OGJ NEWSLETTER

Market fundamentals are beginning to swing back into balance, thus keeping a prop under oil prices. Total world oil supply dropped by 1.2 million b/d in April to 65.7 million b/d as OPEC countries cut output and summertime maintenance shutdowns started in the U.K. North Sea.

May 6, 1991

7 min read

Market fundamentals are beginning to swing back into balance, thus keeping a prop under oil prices.

Total world oil supply dropped by 1.2 million b/d in April to 65.7 million b/d as OPEC countries cut output and summertime maintenance shutdowns started in the U.K. North Sea.

IEA says OPEC crude output dropped 600,000 b/d to 22.6 million b/d in response to voluntary cuts and lower underlying crude demand. OPEC NGL production was unchanged at 1.9 million b/d. Total non-OPEC production last month dropped 600,000 b/d to 41.2 million b/d with the biggest single decline in the U.K. North Sea--at 1.7 million b/d down 500,000 b/d from March.

IEA also noted first quarter U.S. output of crude and NGL averaged 9.2 million b/d, the highest in 5 years, while Soviet production in the same period of 10.9 million b/d fell 1.1 million b/d from a year ago.

IEA projects second quarter world demand at 65.8 million b/d, 100,000 b/d more than in 1990.

Nevertheless, speculation over an expected U.S. gasoline stockbuild has pared products futures prices briefly. Nymex unleaded closed at 69.99/gal Apr. 30, down almost 5 on the week, then rebounded the next day about 1 on word of a slight stockdraw. Nymex crude last week continued to hover near $21/bbl the third consecutive week. European crude and product prices followed the same pattern, with Brent almost unchanged at $19.75/bbl at closing May 2, while Rotterdam gasoline slipped $4 to $235/ton and gas oil fell $14 to $170/ton.

Speculation over when Iraqi exports might reenter the market may be a drag on oil prices in weeks to come. Iraq's State Oil Marketing Organization has told former buyers of Iraqi crude that exports are ready to resume once the U.N. embargo is lifted. Exports would resume through the Turkish pipeline link to the Mediterranean. The U.N. Security Council was to take up talks again May 3 on Iraq's request to resume oil exports worth about $1 billion for humanitarian reasons. Meantime, U.N. Sec. Gen. Javier Perez de Cuellar last week was drafting recommendations for a U.N. fund financed by future Iraqi oil revenues to compensate state, business, and individual victims of Iraq's blitz of Kuwait. A second report, on the disputed Iraq-Kuwait border (see Watching the World, p. 41), was due May 3.

Jordan has not waited for the end of the embargo before resuming oil imports from Iraq. It is now using road tankers to import about 20,000 b/d from its neighbor. Jordan claims it is not in violation of the embargo and is taking the oil in payment for a $236 million Iraqi debt.

Leaks from two damaged oil storage tanks at Kuwait's Mina al-Ahmadi refinery have finally been plugged by Kuwait Oil Co. teams. As much as 3,000 b/d of crude had been escaping into he Persian Gulf from the damaged tanks.

Iran has signed contracts covering resumption of oil sales to U.S. companies, reports Middle East Economic Survey.

National Iranian Oil Co. will supply 110,000 b/d of crude to Coastal's Aruba refinery and almost 20,000 b/d of heavy crude to Mobil, the newsletter said. Coastal wouldn't comment, but Mobil confirmed the deal. In January, U.S. Treasury Department relaxed its total embargo on crude imports from Iran by allowing U.S. companies to apply for special import licenses.

Payments for Iranian crude are to be made into a special account by the Hague tribunal to handle settlement of disputed U.S.-Iranian claims, MEES says--an approach Iran earlier had rejected but now may accept to gain entry to the U.S. market. The Coastal deal apparently is not subject to the U.S. ban.

The phasing out of apartheid and easing of international pressure on South Africa has enabled Pretoria to plan sale of part of its huge strategic oil stocks built up to protect its economy against any tightening of the widespread embargo on oil deliveries from major exporting countries. President F.W. de Klerk said the sale could raise $455 million.

Alberta says it has begun a review to see if public hearings are needed to deal with issues such as expansion of the provincial natural gas pipeline system. Nova Corp. has been blamed by some analysts for weak gas prices caused by too rapid expansion of its pipeline system linked to Alberta export points. Nova disputes that, saying all its expansion programs have met producer needs and received regulatory approval.

Energy Minister Rick Orman says the review will decide whether additional regulation of pipeline expansion is needed.

Oxy's plans to withdraw from a proposed $7 billion petrochemical complex at Tenghiz in the Soviet republic of Kazakhstan have been followed by a general scaling down of the project.

Marubeni says it will proceed with the venture in partnership with Enichem and Montedison, but the total investment will be slashed to $2 billion. The original group would have taken a 49% stake in the project with the Soviets holding 51%. The complex will use associated gas from Kazakhstan oil fields.

Marubeni says negotiations had stalled because of shifting authority from Moscow to the republics.

Union Pacific Resources Co. Chairman Bill Adams says the British Gas oil strike in the Gulf of Suez (see story, p. 28) is "potentially a world class discovery," perhaps capable of producing 200,000-300,000 b/d by late 1993 or early 1994.

The discovery well is in less than 200 ft of water, less than 5 km from shore, and close to oil and gas pipelines. BG is drilling another wildcat on the North Zaafarana concession.

A second gas pipeline crossing of the Mediterranean is closer to fruition. Ministers from Spain, Algeria, and Morocco signed an agreement in Madrid to build a 785 mile pipeline to transport Algerian gas to Spain through Morocco. The $1.3 billion project could be on stream by 1995 and ultimately could link with the European gas transmission system via Southwest France. The three countries are working on financing for the line and details of a 20-25 year import pricing strategy.

Dubai's much discussed grassroots refinery may finally be getting off high center. As proposals by the India state owned Reliance Industries for a 125,000 b/d unit in the Jebel Ali free trade zone have faded over problems with arranging financing, the Dubai government has formed a company to build and operate a unit in the same area. An official decree establishing the Jebel Ali Refining Corp. gives no details of size and construction schedule for the unit. However, industry sources say the government is looking at a 125,000 b/d export refinery aimed mainly at Pacific Rim markets.

The firefighting effort on the Agip Abruzzo tanker, involved in a collision with a ferry off Leghorn, Italy, in which 138 people died, was criticized by the Smit International expert brought in to extinguish the fire. Evert Jonckers, who led the firefighting effort on the Mega Borg tanker off the U.S. Gulf Coast last year, said the fire could have been put out in 1/2 hr. Instead, the ship burned for 6 days. Jonckers took less than a day to put out the flames. Lloyds List quoted Jonckers as saying the vessel was loaded with naphtha, not crude as first reported, and that the inert gas system wasn't working.

In the other major tanker accident off Italy (OGJ, Apr. 22, p. 40), Rome estimates cost of cleanup related to the Haven tanker oil spill on Italy's northern coast at about $80 million, including cost of salvaging the remaining cargo of Iranian crude. Officials believe the Haven's hull, sunk in shallow water off Genoa, is no longer leaking oil into the sea, and efforts are now focused on beach cleanup.

A federal judge says the $1 billion Exxon-Alaska-U.S. civil settlement on the Exxon Valdez oil spill may not have protected the rights of 5,000 native Alaskans. Dist. Judge Stanley Sporkin ordered Exxon executives to be interviewed by attorneys for 15 Alaskan villages as to whether the settlement blocks future native claims and whether it will benefit them.