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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: Wowzer who wrote (47958)	7/14/1999 11:01:00 AM
From: Tomas	Read Replies (2) \| Respond to of 95453

Oil price leap anchored in tight physical market "European crude oil stocks fell 800,000 barrels in June" LONDON, July 14 (Reuters) - A meteoric rise in outright oil prices is underpinned by strong physical crude markets tightened by tough OPEC output cuts, waning non-OPEC flows and buoyant U.S. demand. Price differentials for many North Sea, Mediterranean and West African crudes have shot up in a market electrified by OPEC's disciplined implementation of its big output cuts. But with futures prices roaring ahead, many traders are asking how long it will be before the lag in product prices again hits refinery operations, in turn setting fresh limits on crude demand. ''For the moment no one is very sure which way to go but something is going to have to move one way or the other,'' a European trader said. ''If the products don't go up in line with the crude and improve margins, then refineries will have to decide whether to keep losing money in order to continue supplying or to stop buying crude,'' he said. The United States, the world's buggest oil market, continues to suck in more foreign petroleum, with its own crude output dwindling at 50-year lows and crude and product demand running at record highs. U.S crude imports from the Gulf producers of Bahrain, Iran, Iraq, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates averaged 2.478 million bpd in the first four months of 1999, the highest since records began in 1972. U.S. demand for crude and products reached a record 19.2 million barrels per day in June, according to the government, reflecting a strong economy that has encouraged millions of Americans to travel for their summer holidays. The strength of crudes has been most marked in the leap in price differentials for international benchmark Dated Brent, which has jumped by more than $1 against forward month paper values in the past two weeks. The marker crude last traded at a 47 cents premium to the forward month paper, almost a one dollar leap in the differential since the start of July. Other grades have also increased, in part reflecting lower flows resulting from summer maintenance at North Sea fields. An uptick in operational levels at Asian and U.S. refineries coming out of seasonal maintenance has driven demand with West African crudes flowing strong eastwards earlier in the year. The flow eastwards was another factor helping to tighten Atlantic Basin crudes. But Asian buying for West African grades loading in August does not look particularly strong. A relatively wide Brent/Dubai spread has curbed the volumes of Brent-priced West African moving into China and traders said it will likely prompt China to buy more regional crudes as alternatives. Some traders in Europe say they see some big South Korean and Chinese customers taking larger amounts of Middle East grades in preference to Angolan and Nigerian grades. In addition, refinery margins in Asia continue to be sickly, albeit better than in historic lows in May. Asian imports of West African crude for July are estimated to be just under one million bpd, down from the record volumes seen in June, traders said. Stock overhangs from previous buying sprees, turnarounds in the Asian refining complex and some port congestion in India kept demand down in several areas. North Sea sales to Asia also conspired to keep West African crudes out of Asia in July, with Statoil [STAT.CN] aggressively marketing crude in the Far East, where it is using storage facilities in South Korea and Okinawa, Japan. In addition, non-OPEC production in the first six months of the year averaged 40.96 million barrels per day (bpd), some 2.1 percent lower than in the first half of 1998, a Reuters durvey of 45 countries showed. ''It's all a question of finding the right balance,'' one trader said. ''If the margins are squeezed and if the products don't keep pace then crudes are too expensive. Then run cuts will come into play and then market forces adjust the price,'' a West African trader said. European crude oil stocks fell 800,000 barrels in June to 455.67 million barrels, Stichting Euroilstock said in its monthly report on Friday. Price differentials in the Mediterranean have been firm on a scarcity of prompt supply despite Dated Brent's strength. The market has drawn strength from a combination of Urals tightness because of logistical problems and Kirkuk availabilities that have largely been placed. biz.yahoo.com