Oil markets are returning to normal following the unsustainable highs that held them aloft during the first few days after OPEC's September meeting. The readjustment is being driven by reports of reduced OPEC compliance with pledged output cuts and increased Iraqi oil production.
Oil prices fell during the first week of October, reaching a low on Oct. 8, when Brent crude for November delivery was trading at $20.70/bbl. By Oct. 13, the November Brent price had rebounded to $22.22/bbl. In New York markets the same day, NYMEX crude closed at $23.06/bbl.
"The psychology finally gave way to reality last week, as WTI spot crude oil prices dropped nearly 15%ellipse," said PaineWebber on Oct. 11.
The early October price fall was triggered in part by the release of IEA's latest data on OPEC oil production, revealing that OPEC output for September was 1.6% higher than in August. OPEC production reached 26.43 million b/d last month, says IEA, a rise of 420,000 b/d. Iran was responsible for 190,000 b/d of the increase, Iraq for 60,000 b/d, and Saudi Arabia and Nigeria for 50,000 b/d each, says the agency.
Iranian Oil Minister Bijan Zanganeh refuted IEA's claim, saying OPEC compliance is unchanged. "The recent price development indicates that the decision of OPEC to maintain its production ceiling at least (through) March 2000 was correct, and it further shows that we are yet to achieve a stable market," Zanganeh told reporters in Tehran.
Zanganeh went so far in his defense of OPEC as to say that the group would extend its production ceiling beyond March if market fundamentals at that time warrant such action, although he doesn't think that will be necessary. "OPEC envisions a heavy stock drawdown in the fourth quarterellipseand an even greater volume (reduction) for the first quarter of next year, which will have its positive contribution to the restoration of stability in the market," he said.
The European Union may be poised to squabble with the US again over investment in Iran's oil sector, as two European firms are discussing oil-related projects in the country.
Royal Dutch/Shell is reportedly near to signing an agreement with Iran to invest at least $1 billion in the development of the Soroush-Nowrouz oil fields, according to Wall Street Journal Europe. The Middle East Economic Survey has said that Shell's numerous proposals have pegged the fields' development costs at $0.816-1.1 billion.
Other firms reportedly vying for the project include Elf, TotalFina, ENI, Repsol-YPF, and Gazprom.
Meanwhile, Italy's ENI has recently voiced its backing of the construction of an oil export pipeline through Iran. "We see 3% (per year) oil demand growth in the Far East in the next 10-15 years, compared with 0.7% in Europe," said Domenico Spada, ENI's vice-president for Eastern Europe, Russia, and Central Asia. "This gives a clear indication of where the oil should go in the next 15 years, and the most convenient route is through Iran." The US backs a more-expensive, westward pipeline route to Ceyhan, Turkey.
The EU and US first clashed over the issue of Iran in 1995, when the US passed the Iran-Libya Sanctions Act, imposing economic sanctions on non-US firms investing more than $40 million in either of the two countries (the limit was later reduced to $20 million). At that time, French major Total (now TotalFina) had taken over the lead role in developing Sirri A and E oil fields off Iran after US firm Conoco was forced by Washington to exit the project.
Japan's struggling downstream sector has made another move towards consolidation with the announcement that major refining and marketing firm Nippon Mitsubishi will form an alliance with the nation's third largest R&M firm, Cosmo Oil. The companies plan to integrate most of their operations, less retailing, as early as 2000, in a move to reduce combined costs by $95-190 million/year.
The JV would command 37% of the Japanese refining sector. It would include: exchanged use of the two sides' tankers and storage tanks; the establishment of a joint production system through the shared used of Nippon's eight and Cosmo's four refineries; and the meshing of their lube oil production and distribution operations.
"We need to implement cost-cutting measures beyond the framework of each company," said Nippon Pres. Hidejiro Osawa.
Neither company, however, expressed immediate intentions to close any refineries or cut work forces.
Japan's Fair Trade Commission has taken further action against 11 oil distributors accused of rigging bids for fuel contracts with the Japanese military. The FTC raided the companies' offices for the second time this year, searching for data to support its case (OGJ, Apr. 12, 1999, Newsletter).
FTC believes the firms violated antimonopoly law by repeatedly prearranging bids for contracts to supply fuels to the Defense Agency. Among the firms targeted by the antitrust watchdog are Nippon Mitsubishi, Idemitsu Kosan, Cosmo Oil, Japan Energy Corp., General Sekiyu, and Showa Shell Sekiyu.
The FTC in March raided the head offices of the 11 firms on suspicion they had colluded to decide the winning bidder before bids were submitted for the Defense Agency's contracts for supplies of aircraft jet fuel. That search raised suspicions that the firms had also rigged bids on contracts for other types of fuels.
China National Offshore Oil Co.-China's sole offshore oil operator-last week launched an offering of about 2 billion shares in a dual listing on the Hong Kong and New York stock exchanges, making it China's first major oil company to be listed in overseas equity markets. The initial public offerings will constitute a 25% interest in CNOOC.
Trading will begin Oct. 20 in New York and Oct. 21 in Hong Kong under the name CNOOC Ltd. The Hong Kong IPO has earmarked 10% of the shares for the public and 90% for international placement. CNOOC hopes to raise $2.5 billion through the offering of local and American Depositary shares.
CNOOC is one of the three major Chinese oil groups planning overseas listings, the others being China Petrochemical Corp. and China National Petroleum Corp. (OGJ, June 5, 1999, Newsletter).
Even as Brazil works to ramp up its oil production in a bid to become self-sufficient, it continues to gobble up newly available crude oil in the region. Repsol-YPF and Argentine petroleum firms Perez Companc and Astra-an affiliate of Repsol-YPF-have completed the first export deals for the new crude oil Maria Ines with Brazil's Petrobras. One late-September cargo of the 50° gravity crude was exported to Brazil at a discount of $1.69/bbl to WTI, while the three producers sold a mid-October cargo at a discount of $1.70/bbl to WTI.
The firms produce Maria Ines through their upstream joint venture UTE Santa Cruz II. Output is about 25,000 b/d. The crude is lifted at the Punta Loyala terminal, which has 440,000 bbl of storage capacity.
The military coup in Pakistan Oct. 12 is not thought likely to affect foreign oil and gas companies operating in the country.
A spokesman for London-based independent Lasmo told OGJ on Oct. 13 that its Pakistan staff had reported for work as normal after the coup and that there was calm on the streets. "Pakistan is not a stranger to military rule," said the official, "and we have worked there under military rule in the past. We don't anticipate any change, whoever is in charge; after all, Pakistan needs gas."
Lasmo is the operator of the Kadanwari gas field and the Bhit discovery, which is currently under development.
Greenpeace's bid to force the UK government to stop E&P work in the UK's Atlantic Margin sea area-in an attempt to protect marine life there-returned to the High Court in London on Oct. 11.
In a hearing expected to last at least 1 week, Greenpeace challenged the government's decision to apply the European Union Habitats Directive to a distance of only 12 miles from shore, rather than the 200 miles over which it claims fishing and mineral rights.
A Greenpeace official told OGJ, "If we win this argument, the habitats directive will be extended to the 200-mile limit. It would follow that the Atlantic Frontier licensing round would have to be rescinded."
The campaign group took action against the government in 1997 in a case that questioned the legality of the UK's 17th offshore licensing round (OGJ, Oct. 20, 1997, Newsletter). "We're not expecting an early ruling," said the official. "Last time, we had to wait 3 weeks." UK operators will be hoping that, like last time, the court will decide in their favor.
