OIL MARKET STRENGTHENING IN THE SECOND HALF OF 1992

Robert J. Beck
Economics Editor

The economy and events in the Middle East continue to drive the oil market.

Saudi Arabia's decision in March to reduce crude oil output boosted prices by about $3/bbl and may have signaled a significant change in the kingdom's price strategy.

With Kuwaiti production capacity still less than its levels before the Iraqi invasion of 1990, with Iraqi exports still crimped by an international embargo, and with Saudi Arabia producing less than before, the market looks tight for the rest of the year.

Last year's war to liberate Kuwait temporarily eliminated much of the surplus production capacity with which the Organization of Petroleum Exporting Countries had grappled for several years.

This year, oil supply and demand have stayed in rough balance, even with Kuwaiti crude returning to the market. Two prospects have made traders nervous: resumption of Iraqi exports at significant levels and deliberate Saudi overproduction aimed at suppressing prices.

The Saudi production cut put one of those fears to temporary rest. And negotiations between Baghdad and the United Nations over the Iraqi embargo seem unlikely to produce results for at least a while. Demand growth, meanwhile, will depend on economic performances of key oil consuming countries.

In the U.S. modest economic recovery has increased industrial activity and stimulated demand for petroleum products. Crude oil and product prices began rising in April.

Refiner additions to crude stocks have further added to the call on shrinking crude supplies, helping to lift prices. In turn, product prices have risen. With continued economic growth, prices will climb modestly throughout the year.

U.S. natural gas prices have rebounded from their early year slump. But neither they nor the higher crude prices have stimulated exploration and production.

THE DRILLING SLUMP

Drilling in the U.S. hit record lows this year and has shown only modest improvement in recent weeks. International activity is down slightly from levels of a year ago.

The U.S. Baker-Hughes rig count was 645 the week of June 26, compared with 881 a year earlier. The count set a record low of 596 the week of June 12. The average for the year through June was 656, compared with 916 the year before.

The international rig count excluding the U.S. and Canada was 871 in May, compared with 905 last year' The international count in January was 904.

Drilling might receive a boost from market strength expected for the year's second half.

Demand for crude oil and petroleum products is expected to pick up in the U.S. and worldwide.

Without Kuwait and Iraq, estimated OPEC crude oil production capacity remains at 24-24.5 million b/d. In the fourth quarter, demand for OPEC oil will rise to an estimated 25.7 million b/d. Rising exports from Kuwait probably can make up the difference, but without Iraq there's little room to spare.

In the U.S., demand is expected to pick up even more in the second half on the strength of economic growth and an assumed return to normal weather in the fourth quarter.

Because of the drilling slump, U.S. production will resume its long decline, with slides in both Alaska and the Lower 48 this year. Production rose in 1991 due to an increase in Alaskan output following completion of the North Slope maintenance projects that had curtailed output in 1990.

With lower output and increased demand this year, U.S.imports will have to climb.

THE U.S. MARKET

U.S. demand for petroleum products will move up 1.7% from the level of a year ago to 16.99 million b/d. This is the same rate of increase in petroleum product consumption that was forecast at the beginning of this year (OGJ, Jan. 27, p. 49).

The anticipated gain follows two consecutive yearly declines. First half demand this year averaged an estimated 16.6 million b/d, up 1% from the first half a year ago. Oil & Gas Journal projects second half demand at 17.38 million b/d, up 2.4% from the same period of 1991.

Total demand, including exports of crude and products, will increase 1.3% to 17.94 million b/d for 1992. Exports are expected to fall 5.1% to 950,000 b/d. Exports during the first half dropped 12.7% to an estimated 930,000 b/d.

U.S. crude oil and condensate production will average 7.245 million b/d, down 2.3%. Alaskan output, which started to slip in 1989, will be down 2.4% at 1.755 million b/d. Lower 48 output is expected to fall 2.3% in 1992 to 5.49 million b/d.

The drop in total U.S. output expected for 1992 follows a 0.2% increase in 1991 and declines of 3.4% in 1990 and 6.5% in 1989. Even though the rate of decline has slowed, production in 1992 will be the lowest since 1961.

With higher domestic demand and lower production, total petroleum imports will move up 4.5% in 1992 to an average of 7.97 million b/d. Imports will amount to 46.9% of U.S. demand. The record year for dependency on foreign oil was 47.7% in 1977.

Total industry stocks will be down 0.3% at yearend, adding just 8,000 b/d to Supply. Crude stocks will climb 3.1% to 335 million bbl. Product stocks will fall 1.8% to 710 million bbl.

