Oil prices have rebounded strongly as markets grow optimistic over outcome of this week's OPEC ministerial meeting.
Brent for August delivery peaked about $1 higher on the week at $18.45/bbl before slipping to close July 18 at $18.15/bbl with API's report of a rise in U.S. crude stocks. July Brent closed at $16.30/bbl the week before. Traders say the 30cts drop was moderate considering size of the U.S. stockbuild. WTI slid 10cts to close July 18 at $18.55/bbl, also up about $1 on the week.
API last week said crude stocks jumped 4.7 million bbl and gasoline stocks climbed 2 million bbl vs. expectations of respective drops of 2 4 million bbl and 2 3 million bbl, blunting rallies for both commodities (see story, p. 18).
Markets were encouraged by U.A.E.'s promise it would cut flow by 500,000 b/d to 1.5 million b/d, staying there "until new circumstances prevail," said U.A.E. Oil Minister Otaiba.
The promise came after Persian Gulf producers met in Jeddah and Saudi King Fahd conferred with U.A.E. President Zayid.
After talks with Otaiba, Iranian Oil Minister Gholamreza Aghazadeh predicted the Geneva meeting would be smooth and reach an agreement, noting the time was right for a return to discipline within OPEC and market conditions were right to raise prices above $18/bbl. But if prices for some reason remained below $18/bbl, Iran would insist on more output cuts, he said.
The only note of discord ahead of the meeting came from Iraqi President Saddam Hussein, who bitterly attacked other gulf states for forcing prices down by overproducing. In a veiled threat of violence, he said, "If words fail to protect Iraqis, something effective must be done to return things to their natural course and return usurped rights to their owners."
In the first half, low oil prices cost Iraq $14 billion in lost revenues while it tries to rebuild its economy.
Salomon Bros.' Bernard Picchi discounts Saddam's veiled threats as part of a media blitz to create the impression in the West that Iraq is the new regional power in the Middle East.
After Saddam's saber rattling over Israel, Kuwait, and U.A.E. in recent weeks, Picchi notes that "in reality, Iraq has zero power over the emirates' oil policies and little influence over Kuwait...If Saddam really means what he says about the likelihood of war with Israel, he is certainly not going to invade Kuwait and divert military attention from a possible Israeli front and further alienate Iraq from the wealthy and/or moderate governments of the Arab world...Further, Kuwait has never caved in to Iraq demands tensions between the two countries have varied between high and very high over most of the last 20 years--so it need not start now."
Another factor in oil market buoyancy is the continuing string of woes in the Soviet oil industry. The U.S.S.R. has been forced to cut crude and product deliveries to its former eastern European satellites because of continuing disruptions in the Soviet production and distribution system. Fuel shortages are reported throughout the U.S.S.R., and Prime Minister Ryzhkov says oil exports to eastern Europe will be cut by 51 million bbl in 1990 to ensure sufficient supplies for the Soviet harvest.
Pipeline leaks at separate sites in Tyumen province disrupted oil and gas flow July 14-15.
A gas line ruptured in the Urals, halting flow of more than 350 MMcfd on 65 km of Urengoi-Uzhgorod and Urengoi Centre 1 lines. More than 741 MMcf was lost.
A corroded oil line in Belozerneft field leaked and caught fire, causing shut-in of 27 wells and loss of 2.9 million bbl of crude. Until the latest leak, the number of Tyumen oil pipeline leaks had jumped 15% to 1,132 in first half 1990 from a year ago, resulting in spillage of 2.2 million bbl.
The U.S.S.R. plans to slash oil deliveries to Hungary by 30% in the third quarter, and more cuts may be in the offing, Hungarian officials say. Hungary's new government jumped the price of gasoline 20% and diesel 30%.
Izvestia reports rumors of widespread gasoline rationing, plunging domestic production, and recession in Romania.
Bucharest no longer will subsidize purchase of crude imports, now to be delivered to refineries at close to world prices.
Cutoff of subsidies could spike premium gasoline prices in Romania by two-thirds, as well as spark hikes in diesel and lube prices. Bucharest reports its oil industry in crisis.
Thousands of Czech motorists last week queued up to buy cheap Soviet gasoline ahead of an expected 50% price increase. Czech officials say Soviet oil imports have plunged by one third this year and prospects for the second half are uncertain.
Eastern bloc officials expect the situation to worsen when Comecon switches to hard currency accounting Jan. 1, 1991.
Those countries are already hard pressed to find the hard currency to pay for oil imports in lieu of Soviet supplies.
The five major Persian Gulf producers have more than 6 million b/d of excess productive capacity and are adding more, says Sadad Al-Husseini, Aramco senior E&P vice-president. Most analysts have put that surplus capacity at 2-3 million b/d.
Further, the five claim "very reliable" reserves estimates totaling 650 billion bbl, he told a recent conference on emerging technologies in Houston. He estimates 80% of Saudi reserves are in only 13 reservoirs.
Aramco's primary goal, Al-Husseini contends, is not finding more reserves but getting optimum production from its 1,000 2000 wells. Aramco also is pursuing horizontal drilling with two offshore wells planned this year for reservoir control.
Meantime, Saudi Arabia has another hydrocarbon find in its sparsely drilled central region. Aramco 1 Hazmieh flowed undisclosed large volumes of sweet crude, gas, and condensate from six zones at 6,037-7,047 ft 9 km south of the 1989 1 Hawteh discovery, the central region's first strike.
A revamp of the European Community's tariff system for imports from developing nations may exclude many petrochemical imports from Saudi Arabia and other oil producing nations.
New proposals for the generalized system of preferences, effective Jan. 1, 1992, would allow EC to consider trade patterns and per capita income of candidates for GSP inclusion in GSP.
That would make it tough to include countries such as Saudi Arabia and Kuwait. Imports of seven Saudi petrochemical products now are ineligible for GSP. EC also hints developing countries that support progress in the current GATT Uruguay round might expect preferential treatment under the new system.
Outside the U.S.S.R. and China, the Arab countries are the biggest bloc not supporting GATT. The GSP changes are designed to give EC more scope for helping poorer countries at the expense of more developed nations.
Gulf Canada has killed plans to drill a $50 million wildcat in the Beaufort Sea this summer for lack of partners, not because of environmental opposition over oil spill concerns (OGJ, July 16, p. 26). Ottawa is to decide this month whether to approve Gulf's Beaufort drilling plans. Gulf still plans a three well, 3 year Beaufort program and says it looks forward to proceeding with the program in 1991 if approved.
In the U.S., environmental opposition continues to ensure that there will be little offshore exploration outside the Gulf of Mexico. Although President Bush has postponed leasing off Washington and Oregon until after 2000, Rep. Jolene Unsoeld (D Wash.) has filed a bill to block seismic surveys as well. Unsoeld said seismic survey ships recently damaged marker buoys of crab fishermen off Washington.
Meantime, MMS will offer 4,792 leases covering about 26.3 million acres 9-22 miles offshore in 26-9,842 ft of water in the western Gulf of Mexico in Sale 125 Aug. 22 in New Orleans.
Domestic Energy Council, a group of 17 large oil and gas producers, has proposed Congress offer tax incentives to all producers to encourage domestic drilling. Bills pending in Congress target only independents. It said a 15% tax credit for wildcats and a 5% credit for development wells--including geological and geophysical costs and IDCs--would add 2.8 billion bbl of reserves in 5 years at a cost of $1.25/bbl to government.
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