cera monthly oil briefing - cera alert - december 20 , 2000 title : cera monthly oil briefing : fundamentals update
e - mail category : cera monthly briefing
cera knowledge area : world oil
in the past two weeks , oil prices have sold off the premium or price strength
that had been built into the market in anticipation of possible shortages
this winter . the exact cause of the sharp switch in market psychology is hard
to pinpoint but seems to be a combination of very early signs that the oil
stock situation is at least stabilizing , even if stocks have not built
substantially , and that , thus far , despite a few weeks of colder - than - normal
temperatures , heating oil supply has been adequate to meet demand in the key
us market . that has allayed some of the concerns that were driving
speculative interest into the market . furthermore , the potential for weakness
in the us economy may be creating expectations for weaker oil demand in 2001 .
the change in market psychology was dramatically illustrated when news that
iraq was cutting off exports caused prices to slide , yet , the iraqi export
cutoff is having a concrete effect on fundamentals . if the cutoff lasts
through december , the effect will be pronounced - it would turn a projected
fourth quarter 2000 stockbuild of 0 . 5 million barrels per day ( mbd ) into a
stockdraw of 0 . 1 mbd . we expect iraqi production levels to remain erratic
because of its dispute with the un security council over sanctions , and
exports may again cease . at some point such a development would have a price
supportive effect .
cera ' s price outlook for 2001 remains the same as that in the world oil watch
released in late november . assuming normal winter weather and no prolonged or
repeated shutdowns of iraqi production , the projected average for first
quarter 2001 is $ 29 per barrel for wti . however , this outlook is based on
opec ' s announcing an agreement early in the first quarter to cut its
production by the start of the second quarter . a failure to restrain output
would result in a downward adjustment to an average of $ 27 wti for the first
quarter of 2001 , with prices lower in the second half of the quarter than in
the first . the downward pressure results from the prospect of a
larger - than - usual implied build in stocks during the second quarter of about
3 . 0 mbd - with a cut in opec output .
iraq in a twilight zone
as anticipated , iraq ceased exporting oil under the un - controlled " oil for
food " program as of december 1 in protest over the rejection by the security
council ' s sanctions committee of its proposed december export price schedule . *
iraq ' s pricing was judged by the un overseers , who monitor the export program
and advise the sanctions committee , to be about 60 cents per barrel below
comparable crudes in an apparent attempt to offset an illicit surcharge that
iraq was seeking from buyers .
although the standoff with the sanctions committee continues , iraq partially
resumed exporting on december 13 . since then , about 1 mbd has been exported
from the mina al - bakr terminal in the persian gulf . prior to the shutdown ,
iraqi exports under un auspices were at a rate of 2 . 21 mbd for november , as
compared with 2 . 08 mbd for the third quarter . exports for november were about
1 . 3 mbd from mina al - bakr and about 0 . 9 mbd from ceyhan in the mediterranean .
exports from ceyhan have not resumed , owing to the surcharge dispute , with
the result that about 1 . 2 mbd of iraqi crude remains off the market .
iraq ' s semi - shutdown has put it into a kind of twilight zone while its
dispute with the sanctions committee over pricing continues . ( in the midst of
this dispute , the un security council approved phase nine of the oil - for - food
program at the last minute on december 5 ; it became effective on december 6
and has been accepted by iraq ) . as of decemberl 9 , iraq ' s revised export price
for ceyhan , proposed for the remainder of december , has again been judged too
low by the overseers and is expected to be rejected by the sanctions
committee . additionally , the overseers have notified lifters of iraqi crude
that any oil payment made directly to iraq rather than to the un escrow
account would be a violation of un sanctions . buyers of iraqi oil from mina
al - bakr have consistently been reported as saying that they are not paying a
surcharge to iraq .
how long iraq may operate at about half capacity is unclear , but it continues
to request a surcharge payment from prospective lifters at ceyhan in an
apparent effort to circumvent and degrade the un financial controls that are
the heart of the sanctions system . the distinction that iraq has made between
mina al - bakr and ceyhan arose when it resumed operations at mina al - bakr by
loading two cargoes for the india oil company . iraq may have judged this
accommodation to be in its interest , since it recently also signed an oil
exploration contract with india under which payments would be made in oil . as
currently structured , the deal would violate un sanctions , but india is
seeking an exception from the security council on grounds of economic
hardship . the exception seems unlikely to be granted , which may lead iraq to
cease exports from mina al - bakr again .