Product stocks dipped to 660 million bbl, near minimum operating levels, at yearend 1989. Refiners boosted them to 712 million bbl at yearend 1990 and 723 million bbl in 1991.

Refinery crude runs this year will increase 1.3% to 13-47 million b/d. Average refining capacity will be down 0.8% at 15.585 million b/d.

The result will be an increase in the refinery capacity utilization rate to 87.7%.

PRICE MOVEMENTS

Crude oil prices started out this year substantially below the levels of early 1991, when war was under way in the Persian Gulf.

Last year, the world export price of crude oil averaged $22.27/bbl in January, $16.01/bbl in March, $19.77/bbl in October, and $19.57/bbl in November.

Crude prices started this year averaging $16.30/bbl in January and slipped to $16.22/bbl in March. But in April Saudi Arabia cut production to 8 million b/d from 8.5 million, and the export crude price began to move up, reaching $19.69/bbl the week of June 19.

The average export price in the second half is expected to exceed $20/bbl as refiners acquire crude oil to meet winter product demand. The average for the year is estimated at $18.76/bbl, an increase of 5.3% from the average last year.

The key to this expected price trend is the willingness of OPEC to produce at or near the level required to balance the market. The group's production quota remains at 22.3 million b/d, which doesn't include crude from Kuwait and Iraq.

According to the International Energy Agency (IEA), demand for OPEC crude averaged 24.1 million b/d during the first quarter this year and was expected to have averaged 23 million b/d in the second quarter and to average 23.5 million b/d in the third quarter, depending upon changes in stocks. IEA estimates average OPEC output during April and May at 23.4 million b/d.

This output level is above quota and slightly above estimated demand. But the recent price rise indicates an early stock build, which might moderate prices later in the year.

In the U.S., the wellhead price of crude averaged $13.96/bbl in January and February, down 22% from the same months a year earlier. These are the latest official figures available. Last year the price slipped to $15.55/bbl in June and then moved back up to $17.70/bbl in October.

OGJ projects an average U.S. wellhead price of $17.40/bbl for 1992, up 5.5% from the $16.50/bbl of 1991. U.S. product prices have been following the price of crude oil, starting out the year well below year ago levels and climbing as the year progresses.

The OGJ survey of self-service unleaded motor gasoline pump prices shows the average price for the first half of 1992 at $1.10/gal, down 5.6% from last year. But the pump price has been moving up recently.

The price at the end of June was $1.183/gal vs. $1.14/gal a year earlier. The price ex-tax averaged $0.779/gal for the first 6 months of 1992, down 8.8% from 1991. The average for the first 6 months shows a sharper drop than for crude prices, which on average were down only 1%.

Gasoline taxes for the first half of 1992 averaged 32.1 cents/gal, up from 31.1 cents/gal in the same period last year. This year gasoline prices have moved up along with demand and are entering the driving season at a higher level than a year ago.

The expected increase in demand during the major driving months, higher crude oil prices, and shrinking refining capacity will lift gasoline prices through the summer months. On balance, refining margins should strengthen during the period.

OGJ projects the pump price for all types of motor gasoline, including premium grades, to average $1.208/gal for 1992, up from $1.196/gal for 1991. This modest average increase for the year reflects the very weak prices at the start of the year.

This year's price will not come close to the peak price of $1.353/gal in 1981.

Residential heating oil prices for the first 3 months of 1992 averaged 93.70/gal, down 14.7% from the first quarter last year. The decrease was mainly due to weak demand in February and March along with much lower crude oil costs during the first quarter.

OGJ expects the 1992 average heating oil price to rise 1.2% to $1.03/gal on the strength of rising demand in the second half.

GAS DEMAND, PRICE

U.S. consumption of natural gas will increase 1% to 19.58 tcf this year due to rising economic activity.

Last year gas consumption increased due to low prices,

So far this year, rising demand has pushed gas prices well above year ago levels.

At the end of June the futures market price of natural gas was $1.57/MMBTU, up 28% from $1.22/MMBTU a year earlier,

OGJ expects the U.S. wellhead gas price to average $1.70/Mcf in 1992, compared with $1.59/Mcf last year.

Gas prices peaked in 1984 at $2.66/Mcf then dropped sharply as demand weakened, falling to $1.67/Mcf in 1987.

