OGJ NEWSLETTER

The Saudis, with help from Iran, are keeping a firm hand on the market tiller ahead of the summer driving season.

Saudi Arabia and Iran plan to maintain large volumes of crude in floating storage in Europe and the Caribbean.

Stocks held in tankers worldwide have fallen from 120 million bbl in January to about 100 million bbl. About 65% of this inventory is held by Saudi Arabia and Iran. Both have started to renew charters on storage vessels, indicating no immediate plans to allow floating stocks to fall further. Maintaining floating storage is expensive but allows both countries to maintain production levels close to quota during the seasonally slack second quarter and adds flexibility in the highly competitive European and North American markets. The Saudis seem intent on producing 8 million b/d in the second quarter, and Iran wants output to remain at 3.3-3.4 million b/d in the period.

Maintenance of floating storage has implications for the market later in the year. In the first quarter, stockdraws averaged 700,000 b/d. But the situation will change sharply in the second quarter as demand slips. IEA predicts world oil demand will fall to 64.1 million b/d in the second quarter from 67.5 million b/d in the first. An expected fall of about 800,000 b/d in non-OPEC supplies to 41.1 million b/d in the second quarter will help cushion the effects of the demand slide on OPEC and keep the quarterly stockbuild at reasonable levels.

Meantime, the Saudis have trimmed their formula for fob crude prices for May by 350-$1.10/bbl for the U.S., Europe, and the Far East. The changes will put pressure on other Persian Gulf producers to make similar cuts. Iran is contractually obliged to renegotiate prices with its Japanese customers if the Saudis alter their Far East price formula.

Here are the changes, with the new price listed first: for the U.S.--pegged to ANS--Arab light discount $1.10 vs. 750, Arab medium discount $2.60 vs. $2.25, Arab heavy discount $4.50 vs. $3.75, and extra light Berri premium 400 vs. 750; for Northwest Europe, cuts of 500 for light and medium and $1 for extra light Berri; and for the Far East, $1.10 off for extra light Berri pegged to the Oman/Dubai marker. The changes don't cover deliveries from floating storage in the Caribbean and Europe.

The emerging picture of the Saudis fine tuning supply and prices, together with reports last week of big stockdraws of crude and gasoline, is helping to firm prices. Brent, at $18.65/bbl early in the week, rose to $19.65/bbl Apr. 11. Rotterdam premium gasoline rose $14 to $235/ton, and gas oil $4 to $173.

Saudi Aramco has begun negotiations with Japanese, South Korean, and European shipyards for six ULCCs of more than 300,000 dwt each, Japanese sources say. The orders are likely to be worth about $850 million, and official agreement on delivery dates and designs is expected by summer. Aramco is reportedly looking for high quality designs using large volumes of high tensile steel. Earlier this year Aramco ordered six VLCCs of more than 200,000 dwt from Mitsubishi and NKK.

Agip, Elf, and Petrofina, backed by $8 million in European Community funds, are investigating how European industry can help the firefighting effort in Kuwait see story, p. 34).

EC also has earmarked $4.8 million to help monitor environmental damage caused by the Persian Gulf oil spill.

France's seven refiner/marketers posted a profit for only the second time in 10 years. The companies earned 2 billion francs ($35 .6 million) in 1990 following combined losses of 40 billion francs ($7.09 billion) since 1978. Bernard Calvet, president of industry trade group UFIP, attributes the improvement to industry restructuring in the 1980s and high utilization rates.

More Venezuelan-European joint ventures are in the offing. BP has signed two memoranda of understanding with Pdvsa covering E&P and a study of extra heavy crude refining economics in Venezuela.

BP earlier this year set up a Caracas office to run its Latin American exploration programs, but an E&P accord is probably 6-9 months away. BP and Pdvsa are discussing joint refining/marketing ventures in Europe and elsewhere. Pdvsa has ventures with Elf, ENI, and Veba (OGJ, Apr. 1, Newsletter).

Malaysia's Petronas will sign a contract likely in June with Petrovietnam to explore for oil off Viet Nam, says Mai Ky, vice-chairman of Viet Nam's state planning committee. No details of the area covered by the deal were disclosed. The deal is part of a government to government cooperation accord including Malaysian help for Vietnamese agricultural projects.

Another drilling season in Alaska's Beaufort Sea is assured. Amoco plans an early August spud date with the Canmar Explorer II drillship for its 1 OCS Y-0192 wildcat, a 12,000 ft test of its Galahad prospect in 164 ft of water in Camden Bay off ANWR's Coastal Plain. Partners are Shell, Union, and Exxon.

Environmental studies indicate damage from the Exxon Valdez oil spill will last longer than first thought, says National Oceanic and Atmospheric Administration. One reason: Spraying beaches with pressurized hot water proved counterproductive, killing marine organisms. NOAA released the documents in support of a Justice Department-Alaska proposed $1.1 billion settlement agreement with Exxon an Alaskan federal judge is considering.

Rep. George Miller (D-Calif.), acting interior committee chairman, has sent the judge documents he contends showed Exxon and its partners in Alyeska Pipeline Service Co. knew they could not combat a Prince William Sound oil spill.

Miller said the proposed settlement "fails to hold Alyeska accountable to the public for its wrongdoing."

Court documents show the first tally of damage claims arising from the spill is 11,105 claims totaling $59 billion.

More Louisiana environmental rules target the oil industry (see story, p. 31). Louisiana's legislature passed an oil spill cleanup law creating a $15 million fund by levying 2/bbl on oil transferred in Louisiana from a vessel to a marine facility. In the event of a major spill, the law allows increasing the tax to 4/bbl, with a $30 million cap on the cleanup fund.

Meanwhile, the Louisiana Mineral Board passed a resolution declaring a 2 year moratorium on state oil and gas lease sales in Lake Pontchartrain, pending a study to ascertain environmental effects of drilling and production on the lake.

Louisiana operators support the spill plan, designed to work in conjunction with federal oil spill law but question the board's motives, citing no evidence of environmental damage by oil and gas operations to Lake Pontchartrain.

Fourteen companies will meet in Houston Apr. 25 to decide whether to proceed with plans to build a deepwater oil port in the Gulf of Mexico 27 miles south of Freeport, Tex. An informal poll of Texport steering committee member found support lacking, but some members say it's too early to declare the project dead, contending the poll simply showed not enough companies were ready to support the project without qualifications. At least eight companies will be needed to build the $600 million-1.3 billion Texport. If enough participants give a green light, the next step is to seek a Department of Transportation permit, a process expected to take more than 1 year and cost almost $20 million. At the same time, Texport backers will settle on one of three designs under study with throughputs of 1-2 million b/d.

Apache and Tex/Con are refuting speculation an acquisition by Apache is in the offing, following announcement Tex/Con Pres. William J. Johnson will take early retirement to become Apache vice-chairman and chief operating officer.

Tex/Con says only that the company will continue to actively manage its asset base. Last year, Tex/Con accounted for most of parent BP's U.S. third party gas sales of 628 MMcfd. Apache says only that it will continue increasing reserves and production through drilling and acquisitions and that it is well positioned to pursue a large acquisition.