there are many possible scenarios that iraq could follow , but we expect
uncertainty about iraqi exports to continue as iraq uses its oil exports as
leverage to undermine sanctions in its ongoing struggle with the security
council to end all restraints . consequently , the iraq factor will remain an
element in the oil price outlook .
iraq ' s antisanctions campaign has also raised the visibility of the iraq
issue in washington as the incoming bush administration prepares to take
office . secretary of state - designate colin powell has already acknowledged a
need to reassess iraq policy and has said that he would work to " reenergize "
sanctions . the iraq issue is being debated in virtually every foreign
policy - oriented think tank in washington . a consensus seems to be emerging
around seeking renewed international support and legitimacy for sanctions by
retaining un control over iraq ' s oil revenue and strictly enforcing a
prohibition on sales of weapons and related material while lifting general
trade controls that increasingly are both ineffective and an international
irritant . there is virtually no sentiment in favor of operations to
destabilize or remove the saddam hussein regime on the pragmatic basis that
the prospects for success are remote .
demand trends
record high us natural gas prices have increased the economic incentive for
gas consumers with the capability to switch from gas to distillate to do so ,
and reports of switching are emerging in a number of areas . interruptible gas
customers with resid or distillate fuel back - up have already switched to oil ,
so it is now firm gas supply customers with the potential to add to the
already high level of distillate demand . so far in december us distillate
demand is running at a record high december level of 3 . 9 mbd . however , only a
small portion of this demand is the result of economically based
fuel - switching from gas to distillate . cera estimates that the additional
demand likely to come from further switching of gas to distillate is
relatively small , on the order of 0 . 1 to 0 . 2 mbd . in cera ' s view it is likely
that only a portion of the theoretical capacity will be switched on short
notice because in some cases , this theoretically switchable capacity has not
been used in recent years , and tankage and delivery infrastructure may be in
uncertain condition .
switching by interruptible gas customers ( such as utilities ) to distillate
began about a month or more ago , although the volumes involved are relatively
small . switching to residual fuel already occurred months ago when gas prices
started to surge in the summer . a portion of the us secondary and tertiary
distillate stockbuild seen this autumn was likely prompted by interruptible
gas customers filling their reserve distillate fuel storage . given the
expectations of a tight gas market , regulators have been explicit about
enforcing back - up fuel storage requirements in the months leading up to the
current heating season .
other end users of natural gas have few or no options for fuel switching .
some ammonia and ethane producers have shut down operations because the cost
of feedstock natural gas is high . natural gas is also used in some enhanced
oil recovery operations , and some of these producers have also opted to sell
gas back to the grid rather than produce oil .
supply trends
non - opec supply for the fourth quarter is expected to be up 0 . 9 mbd over a
year earlier at 46 . 4 mbd . recent events include a shortfall in mexican
production , curtailed in october by about 300 , 000 bd owing to the effects of
hurricane keith . mexico ' s fourth quarter liquids production is expected to be
3 . 64 mbd - about 95 percent of mexican liquids capacity . norway ' s output
increased 200 , 000 bd from october to november as maintenance season ended .
norway ' s production for the fourth quarter is expected to be 3 . 53 mbd . *
growing russian crude oil production throughout the year is supporting a
recent surge in exports , in spite of higher export taxes . russian exports of
domestic oil production ( excluding transit volumes ) reached 2 . 5 mbd in
november , after remaining fairly steady at about 2 . 35 mbd from july though
october . fourth quarter oil exports are expected to average 2 . 5 mbd , 0 . 3 mbd
greater than in the fourth quarter 1999 .
cera estimates iraqi oil production averaged 2 . 91 mbd in november - down 0 . 1
mbd from the october level . the cutoff in exports earlier this month reduced
iraqi output for the first 12 days of december to roughly 0 . 8 mbd . iraq
resumed exports of about 1 mbd on december 13 , which raised production to
1 . 80 mbd . assuming no change in iraq ' s current production stance , iraqi
production would average 1 . 41 mbd for december . on a quarterly basis , the
decline in iraq output would lead to estimated opec output in the fourth
quarter of 29 . 0 mbd and would turn an estimated global oil stockbuild of 0 . 5
mbd into a stockdraw of 0 . 1 mbd . these production estimates include 0 . 15 mbd
of crude oil exports to syria that began on november 20 without un
authorization and are continuing .