Average annual prices have been relatively constant since then, increasing to only $1.71/Mcf in 1990 and falling to $1.59/Mcf last year. Within individual years prices have swung in response to seasonal demand changes.

THE U.S. ECONOMY

Late in 1990 the U.S. economy went into its first economic recession since 1982.

Economic activity fell sharply in fourth quarter 1990 and first quarter 1991. It began to revive in the second quarter last year.

The gross domestic product (GDP) increased only 0.1% in the fourth quarter of 1991. For all of 1991 GDP was down 0.7%.

In the first quarter this year, GDP grew at the rate of 2.7%/year. This is much slower than growth typical at the start of a recovery, raising fears of a quick return to recession.

Until the latest slowdown the U.S. had experienced a record 8 consecutive years of economic growth. During the period, GDP increased by 29.9%, averaging 3.3%/year.

OGJ projects that the recovery will continue in 1992, with GDP increasing 2% for the year. Economic activity will be boosted by increases in industrial production, new car sales, and housing starts.

Industrial production will increase an estimated 2.4% after falling 1.9% in 1991. New car sales will move up to 9 million in 1992 from 8.4 million in 1991. This is still down from new car sales of 9.9 million in 1989 and 9.5 million in 1990. Housing starts will rise to 1.2 million from 1 million in 1991.

ENERGY DEMAND

Energy consumption increased 14.7% during the 8 years of economic growth, averaging 1.7%/year, about half the rate of GDP growth.

During the past 2 years, with the weak economy, there has been little change in energy use. Last year, when economic activity fell, energy consumption increased by 0.06%. This followed a decline of 0.1 % in 1990, when GDP moved up 1%.

Increased efficiency in the use of energy is still the rule. But over the past decade, years of robust economic growth have usually been years of substantial increase in energy consumption. And in the most recent 5 years energy consumption has been increasing more in step with economic growth.

From 1987 through 1991, GDP moved up 10.1%, and energy consumption increased 9.5%. Relatively low energy prices and renewed growth in energy intensive industries helped boost energy consumption.

This year total energy consumption will rise 1.5% to 82.52 quadrillion BTU (quads).

Overall energy efficiency will improve marginally.

Energy consumption per unit of GDP fell from 23,300 BTU in 1970 to 16,600 BTU in 1990 and rose to 16,800 BTU in 1991.

OGJ expects energy consumption per unit of GDP to fall to 16,700 BTU in 1992. Oil energy demand is expected to move up 1.7% in 1992 to 33.29 quads after falling 2.5% in 1991. Oil's share of total energy demand will also increase, to 40.3% from 40.2% last year.

Demand for energy from natural gas will increase 1% to 20.19 quads. This follows a 3.5% increase last year. The gas market share will slip to 24.5% from 24.6% in 1991.

Energy from coal will increase by 1.5% to 19.07 quads following a 1.6% decline last year. Coal's market share will remain at 23.1%.

Hydroelectric and geothermal energy output will move up 1.1% in 1992 to 3.32 quads following a 4.1% increase last year. The market share will remain at 4% in 1992.

Hydro power output has been well below capacity the last several years because of drought in the western U.S. Conditions have improved somewhat, but hydro plants are still not able to operate at or near capacity.

Nuclear energy output is expected to increase 1.7% this year to 6.65 quads. This follows a 6.2% increase last year, when nuclear capacity utilization increased to a record 70.2%.

The market share for nuclear will move up to 8.1% in 1992 from 8% in 1991 and 7.6% in 1990. The growth in nuclear power is expected to be slow in future years as few new units will be added.

Slower growth for nuclear power will mean that the electric power industry must turn to other generating fuels, probably coal and natural gas.

NATURAL GAS

This year's expected gas demand increase follows a 3.5% increase in 1991, which occurred despite the recession and slow second half growth.

With prices low last year, gas took market share from competing fuels.

Demand increased from 16.221 tcf in 1986 to 19.384 tcf last year. The record high was 27.049 tcf in 1972. Demand slipped sharply when natural gas prices moved up in the late 1970s and early 1980s.

With lower prices in recent years demand has rebounded. The increase in consumption in 1991 accompanied a 7% drop in the average U.S. wellhead gas price to $1.59/Mcf.

The industrial sector accounted for 65.2% of the consumption increase during 1986-91. Industrial demand rose from 5.579 tcf in 1986 to 7.321 tcf last year.

Commercial demand increased 20% during the period to 2.781 tcf. Residential demand moved up 5.8% to 4.565 tcf, and power generation demand rose 7.1% to 2.788 tcf.

