MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING WEDNESDAY, APRIL 1, 1998 (2)
TOP STORIES
Kuwait Cuts Oil Production Under OPEC Accord
KUWAIT CITY (April 1) - Kuwait has started to cut oil production by 125,000 barrels per day (bpd) according to an agreement reached by the Organization of Petroleum Exporting Countries (OPEC), a senior Kuwaiti official said Wednesday.
Kuwaiti Oil Minister Sheikh Saud Nasser Al-Sabah made the remark one day after he returned from OPEC's extraordinary meeting in Austrian capital Vienna, which concluded by deciding to cut OPEC's production by 1.245 million bpd from April 1 till the end of this year to rescue the oil prices, the Kuwait News Agency reported.
The minister was quoted as saying that he hopes other oil producing countries would comply with the Vienna agreement, adding that this would be beneficial to OPEC and non-OPEC members alike.
Meanwhile, he expressed belief that if all oil producing countries keep their part of the deal, the market would stabilize and the slide in prices would stop.
The oil prices, which dropped to a nine-year low last month, gained two dollars following a joint initiative made by Saudi Arabia, Venezuela and non-OPEC Mexico on March 22 to cut oil production to boost crude prices.
But the oil prices in the world market dropped again Tuesday as a decision by OPEC oil ministers to cut production left doubts over whether member countries would keep their promise and whether the cuts are enough to drain oversupply from the market.
Latin American Oil Cuts Begin To Bite Markets
CARACAS, April 1 - Venezuela and Mexico's oil production cuts intended to stem sliding oil prices are already having an effect on regional crude oil and refined product markets, regional oil traders said on Wednesday.
Venezuela's 200,000 barrel per day (bpd) cut will concentrate on low-value, heavy crudes at the oilfields, they said, but may translate into fewer sales of light crude oil and heavy products in the export market.
Mexico will slash 100,000 bpd exports of its heavy Maya crude oil, but neither country will cancel sales contracts.
''They may decide to supply the minimum allowed under the contracts, but they won't cancel them,'' a Venezuelan trader said.
Mexico's oil monopoly Petroleos Mexicanos (Pemex) plans to trim an average 100,000 barrels per day (bpd) from exports by canceling trial crude shipments and trimming extra volume shipped to contract clients, a top Pemex trader said on Wednesday.
State oil company Petroleos de Venezuela (PDVSA) declined to detail its 200,000 barrel per day (bpd) cut, but traders who deal regularly with the country expect it to replace some heavy crude used in its refineries with lighter grades, reducing light crude sales on the spot market and slashing fuel oil output.
PDVSA has already withdrawn its medium-light Mesa/Furrial crude from the spot market in April, they say, and cancelled all its spot market sales of fuel oil.
Venezuela and Mexico are two of the biggest oil suppliers to the United States and the cuts are already having an impact on prices in the U.S. Gulf of Mexico spot market.
''We have some cuts and have seen the market firming up on the differentials,'' said a U.S.-based trader who buys Venezuelan and Mexican oil regularly. ''I understand Venezuela is all sold out for April and Mesa/Furrial has firmed from $3.40 to $3.00 off WTI (West Texas Intermediate crude). Before the cut, they had some cargoes on the spot market.''
The discount of high sulphur fuel oil to WTI crude in the United States Gulf of Mexico coast narrowed by more than $2 per barrel in the last five days with over a $1 move on Tuesday, according to data collated by Reuters.
Venezuela's cut, equivalent to 12 cargoes of 500,000 barrels each every month, could affect some heavy crude exports, such as Merey and Bachaquero, as well as the lighter Mesa/Furrial, Santa Barbara and Lago Treco grades, traders said.
Together with Mexico's Maya crude oil cut, equivalent to six cargoes a month, traders expect one effect to be a relative strengthening of low quality crudes against lighter grades.
''The impact will be basically on the heavy sour market because that is the production they will cut,'' said another regular buyer of Venezuelan and Mexican crude. ''We have now a very wide heavy/light crude differential, meaning heavy barrels are very cheap compared to light barrels, so that will cause the differential to narrow dramatically if Venezuela cuts production with the Mexicans.''
In addition, some traders expect PDVSA to reduce primary crude distillation in its refineries down to the level at which conversioncapacity is still fully used. PDVSA would thus benefit from the most profitable part of the refining system while reducing its consumption of crude oil and cutting output of naphtha, jet fuel, virgin gas oil and straight run fuel oil.
A trading manager at a major U.S. oil company said he had already noticed less gas oil and jet fuel available from Venezuela in April, as well as fuel oil.
OPEC Not to Further Cut Output Alone
ABU DHABI (April 1) - The Organization of Petroleum Exporting Countries (OPEC) will not consider to further cut output by itself if non-OPEC producers reject to do so, OPEC's President Obeid bin Saif Al Nasir said here Wednesday.