oil stocks
us crude oil inventories ( doe data ) have climbed intermittently from an
annual low of 280 million barrels in september and reached 292 million
barrels in mid - december ( see figure 1 ) . since prices weakened in late
november , crude oil stocks have stabilized above the annual low in september
and the ranges seen in october to levels from 289 - 292 million barrels .
primary inventories of us heating oil remain well below year - earlier levels ;
at 48 million barrels they are 15 million barrels , or 24 percent less , than
those of a year ago , but there are indications of builds in secondary and
tertiary inventories . we estimate that wholesale and consumer stocks are up
5 - 10 million barrels since august and are actually higher than they were at
the end of last year .
in europe crude oil stocks are at more comfortable levels when compared with
those of the united states . in november stocks rose nearly 9 million barrels
to 426 million barrels . at this level they are below the highs of 1999 but
well above the low levels of early 1996 ( see figure 2 ) . japanese crude oil
inventories at end - october were 107 . 6 million barrels , which is above the
record low set earlier this year but still well below levels seen in recent
years ( see figure 3 ) .
come shoot the rapids with us at ceraweek 2001 , " shooting the rapids :
strategies and risks for the energy future " in houston , february 12 - 16 ,
2001 ! ? for more information and to register , please visit
http : / / www 20 . cera . com / ceraweek /
to make changes to your cera . com account go to :
forgot your username and password ? go to :
http : / / www 20 . cera . com / client / forgot
this electronic message and attachments , if any , contain information from
cambridge energy research associates , inc . ( cera ) which is confidential and
may be privileged . unauthorized disclosure , copying , distribution or use of
the contents of this message or any attachments , in whole or in part , is
strictly prohibited .
terms of use : http : / / www 20 . cera . com / tos
questions / comments : webmaster @ cera . com
copyright 2000 . cambridge energy research associates
cera monthly oil briefing - cera alert - december 20 , 2000
title : cera monthly oil briefing : fundamentals update
e - mail category : cera monthly briefing
cera knowledge area : world oil
in the past two weeks , oil prices have sold off the premium or price strength
that had been built into the market in anticipation of possible shortages
this winter . the exact cause of the sharp switch in market psychology is hard
to pinpoint but seems to be a combination of very early signs that the oil
stock situation is at least stabilizing , even if stocks have not built
substantially , and that , thus far , despite a few weeks of colder - than - normal
temperatures , heating oil supply has been adequate to meet demand in the key
us market . that has allayed some of the concerns that were driving
speculative interest into the market . furthermore , the potential for weakness
in the us economy may be creating expectations for weaker oil demand in 2001 .
the change in market psychology was dramatically illustrated when news that
iraq was cutting off exports caused prices to slide , yet , the iraqi export
cutoff is having a concrete effect on fundamentals . if the cutoff lasts
through december , the effect will be pronounced - it would turn a projected
fourth quarter 2000 stockbuild of 0 . 5 million barrels per day ( mbd ) into a
stockdraw of 0 . 1 mbd . we expect iraqi production levels to remain erratic
because of its dispute with the un security council over sanctions , and
exports may again cease . at some point such a development would have a price
supportive effect .
cera ' s price outlook for 2001 remains the same as that in the world oil watch
released in late november . assuming normal winter weather and no prolonged or
repeated shutdowns of iraqi production , the projected average for first
quarter 2001 is $ 29 per barrel for wti . however , this outlook is based on
opec ' s announcing an agreement early in the first quarter to cut its
production by the start of the second quarter . a failure to restrain output
would result in a downward adjustment to an average of $ 27 wti for the first
quarter of 2001 , with prices lower in the second half of the quarter than in
the first . the downward pressure results from the prospect of a
larger - than - usual implied build in stocks during the second quarter of about
3 . 0 mbd - with a cut in opec output .
