OGJ NEWSLETTER

Oil prices are reflecting market fundamentals again as fears of tight supplies give way to worry over a supply glut.

Dec. 16, 1991

7 min read

Oil prices are reflecting market fundamentals again as fears of tight supplies give way to worry over a supply glut.

European crude oil prices lost $1.70/bbl in 10 days on concerns the market is heading for a severe glut in the second quarter. After starting December at $20.25/bbl, Brent fell to $18.55/bbl at closing Dec. 12 on concerns about the effect of rising Kuwaiti output. That was reinforced by talk of a meeting between Iraqi and U.N. officials early next month to discuss restarting exports on a very limited scale and further reports Iraq's war damaged Persian Gulf tanker export facilities could be ready for business in January (OGJ, Dec. 9, p. 36). U.S. light sweet crude futures for next month delivery fell to an 8 month low of $19.42/bbl at Dec. 9 closing, tumbling on the heels of sliding heating oil demand in the wake of warm weather.

Market confidence was not helped by API data showing higher crude and gasoline stocks or reports of increased OPEC production. U.S. crude stocks fell by only 5.6 million bbl to 346.9 million at the end of November, about half the decline seen at this time last year. Gasoline stocks rose by 5.3 million bbl to 202.7 million bbl.

OPEC flow rose by 320,000 b/d to 24.17 million b/d in November, reports Middle East Economic Survey. MEES cites Nigeria, Libya, Iran, and U.A.E. for the increase and notes Saudi output steady at just under 8.5 million b/d.

France's Environment Minister Brice Lalonde is confident the European Community will agree to a carbon tax (see Watching Washington, p. 31) before the U.N. Conference on Environment and Development scheduled for June in Rio de Janeiro.

The idea is to encourage others to do the same, Lalonde says, adding his belief the U.S. will come around to making a similar commitment in Rio despite current domestic opposition.

IEA will propose a new technology information exchange system to link the needs of key decision-makers with sources of energy and nonenergy technology information.

The concept will focus on information sharing, not a mechanism for technology transfer, and could have a significant role to play in the global warming debate.

A Japanese shipbuilder is talking to a Greek shipowner about construction of the first 500,000-600,000 dwt tanker since the 1970s, reports Lloyds List. Costing $200 million, it could be bigger than the world's largest tanker, the 564,739 dwt Jahre Viking, and would trade between the Persian Gulf and the Louisiana Oil Port. Of four other 500,000 dwt tankers three are working for Exxon from the gulf to LOOP and the fourth is laid up.

The U.K. government plans to amend offshore tax legislation to accommodate future gas exports to continental Europe.

Relief from petroleum revenue and corporation taxes within the offshore ring fence will be given for transporting oil or gas to the nearest reasonable place of delivery outside Britain. Relief for initial treatment and storage costs also will be extended to costs incurred outside the U.K. Outlays already incurred will qualify for the new relief. Changes are planned to the 1992 Finance Act to ensure current tax rules don't distort economics of potential export projects. Gas exports from U.K. waters begin next year with start-up of Markham field deliveries to the Netherlands. Phillips is considering export of gas from its J-block to continental Europe via the Norpipe system.

Meantime, U.K. DOE plans to conduct a fifth onshore licensing round early next year covering all unlicensed blocks. Deadline is Feb. 19.

Tass reports Argentina's Bridas SA has won an international tender for oil an gas exploration and development in Turkmenia. Bridas plans to earmark $200 million for a joint venture with the Turkmenian Geological Amalgamation after paying $10 million for data and rights covering E&D in the Yashlar and Iolotan areas.

In the wake of BP's bypass, Shell E&P is talking to Romania's government about a remote block in the Carpathian Mountains where local authorities want to tap deep horizons under an existing development area. After conducting a feasibility study, BP told Baikalecogas, a group of oil and energy related organizations in the Lake Baikal area, it does not see the project as economic and won't proceed with development.

Ultramar plans to sell a third of its Indonesian gas in-teres is part of its defense against a takeover bid rom Lasmo.

Ultramar's defense will include a possible al lance covering its refining/marketing operations in eastern Canada to improve cash flow and earnings.

Venezuela has been mentioned by financial market sources as a likely alliance partner. The company's Indonesian interests are centered on the 2,100 sq mile Sanga Sanga block in East Kalimantan containing Badak and Nilam gas fields, which supply 1.3 bcfd of gas to the Bontang LNG liquefaction plant.

Saudi Aramco will replace a fire damaged crude unit at the 530,000 b/d Ras Tanura refinery with a new 250,000 b/d crude unit and cat cracker. The project is part of an overall expansion and upgrade at the giant refining complex that could have an ultimate total installed cost of $12 billion, says E&C contractor Brown & Root Braun. BRB thinks that makes it the biggest refining job awarded in terms of total installed cost. BRB's contract is for 6 years with 2 consecutive 3 year options to extend (OGJ, Sept. 2, p. 46). The unit was severely damaged by a Nov. 30, 1990, fire that hit when the plant was operating flat out to meet military demand spurred by the Persian Gulf crisis.

Taiwan's Formosa Plastics Group plans to boost investment in the U.S. petrochemical sector, although it gives no specifics.

Meanwhile, the Central Bank of China is willing to fund FPG's naphtha cracker project at its Point Comfort, Tex., complex. That would make it the first time Taiwan's central bank has offered financial aid to an overseas unit of a Taiwan company.

API says state laws passed the last 20 years have failed to stop or slow reductions in the number of retail gasoline outlets or preserve small competitors. API says the state laws failed because they dealt with nonexistent problems, while the reduction of outlets was caused by fundamental market forces.

It also said mandates requiring gasoline vapor recovery at pumps aggravated the decline in retail outlets.

FERC has called a Jan. 7 technical conference in Washington to discuss ways to make its new pipeline construction rule more workable before it goes into effect.

Pipelines complain the "reconciliation" process in Order 555 under which pipelines would negotiate with FERC staff on environmental permitting would slow, not speed, permit approvals. Commissioner Elizabeth Moler says FERC won't abandon the reconciliation process but is receptive to alternative proposals.

An NGSA survey has found U.S. producers' ability to deliver gas has not slipped. It found maximum feasible capacity utilization was 91% as of last Jan. 1, well above the 84% level the year before.

Cliffs Drilling has tested a horizontal well in Avoyelles Parish, La., it believes is the easternmost productive location of the Cretaceous Austin chalk and contractor Smith International claims is the world's deepest horizontal borehole.

Cliff's A-1 well on Roy O. Martin Jr. lease flowed 2,441 b/d of oil and 1.2 MMcfd of gas through a 12/64 in. choke with 3,350 psi flowing tubing pressure. Smith, which provided horizontal drilling services on the well, cites a record true vertical depth of 15,339 ft for a horizontal borehole. Operator Cliffs drilled the well's 2,518 ft horizontal section by reentering an existing well and milling and removing 185 ft of old casing below 14,585 ft.