GRAVITY OF WORLD CRUDE BARREL TO RISE BY 1995

The loss of crude exports from Iraq and Kuwait in 199091 and their gradual reentry into oil markets will have a profound effect on world crude quality.

Accordingly, the proportion of heavy crude in world markets will decline the next 5 years.

That's the gist of a report by Energy Security Analysis Inc., Washington.

ESAI Pres. Edward N. Krapels predicts changes in global crude quality distribution will be dominated by light crude production coming back on stream in Iraq and Kuwait. That trend will be seen in some other producing countries as well.

And while the sulfur content of the average world barrel of crude will rise with increasing production from the Organization of Petroleum Exporting Countries, the trend in other producing countries will be toward a sweeter crude.

The premium refiners have been willing to pay for lighter, low sulfur crude has increased in recent years because of tightening supplies and increasing environmental regulations.

ESAI expects increased supplies of lighter, sweeter crude will trim the premium paid for both quality differentials.

CRUDE QUALITY REVERSAL

Crude quality changes the next 5 years will be a reversal of the shift occurring in 1989-90 once Iraq and Kuwait restore capacity, ESAI said.

ESAI's prediction of a sharp decline in the proportion of heavy crude the next 5 years uses 1990 as a base. However, Krapels notes a comparison with 1989 crude quality also shows a slight decline in the proportion of heavy crudes predicted.

Between yearend 1989 and yearend 1990 world oil markets saw a net decrease in light high sulfur (LHS) crude supplies, primarily from Iraq and Kuwait, of about 2.3 million b/d.

Increased production from Saudi Arabia, Venezuela, and other sources making up for the loss of Iraqi-Kuwaiti supplies amounted to about 1.8 million b/d of heavy high sulfur (HHS) crude, about 850,000 b/d of light low sulfur (LLS) crude and about 250,000 b/d of light medium sulfur (LMS) crude.

Thus the average barrel of crude supplied by yearend 1990 was quite a bit heavier but had a lower sulfur content.

ESAI estimates during the next 5 years production from Iraq and Kuwait will increase to about 4.5 million b/d, which will be mostly LHS crude. Since those two countries will meet the incremental demand for OPEC crude, production there will set the standard for the quality of the average barrel of OPEC crude.

ESAI said the lightening trend could get an added boost if Saudi Arabia decides to expand production of super light, sweet crudes from its discoveries south of Riyadh. ESAI predicts that crude will enter the market shortly after 1995.

OECD CRUDE QUALITY

Crude production from member countries in the Organization for Economic Cooperation and Development is expected to become lighter and sweeter the next 5 years.

Production from OECD countries has peaked and is expected to decline by about 765,000 b/d during 1990-1995, with most of the decline coming from the U.S.

ESAI said U.S. production is expected to fall by 872,000 b/d in the period but increased production in other OECD regions, notably Norway, will offset some of that shortfall.

The net effect, ESAI said, is that heavy medium sulfur crude (HMS) production will fall by about 340,000 b/d because of rapidly declining production in Alaska, and LLS crude production will decline by about 240,000 b/d because of declines elsewhere in the U.S., notably the Gulf Coast.

Light crude production will increase to about 68.5% of total OECD production in 1995 from 67.3% in 1990. LLS crude's share will increase to 58.8% from 57.3%, while LMS' share falls to 4.3% from 4.4% and LHS to 5.4% from 5.6%.

The biggest fall in heavy production will occur with HMS crude, and there will be a small increase in HHS crude production, ESAI said.

NON-OECD, NON-OPEC

Production from non-OECD and non-OPEC member countries is expected to increase by about 783,000 b/d and is to become lighter and sweeter during the next 5 years, ESAI said.

Most of the increase will come from Brazil, Colombia, India, and Yemen.

ESAI said HMS crude production will increase by about 370,000 b/d, LLS crude production will climb by about 290,000 b/d, and LMS crude production will increase by about 220,000 b/d.

Overall light crude production will increase to 52.4% of total production from this group in 1995 from 51.8% in 1990. LLS and LMS crude shares will climb by percentage points of 0.8 and 1.6 respectively, and LHS crude production will fall to 14.4% from 16.2%.

Heavy crude production will fall to 47.6% of total production by non-OECD, non-OPEC nations in 1995, mainly due to decreases in HHS output.

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