SOVIET UNION OIL SECTOR OUTLOOK GROWS BLEAKER STILL

The near term outlook for the U.S.S.R's oil sector grows increasingly bleak and with it prospects for the Soviet economy.

Plunging Soviet oil production and exports have analysts revising near term oil price outlooks, referring to the Soviet oil sector's ,.self-destructing" and Soviet oil production "in a freefall."

County NatWest, Washington, citing likely drops in Soviet oil production and exports (OGJ, Aug. 5, p. 16), has jumped its projected second half spot price for West Texas intermediate crude by about $2 to $22-23/bbl.

Smith Barney, New York, forecasts WTI postings at $24-25/bbl this winter, largely because of seasonally strong world oil demand and the continued collapse in Soviet oil production. It estimates the call on oil from the Organization of Petroleum Exporting Countries at more than 25 million b/d in first quarter 1992. That would be the highest level of demand for OPEC oil since 1980, Smith Barney noted.

Meantime, the trend is for Soviet oil sector woes to get worse before they get better. While the Soviets are implementing reforms to sweeten the pot for foreign investors in the U.S.S.R.'s oil sector, labor discontent could cripple Moscow's efforts to boost domestic oil production.

SOVIET TRADE OUTLOOK

Aside from petroleum, the U.S.S.R. has little to offer the West in exchange for hard currency. World prices for gold and other precious metals are depressed, and the Soviet Union's other big source of hard currency-arms sales to developing countries-was slashed during and after the Persian Gulf war.

Declining revenue from petroleum sales has been the most important factor in the slide in overall Soviet foreign trade turnover. The U.S.S.R.'s crude exports tumbled from nearly 2.9 million b/d in 1988 to 2.547 million b/d in 1989 and 2.172 million b/d in 1990. Soviet officials predict only 1.4 million b/d of foreign crude sales this year.

Overall Soviet foreign trade fell from almost 141 billion rubles in 1989 to 131.6 billion rubles last year. During the same period, exports dropped from 68.8 billion rubles to 60.9 billion rubles and imports from 72.1 billion rubles to 70.7 billion rubles.

Official Soviet data show a further decline of 23.4% in exports and a huge 47.7% fall in imports in first half 1991 vs. a year ago.

FOREIGN DEBT PROBLEMS

The Moscow press says the U.S.S.R. will have enormous difficulty in paying just the interest on its foreign debt this year. A number of countries have bitterly complained that their firms have not been paid for delivery of goods to the Soviet Union.

The U.S.S.R.'s inability to pay its debts to foreign suppliers is hampering negotiation of new trade contracts. Moscow concedes some companies doing business with the Soviet Union have gone bankrupt due to Soviet payment delays.

Because it lacks hard currency, the U.S.S.R. has resorted increasingly to barter. Finland, one of the U.S.S.R.'s most important western trade partners, recently refused to give the Soviet Union more credit and negotiated a grain for oil barter.

Japanese metallurgical firms temporarily stopped pipe deliveries to the U.S.S.R. because of payment delays. Foreign interests are favoring deals directly with the republics or even with provinces to avoid delays and red tape in negotiating through Moscow.

Meanwhile, the Soviet economy continues to deteriorate.

The U.S.S.R.'s central budget deficit already exceeds the projected total for the entire year. Inflation in June vs. the same month in 1990 was 100%.

Value of the ruble on the Moscow currency exchange recently fell below 2.

But official value of the ruble remained at about $1.65.

SWEETENED TERMS

According to Eastern Bloc Energy (EBE), a publication of Eastern Bloc Research Ltd., Newton Kyme, U.K., there were these changes affecting the Soviet oil sector in recent weeks:

• The Supreme Soviet approved 340-11 a law on foreign investment in the U.S.S.R. giving foreign investors the same legal rights and protection as Soviet enterprises and a system of guarantees on foreign investment, formalizing an earlier Moscow decree.

• Moscow slashed the export tax on crude oil and natural gas to 3% from 40% and will allow new bank credits of 7.5 billion rubles to be extended to oil and gas enterprises. The whole package will deny the government 15 billion rubles in revenue.

• Oil production associations now can sell 10% of their oil on the free market after receiving permission from their republican government.

• Gorbachev named as new Minister of the Oil and Gas Industry Lev Dmitrievich Churilov, who replaces Leonid Filimonov, "who has not been noticeably active in getting the oil industry out of its crisis," EBE said.

OIL SECTOR WOES

EBE noted, however, that although the prospect of a devastating labor strike in western Siberia appears to have receded for now, oil workers there are resigning en masse and moving elsewhere in the U.S.S.R.

A recent opinion poll showed 99% of young workers are thinking of leaving the oil towns of Nizhnevartovsk and Surgut.

The publication also cited continuing declines in living standards in western Siberia's oil centers, shortages of social amenities, and continued confiscation of association profits.

"The likelihood is that ... workers will continue to leave the industry," EBE said.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.