Middle East crude will become increasingly important in U.S. refiners' feedstock mix through the 1990s, a study of world oil markets through 2005 predicts.
With U.S. oil consumption rising about 1.3%/year during the rest of the decade, while U.S. oil production continues to fall at 2-3%/year, Bonner & Moore Associates Inc. (BMA), Houston, says volumes of imported crude entering U.S. markets could reach 7.8 million b/d by 2000, up from about 6.7 million b/d in 1993.
"Environmental barriers undoubtedly will continue impeding exploration in the U.S., and it appears unlikely that major new U.S. finds are in the cards, anyway," BMA said.
Most of the greater supply of U.S. oil imports will come from Persian Gulf members of the Organization of Petroleum Exporting Countries.
BMA reckons non-OPEC oil supplies in 2005 will reach about 36.41 million b/d, up from 34.28 million b/d last year. Meantime, crude production by OPEC members will climb to 37.79 million b/d on capacity of 40.1 million b/d. OPEC production in 1993 averaged 25.68 million b/d on capacity of 28.8 million b/d.
World oil demand in 2005 will reach 81.58 million b/d, an average increase of 1.7%/year. Demand growth in developing countries with emerging economies will increase 2.2%/year and in economically mature countries belonging to the Organization of Economic Cooperation & Development about 1.3%/year.
Because world oil supplies likely will increase through 2005 at about the same pace as demand, BMA expects oil price increases to be minimal in terms of constant dollars. Price spreads between light, sweet and relatively heavy, sour crudes will change only slightly.
Middle distillates and aviation fuels through 2005 will pace demand growth of refined petroleum products in OECD nations. Demand in non-OECD countries will grow most for distillates and LPG/naphtha.
U.S. OUTLOOK
BMA's study found that U.S. oil demand during the forecast period likely will peak in 1999 at about 13.854 million b/d, then slip gradually to 13.84 million b/d in 2005.
Meantime, U.S. crude oil imports will continue ramping up, reaching 7.716 million b/d in 1999 and 8.4 million b/d in 2003, 55.7% and 60.7%, respectively, of total U.S. supply. Imports in 1993 accounted for 49.7% of all U.S. oil supplies.
Among the main factors BMA expects to drive the U.S. oil outlook through 2005 are persistently slow growth of refined petroleum product demand, emerging U.S. refining capacity limitations, and continuing foreign competition for U.S. refined products markets.
U.S. demand for kerosine jet fuel through 2005 will increase an average 2.1%/year, tops among petroleum product gains. Expected growth of U.S. demand for other main petroleum products includes 1.4%/year for distillate fuels and 0.6%/year for gasoline. U.S. demand for residual fuel oils will remain about flat at a little more than 1 million b/d.
Despite slow growth of product demand, BMA predicts U.S. refinery operating rates will exceed 95% of available capacity within the next couple of years. Assuming further loss of about 200,000 b/d of capacity and noncrude input to refinery stills of about 180,000 b/d, crude runs in U.S. refineries by the end of the decade could slip to about 14.07 million b/d.
Because of rising product demand and declining refining capacity, BMA expects U.S. refined product imports to surpass 3 million b/d by 2003, an average 4.5%/year increase from 1.8 million b/d in 1993.
Greater utilization of U.S. refining capacity will tend to increase refiners' profit margins. But BMA warns that margins likely won't rise enough to encourage spending to increase U.S. refining capacity "and might not even prevent more marked contraction of capacity than our forecast contemplates."
OIL SUPPLY MIX
BMA predicts U.S. oil imports will grow most rapidly early in the forecast period before refining capacity becomes a limiting force. But even after refineries reach maximum operating rates, oil imports will continue growing because of the decline in domestic supplies.
World oil production by 2005 is expected to increase to about 74.2 million b/d, up from nearly 60 million b/d last year. With OPEC members accounting for slightly more than 85% of the incremental supply gain through 2005, world demand for OPEC crude will increase about 1 million b/d/year lifting OPEC's share of world oil markets to 50.9% from 42.8% in 1993.
Meantime, U.S. refiners by 2005 likely will have to replace 1.4 million b/d of lost domestic supply, a need BMA says will leave the U.S. refining industry in the hands of OPEC members in the Middle East.
BMA says recent U.S. oil imports have tended toward heavier, more sour stocks largely because of:
- Concern about supply security after the Persian Gulf war.
- Equity positions taken in some U.S. refineries by non-U.S. crude exporters.
- Plant upgrades in the past decade that have geared refineries toward lower quality, less costly feedstocks.
However, BMA says, the trend among U.S. refiners toward buying lower quality crudes appears to be approaching its limits. Moreover, greater U.S. reliance on OPEC oil doesn't necessarily signal continuing deterioration of crude quality among refinery feedstocks.
"Interestingly enough," BMA said, "the Mideast yields crudes that are just about in the middle of the U.S. refining intake spectrum in terms of gravities and sulfur contents."
As a result, BMA concludes, more Middle East crude could enter U.S. refineries without major upsets in product yield or quality.
As a result, BMA predicts current price spreads based on oil quality will persist well into the forecast period with lighter, sweeter crudes commanding higher prices on U.S. markets sated with supplies of heavier, more sour oil.
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