Will rising products demand lead OPEC out of the oil price wilderness?
The view from analysts in the wake of OPEC's quota rollover (OGJ, Apr. 4, p. 36) seems to be one of modest improvement for the year.
Salomon Bros. sees WTI trading at about $14.50 15.50/bbl in the second quarter, with prices firming as the supply/demand balance tightens in the second half. The upshot: WTI averaging $15.75 for the year.
Salomon Bros. noted U.S. crude and gasoline stocks closed March at their respective 3 month high and low, with crude stocks up year to year ha 3.1% and gasoline stocks down 4.4%. In the 4 weeks ended Mar. 4, U.S. demand for refined products jumped 5%, with gasoline demand up 2.5%.
Merrill Lynch also sees spot WTI averaging about $15.75 this year vs. the $18.45 that yielded healthy earnings growth in 1993. It predicts petroleum company earnings could fall 10 15% in 1994 vs. an earlier projection of a 5% rise. The analyst pegs WTI at $18.50 in 1995.
In any event, U.S. refiners are faring better in the current market.
Refinery margins surged on light products price gains during the winter peaks, says Purvin & Gertz. Full cost cracking margins on sweet crudes rose to almost $1/bbl in February, while sour crudes were at breakeven.
Purvin & Gertz expects sour margins to improve as crude fundamentals correct, hut sweet crude margins may have seen their peaks for the year.
There is a range of explanations for the recent oil price rally coming on the heels of a price drop in the wake of OPEC's meeting. Nymex light sweet crude for Ma y delivery jumped 41cts to close Mar. 31 at $14.79/bbl, the third consecutive day of price rises. Traders cited short covering in refined products led by gasoline, which showed surprising strength. The Nymex contract jumped another $1 Apr. 4 after reports of growing unrest in Algeria and hints by Norway that it might consider output cuts if deemed in its interest. Nymex light sweet crude closed Apr. 6 at $15.77.
In the U.K., another explanation was offered for a $1 jump last week in Brent for May delivery, closing Apr. 5 at $14.40/bbl. Analysts cited fears of rising interest rates that drew U.S. investment funds out of equities and bonds and into cash and commodities. Alban Brindle, IPE contracts and research manager, said that while dumping financials in favor of oil was the accepted theory for the price hike, it did not explain it fully. Brindle said some of the rise may have stemmed from inexperienced traders who see oil as a cheap investment, without considering supply/demand problems.
Brindle expects the rally to be short lived. Once the financial market is deemed to have stabilized, U.S. investment funds will move out of oil again, he warned. Geoff Pyne, oil market analyst at UBS Securities, London, agreed with Brindle's view of a short lived price rally but noted stock draws were higher than expected. Being bullish about demand for oil, he said oil prices likely will improve in the second half. Pyne is encouraged by Apr. 7 IEA data that revised projections of U.S. GDP growth for 1994 to 3.8% from 2.6%, which he says represents an underlying growth of 2% and a doubling of U.S. petroleum demand growth rate from a year ago.
Pdvsa will cut its 1994 budget by about 7% in line with cost cutting measures ordered by the new administration of President Rafael Caldera.
Capital outlays will drop by $320 million and operating expenses by $240 million. Pdvsa Pres. Luis Giusti says the cuts won't affect high priority items such as E&P and refinery upgrades.
Meantime, Pdvsa again lowered its estimate of 1994 oil export revenues because of low oil prices, to $9.2 billion from an earlier projection of $10.8 billion and last year's $11 billion. A top government planner said if Venezuelan oil income falls much below $9 billion, "We'll he in real trouble."
Privatization of petroleum sectors continues to sweep the globe.
Sri Lanka will privatize state owned petroleum monopoly Ceylon Petroleum Corp. (CPC) by yearend. CPC has a monopoly to import crude oil and refined products, distribute products domestically, operate the country's only refinery, and export a small volume of products. It will be spun off into three publicly held companies, one to run the 50,000 b/d refinery at Sapugaskande north of Colombo and the other two to handle marketing.