iraq in a twilight zone
as anticipated , iraq ceased exporting oil under the un - controlled " oil for
food " program as of december 1 in protest over the rejection by the security
council ' s sanctions committee of its proposed december export price schedule . *
iraq ' s pricing was judged by the un overseers , who monitor the export program
and advise the sanctions committee , to be about 60 cents per barrel below
comparable crudes in an apparent attempt to offset an illicit surcharge that
iraq was seeking from buyers .
although the standoff with the sanctions committee continues , iraq partially
resumed exporting on december 13 . since then , about 1 mbd has been exported
from the mina al - bakr terminal in the persian gulf . prior to the shutdown ,
iraqi exports under un auspices were at a rate of 2 . 21 mbd for november , as
compared with 2 . 08 mbd for the third quarter . exports for november were about
1 . 3 mbd from mina al - bakr and about 0 . 9 mbd from ceyhan in the mediterranean .
exports from ceyhan have not resumed , owing to the surcharge dispute , with
the result that about 1 . 2 mbd of iraqi crude remains off the market .
iraq ' s semi - shutdown has put it into a kind of twilight zone while its
dispute with the sanctions committee over pricing continues . ( in the midst of
this dispute , the un security council approved phase nine of the oil - for - food
program at the last minute on december 5 ; it became effective on december 6
and has been accepted by iraq ) . as of decemberl 9 , iraq ' s revised export price
for ceyhan , proposed for the remainder of december , has again been judged too
low by the overseers and is expected to be rejected by the sanctions
committee . additionally , the overseers have notified lifters of iraqi crude
that any oil payment made directly to iraq rather than to the un escrow
account would be a violation of un sanctions . buyers of iraqi oil from mina
al - bakr have consistently been reported as saying that they are not paying a
surcharge to iraq .
how long iraq may operate at about half capacity is unclear , but it continues
to request a surcharge payment from prospective lifters at ceyhan in an
apparent effort to circumvent and degrade the un financial controls that are
the heart of the sanctions system . the distinction that iraq has made between
mina al - bakr and ceyhan arose when it resumed operations at mina al - bakr by
loading two cargoes for the india oil company . iraq may have judged this
accommodation to be in its interest , since it recently also signed an oil
exploration contract with india under which payments would be made in oil . as
currently structured , the deal would violate un sanctions , but india is
seeking an exception from the security council on grounds of economic
hardship . the exception seems unlikely to be granted , which may lead iraq to
cease exports from mina al - bakr again .
there are many possible scenarios that iraq could follow , but we expect
uncertainty about iraqi exports to continue as iraq uses its oil exports as
leverage to undermine sanctions in its ongoing struggle with the security
council to end all restraints . consequently , the iraq factor will remain an
element in the oil price outlook .
iraq ' s antisanctions campaign has also raised the visibility of the iraq
issue in washington as the incoming bush administration prepares to take
office . secretary of state - designate colin powell has already acknowledged a
need to reassess iraq policy and has said that he would work to " reenergize "
sanctions . the iraq issue is being debated in virtually every foreign
policy - oriented think tank in washington . a consensus seems to be emerging
around seeking renewed international support and legitimacy for sanctions by
retaining un control over iraq ' s oil revenue and strictly enforcing a
prohibition on sales of weapons and related material while lifting general
trade controls that increasingly are both ineffective and an international
irritant . there is virtually no sentiment in favor of operations to
destabilize or remove the saddam hussein regime on the pragmatic basis that
the prospects for success are remote .
demand trends
record high us natural gas prices have increased the economic incentive for
gas consumers with the capability to switch from gas to distillate to do so ,
and reports of switching are emerging in a number of areas . interruptible gas
customers with resid or distillate fuel back - up have already switched to oil ,
so it is now firm gas supply customers with the potential to add to the
already high level of distillate demand . so far in december us distillate
demand is running at a record high december level of 3 . 9 mbd . however , only a
small portion of this demand is the result of economically based
fuel - switching from gas to distillate . cera estimates that the additional
demand likely to come from further switching of gas to distillate is
relatively small , on the order of 0 . 1 to 0 . 2 mbd . in cera ' s view it is likely
that only a portion of the theoretical capacity will be switched on short
notice because in some cases , this theoretically switchable capacity has not
been used in recent years , and tankage and delivery infrastructure may be in
uncertain condition .
