MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING TUESDAY, MARCH 24, 1998 (2)
OIL & GAS
Riyadh Pact Information
Venezuela Sees New Oil Era After Riyadh Pact
CARACAS, March 23 - Venezuelan oil industry officials returned triumphant to Caracas on Monday, hailing a new era in world oil politics even as analysts cast doubt on the latest plan to prop up sagging prices.
Energy and Mines Minister Erwin Arrieta said the agreement to cut about two percent off world oil supply spelled the death of the outdated system of quotas used by the OPEC oil cartel.
''The system of quotas already belongs to the history books,'' he told journalists at a news conference hours after landing back in South America.
''We have passed into a new era in international oil relations, and Venezuela has resumed a dominant role,'' added Luis Giusti, president of state oil company, Petroleos de Venezuela (PDVSA), who accompanied him on the secret trip to clinch the deal.
In a weekend rendezvous in Riyadh, Venezuela, Mexico and Saudi Arabia cooked up the plan to slash up to two million barrels per day (bpd) of supply from 16 countries, including six countries outside the OPEC cartel.
Instead of a cumbersome quota agreement to which nobody would adhere, this agreement was a temporary measure to remove unwanted oil from the market without any main producers losing market share, Arrieta added.
Venezuela, long OPEC's biggest quota-buster, would contribute 200,000 bpd to the cut, due to take effect on April 1 and last until the end of the year, he said. World oil markets were impressed with the news, and the New York futures price of benchmark West Texas Intermediate crude oil jumped $1.90 per barrel on Monday to close at $16.51 per barrel.
Having seen OPEC members break their promises for years, some countries included in the Riyadh pact have not yet taken the final decision to join in, Arrieta added.
''Norway wants to take part, but Norway did not believe us precisely because of these meetings of Pinocchios,'' he said, using a favorite epithet for the aging oil cartel. ''We were lying to ourselves and we knew we were lying. We had lost credibility with independent producers.''
Giusti said Venezuela would give up its projected output growth planned for this year and pump just 3.2 million bpd for the rest of 1998, 400,000 bpd below original forecasts.
But Rafael Quijano, Latin American analyst at Petroleum Finance Corp. in Washington, said the scheme conflicted with Venezuela's policy of growing market share and he doubted it would last more than a few months.
''If this agreement doesn't have sustainable results in April, meaning oil prices at $16-17 per barrel, it will last only one month. If it has sustainable results in April, it will last three or four months,'' he said by telephone.
He said prices above $16-17 would probably tempt some pact members to cheat on their agreed production levels, while failure to produce a sustained price rise would persuade them to abandon the scheme altogether.
Quijano thought the scheme would be abandoned after the northern summer in any case because of growing pressure to go ahead with new production projects already agreed on.
Giusti said PDVSA would go ahead with a $6 billion investment plan this year even if actual output would not be raised.
But private sector companies operating in Venezuela would be allowed to increase their production as planned, he added. They now account for just 220,000 bpd and are expected to add another 150,000 bpd this year. Any increase in private sector output would be compensated by deeper cuts in PDVSA's own production, he said.
Mexico's Tellez Says Oil Deal Will Boost Price
MEXICO CITY, March 24 - Mexican Energy Minister Luiz Tellez said on Tuesday a deal with Venezuela and Saudi Arabia to cut oil production would stop the slide in international crude prices, broadcaster Televisa reported.
''It will help us in the rest of the year attain reasonable crude prices and ensure we have higher revenue than we would otherwise have had,'' Tellez told Televisa.
As part of the three-nation deal announced Sunday, Mexico agreed to cut 100,000 barrels per day from its crude oil exports through 1998.
The deal pushed world oil prices up 14 percent on Monday.
But they fell back again Tuesday as traders paused for breath and checked for signs of weakness in the pact, which other members of the Organization of Petroleum Exporting Countries signed up to.
Indonesia Cuts Oil Output By 70,000 bpd-Minister
JAKARTA, March 25 - Indonesia's Mines and Energy Minister Kuntoro Mangkusubroto said on Wednesday the country would cut oil output by 70,000 barrels-per-day (bpd) from its OPEC quota level of 1.45 million bpd.
Kuntoro did not say when the cut would become effective. The move brings Indonesia in line with other OPEC members to help boost world oil prices.
''We will cut output by 70,000 bpd from our quota level of 1.45 million bpd,'' Kuntoro told Reuters.
''We are following other OPEC members in a move to boost world oil prices by cutting output,'' he added.
