OGJ NEWSLETTER

Are oil markets moving against conventional wisdom?

Instead of rising at winter's peak as expected, oil prices have fallen by about $6/bbl. Price declines usually come in the spring, Merrill Lynch notes, but with the price slide coming several months early, the analyst contends prices will be on the upswing in spring.

As the Saudis see it, the current low oil price climate helps world economic recovery, stimulating demand, weakens Iraq's bargaining position in trying to change U.N. conditions for resuming exports, and enhances the Saudi position when the likely round of production cuts occurs at the Feb. 12 OPEC meeting in Geneva.

Merrill Lynch sees cuts likely, with a 1 million b/d cut producing a return to $20/bbl WTI by midyear, much sooner with a 2 million b/d cut. But $24/bbl WTI isn't likely before yearend, the analyst says.

Although Iraqi and U.N. officials have come to terms on some areas, there still isn't total agreement.

More meetings are planned in Vienna before the end of March, when the U.N. resolution governing $1.6 billion in Iraqi oil sales expires.

Kuwait has boosted oil production to 550,000 b/d and restarted its 100,000 b/d Mina Abdulla refinery. Kuwaiti refinery throughput is up to 210,000 b/d and products exports about 120,000 b/d, mostly kerosine and gasoline.

Meanwhile, Kuwait has balked at awarding contracts to foreign companies in recovery of spilled onshore oil, citing excessively high bids from the 200 or so contractors competing for the work. Instead, a Kuwaiti company won the contract and has begun recovery at 35,000 b/d, expected to rise to 100,000 b/d with arrival of upgraded equipment. Oil lakes formed by Iraqi sabotaged wild wells contain about 200 million bbl.

Pointing to the Feb. 12 meeting, Venezuela plans a symbolic cut in production of 2%, namely of heavy crudes that are hard to market.

Venezuela recently has been stockpiling 80,000 b/d of average output of 2.4 million b/d. Venezuela has based its 1992 budget on oil exports at $19/bbl, and Energy Minister Celestino Armas puts current export prices at $15/bbl. Other reports in Caracas put the figure at $13.10/bbl. Libya said it plans to cut output, and Ecuador called for an OPEC-wide cut.

Meantime, some Venezuelan government officials have proposed Pdvsa sell 50% of its interest in Citgo, reportedly for a quick gain to fund heavy government spending in 1992. Pdvsa strongly opposes the move.

Talk of possible production cuts and reports of turmoil in Algeria firmed oil prices a bit last week, with Nymex crude closing at $18.85/bbl Jan. 15, up about $1 on the week.

Five Persian Gulf producers will spend more than $46 billion on oil projects by 2000, says U.S. Deputy Energy Sec. Henson Moore. Moore, on a trio to the Persian Gulf to consult with oil ministers, said the region offers great opportunities for U.S. oil companies and supply firms. Based on a consulting firm's report and meetings with Middle East oil officials, Moore outlined spending plans broken out as Saudi Arabia $35 billion, Kuwait $8 billion, U.A.E. $2 billion, Oman $800 million, and Qatar $600 million.

Idemitsu Kosan has reached preliminary agreement with Viet Nam to conduct oil exploration off the northern Vietnamese coast. Final agreement is expected by summer with work expected to begin by yearend. Idemitsu plans three or four exploratory wells on the 2,000 sq km Block 102 in the Gulf of Tongking off Haiphong in a 5 year, $30-50 million program.