switching by interruptible gas customers ( such as utilities ) to distillate
began about a month or more ago , although the volumes involved are relatively
small . switching to residual fuel already occurred months ago when gas prices
started to surge in the summer . a portion of the us secondary and tertiary
distillate stockbuild seen this autumn was likely prompted by interruptible
gas customers filling their reserve distillate fuel storage . given the
expectations of a tight gas market , regulators have been explicit about
enforcing back - up fuel storage requirements in the months leading up to the
current heating season .
other end users of natural gas have few or no options for fuel switching .
some ammonia and ethane producers have shut down operations because the cost
of feedstock natural gas is high . natural gas is also used in some enhanced
oil recovery operations , and some of these producers have also opted to sell
gas back to the grid rather than produce oil .
supply trends
non - opec supply for the fourth quarter is expected to be up 0 . 9 mbd over a
year earlier at 46 . 4 mbd . recent events include a shortfall in mexican
production , curtailed in october by about 300 , 000 bd owing to the effects of
hurricane keith . mexico ' s fourth quarter liquids production is expected to be
3 . 64 mbd - about 95 percent of mexican liquids capacity . norway ' s output
increased 200 , 000 bd from october to november as maintenance season ended .
norway ' s production for the fourth quarter is expected to be 3 . 53 mbd . *
growing russian crude oil production throughout the year is supporting a
recent surge in exports , in spite of higher export taxes . russian exports of
domestic oil production ( excluding transit volumes ) reached 2 . 5 mbd in
november , after remaining fairly steady at about 2 . 35 mbd from july though
october . fourth quarter oil exports are expected to average 2 . 5 mbd , 0 . 3 mbd
greater than in the fourth quarter 1999 .
cera estimates iraqi oil production averaged 2 . 91 mbd in november - down 0 . 1
mbd from the october level . the cutoff in exports earlier this month reduced
iraqi output for the first 12 days of december to roughly 0 . 8 mbd . iraq
resumed exports of about 1 mbd on december 13 , which raised production to
1 . 80 mbd . assuming no change in iraq ' s current production stance , iraqi
production would average 1 . 41 mbd for december . on a quarterly basis , the
decline in iraq output would lead to estimated opec output in the fourth
quarter of 29 . 0 mbd and would turn an estimated global oil stockbuild of 0 . 5
mbd into a stockdraw of 0 . 1 mbd . these production estimates include 0 . 15 mbd
of crude oil exports to syria that began on november 20 without un
authorization and are continuing .
oil stocks
us crude oil inventories ( doe data ) have climbed intermittently from an
annual low of 280 million barrels in september and reached 292 million
barrels in mid - december ( see figure 1 ) . since prices weakened in late
november , crude oil stocks have stabilized above the annual low in september
and the ranges seen in october to levels from 289 - 292 million barrels .
primary inventories of us heating oil remain well below year - earlier levels ;
at 48 million barrels they are 15 million barrels , or 24 percent less , than
those of a year ago , but there are indications of builds in secondary and
tertiary inventories . we estimate that wholesale and consumer stocks are up
5 - 10 million barrels since august and are actually higher than they were at
the end of last year .
in europe crude oil stocks are at more comfortable levels when compared with
those of the united states . in november stocks rose nearly 9 million barrels
to 426 million barrels . at this level they are below the highs of 1999 but
well above the low levels of early 1996 ( see figure 2 ) . japanese crude oil
inventories at end - october were 107 . 6 million barrels , which is above the
record low set earlier this year but still well below levels seen in recent
years ( see figure 3 ) .
come shoot the rapids with us at ceraweek 2001 , " shooting the rapids :
strategies and risks for the energy future " in houston , february 12 - 16 ,
2001 ! ? for more information and to register , please visit
http : / / www 20 . cera . com / ceraweek /
to make changes to your cera . com account go to :
forgot your username and password ? go to :
http : / / www 20 . cera . com / client / forgot
this electronic message and attachments , if any , contain information from
cambridge energy research associates , inc . ( cera ) which is confidential and
may be privileged . unauthorized disclosure , copying , distribution or use of
the contents of this message or any attachments , in whole or in part , is
strictly prohibited .
terms of use : http : / / www 20 . cera . com / tos
questions / comments : webmaster @ cera . com
copyright 2000 . cambridge energy research associates