Kuntoro said Indonesia's state oil company Pertamina would inform oil contractors on the cut in output.
''Pertamina will evaluate which oil contractors will cut their production in line with the government's move. We believe the decision will not affect the government budget,'' he said.
''What we want is the price of oil to meet our 1998/99 budgetary price of $17 per barrel,'' he said.
Indonesia currently produces around 1.40 million bpd of crude oil, or lower than the allowed quota, and 170,000 bpd of condensate.
Condensate is not covered under the OPEC quota.
Kuntoro said he expected to attend the OPEC Ministerial Monitoring Committee (MMC) meeting in Vienna, scheduled for March 30.
Gulf Arab States Cut Oil Sales Under Riyadh Pact
DUBAI, March 24 - Gulf Arab oil producers took the first steps on Tuesday to remove more than 600,000 barrels per day (bpd) of crude from world markets in a bid to hike prices.
Leading Organisation of Petroleum Exporting Countries (OPEC) states Kuwait and United Arab Emirates (UAE) announced sales cuts to customers while kingpin Saudi Arabia indicated it was starting to claw back supplies.
These cut backs were the first hard evidence that a producers' pact hammered out in Riyadh on March 22 involving 16 countries had teeth, oil industry analysts said.
Oil traders are watching closely to see if the terms of the Riyadh pact -- which involves a total cut of 1.725 million bpd -- are actually carried out by producer states, few of which have a 100 percent track record in observing production quotas.
The Riyadh pact -- orchestrated by OPEC members Saudi Arabia and Venezuela and non-OPEC Mexico -- was a reaction to a slump in oil prices that reached nine-year-lows. Oil prices have gained more than $1.50 a barrel since the deal was hatched.
Gulf states Saudi Arabia, Kuwait, the UAE, Qatar, Oman together with non-Arab Iran have announced they will cut flows by a total of 750,000 bpd, one percent of world oil supplies.
The UAE was among the first to carry out its decision to cut its 2.3 million bpd of oil output by 125,000 bpd.
The state-owned Abu Dhabi National Oil Company (ADNOC) informed all its customers on Tuesday that it will cut exports by five percent for liftings in April and May.
''It's a cut to all customers, there is no exception,'' said one Gulf-based trader.
The UAE is Japan's main source of oil, supplying 1.34 million bpd in February, according to Japan's Ministry of International Trade and Industry (MITI).
State-owned Kuwait Petroleum Corp (KPC) has stopped all oil sales outside its main term contracts in the so-called ''spot market'' to meet its pledged cut of 125,000 bpd, traders said.
''KPC is rejecting all requests for spot sales,'' said one regular customer of the country's crude.
Saudi Arabia -- the world's largest oil producer and exporter -- was also trimming its spot sales in the market to meet its promised cut of 300,000 bpd, traders said.
Iran -- the world's third largest exporter behind Saudi Arabia and Norway -- has said it will cut 140,000 bpd from its OPEC quota of 3.94 million bpd. Industry sources estimate that Iran is already producing more than 140,000 bpd below its quota because of production problems at its fields.
OPEC member Qatar announced on Tuesday that it would cut 30,000 bpd from its current production from April 1 in line with the OPEC accord.
Industry sources estimate that Qatar is producing around 680,000 bpd, compared to its OPEC quota of 413,000 bpd.
Non-OPEC Oman has also pledged to cut output by 30,000 bpd.
Gulf Arab newspapers welcomed the Riyadh deal but said promised cuts had to be carried out if the accord was to have any weight.
''The Riyadh deal must not be compromised and all 16 major producers must work in concert,'' Qatar's Peninsula newspaper said in an editorial.
Saudi Arabia's Finance and National Economy Minister Ibrahim al-Assaf told Reuters that the kingdom -- which relies on oil for three quarters of state income -- was revising its economic growth predictions because of lower oil prices.
Russia Won't Cut Oil Output - Acting PM Kiriyenko
MOSCOW, March 25 - Russia's acting Prime Minister Sergei Kiriyenko said in an interview published on Wednesday that Russia cannot accept a fall in oil output despite current low prices on international markets.
''We definitely cannot allow a fall in oil production, and unfortunately a tendency towards a fall has emerged in March,'' he said in an interview in Segodnya newspaper.
Kiriyenko, who was minister of fuel and energy before his appointment as acting prime minister in a surprise government reshuffle on Monday, said that oil production was ''an extremely important indicator for the country.''