Consumption of gas as a pipeline fuel and lease and plant fuel increased 19.5% to 1.929 tcf.

Again last year, industrial demand accounted for the biggest share of the consumption increase. It was up 5%, or 351 bcf, representing 53% of the consumption hike,

Rising prices will moderate gas demand growth this year. In addition, increased output from nuclear and hydroelectric facilities will reduce the rate of growth in the power generation sector.

Industrial sector gas demand will rise along with economic activity, totaling 7.4 tcf in 1992, up 1.1%.

Normal weather would boost demand in the residential and commercial sectors, where demand is projected at 4.63 tcf, up 1.4%.

In the power generating and industrial sectors, where fuel switching is possible, gas and resid may lose market share to coal this year because prices of both fuels are up sharply relative to that of coal.

U.S. marketed production of natural gas will increase 0.3% to 18.71 tcf this year. This follows an increase of 0.4% in 1991 to 18.662 tcf.

Production has been moving up in recent years in response to the increase in demand. U.S. output hit a peak of 22.648 tcf in 1972 but slipped to a recent low of 16.859 tcf in 1986.

Imports will rise 3.2% this year to 1.8 tcf. Last year imports increased 13.8% to 1.744 tcf.

Imports from Canada will move up 3.5% to 1.74 tcf after a 16.1% jump to 1.681 tcf last year. There will be a small but steady supply of LNG, which is expected to slip to 60 bcf from 63 bcf in 1991.

PRODUCTS DEMAND

The first half gain in U.S. demand for petroleum products resulted from improved economic activity in the second quarter and prices generally lower than their levels of a year earlier.

Demand in the first half was up in all major product categories except jet fuel and residual fuel oil. OGJ projects a continued upswing in petroleum product demand in the second half due to economic growth, modest price increases, and closer to normal weather during the heating season.

In the second half, demand improvement over year earlier levels will be most pronounced in the fourth quarter, when the average will be 17.485 million b/d, up 3.1%. In 1991's fourth quarter demand lagged due to economic sluggishness and warm weather.

During the past decade, U.S. demand for petroleum has been influenced by two broad, competing trends: The efficiency of energy consumption has increased, but economic growth has increased consumption overall.

Demand hit an all time high of 18-847 million b/d in 1978 then slipped to 15.231 million b/d in 1983. As the economy recovered and expanded, demand rose to 17.325 million b/d in 1989.

During the first half this year, motor gasoline demand was up 1.1%, averaging 7.165 million b/d. Economic activity and prices averaging 5.3% lower than year earlier levels were the main factors. With midyear motor gasoline prices 3.8% above their levels of a year earlier, this may change in the second half.

For the year, motor gasoline demand will rise 0.7% to 7.24 million b/d. This follows 3 consecutive years of decline. Demand fell from 7.336 million b/d in 1988 to 7.193 million b/d in 1991. The record high for gasoline demand was 7.412 million b/d in 1978.

The upturn in economic activity will boost the size of the vehicle fleet and the average miles driven per vehicle. This will be partially offset by an improvement in vehicle fuel efficiency.

The size of the vehicle fleet increases with size and age of the population as well as with economic growth. The average of miles driven per vehicle is closely related to the state of the economy and the discretionary spending of drivers.

In addition, the rate of improvement in average vehicle fuel efficiency has been slowing in recent years.

DISTILLATE, OTHERS

Distillate fuel oil demand for the first half was up 2.5% from the same period in 1991. In addition to economic recovery, lower prices for diesel oil and home heating oil boosted consumption.

The weather during the first quarter was similar to 1991, warmer than normal. Prices for No. 2 distillate averaged $0.937/gal in the first quarter this year, down 14.7% from the same period of 1991.

For the entire year OGJ expects distillate demand of 3.01 million b/d, compared with 2.921 million b/d in 1991.

Increases in distillate demand are expected in all economic sectors except the residential and commercial markets.

Fourth quarter demand will be up 5% from the same period of 1991 at 3.17 million b/d. Continued economic growth and closer to normal weather will be the major demand stimulants in the fourth quarter.

For the year demand for distillate for transportation is expected to lead the way, moving up with the economy. Gains also will come from the industrial, farm, and power generation sectors.

Residential and commercial demand for distillate will remain close to 1991 levels or fall slightly. Increased demand related to the cooler weather in the fourth quarter will be more than offset by conversions to natural gas and improvements in heating unit efficiency.

