OGJ NEWSLETTER

Oil and products prices are buoyed by a tightening U.S. gasoline market.

The lowest level of gasoline stocks in almost 16 years sent Nymex unleaded futures for May delivery to 74.18/gal Apr. 17--up almost 20 in a day and 80 in 2 weeks and the highest since Jan. 17--the day after Operation Desert Storm commenced.

Nymex crude for May delivery closed Apr. 17 at $21.71/bbl, a rise of almost $2.50 since Apr. 1.

U.S. gasoline stocks for the week ending Apr. 12 fell 2.3 million bbl to 204.2 million bbl--the eighth weekly consecutive drop, down 18 million bbl from a year ago, and the lowest level since July 4, 1975. DOE considers 205 million bbl the minimum stock level to avoid spot shortages, but API says supplies should be adequate for the summer-driving season.

The tight U.S. gasoline supply situation affected downstream markets only slightly in Europe, where inventories are more healthy. Rotterdam premium unleaded rose $5 to $240/ton, while gas oil was almost unchanged at $174/ton. However, the U.S. situation helped firm European crude markets, as Brent jumped to $20.25/bbl earlier in the week, up about 600 on the week, before sliding back to close at $19.80 Apr. 18.

Analysts were expecting softness in crude markets in weeks to come after API's report of an almost 5 million bbl stockbuild in the U.S. last week. Purvin & Gertz, Houston, expects second quarter world oil demand to stay below year ago levels at about 51.2 million b/d--notably March gasoline demand, which the consultant puts at about 47, below 1990 levels. P&G sees U.S. spot sweet WTI drifting down to $19-19.25 through the quarter and rising moderately thereafter, barring OPEC instability.

Soviet labor turmoil--with its ominous implications for world oil markets if Soviet oil workers join in--continues to grow. Gorbachev received legislators' approval for a ban on political strikes, which Georgia's new president and 300,000 striking coal miners promptly vowed to ignore. Georgia has cut off oil and coal deliveries from Black Sea ports to force Soviet troops out of South Ossetia, where Georgians and South Ossetians are fighting over Georgia's bid for independence.

Machinists and other workers went on strike in the Azerbaijani capital of Baku, hobbling the Lieutenant Schmidt manufacturing plant, the U.S.S.R.'s biggest oil equipment producer.

The coal miners' strike has forced the U.S.S.R. to speed construction of the longest--1,200 miles--gas pipeline in western Siberia. The line has been completed from Surgut at midway on the Ob River southwest to Tobolsk and then southeast to Novosibirsk. The new extension will run southeast to Novokuznetsk in the Kuznetsk coal basin, where workers at 42 mines are on strike and gas supplies fall far short of area needs.

Meantime, chronic Soviet fuel shortages are again crippling Soviet farming. Izvestia reports dozens of airplanes used in airborne fertilizer spreading of winter crops in the south are grounded for lack of avgas.

The Supreme Soviet decreed all required diesel and gasoline be delivered to the agriculture sector "even if this requires a reduction in fuel supplies provided other consumers."

Getting some relief for the beleaguered Soviet economy with an infusion of Japanese capital seems less likely.

Japanese officials last week remained cool to Gorbachev's entreaties for joint ventures, notably one involving development of oil and gas off Sakhalin Island.

Sakhalin provincial Gov. Valentine Fedorov asked Soviet officials to specifically promote the joint venture of Marathon, McDermott, and Mitsui involving oil and gas development off Sakhalin. Fedorov also noted Australian and Canadian companies are pursuing offshore Sakhalin oil and gas ventures as well.

Despite the turmoil, 1991 will be the year for oil companies to open the Soviet market to U.S. industry, says George Reese, the new head of Ernst & Young's Moscow office.

Reese, working with 20 U.S. and 10 European companies in pursuing Soviet oil ventures, says, "I've never seen optimism as great as this past month that we'll close joint venture deals with the Soviet counterparts."

Oil tankers made up more than half the world shipbuilding order book of 39.8 million gross tons in fourth quarter 1990, says Lloyd's Register.

Overall, the world order book fell in the quarter by 1.8 million gross tons, the first drop in shipbuilding since 1988. Tanker orders slipped by 74,000 gross tons to 20.7 million gross tons. Japanese yards will build 8.8 million tons of the tankers on order, and South Korean yards have contracts for 5.4 million tons.

BP and Statoil have completed the second stage of their strategic alliance with an agreement covering joint R&D expected to eventually account for $20 million in outlays. Earlier this year the two signed a pact covering joint frontier exploration in West Africa, U.S.S.R., and off China and Viet Nam. Talks are continuing on the third stage, which covers joint U.K. gas marketing and North Sea gas infrastructure development.

BP reportedly is providing details of Tex/Con Oil & Gas Co. financial and operating data to several companies interested in acquiring assets of the BP America unit. In 1990, Tex/Con returned an operating profit of $234 million, had capital outlays of $70 million, and hiked Lower 48 onshore reserves by 140% to 30 million bbl of oil and 250 bcf of gas. Tex/Con's 1990 production was almost 10,000 b/d of oil and more than 123 MMcfd of gas. It holds interests in 3,000 wells and operates three pipeline gathering systems covering a combined 1,500 miles.

Natural gas is the fuel of choice for most new U.S. electric power plants entering service in the 1990s (see story, p. 25). Utility Data Institute reports a third of new power capacity scheduled by utilities, about 13.1 million kw, and half of new capacity planned by independent power producers, 18.8 million kw, will burn gas in turbines and combined cycle plants.

The environmentalist lobby isn't giving two key alternative motor fuels a clean bill of health. Environmental Defense Fund warns that some proposed alternatives to standard gasoline could worsen postulated global warming.

EDF says methanol from coal is the worst solution, emitting 80% more greenhouse gases than gasoline. It says ethanol from corn emits 25% more, including the nitrogen fertilizers and the fossil fuel energy needed to raise and process the corn.

The U.S. Forest Service admits it erred last year when it excluded roadless areas from consideration for oil and gas leasing. It decreed in March 1990 roadless areas were legally excluded for leasing and should not be analyzed for such (OGJ, Apr. 16, 1990, p. 24). But in the Mar. 18 Federal Register, the service said there is no legal exclusion and oil and gas resources should be given the same consideration as other resources.

The grim saga continues off California for Chevron and its Point Arguello partners.

California Coastal Commission rejected the Chevron group's appeal of a denial of an interim tankering permit by Santa Barbara County. At presstime, the companies were mulling their last administrative recourse, an appeal to Commerce Department.

The outlook for ANWR Coastal Plain leasing is brighter, however. House Democratic leader Rep. Richard Gephardt gave support for ANWR Coastal Plain leasing if it is part of a comprehensive energy bill that includes moderate increases in federal fuel economy standards. Gephardt also favors a bigger SPR and a variable oil import tax to create a $20 floor for oil prices.

Meantime, U.S. average quarterly crude production logged the first year to year increase in 5 years, mainly because of a surge in Alaska. API reports U.S. oil output rose 1.2% to 7.5 million b/d in the first quarter. Alaskan flow jumped 4.6%, mostly because of an accelerated frac campaign, while Lower 48 flow remained flat--vs. the typical 5%/year drop since 1986.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.