"This matter depends on consultations with other countries outside OPEC, " said Nasir, who is also Minister of Petroleum and Mineral Resources of the United Arab Emirates (UAE).
"The Secretariat of OPEC is to make contacts with some countries and member countries inside OPEC will also separately contact with other producing countries outside OPEC," he said in a statement published by the UAE's official Wam News Agency.
Nasir made the statement after returning from an OPEC emergency meeting concluded in Austrian capital Vienna Tuesday.
The meeting, described by Nasir as "good and creative," approved a cut of oil production by 1.25 million barrels per day (bpd) starting from April 1 till the end of this year in a bid to save the saggy market.
Other cuts will come from non-OPEC Norway, Mexico, Egypt, Oman and Yemen, which have pledged to trim 270,000 bpd for a total of 1.5 million bpd in overall promised reduction.
Nasir said he hoped world oil prices will improve again "once the markets feel the cuts."
World oil benchmark Brent crude slumped a dollar a barrel to 14 dollars in just 24 hours since Monday night.
Traders said the cuts were not enough to prop up sagging oil prices, which have lost 40 percent in the past five months since OPEC decided last November to raise its combined output ceiling by 10 percent to 27.5 million bpd.
The price collapse was compounded by a mild winter in the northern hemisphere, Iraq's return to oil markets and Asia's economic turmoil which has seriously affected crude demand.
Egypt Predicts Price Rise after Oil
Output Cuts
CAIRO (April 1) - Egyptian Oil Minister Hamdi Al-Banbi Wednesday predicted a upward revision of world oil prices if oil exporting countries deliver their promise on production cuts, the Middle East News Agency reported.
"World oil prices would well return to the pre-November 1997 level provided that the OPEC (Organization of Petroleum Exporting Countries) first output cut in a decade is seriously implemented," he told reporters.
The minister was commenting on a landmark pact some OPEC members and
non-OPEC oil producers reached on Tuesday to trim oil output to shore up collapsing crude prices on the world market.
Al-Banbi said Egypt's decision to shave oil output 20,000 barrels per day (bpd) starting June is a kind of "consensus" with oil-exporting countries to put brake on the oil price slide.
As a non-OPEC oil producer, Egypt will maintain its production at 850, 000 bpd until the end of May while some other countries already started the cut April 1. Crude prices fell 40 percent from October to mid-March as a result of weak demand in cash-strapped Asian countries, a 10-percent rise in OPEC's 1998 production ceiling, a mild northern hemisphere winter and increased Iraqi exports.
A broad accord reached by Saudi Arabia, Venezuela and non-OPEC Mexico in Riyadh on March 22 garnered support from other oil producers, who have pledged a total of 1.5 million bpd in overall cuts.
In reaction to the promised cuts, oil prices on world markets rallied Tuesday but then eased a bit due to doubts over if the pledges will be delivered or if production cheatings will be employed again.
Venezuela's Arrieta Hopes To Up Cuts To 2.0 Mpbd
LONDON, April 1 - Venezuela's oil minister Erwin Arrieta said on Wednesday he was still hopeful global production cuts in oil output could be increased from 1.5 million barrels per day (bpd) to 2.0 million bpd.
Speaking to reporters in London, Arrieta said OPEC could increase its share of recent agreed cutbacks to 1.5 million bpd, while non-OPEC producers could raise their pledges of restraint to 500,000 bpd.
"That's what we are still aiming at," said Arrieta, who was in London en route to Caracas after attending an emergency OPEC meeting in Vienna that ratified a deal to cut 1.245 million bpd from the cartel's oil production.
Arrieta did not say which countries within the 11-nation OPEC cartel might contribute extra cuts.
Non-OPEC producers, including Mexico and Norway, have so far pledged to cut 270,000 bpd from April 1 until the end of the year.
Arrieta said the Organisation of the Petroleum Exporting Countries was still hopeful Russia and Malaysia would agree to join the cutback pact.
Both countries have so far refused to cut their output, but Arrieta said an OPEC delegation, led by Iran's oil minister Bijan Zanganeh would be visiting Moscow this month for talks.
When asked if it was on OPEC's agenda to persuade more non-OPEC countries to rein in production, Arrieta said, "Sure, there is a common interest."
"The whole (oil) community has accepted cuts to their current production," said Arrieta, adding that his medium term target for oil prices was $18-$21 a barrel. He accepted such prices were unlikely to be achieved in the short term.
Arrieta was due to meet British Energy Minister John Battle later on Wednesday but it was not clear if Venezuela would ask Britain to contribute a pledge to cut output.