Demand for residual fuel oil during the first half of 1992 was down 3.9% from the first half of 1991, averaging 1.12 million b/d. Competition from natural gas and coal coupled with warmer than normal weather were the reasons.

During the early part of the year heavy fuel oil prices were substantially lower than a year earlier. But prices of natural gas and coal were also down, and resid couldn't replace these fuels in the power generating market in the first quarter. When resid prices moved up in the second quarter, the fuel's competitive position deteriorated.

For the year resid demand is projected at 1.15 million b/d, compared with 1991 consumption of 1.158 million b/d.

Resid demand is expected to surpass the 1991 level in the fourth quarter due to closer to normal weather and economic growth. With a seasonal increase in natural gas prices in the fourth quarter the competitive position of resid should improve.

Demand for LPG and ethane is projected to average 1.73 million b/d in 1992, up 2.4% from 1991. Demand during the first half was up 1.9% at 1.7 million b/d.

Chemical demand for gas liquids is expected to rebound along with residential/commercial demand accompanying the return to normal cooler weather.

Demand for all of the other petroleum products is expected to increase 2.9% this year to 2.35 million b/d. Demand during the first half of 1992 averaged 2.18 million b/d, up 2.5% from 1991.

Included in this category are Petrochemical feedstocks, special naphthas, lubricants, waxes, petroleum coke, asphalt and road oil, still gas, and miscellaneous products. Demand for several of these products is expected to be up along with the economic recovery.

SUPPLY

The first half slide in production of crude oil and lease condensate was smaller than many observers had anticipated. Output averaged 7.28 million b/d, down 2.8% from the first half of 1991.

Last year a jump in Alaskan output helped temporarily to reverse the decline in U.S. production. During the first half of 1991 U.S. production averaged 7.485 million b/d, up 1.3% from the year before.

This year, first half Alaskan production fell 3.2% to average 1.769 million b/d. Lower 48 output fell 2.6% to an average of 5.511 million b/d for the first half.

In 1990 Alaskan production was temporarily reduced due to maintenance projects on the Alaskan pipeline and pump stations. The completion of these projects allowed the North Slope production to return to near capacity.

Prudhoe Bay field, however, is in decline, and new North Slope fields aren't being brought on stream fast enough to compensate.

Total U.S. output in 1991 averaged 7.417 million b/d, an increase of 62,000 b/d from 1990. Alaskan output last year gained 25,000 b/d, Lower 48 output 37,000 b/d, mostly on the strength of crude prices elevated by the Persian Gulf war.

This year, relative price strength has slowed the rate of production decline by boosting enhanced recovery and extending the economic lives of some wells.

Low drilling and completion rates, however, make it impossible for the U.S. to reverse its long term production decline.

At the current level of crude oil prices only modest improvement in drilling activity is expected in the latter part of 1992.

The production average of 7.245 million b/d projected for all of 1992 will be down 19% from the recent peak of 8.971 million b/d in 1985.

Production had been pushed up in the early 1980s by high levels of drilling activity and increased North Slope output.

During 1978-88 increases in Alaskan output had helped sustain U.S. output well above 8 million b/d. With the peaking of Alaskan output and the low level of drilling throughout the U.S., crude production is expected to continue to fall in future years.

Production of natural gas liquids and other hydrocarbons averaged 1.8 million b/d during the first half of 1992, up 2.7% from the year before. It's projected to average 1.775 million b/d for the year, up 1.4% from 1991.

Output of NGL and other hydrocarbons has moved up sharply from 1.606 million b/d in 1989.

U.S. total liquids production will average 9.02 million b/d for 1992, a decline of 148,000 b/d from the year before.

Total liquids production will be down 15.2% from the 10.636 million b/d in 1985.

REFINING OPERATIONS

U.S. refining capacity has not expanded in recent years along with the increase in product demand.

Since 1984 U.S. refining capacity has remained in the range of 15.5-15.9 million b/d. Capacity peaked at 18.8 million b/d in 1981.

Last year capacity averaged 15.707 million b/d. This year average capacity will sink to 15.585 million b/d.

As product demand has increased, input to refineries has moved up and the capacity utilization rate has increased. The utilization rate, less than 70% in 1981 and 1982, reached 87.1% in 1990 and 86% last year.

Input to refineries is expected to move up 1.2% in 1992 to 13.67 million b/d. In the third quarter, the average capacity utilization rate will exceed 90%.

The high utilization rates, although profitable for refiners, highlight concerns about refining capacity in relation to growing products demand.

