OGJ NEWSLETTER

A consensus is emerging in the market that it's a matter of when and how far, not if an oil price drop will occur.

Salomon Bros. considers an oil price plunge to $10-15/bbl as much an aberration as last quarter's spike to $40/bbl and thus puts WTI at $20 for 1991-92. County Natwest sees Brent dropping to $16 in the second quarter if the Persian Gulf war is short, $15 in the third quarter if the war lasts longer, and $19-20 for the year under both scenarios.

Merrill Lynch contends Saudi light could slip to the mid-teens for no longer than a month and rebound to $20 by the second half. East-West Center's Fereidun Fesharaki sees WTI at $22 in February and $19 in March before rebounding to $21 in April as the IEA stockdraw falls short of its targeted 2.5 million b/d.

Perhaps a bearish consensus might be cause for price bulls to rejoice, given the track record of consensus oil price forecasts. Kidder Peabody's William H. Brown is one such contrarian, contending the market is overlooking several factors in its concern over a surplus that may not materialize.

Brown cites crude and product stocks better in balance than generally perceived, continued absence of Iraqi and Kuwaiti production even with a ceasefire, loss of more than 1 million b/d of critical refining capacity in the Middle East outweighing the slide in demand, falling first quarter U.K. production because of maintenance work, a continuing drop in Soviet exports, and Saudi reluctance to dump strategic stocks as part of an early, aggressive effort to normalize OPEC production.

Thus, Brown sees Brent at $23.87 in the first quarter, $25 in the second, $26.26 in the third, and $32.35 in the fourth. In the meantime, Europe's early February cold snap apparently affected markets as much as war reports, as prices were pulled up by a surge in gas oil demand. Gas oil prices shot up 42 on the week to close at $300/ton Feb. 8 in response to strong spot demand. But that strength did not carry over into expectations for March, and gas oil slipped back to $270 Feb. 14. Brent for 15 day delivery added 500 on the week to $21.05/bbl Feb. 13, only to lose the same amount the following day. Rotterdam premium gasoline in the same period rose $5 to $234/ton, while there was little movement in high sulfur or low sulfur fuel oils.

Salomon Bros. contends the crude market reversal spells a reversal of recent poor results for refiners in the months to come. It notes gasoline stocks have been falling and U.S. refiners have sliced utilization rates to 81% at the end of January from 94% the first week of September. Further, each $1/bbl drop in crude prices saves U.S. refiners alone $5 billion/year.

Fears of terrorism related to the Persian Gulf conflict has claimed another industry victim: participant queasiness about international air travel has forced postponement of the Unitar/UNDP conference on heavy crude and tar sands, previously set for Feb. 17-22 in Caracas. No new date was set.

Industry concern about the Persian Gulf is focused more now on the environment than on oil supplies (see story, p. 25).

Pentagon officials have identified about 50 oil fires in Kuwait, some apparently deliberately set. Wild well specialist Joe Bowden, Spring, Tex., confirmed at least five wells were afire in Burgan field at presstime last week.

Meantime, Jim O'Brien of O'Brien Oil Pollution Services Inc., Gretna, La., arrived in Jubail last week to help coordinate oil spill containment and cleanup off Saudi Arabia.

Texas is moving closer to an oil spill law. The Texas Senate last week approved legislation to establish a state oil spill response plan to deal with oil spills. The Oil Spill Prevention and Response Act (Ospra) orders the Texas General Land Office to create a state coastal contingency plan and puts the Texas Water Commission in charge of state responses to spills.

Ospra would require coastal oil terminals and vessels with capacities of 10,000 gal of cargo or more to have federally approved spill response plans and to maintain adequate spill response equipment and personnel. A $25 million coastal protection fund (CPF) created by a 2/bbl on oil loaded at Texas ports would pay costs of cleanups. For violations, spillers could be fined as much as $25,000/day or triple the CPF response cost. The Texas House energy committee is considering a companion bill.

An ominous note for future U.S. drilling: The U.S. seismic crew count hit a record low last month, 114 land and marine crews, down 9 from a year ago, reports SEG, which has tracked monthly seismic crew counts since May 1974.

The U.S. and Canada will open talks with Mexico to negotiate a North American free trade agreement.

The pact will be similar to the 1988 U.S.-Canada FTA but exclude Mexican hydrocarbon production.

The Iroquois pipeline has received its final permit, from the Last November, FERC approved the $583 million, 370 mile project to deliver Canadian gas to New York and Connecticut.

Petro-Canada plans to sell a 25% interest in the proposed $573 million, 690 mile, 700 MMcfd Altamont gas pipeline to other partners for an undisclosed sum.

Other partners in the project to build a gas line from Alberta to Opal, Wyo., to link with the Kern River line to California are Amoco Canada, Entech, and Tenneco Gas.

Soviet energy woes deepen. Izvestia estimates Soviet 1991 crude/condensate production will fall another 600,000-800,000 b/d and says that if present trends continue, the U.S.S.R. will be a net importer of oil in 1995.

Pravda puts the 1991 decline at 800,000-1 million b/d and an end to Soviet oil exports in 1993, citing a plunge in Tyumen province production in 1990 of 800,000 b/d from 7.88 million b/d in 1988. Soviet average oil and coal production fell 8-9% in the first 20 days of January vs. the same 1990 period, Izvestia says. Further, the Moscow newspaper says construction of oil processing facilities has virtually halted, gas production growth is falling sharply, and exploration is sliding.

President Gorbachev supports plans to bolster the Soviet oil industry by giving local governments more control over their energy resources and gradually adjusting domestic oil and gas prices to market levels, Pravda notes.

Representatives from the Soviet republic of Azerbaijan have signed protocols with Canadian concerns covering joint ventures in exploration and oil sands research.

Polaris Petroleums Ltd., Calgary, signed a protocol with the Azerbaijani organization Nasimi for conventional E&P. Nasimi, which also signed a memo of understanding with Alberta Oil Sands Technology & Research Authority for joint EOR research, wants to set up a joint research center with Aostra at Baku.

Norway has offered 22 production licenses covering 36 blocks under Oslo's 13th offshore licensing round.

Operatorships offered were to Statoil six, Norsk Hydro five, Saga Petroleum three, Norske Shell and Esso Norge two each, and BP Norway, Mobil, Norske Conoco, and Deminex--its first-one each. Holdings in various licenses were offered to Norsk Agip, Amerada Hess Norway, Amoco Norway, Elf Aquitaine Norge, Enterprise Oil Norway, Norske Fina, Neste Petroleum, Phillips Norway, Total Norsk, and Svenska Petroleum Exploration.

The Asia-Pacific downstream buildup continues apace. Taiyo Oil Co., in a joint venture with Malaysia's Petronas, plans a $600 million, 100,000 b/d refinery at Bintulu, Sarawak--the first Japanese oil marketer to build a refinery overseas to accommodate domestic product needs. Feasibility studies are under way, with start-up possible in 1995.

Petronas, which would provide about 20-25% of project investment, will decide whether to commit by May. Taiyo, unable to meet customer demand with output from its 61,750 b/d Ehime refinery, will distribute product in Japan and Southeast Asia.

Malaysia currently has two joint venture refinery projects under construction.