Canadian Occidental Pursues Nigeria Deal
Holds talks with France's Elf despite Canada's push for sanctions against African nation
The Globe & Mail
Canadian Occidental Petroleum Ltd., undaunted by Canada's attempts to implement sanctions against Nigeria, is holding talks with French energy giant Elf Aquitaine SA to tap into Nigeria's huge offshore oil reserves.
Paris-based Elf, France's largest oil company, already is a major producer in the West African country and hopes to make an announcement within weeks about an Elf-led joint venture that would include CanOxy, industry sources say.
"Deep-water" projects are much more lucrative than ever because of new and cheaper oil recovery technology, said Ian Doig, publisher of Calgary-based energy newsletter Doig's Digest.
"From Nigeria down to Namibia -- it's all attractive," Mr. Doig said yesterday. "It's a hot play. Oil fields there have recoverable reserves that are two or three times larger" than the Hibernia field's estimated 750 million barrels off Newfoundland.
John McWilliams, CanOxy's general counsel and a senior vice-president, declined to confirm the company is negotiating to form a Nigerian partnership with Elf.
However, he said the Calgary-based company wants to diversify its global portfolio beyond its core oil holdings in the Middle East nation of Yemen. CanOxy is easily the No. 1 Canadian oil producer abroad, pumping more than 100,000 barrels a day in Yemen.
"We see Nigeria and West Africa as a new area of focus strategically. It has good discoveries and it's a zone we want to concentrate on," said Mr. McWilliams, who added that CanOxy will likely make gradual investments in the region.
Nigeria's membership in the Commonwealth was suspended after General Sani Abacha's military government executed nine dissidents in November, 1995, including writer and minority rights activist Ken Saro-Wiwa.
For the past couple of years, Canada has been pushing other Commonwealth nations to start multilateral sanctions against Nigeria, ranging from banning the country from sporting events to trade restrictions to expulsion from the Commonwealth.
Debora Brown, press secretary for Foreign Affairs Minister Lloyd Axworthy, said Canada will closely monitor events in Nigeria over the next several months, but Ottawa hasn't put up obstacles so far to prevent Canadian companies from negotiating West African deals.
The Nigerian military regime, which seized power in a coup in 1993, has promised to hold democratic elections this August.
Ms. Brown said pressure is mounting against new foreign investment in Nigeria after years of human rights violations, pointing out Pope John Paul's visit last week to the country, where he renewed calls for the release of dozens of political detainees.
"It's a long and sordid tale in Nigeria," Ms. Brown said.
Asked about Ottawa's general stance on Canadian investment in Nigeria, she replied: "We recommend against it, certainly."
But Mr. McWilliams said Nigerian citizens will benefit from increased foreign investment and CanOxy will adhere to a new voluntary code of ethics endorsed by Mr. Axworthy last fall that provides guidelines for Canadian companies investing abroad.
The comprehensive code urges Canadian companies to be "ethically, socially and environmentally responsible."
CanOxy -- which has a stock market value of almost $4-billion -- will keep Foreign Affairs officials abreast of the company's intentions, Mr. McWilliams said.
"We're not human rights activists, nor are we expected to be. But our purpose is to deal in a way that respects labour, respects the environment, health and safety -- and that does not include bribery and corruption."
Nigeria, which is one of the leading members of the Organization of Petroleum Exporting Countries, produces 2.3 million barrels a day of oil -- 300,000 barrels more than Canada's daily output.
If CanOxy proceeds with a Nigerian joint venture, it would become the first major Canadian oil producer to invest in the African country's energy sector.
Two junior companies based in Calgary, Abacan Resource Corp. and Profco Resources Ltd., began investing in Nigeria in 1995. CanOxy is providing exploration and development services to Profco in the Ejulebe oil joint venture off Nigeria.
Elf's Nigerian output is roughly 155,000 barrels a day, including a stake in leases held by Royal Dutch/Shell Group.
Officials at Calgary based Shell Canada Ltd. say the Canadian unit has no investments in Nigeria, but human rights groups have long been pressing for a boycott of Shell products around the world because of Royal Dutch/Shell Group's Nigerian involvement.
Mr. McWilliams said CanOxy, which is 29 per cent owned by Los Angeles-based Occidental Petroleum Corp., realizes that its new focus on Nigeria and West Africa may offend some groups.
"We're not naive. . . . We're not trying to trumpet what we're doing, but we can give a good account of ourselves if questioned. We're willing to state our case and be accountable in Nigeria."
CanOxy wants "to behave there just like we do here" in North America as a good corporate citizen, Mr. McWilliams said.
"Our view is that our deals will be with corporations in Nigeria, not with the Nigerian government per se. It's a valid distinction. And we'd be delighted if there was no more bribery and corruption because we don't operate that way, so we're at a disadvantage to those that do." |