CPC was created in 1961 to manage oil imports and marketing businesses expropriated from Shell, Caltev and Esso.
Spain plans to privatize 15 20% of Repsol by yearend, a move expected to raise as much as $1.46 billion and cut the state's stake in the county y's biggest petroleum company to 20% from the current 40.5%.
Madrid, however, plans to retain a golden share to ensure selection of Repsol's president and veto rights over hostile takeovers and strategic policy decisions. Other big shareholders are Conte 5% and Banco Scent Cont 4%. About 30% of the offering will be in the U. S.
Meantime, Spain's Ministry of Industry and Energy has drafted plans to scrap minimum distance requirements between service stations by 1999, in line with European Union rules. The first phase, to begin in 1995, will focus on outlets in main urban areas. Analysts see room for adding 200 new stations/year to the current 4,731 in Spain.
Ottawa is preparing to sell its remaining 70% interest in Scanty, says the president of the national oil company.
Jim Stanford hopes the new Liberal government will deal with a large part if not all of the federal interest before yearend. He said Ottawa will gain revenues of $2.2 2.5 billion (Canadian) from the sale.
The former Conservative government sold about 30% of the company in 1991 and 1992. Further sales were delayed by weak markets.
British Gas is considering sale of its 53% interest in Bow Valley Energy Inc. British Gas Holdings Canada Ltd., Toronto, has held talks with several possible buyers but hasn't decided whether to sell. The majority interest in Bow Valley is worth about $585 million (Canadian) at current share prices. KIND recently sold its interest in Consumers' Gas Co., Toronto, for $1.2 billion to Interprovincial Pipe Line, subject to regulatory approval. Bow Valley, involved in E&P and marketing in western Canada, North Sea, and Southeast Asia, produces 24,004 b/d of oil and 162.4 MMcfd of gas.
Total Norge will change its operating strategy in Norway because of low oil prices and the sector's high operating costs.
For the next 5 years Total will not seek operatorship of licenses in offshore bidding rounds hut apply only for partnerships. Development plans for Peik and Hild fields, which Total operates, have been postponed as infeasible under current price scenarios. Total spent $180 million in Norway last year and expects to spend $140 million this year, with comparable outlays likely the next few years. Total is the third largest owner of unsold gas resources in Norway, involved in all major pipelines and 35 E&P licenses.
Under the plan Total will close its 65 employee Stavanger office, offer professional staffers a move to Oslo, and cut overall staff to 100 from 135.
China will undertake its first foreign oil exploration in a Central Papua New Guinea venture partly backed by Marubeni. China National Petroleum & Natural Gas Corp., China International Trust & Investment Corp. (Citic), and Marubeni have won a 6 year exploration license on a 500 sq km block. Marubeni told Oil & Gas Journal exploration is likely to cost $100 million. Citic and Marubeni will fund the venture, with Marubeni's share expected to be 15 20% of the total. Drilling is to begin by yearend.
Russia has agreed to review a controversial $5/bbl tax on oil exports, Commerce Sec. Ronald Brown told a news conference in Moscow. On a trip to promote trade, Brown warned the export tax has created a chilling effect on investments in Russia.
Sen. Bennett Johnston (D La.) and Rep. John Dingell (D Mich.), who chair U.S. congressional energy committees, are urging President Clinton to consider an environmental equalization fee on imported products.
They said a fee is needed to equalize costs for foreign and U. S. refiners because the latter have much higher environmental expenses.
Their letter to Clinton also urged the immediate expensing of geological and geophysical costs, a tax credit to encourage deepwater exploration, and tax changes to keep stripper wells producing.
About 113 members of the U.S. House have asked EPA not to mandate a market for ethanol in reformulated gasoline.
Earlier, more than half of the members of the Senate went on record against the rule (OGJ, Mar. 14, p. 36).
