Oil prices continue to swing wildly as the Persian Gulf crisis drags on.
Brent for 15 day delivery lost almost $5 on the week, closing Oct. 3 at $35.50/bbl, as markets took note of peace noises from Saddam. Dubai fell $2.35 to close Oct. 3 at $31/bbl.
The next day, Brent rose to $38.48/bbl and Dubai to $33.28/bbl after U.S. Sec. of State James Baker said more countries are willing to commit military forces to contain Iraq. Nymex crude futures fell to $33.95/bbl Oct. 2 vs. the previous week's high of $39.54/bbl, then jumped $3.37 the next day after API reported a bigger than expected U.S. crude stock decline.
In the same period, Rotterdam premium leaded gasoline fell to $402/metric ton from $445 then rebounded to $412, gas oil to $312/ton from $345 and up again to $320, and heavy fuel oil to $130/ton from $140 and then $155.
Don't expect robust third quarter earnings for major U.S. oil companies despite recent crude price surges, says Merrill Lynch. Part of the reason is "politically induced price restraint in gasoline sales," it says. Merrill Lynch says majors with sizable branded retail sales have not recovered 12-15 cents/gal of higher crude costs, causing poor R&M earnings in August-September vs. good downstream results in July.
That follows trends in the U.S. crack spread. According to OGJ estimates, U.S. refining margins for Arab light excluding refining and transportation costs have been mostly negative since mid-September and were halved in late August from levels seen just after the crisis onset.
Further, says Merrill Lynch, risk of political fallout from reporting big profits while there might be shooting in the Middle East will spur companies to take big writedowns on liabilities and nonproductive assets.
Signs point to brighter prospects for U.S. natural gas.
Detroit Edison plans to add gas fired capability at its 785,000 kw Greenwood power plant near Avoca, Mich., the only plant in its system that burns fuel oil. Adding a dual fuel burner by summer 1991 at a cost of $6 million "offers an environmentally acceptable fuel that we believe provides better flexibility and stable pricing for the utility's customers," an official said. "Currently, with the Middle East situation, the cost of oil is twice that of natural gas on a BTU basis." DetroitEd's electricity is 98% fueled by coal and nuclear power.
Meanwhile, gas prices are on the rise. Early October spot bids are up almost 20 cents/MMBTU from September levels, notes Salomon Bros., although October prices have been flat with September's the past 4 years. Salomon thinks gas prices will rise sharply in November-December, hitting $2.50/MMBTU or more this winter.
PaineWebber thinks gas prices are poised for longer term recovery, as more fuel switching occurs on a long term basis. It pointed to premiums for higher deliverability Texas and Louisiana offshore gas, up 15-17% in October vs. a U.S. average 10% hike.
U.S. propane stocks are tight ahead of winter's approach, says Texas Eastern Products Pipeline. Citing loss of Kuwaiti propane exports, Teppco is trying to boost system deliverability in the Northeast and studying added storage capacity. Teppco propane storage in New York is near capacity. Teppco also may participate in a proposed propane pipeline to Quebec, linking the Northeast to extra supply and storage sources.
George Helland Jr., a former oil field service and supply executive with Cameron, Weatherford, and Smith/McEvoy, is the new DOE deputy assistant secretary for export assistance. He will manage DOE's program to help U.S. oil service/supply companies sell goods and services overseas.
California Air Resources Board has adopted the strictest air emissions standards in the U.S. One positive note for the oil industry: CARB stopped short of setting individual quotas for specific alternate fuels. It instead said that by 1996, 400 service stations in the state must offer low emission fuels. By 1994-96, 10-20% of all cars produced in the state must have hydrocarbon emissions of no more than 0.125 g/mile, rising to 25% of new cars at 0.075 g/mile and 2% at 0.04 g/mile in 1997.
Automakers face a multibillion dollar burden under the new rules. By 1998, 2% of all new cars sold in the state must be electric, rising to 10%, or about 200,000 vehicles, by 2003.
W.R. Grace offers a promising alternative: a new electrically heated catalytic converter it says can cut hydrocarbon and CO emissions by as much as 75%. It is designed to out emissions in the cold start phase of driving. Grace notes more than 80% of harmful emissions are produced in the first 8 min of engine operation and claims the preheated converter cuts hydrocarbon emissions to as low as 0.04 g/mile with unleaded gasoline.
Exxon has filed claims against the U.S. Coast Guard to recover costs of the Exxon Valdez tanker spill in Alaska's Prince William Sound, claiming Coast Guard negligence was partly responsible. Seen as a precedent for Exxon's filing a countersuit against the government, the suit argues the agency was negligent in granting mariners' licenses to the Exxon Valdez crew, failed to provide adequate navigation services, and did not act to promptly authorize use of chemical dispersants.
The debate over OCS access has flared anew with the Persian Gulf crisis. The House appropriations committee has approved a $12.8 billion Interior appropriations bill for fiscal 1991 that imposes a new leasing moratorium on 47 million acres off Florida's panhandle. But 28 House members have urged President Bush to reconsider his June decision to delay leasing off California, Washington-Oregon, the Mid-Atlantic, and southern Florida, contending, "At current rates of consumption, the amount of estimated recoverable oil present on the OCS could replace U.S. imports from the Persian Gulf for the next 25 years."
Key Senate energy committee members Chairman Bennett Johnston (D-La.) and ranking Republican James McClure (R-Idaho) urge Bush to limit U.S. oil import dependence through his powers under the Trade Expansion Act, saying, "Given your decision to deploy U.S. military forces into the Persian Gulf region, strong and decisive action designed to reduce our nation's dependence on imported oil is clearly justified."
Ottawa has formed a new steering committee to resolve disputes among agencies over Canadian arctic petroleum operations. It will include representatives of federal, Yukon, and Northwest territories governments, native groups, and Canadian Petroleum Association and focus on concerns raised by the Environmental Impact Review Board in opposing Gulf Canada's proposed Beaufort Sea drilling program. Ottawa hopes the committee can resolve the dispute so Gulf can win approvals by yearend.
Some badly needed restored refining capacity in the Persian Gulf could be on stream soon. Iran expects second phase reconstruction of its war damaged Abadan refinery to be complete by yearend. The $60 million project will hike capacity to 255,000 b/d from 125,000 b/d.
The French bank Ste. Generale will coordinate financing for three large petrochemical projects in Iran, where Technip is project manager. Involved are rehabilitation of Bandar Khomeini complex--formerly a joint venture with the Japanese--development of a petrochemical complex at Arak, and a new fertilizer plant in Khorassan province. The projects will require $1.8 billion in equipment and services.
The Polish-Japanese group Polnippon and Sanbar Development Corp., London, are mulling a major project to boost Poland's downstream capability. It would entail an oil terminal, products distribution system, and LPG bottling plant at Gdansk next to an existing 60,000 b/d refinery, where capacity would jump to 120,000 b/d. Polnippon has access to funding from western Europe, Saudi Arabia, and Nigeria, with the latter two supplying crude to the Gdansk refinery, which previously ran on Iraqi crude.
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