Europe's Low Oil Supplies May Blunt U.S. Effort
October 05, 2000
By Alexei Barrionuevo and John Fialka, Staff Reporters of The Wall Street Journal
Low supplies of heating oil in Europe are threatening to blunt the impact of releasing 30 million barrels of crude from the U.S. Strategic Petroleum Reserve.
Europe's market for heating oil is 50% bigger than the U.S. heating-oil market, Europe's stocks are even tighter and prices there are a few cents a gallon higher, so U.S. refiners have a renewed incentive to ship heating oil across the Atlantic.
Further, a June fire at a critical export refinery in Kuwait continues to upset the flow of heating oil across world markets.
Yesterday, the Energy Department said 11 companies were awarded a total of 30 million barrels of crude from the strategic reserve after submitting bids last week. The companies promised to return 31.5 million barrels to the federal stockpile next year as payment. The winners included Marathon Ashland Petroleum LLC, Valero Energy Corp. and Equiva Trading Co., the trading arm of Equilon Enterprises LLC and Motiva Enterprises LLC.
In offering oil today for oil later, the department said again it is seeking to avert a potential heating-oil shortage this winter. Energy Secretary Bill Richardson said the administration remains concerned about heating-oil supplies in New England, where inventories are 65% below normal levels.
Mr. Richardson called the release of oil from the strategic reserve 'government at its best' and noted that the International Energy Agency, based in Paris, applauds the U.S. action.
Since the crude-oil swaps were announced two weeks ago, oil prices have slid from a high of more than $37 a barrel to settle at $31.43, down 64 cents, yesterday for the November contract of West Texas Intermediate crude.
In Europe, where storage capacity is greater, stocks of middle distillates, primarily heating oil, slid to 221 million barrels in July, down 20% from a year earlier, according to the International Energy Agency in Paris, and the stocks didn't grow in August. Germany has residential storage capacity of about 225 million barrels, but it has only about 125 million barrels socked away.
'Europe is tighter than the States,' said Gary Ross, chief executive of Pira Energy Group in New York. 'So they are likely to be a constant drain on our distillate supplies, thereby somewhat thwarting the efforts of the administration to augment distillate supply by the SPR swaps.'
U.S. exports of heating oil to Europe ballooned nearly six times in the first seven months of this year to about 1.4 million barrels, compared with the year-earlier period, according to the most recent figures of the Department of Energy's Energy Information Administration. Total exports to all countries, however, declined slightly by 2.5% to 31.7 million barrels. 'Europe needed the distillate more than Asia, and Asia has added substantial distillate-refining capability, so they are more self-sufficient now,' said Larry Goldstein, president of the Petroleum Industry Research Foundation in New York.
Industry experts estimate that in recent weeks shipments have continued to pick up.
Refiners continue to be skeptical that the strategic-reserve release alone will help increase heating-oil supplies short term. 'It is not going to generate one additional barrel of heating oil,' because refineries already are at or near capacity, said Carlton Adams, a spokesman for Conoco Inc., which bid unsuccessfully for 1.5 million barrels. Conoco hoped to run the crude through its Ponca City, Okla., refinery, which ran a record 201,900 barrels a day the last week of September.
The strategic-reserve oil won't be unloaded from the reserve tanks until later this month or early in November. It will be December by the time the oil is refined and shipped to the Northeast.
Major pipelines from the Gulf, including Colonial Pipeline Co., say they have been fuller than normal recently because of low stocks in the Northeast.
The world-wide problems with heating oil have been compounded by a devastating fire at Kuwait's Mina al-Ahmadi refinery in late June that cut Middle East production by half. That has led European refiners to divert some supply to African countries, including Egypt.
Asia is the one major refining market in the world with spare capacity. In Singapore, in particular, refineries are only running at about 65% of capacity.
While higher refining profit margins in the U.S. and Europe could draw more shipments from Asia, refineries there say they face technical challenges in meeting U.S. and European environmental specifications for sulfur content. In the U.S., such air standards are governed by individual states, which would have to decide to temporarily relax sulfur requirements to open the market to supply from more of the world.
An Environmental Protection Agency official says the agency is talking to states about the possibility of relaxing standards limiting the sulfur content in home heating oil. Northeastern states have such standards, and if supplies get tight, they could block the possibility of using higher sulfur fuel stocks intended for off-road construction equipment. They could also block shipments of imported heating oil from being used. |