If refiners don't or can't add basic capacity the U.S. will have to import increasing volumes of products to keep up with demand.

IMPORTS

This year's expected jump in imports follows two consecutive yearly declines associated with demand drops and last year's production increase.

Total industry imports, excluding crude for the Strategic Petroleum Reserve (SPR), for the first half of 1992 were up 1% from the year before at 7.54 million b/d.

Industry imports are expected to accelerate later in the year, averaging 8.4 million b/d during the second half.

Last year's imports average of 7.627 million b/d was down 364,000 b/d from 1990, when the average fell 14,000 b/d.

Last year a 17 million bbl drawdown of the SPR added about 47,000 b/d to supply and backed out some imports. This was partially offset by a 13 million bbl increase in industry stocks.

The peak year for industry imports was 1977 at 8.786 million b/d. Industry imports dipped to a recent low of 4.949 million b/d in 1985 as a result of an increase in domestic production and a decrease in product demand, both related to a sharp run-up in crude prices.

Imports moved back up to 8.005 million b/d in 1989.

Crude imports, excluding those for the SPR, are projected to increase 5.2% in 1992 to 6.08 million b/d.

Crude imports fell 1.4% last year. During the first half this year they averaged 5.79 million b/d, up 1.7% from first half 1991.

The government resumed crude imports for the SPR in June. It is not clear that there will be regular additions to the SPR through the remainder of 1992.

Imports for the SPR ceased in August 1990, when Iraq invaded Kuwait. There were no imports for the SPR during 1991. Earlier, SPR imports averaged about 55,000 b/d.

OGJ projects SPR imports averaging about 27,000 b/d during the last half of 1992, which with the June imports will add about 6 million bbl to the reserve for the year.

Petroleum product imports are expected to increase by 2.4% to 1.89 million b/d for the year. During the first half product imports averaged 1.75 million b/d, down 1.2% from the same period of 1991.

Increased demand in the second half, particularly for residual fuel oil, is expected to boost second half product imports to 2.03 million b/d, 6.1% above the second half of 1991.

Tight refining capacity will encourage refiners to import products to ensure adequate supplies in case of a colder than expected winter.

IMPORT SOURCES

The leading source of U.S. crude imports during the first quarter was Saudi Arabia at 1.707 million b/d, up only 0.2% from the first quarter of 1991.

Crude imports from Saudi Arabia averaged 1. 703 million b/d for all of last year. They were as low as 131,000 b/d in 1985.

Total crude imports from the OPEC countries averaged 3.104 million b/d for the first quarter, down 8.1% from the same period a year earlier. Crude imports from OPEC fell 3.9% in 1991 to average 3.376 million b/d for the year.

Crude imports from OPEC represented 57.3% of the total crude imports in the first quarter this year, compared with 41% in all of 1985, when they averaged 1.312 million b/d.

First quarter product imports were down 7% at 1.715 million b/d. Venezuela was the leading source of imported product at 325,000 b/d, but this was down 11.2% from a year earlier.

Product imports from all of OPEC averaged 649,000 b/d, down 9.2% from first quarter 1990.

Total imports from OPEC during the first quarter averaged 3.753 million b/d, 52.6% of U.S. total imports.

STOCKS

Industry stocks have moved up since yearend 1991 but are below year ago levels.

At midyear 1992 crude stocks were an estimated 350 million bbl, up from 325 million bbl at yearend 1991 and 347 million bbl at the end of June 1991.

Product stocks at midyear totaled an estimated 705 million bbl vs. 719 million bbl a year earlier.

Relatively low crude oil prices early this year encouraged refiners to boost crude oil stocks, which can be used to meet increased product demand later in the year. Total industry stocks at the end of 1989 represented only 57.9 days of supply at 1989 demand levels. At yearend 1990 stocks represented 60.9 days of supply. This moved up to 62.9 days of supply at yearend 1991 as a result of the increase in total stocks and lower demand.

In June, stocks amounted to 63.6 days of supply at current demand levels. This ratio will fall in the second half due to increased demand and a reduction in total stocks. At yearend stocks are projected at 61.5 days of supply.

At midyear, following addition of 1 million bbl in June, the SPR contained 570 million bbl of crude, down from the peak of 590 million bbl before experimental drawdowns began in 1990. At an import rate assumed to be half its earlier levels SPR stocks will increase to 575 million bbl by the end of the year.

Copyright 1992 Oil & Gas Journal. All Rights Reserved.