Former Soviet satellites and republics continue to seek alternate energy supplies and grapple with shortfalls in the wake of the U.S.S.R.'s dissolution. Cuba's contract with Venezuela has not been formally canceled, although the three way deal under which Pdvsa supplied Ceuta crude to Cuba while the former U.S.S.R.'s Sojuznefteexport delivered an equal volume of Ural crude to Ruhr Oel--a joint venture of Pdvsa and Veba Oel--has been inoperative since October 1991. Since then Cuba has purchased several crude shipments directly from Venezuela, paying cash, a Pdvsa official said. Czechoslovakia, which currently uses about 770 bcf/year of gas, will get 140 bcf/year from Norway via Germany and 70 bcf/year each from Algeria via trans-Mediterranean pipeline and from Yugoslavia in addition to 350 bcf/year from Russia, Belarus, and Ukraine. And Czechoslovakia expects to cut in half its 97% dependence on imports of gas from the former U.S.S.R. by 2005. Poland may buy as much as 120,000 b/d from Persian Gulf exporters, notably Iran, Saudi Arabia, and the U.A.E. Poland is seeking gulf investment in its oil based petrochemical industry and plans to open an embassy in Saudi Arabia and expand trade with U.A.E. Russia has halved its natural gas deliveries to Poland, but Polish authorities contend the situation isn't serious because it only stems from bureaucratic delays. Consumers' energy costs have jumped as much as 100% in Poland with the end to some subsidies and higher outlays for energy. Gas deliveries were expected late last week to return to contract levels under a Dec. 24 deal with Moscow calling for 8.1 million cu m of gas and 5 million metric tons of oil in exchange for Polish food and medicine.

Shortfalls of heating oil are likely to paralyze Estonia's capital of Tallinn by early February if Russian President Yeltsin doesn't intervene, say Estonian officials. Industrial operations shut down in Armenia last week because oil deliveries were halted by a rail workers' strike in Georgia. However, rail transport of heating oil was expected to resume from Azerbaijan.

Syrian E&D is heating. A Royal Dutch/Shell-Deminex-Syrian Petroleum Co. joint venture has drilled three oil discoveries in Northeast Syria. The finds in the Galban, Abou Hardan, and Mqaat areas on the Ash Sham permit east of the Euphrates River are close to existing infrastructure. Shell says development of the discoveries will enable production from the area to increase well above its current level of 300,000 b/d. Syria Shell also has won approval for a development lease to cover the Arzaq oil discovery. In 1991, Shell was awarded leases for Omar North East and Tanak North finds.

Exploration off Newfoundland and Labrador is expected to increase greatly from lows in 1989-90, says Scottish Enterprise, Aberdeen (see related story, p. 18). Drilling outlays are likely to average about $200 million (Canadian)/year the next 2-3 years, but Scottish Enterprise says these figures may be considered pessimistic by Canadian oil officials who contend Offshore Newfoundland and Labrador will be one of the key oil investment centers the next 5 years. Drilling activity is expected to average about four wells/year to 1993.

The U.S. Coast Guard has established a negotiated rulemaking committee to help it draft rules requiring tankers to prepare oil spill response plans and carry spill cleanup equipment. Included are Marine Spill Response Corp., API, Intertanko, and NOIA.

Demonstrating support for alternate vehicle fuels last week, President Bush test drove a CNG van, the first of 31 to be delivered to Interior.

And General Services Administration let contracts totaling $31.7 million for 2,500 methanol flexible fuel sedans and 25 CNG vans from Chrysler and CNG pickups from GM. Bush said the administration's fiscal 1993 budget will allot $15 million for more than 5,000 alternative fuel vehicles, complying with a Clean Air Act requirement.

U.S. propane inventories are back to normal, totaling 47.5 million bbl Jan. 3, 1992, says EIA. Stocks were marginal going into winter, after low gas prices last summer also drove down NGL prices, thus diverting propane to the petrochemical market (OGJ, Nov. 25, 1991, p. 32).

Will the U.S. active rig count match the modern record low in the weeks to come? The Baker Hughes tally plunged another 32 units to 732 the week ended Jan. 10, down 30% from a year ago and the lowest count since the Aug. 29, 1986, count of 731. The lowest count since Baker Hughes began keeping track in 1942 was 663 July 14, 1986.

Phillips has cut capital spending 16% to $1.35 billion in 1992. The 1992 budget includes $185 million for rebuilding its Houston Chemical Complex polyethylene plant, damaged in a 1989 explosion and fire. Phillips spent about $1.6 billion in 1991, including $215 million for the HCC rebuild. Overall E&P spending will be flat with 1991's $600 million, but international E&P will get 58% of that vs. 48% in 1991.

Transco has slashed its capital budget about 48% to $252 million in 1992 from 1991 spending and about $23 million down from previously estimated. Transco also reports progress toward its goal of eliminating 500 jobs, with more than 400 employees accepting early retirement and voluntary severance packages.