And he added that cutting output would have serious consequences. ''If wells are stopped, then 30 percent of them won't start up again,'' he said.
The Russian government has come under pressure from its producers who say they cannot afford the current tax burden while prices are so low. One producer, YUKSI (YFGA.RTS) (NYGS.RTS) has already said it will cut output by five percent.
The government has said it intends to ease the tax burden in an effort to prevent production cuts.
Russia is also under pressure from a large group of producing countries which agreed a deal in Riyadh in Saudi Arabia at the weekend to cut global output by up to two million barrels per day (bpd) in an effort to bolster prices.
An Organisation of Petroleum Exporting Countries (OPEC) source familiar with the discussions says the Riyadh pact assumes Russia will cut output by 100,000 bpd.
Iran's oil minister Bijan Zanganeh was expected in Moscow on Tuesday, but he put off his visit because of the political turmoil in Russia. It was believed he was coming to discuss possible production cuts with government officials.
Ecuador Won't Cut Oil Production
QUITO, March 24 (xinhua) -- Ecuador will not cut its present petroleum
production while some OPEC and non-OPEC oil producers decide to do so in a joint effort to rescue oil prices, Ecuadoran Energy Minister Alvaro Bermeo said on Tuesday.
"Ecuador is going to keep its production level for two reasons," he said.
Iraq's Hamdoon says oil flow to rise by end April
NEW YORK, March 24 (Reuters) - Iraq's ambassador to the United Nations, Nizar Hamdoon, said on Tuesday that the rate of oil exports under its U.N. ''oil-for-food'' deal should be up to $4 billion per 180 days by the end of April.
Under the oil program, Iraq is currently exporting at a rate that equates to around $3 billion every 180 days, or 1.3 million barrels per day, though it will have permission to export up to $5.256 billion worth once a new distribution plan for the proceeds is approved by the U.N.
''Oil will flow (at Iraq's capacity) as soon as the distribution plan is submitted and that is before the end of April...my estimate is sometime in the second half of April,'' Hamdoon said, in an interview with Reuters on Tuesday.
Iraq has said repeatedly that despite the $5.256 billion ceiling, it currently has capacity to export only $4 billion due to the poor state of its oil infrastructure.
The Security Council on February 20 approved expanding the oil for food sale from its current sales ceiling of $2 billion in six months to $5.26 billion. Iraq's current export rate stands around $3 billion over six months because Iraq is trying to catch up after a late start to the current six-month phase.
Hamdoon said Iraq will need between $250 million and $300 million to improve its oil infrastructure to allow for sales of $4 billion over six months. This money should be borrowed and then deducted from the $4 billion in sales once the expanded oil for food sale is enacted, he said.
The U.N. and Iraq met two weeks ago in New York on writing of the ''distribution plan,'' and will resume sessions this week in Baghdad, Hamdoon said.
The two sides are ''close'' on the major issues and Iraq will be able to submit a plan to the U.N. in the second part of April, which will trigger the start of the oil sale, Hamdoon said.
A team of oil experts on Sunday left Iraq and will report in about 10 days its findings on Iraq's current oil-producing capacity, and its export capacity. Hamdoon said Iraq knows what its export capacity is: about 1.65 million barrels per day.
However, Iraq will not be able to sustain such a rate of exports without much-needed repairs and spare parts, Hamdoon said. He said that under the best of conditions, Iraq will be able to export about two million barrels per day once between $250 million and $300 million are spent on the country's oil infrastructure.
"First, Ecuador is not an OPEC member state any more and secondly, our
petroleum production is so low compared with OPEC members that nothing willhappen if we increase or keep our production levels."
Ecuador quit the Organization of Petroleum Exporting Countries (OPEC) in 1992.
Last month, Mexico and some OPEC member states including Kuwait, Saudi
Arabia and Venezuela reached an agreement to cut production so as to stablize oil prices.
Their decision followed an oil glut in recent months that has depressed oil prices on world markets to a nine-year low. It resulted from a Saudi Arabia-led initiative last November to raise the OPEC production ceiling by around 10 percent, to 27.5 million barrels a day.
"We see a positive panorama for the petroleum market. But one should wait to speak about realities and not only about blueprints", Bermeo said.
He was satisfied with a possible recovery of crude prices because that would have a significant effect upon the internal revenue of his country.
Petroleum production finances 47 percent of Ecuador's general budget.
Without doubt the resolution to level petroleum demand and supply would pump up the price of the crude barrel, Bermeo said. |
