OPEC 1991 RESULTS REFLECT HARD TIMES

Low crude oil prices and economic tough times in industrial countries caused a lean 1991 for members of the Organization of Petroleum Exporting Countries.

OPEC's 1991 annual report said member countries reported an overall loss of $12 billion in 1991 on oil revenues that fell 16.2%. Iraq and Kuwait were not included because of their unusual circumstances in the wake of the Persian Gulf war.

Reduced oil revenues reflected a slide to $18.66/bbl in 1991 from $22.26/bbl in 1990 for the average price of OPEC basket crudes.

As of last June 5 OPEC's basket crude price has averaged only $17.42/bbl this year, OPEC News Agency (Opecna) reported. First quarter 1992 prices averaged $16.77/bbl, compared with $19.31/bbl in fourth quarter 1991.

The average price jumped 52 cents/bbl the first week in June this year to $19.93/bbl, bouyed by Saudi Arabia's move at the end of May to shift its policy from price moderation to one in favor of higher prices, Opecna said.

OPEC members increased production 1% in 1991 to an average 23.28 million b/d in spite of negligible production from Iraq and Kuwait and reduced production from Qatar.

Meantime, OPEC refining capacity in 1991 was relatively unchanged, but member countries began several expansion and modernization projects aimed at claiming a larger market share.

OPEC ECONOMIES

OPEC's overall net loss in 1991 compared with net income of $13.77 billion in 1990.

Oil revenues in 1991 totaled $123.43 billion, down sharply from $147.44 billion in 1990 when revenues were bolstered by high oil prices resulting from the Persian Gulf war.

Oil revenues account for about 80% of OPEC member countries' export earnings and more than 40% of the gross domestic product in most member countries, the group's annual report said.

The report noted much of the increase in oil revenue in 1990 was used to finance expenses associated with the Persian Gulf crisis.

The decline in world oil prices and lower oil revenue in 1991 led to economic growth of only 1.1% in OPEC member countries, compared with growth of 2.2% in 1990 and 1.4% in 1989.

The group expects relative political stability, implementation of economic reforms in member countries, and an improved world economic performance to boost oil demand in 1992 and increase the economic climate among members.

OIL PRICES

OPEC noted the international crude market was extremely volatile early in 1991 due to the aftermath of the Persian Gulf crisis, the attempted coup in the former Soviet Union, increasing limitation in the flexibility of the world refining industry to meet product demand, and uncertainty about the extent of economic recession in the U.S. and Europe.

OPEC's average basket price opened the year at nearly $26/bbl but fell to $18.76/bbl in the fourth week of January 1991 as the crisis in the Persian Gulf continued.

The report blamed the price fall in January on the absence of any sign of disruption to Middle East oil supplies during the crisis and the International Energy Agency's agreement before the crisis to make 2.5 million b/d of crude available to the market if a cause arose.

Prices continued to slide in February and closed the month averaging $17.47/bbl. The decline continued into early March, but bouyed by prices very early in the year OPEC's first quarter prices averaged $19.25/bbl.

Unexpectedly, prices increased when Iraq accepted the U.N. Security Council's cease-fire resolution Mar. 3, 1991, in spite of ample crude supplies.

OPEC attributed the increase to several factors, including its decision in mid-March to lower the production ceiling to 22.3 million b/d for second quarter 1991.

OPEC said other factors contributing to the uncharacteristic increase included uncertainty about the resumption of crude exports from Iraq, fears of significant reductions in exports from the former Soviet Union, speculation about the availability of Brent field oil in second quarter due to scheduled maintenance, the expectation of oil purchases in Japan and Germany ahead of proposed tax increases, diminished prospects for renewed supplies from Kuwait, and the decision of Iran and Saudi Arabia to hold back floating stocks.

OPEC oil prices remained relatively stable throughout second quarter 1991, moving within a narrow range that OPEC suggests was a result of supply adjusting responsively with demand rather than rising and falling independently. The group's price for second quarter averaged $17.48/bbl.

Prices began increasing late in the third quarter to $19.19/bbl in September, then began sliding in November as Kuwait's oil production increased and OPEC continued production of more than 24 million b/d.

OPEC said fears of a possible slow-down in Japanese crude purchases awaiting the lifting of the Special Petroleum Tax and the reduction in import tariffs by the end of March 1992 further contributed to the price slide.

Fourth quarter 1991 prices for the group averaged $19.31/bbl, a 72 cents/bbl increase from the third quarter but down $3.06/bbl from fourth quarter 1990.

CRUDE SLATE

OPEC said with the continued lack of product exports from Iraq and Kuwait, anxiety about product supply from the former Soviet Union, and an expected increase in demand for fight products, refiners in consuming areas varied their crude slate to bolster profits.

This affected not only the spot differential between various grades of crude, but also led OPEC and non-OPEC producers to continue to adjust the term pricing formula and retroactive prices to consumers preference while trying to maintain market share, the report said.

For the first 7 months of 1990, before eruption of the Middle East crisis, the average spot differential between Bonny light and Arab heavy crude was about $3.90/bbl. But by the first week of December 1990 it climbed to $9.40/bbl and settled at about $6/bbl at the end of the crisis.

OPEC said increasing demand for light sweet crude and the change in product trade patterns, particularly in the Far East, were the main factors in the widening gap, while a similar trend was observed in the spot differential of Brent and Dubai blends.

OPEC expects the world's tight refining flexibility in 1992 will continue to force refiners to change their crude slate more frequently to adjust to product demand.

REFINING CAPACITY

OPEC members' total domestic primary distillation capacity of 7.49 million b/cd and conversion capacity of 1.45 million b/cd remained fairly unchanged in 1991 compared with 1990.

The group's annual report noted refining configuration and complexity varies considerably throughout member countries from hydroskimming refineries in Algeria, Libya, and Qatar to complex refineries in Indonesia, Iran, Kuwait, and Venezuela.

OPEC's conversion/topping ratio of about 19.3% is below the world average of 31.8%, and although more than half of OPEC's refining capacity is in the Middle East, the 18.9% ratio there is well below OPEC Latin America and OPEC Far East.

With an aim at increasing international market share, OPEC members have been involved in various refining projects during 1991, including:

Venezuela is expanding and modernizing a downstream refinery unit.
Nigeria is reviving refinery units to full capacity.
Iran is building refineries at Bandar Abbas and Arak and a condensate refinery at Bandar Taheri.
Kuwait has partly restored its Mina Al-Ahmadi and Mina-Abdullah refineries.
Indonesia is building two refineries for domestic product consumption and export.
Algeria and Libya have started implementing a program to modernize and upgrade refineries.
Iraq is modernizing and upgrading refineries.
Saudi Arabia and the United Arab Emirates have begun domestic refinery expansion and upgrading programs.

The report said OPEC members' total foreign refining capacity, based on equity ownership, is about 1.88 million b/cd. That includes Iran's 13% share of India's 114,700 b/cd Madras refinery and Saudi Arabia's 35% stake in Sangyong Oil Refinery Co. The capacity extends to about 2.43 million b/cd if crude supply agreements are considered, including 6.95% of western Europe and 8.25% of total U.S. refining capacities as of January 1991.

OPEC said further expansion by member countries into foreign downstream operations continues to be pursued, and more joint ventures are to be wrapped up this year.