposed leasing off that state. And the demise of Big Green owes more to California's newly flagging economy, widespread dislike of sponsor Tom Hayden, and the fact that "California voters can recognize badly written law when they see it," one California industry official said.
Evidence that antioil sentiment still flourishes in California is the latest roadblock thrown up against the long delayed Point Aguello project even as the U.S. readies for war over oil supplies in the Middle East (see story, p. 34).
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