OGJ NEWSLETTER

Conflicting market signals muddy the outlook for oil supply/demand and prices.

Contributing to the perception of a crude supply/demand balance is OPEC's continuing solidarity on quota adherence.

OPEC production fell 804,000 b/d in April to about 22.346 million b/d, about in line with cuts recommended at the ministerial meeting in March, says Middle East Economic Survey.

MEES attributes the drop almost exclusively to a decline in Saudi output, down to 7.5 million b/d from 8.4 million b/d in March. Saudi sales were maintained by drawing down stocks from floating storage at about 500,000 b/d.

U.A.E. flow, expected to fall about 200,000 b/d in May, was 2.5 million b/d in March-April. Iran's output slipped to about 3.276 million b/d in April from 3.302 million b/d in March. U.A.E. and other OPEC cuts will be needed soon, if IEA forecasts of oil supply/demand hold up. IEA projects second quarter world demand at 64 million b/d--not 65.8 million b/d as reported incorrectly (OGJ, May 6, Newsletter)--and non-OPEC supply at 41.1 million b/d. With a call on OPEC oil of 21 million b/d, assuming no change in stocks, OPEC will have to whittle away at its 22.3 million b/d quota. IEA puts OPEC output at 22.6 million b/d n April. A stockbuild could ease pressure on prices, but there is no sign of that happening yet in the private sector. U.S. crude stocks the week of May 3 were down 3 million bbl from the week before and 33 million bbl from a year ago.

Signals are mixed as well on gasoline heading into the summer driving season. EIA sees U.S. gasoline demand this summer down about 100,000 b/d from a year ago because of the recession and vehicle efficiency gains. However, the agency contends substantial hikes in refinery output and imports will be needed because of continuing low stocks. For the past 6 weeks U.S. gasoline stocks have remained below what EIA says is the minimum operating inventory of 207.5 million bbl.

At the same time, U.S. refinery utilization was 85.3% the week of May 10 and 86% the prior week. The tightness is keeping a prop under gasoline pump prices. American Automobile Association cites a price hike nine of the last 10 weeks, with the average U.S. price of self-serve regular up 1.80 to $1.16/gal last week and 80 since Mar. 5. The situation is razor thin in some areas, where temporary refinery downtime can spike retail prices sharply. For example, in the Oklahoma-Kansas-Missouri area, refinery utilization averaged 101.5% of the week of May 10, while Tulsa pump prices leapt about 9/gal early last week.

Kuwait has given a U.K. group--Amec, Wimpey, and Taylor Woodrow--a fourth of the firefighting action there.

The multimillion dollar contract corers 73 burning oil wells in northern Kuwait. Work is to begin immediately with a survey and damage assessment of Sabriyah field, where at least 80 wells were damaged. After military ordnance is removed, the U.K. teams will begin firefighting within a month.

In early May, Kuwait let a $100 million contract to Britain's Royal Ordnance to remove and destroy thousands of mines and other unexploded ordnance in Kuwaiti oil fields.

Kuwait Oil Co. estimates 80 well fires have been doused.

DOE Deputy Sec. Henson Moore says DOE has "come up with a fairly ingenious way" of leasing oil for the SFR.

He says it would be premature to release details of the plan, which would place oil in the SPR at less cost to the government than an outright purchase. Moore predicts DOE will begin negotiating to lease oil from foreign producers by yearend.

Independent producers need tax incentives to lure them into EOR projects, two congressmen say. Reps. Mike Synar (D-Okla. and Wayne Owens (D-Utah) want DOE to study cost effective EOR tax incentives and plan to file a bill this year. They said, "The National Energy Strategy projects increased production from EOR at 1.4-1.8 million b/d by 2000, but independent producers have indicated to us these levels of production will not be reached without significant changes in the U.S. tax structure."

Consolidation of the offshore drilling industry, delayed by the capital intensive nature of the business, may soon begin. The main motive? To gain "coverage in other parts of the world," says William O'Malley, vice-chairman of National Ocean Industries Association and Sonat Offshore Drilling chairman.

Another motive, O'Malley said at Offshore Technology Conference earlier this month, is that combining rig fleets can cut costly equipment modifications needed between contracts.

And contractors are worried about liquidating aging fleets in a period of poor construction economics. Owners of recently acquired and restructured drilling companies recognize these pressures to consolidate, O'Malley said.

Petrobras may have another deepwater giant in the Campos basin. Its 1-RJS-383 wildcat in 2,585 ft of water cut a combined 355 ft of net oil pay in Oligocene and Eocene turbidite sands. The well is 19 km southwest of supergiant Marlim field (OGJ, May 13, P. 21). Production tests for the well are scheduled for the second half of May.

Petrobras estimates reserves, based in part on results from three wells drilled earlier in the area, at 830 million bbl of oil. The structure lies in 1,968-3,280 ft of water.

Brazil's privatization program may gain new momentum with another cabinet shakeup. World Bank and IMF officials praised President Fernando Collor de Mello's choice of economic minister, Marcilio Marques Moreira, as someone committed to foreign debt repayment and a free market economy. He replaces the controversial Zelia Cardoso de Mello, who resigned this month along with Infrastructure Minister--for 42 days--and former Petrobras chief Eduardo Texeira. Replacing Texeira at the Petrobras helm is Alfeu Valenca and at Infrastructure--responsible for energy, mines, transportation, and telecommunications--Joao Santana, the federal administrative secretary who sought to lay off more than 200,000 Petrobras and other state employees.

Amoco and Veba have offered to participate in a joint venture, complex refinery in Venezuela.

Pdvsa plans at least one 200,000 b/d, high conversion refinery to handle increasing volumes of heavy crudes.

Amoco and Veba recently signed letters of intent covering possible joint ventures in refining and other areas. Amoco's is the first such accord between a U.S. firm and Pdvsa covering a wide scope of joint ventures within and outside Venezuela.

Indian Oil Corp. will proceed with the 120,000 b/d Karnal refinery at Haryana even if Tatas does not follow through with its letter of intent to participate in the project, says IOC Chairman N. Venkatasubramanian, who adds the tentative agreement hasn't been abrogated. IOC approved a detailed engineering study by Engineers India Ltd. calling for output of 24,000 b/d of gasoline and other light ends, 70,000 b/d of middle distillates including diesel, and 16,000 b/d of fuel oil and other heavy ends. It would be complete in 4 years at a cost of $1.25 billion, with a reduced foreign exchange component as the Soviets scale back their involvement.

Italian oil and service companies are aggressively pursuing joint ventures and contracts in Communist and formerly Communist nations, reports Italian news agency ANSA:

• Xinjiang Ethylene Complex Co., Beijing, let contract to Snamprogretti to construct a $165.6 million ethylene plant in Dushanzi region near China's border with the Soviet Union.

• A joint venture of Agip and Mosnefte Produkt on May 13 opened a gasoline station in Moscow on the main road to Leningrad. The venture, Neftagip, expects by 1992 to be operating a distribution network of seven stations in the Russian republic for an investment of 30-35 billion lira ($23-27 million).

• Poland's Zaklady Aztowe Pulawy let contract to Technimont to construct a 1,700 ton/day agricultural grade urea plant at its Nitrogen Works industrial complex, to be complete by 1993.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.