Iraqi belligerence (see story, p. 32) has helped persuade OPEC it should aim for a $20/bbl marker even though OPEC has largely failed to achieve its earlier $18/bbl goal.
Iraq went into the Geneva ministerial meeting last week calling for a $25/bbl price and came out with a compromise $20/bbl backed by Iran. Tension in the Persian Gulf helped boost oil prices ahead of the OPEC meeting. Brent blend for August delivery closed July 25 at $19.40/bbl, up $1.70 on the week. Nymex WTI for September jumped by about the same to close at $20.38/bbl.
But Dubai, the Persian Gulf marker, still was well short of the old $18/bbl marker at $16.90/bbl July 25.
First half earnings of integrated companies generally reflect depressed upstream and buoyant downstream results, except for olefins margins. Salomon Bros. estimates U.S. majors' average gross refining margin at $7.70/bbl in the second quarter, up 59% year to year. Murphy cited near-record refined product margins owing partly to low crude acquisition costs but mainly to tight refining capacity. ARCO and Sun R&M had record quarterly income, each about double year ago levels. Murphy also reported depressed spot gas prices in the second quarter due to seasonal factors and competing fuels. More writedowns for future environmental costs are showing up, such as Amoco's $60 million second quarter charge in its chemical business.
With OPEC trying to push up crude prices, gasoline demand softer than expected, and rising gasoline stocks (OGJ, July 23, Newsletter), there are more sign: U.S. refiners face a summertime margin slide. Salomon's Bernard Picchi thinks U.S. gasoline stocks will continue to rise through August.
With the gasoline/crude spread near a record $10/bbl,
says Picchi, refiners won't cut runs until stockbuilding tops 2 million bbl. Further, PADD 5 utilization jumped to 92% from 77% in early summer with start-up of plants hitherto in turnaround, and U.S. gasoline demand is off 2% vs. a year ago. Picchi sees refiners' gross margin at $5/bbl come early September.
Gasoline demand could soften further as wholesale prices start tracking crude price hikes. Lundberg Survey notes U.S. gasoline prices remained unusually steady at the outset of the summer driving season, owing to falling oil prices in the second quarter. Including taxes, the average U.S. gasoline price on July 20 was 117.72/gal, up only 0.05 from July 6.
However, pump prices should soon reflect a 1 hike in wholesale prices during the same period, Lundberg said.
Helping to further loosen some of the recent tightness in gasoline markets is a pact by ARCO Chemical to restart a 12,000 b/d MTBE unit at Coastal R&M's Corpus Christi, Tex., refinery in early August. ARCO lost 27,500 b/d of MTBE capacity when its Channelview, Tex., petrochemical plant was shut down after an explosion and fire July 5 (OGJ, July 16, p. 28).
Tanker boycotts of U.S. ports may be boosting prospects for deepwater offshore terminals, but that apparently has yet to translate to increased business for the nation's sole such facility (see story, p. 23). Average throughput at LOOP in the first half climbed to 930,000 b/d, up from 840,000 b/d in first half 1989, but still only 66% of capacity.
However, a LOOP official said none of that increased throughput comes as a result of redirected boycott volumes. It is likely that increase simply reflects growing U.S. oil imports.
Even as U.S. oil imports rise, Congress and the states are becoming more intransigent on offshore drilling.
Despite Bush's move to curtail OCS sales, a House interior appropriations subcommittee has approved more moratoriums.
The panel extended bans for lease sales in Bristol Bay and Georges Bank and off Washington, Oregon, California, Florida, and the mid-Atlantic from New Jersey to North Carolina.
It declined to block drilling of a Mobil wildcat off Cape Hatteras, N.C., and did not ban prelease work for Chukchi Sea.
NOIA says the move "puts this nation one step away from completely shutting down the U.S. offshore oil and gas development program outside the central and western Gulf of Mexico."
North Carolina Republican Gov. James Martin will oppose Mobil's proposed wildcat off Cape Hatteras.
Martin contends Bush's decision to defer leasing off other areas justifies his decision, even though the state agreed with Mobil and MMS to pursue an environmental review that could lead to drilling (OGJ, June 11, Newsletter).
Sen. Bennett Johnston (D-La.) filed a bill making the MMS director subject to Senate confirmation. In addition, the Senate commerce and House merchant marine committees reported out a bill requiring all federal OCS activities to be consistent with state coastal zone management programs, aimed at overturning a 1984 U.S. Supreme Court decision. Bush strongly opposes the bill.
Meanwhile, Florida is balking at helping repurchase 73 leases sold in the Gulf of Mexico. The Bush administration has pledged to work with the state to buy back the leases, sold in 1982 and 1985 for $104 million. Florida's congressional delegation opposes state participation, and Republican Gov. Bob Martinez last week withdrew an offer to raise $10 million for the buyback.
Offshore safety remains a concern. MMS is considering requiring platforms to install emergency shutdown valves (ESVs) on the seafloor or just above sea level. The proposed rulemaking, published in the July 23 Federal Register, stems from the July 1988 Piper Alpha platform accident in the U.K. North Sea.
Six oil workers died and three were seriously injured last week when a Sikorsky S-61 helicopter with 13 people aboard crashed as it attempted to land on the Spar offshore storage and tanker loading facility on Shell-Esso's Brent oil field in the U.K. North Sea. A survivor said the helicopter's tail rotor apparently hit a crane on approaching the helideck.
Several Canadian companies are negotiating joint venture deals with Soviet agencies. Gulf Canada is discussing EOR projects in several fields with the Soviet agency Komi Naft, but it likely will be 1991 before any deal is complete.
Gulf is interested in a profit-sharing joint venture deal, not just selling technology. Husky Oil also has held talks with Soviet officials, noting any deal is now embryonic.
The U.K. government is to relinquish its golden share in Britoil, retained after the BP takeover in 1988.
Its special rights preference share will be redeemed because BP met assurances about enhancing its role in Scotland.
Britoil's reserves in producing fields have jumped by 67 million bbl, or 24.5%, vs. 5% that BP promised. BP also plans to spend about 310 million on exploration involving 87 wells on acreage held by BP or Britoil at the time of the takeover.
Confidence in West African E&P seems to be reestablished, according To-Gaffney, Cline & Associates preliminary figures. Exploration and appraisal/development drilling there has increased from lows seen in fourth quarter 1989. GCA says West African countries are starting to benefit from improved terms recently offered to oil companies, in addition to increasing optimism over medium term oil prices. Still, says GCA, those improved terms don't offset greater attractiveness of U.K. E&P.
Angola plans to restructure state owned Sonangol into a holding company by yearend, creating new subsidiaries for exploration, production, research, and distribution. Although the government wants to cut direct control of Sonangol, it will continue to nominate directors for the holding company.
Abu Dhabi has approved plans for a $1.5 billion expansion of its Das Island LNG/LPG chain. A new train will produce 2.3 million metric tons/year of LNG and 250,000 tons/year of LPG beyond existing capacity of 2.3 million tons/year of LNG, 750,000 tons/year of LPG, and 300,000 tons/year of condensate.
Expansion is due for completion in 1993-94, and talks are under way with Das Island sole LNG/LPG customer Tokyo Electric to lift extra output (OGJ, Nov. 6, 1989, Newsletter).
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