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 past two weeks oil prices sold premium price strength built market anticipation possible shortages winter exact cause sharp switch market psychology hard pinpoint seems combination early signs oil stock situation least stabilizing even stocks built substantially thus far despite weeks colder normal temperatures heating oil supply adequate meet demand key us market allayed concerns driving speculative interest market furthermore potential weakness us economy may creating expectations weaker oil demand 2001 change market psychology dramatically illustrated news iraq cutting exports caused prices slide yet iraqi export cutoff concrete effect fundamentals cutoff lasts december effect pronounced would turn projected fourth quarter 2000 stockbuild 0 5 million barrels per day mbd stockdraw 0 1 mbd expect iraqi production levels remain erratic dispute un security council sanctions exports may cease point development would price supportive effect cera price outlook 2001 remains world oil watch released late november assuming normal winter weather prolonged repeated shutdowns iraqi production projected average first quarter 2001 29 per barrel wti however outlook based opec announcing agreement early first quarter cut production start second quarter failure restrain output would result downward adjustment average 27 wti first quarter 2001 prices lower second half quarter first downward pressure results prospect larger usual implied build stocks second quarter 3 0 mbd cut opec output iraq twilight zone anticipated iraq ceased exporting oil un controlled oil food program december 1 protest rejection security council sanctions committee proposed december export price schedule iraq pricing judged un overseers monitor export program advise sanctions committee 60 cents per barrel comparable crudes apparent attempt offset illicit surcharge iraq seeking buyers although standoff sanctions committee continues iraq partially resumed exporting december 13 since 1 mbd exported mina al bakr terminal persian gulf prior shutdown iraqi exports un auspices rate 2 21 mbd november compared 2 08 mbd third quarter exports november 1 3 mbd mina al bakr 0 9 mbd ceyhan mediterranean exports ceyhan resumed owing surcharge dispute result 1 2 mbd iraqi crude remains market iraq semi shutdown put kind twilight zone dispute sanctions committee pricing continues midst dispute un security council approved phase nine oil food program last minute december 5 became effective december 6 accepted iraq decemberl 9 iraq revised export price ceyhan proposed remainder december judged low overseers expected rejected sanctions committee additionally overseers notified lifters iraqi crude oil payment made directly iraq rather un escrow account would violation un sanctions buyers iraqi oil mina al bakr consistently reported saying paying surcharge iraq long iraq may operate half capacity unclear continues request surcharge payment prospective lifters ceyhan apparent effort circumvent degrade un financial controls heart sanctions system distinction iraq made mina al bakr ceyhan arose resumed operations mina al bakr loading two cargoes india oil company iraq may judged accommodation interest since recently also signed oil exploration contract india payments would made oil currently structured deal would violate un sanctions india seeking exception security council grounds economic hardship exception seems unlikely granted may lead iraq cease exports mina al bakr many possible scenarios iraq could follow expect uncertainty iraqi exports continue iraq uses oil exports leverage undermine sanctions ongoing struggle security council end restraints consequently iraq factor remain element oil price outlook iraq antisanctions campaign also raised visibility iraq issue washington incoming bush administration prepares take office secretary state designate colin powell already acknowledged need reassess iraq policy said would work reenergize sanctions iraq issue debated virtually every foreign policy oriented think tank washington consensus seems emerging around seeking renewed international support legitimacy sanctions retaining un control iraq oil revenue strictly enforcing prohibition sales weapons related material lifting general trade controls increasingly ineffective international irritant virtually sentiment favor operations destabilize remove saddam hussein regime pragmatic basis prospects success remote demand trends record high us natural gas prices increased economic incentive gas consumers capability switch gas distillate reports switching emerging number areas interruptible gas customers resid distillate fuel back already switched oil firm gas supply customers potential add already high level distillate demand far december us distillate demand running record high december level 3 9 mbd however small portion demand result economically based fuel switching gas distillate cera estimates additional demand likely come switching gas distillate relatively small order 0 1 0 2 mbd cera view likely portion theoretical capacity switched short notice cases theoretically switchable capacity used recent years tankage delivery infrastructure may uncertain condition switching interruptible gas customers utilities distillate began month ago although volumes involved relatively small switching residual fuel already occurred months ago gas prices started surge summer portion us secondary tertiary distillate stockbuild seen autumn likely prompted interruptible gas customers filling reserve distillate fuel storage given expectations tight gas market regulators explicit enforcing back fuel storage requirements months leading current heating season end users natural gas options fuel switching ammonia ethane producers shut operations cost feedstock natural gas high natural gas also used enhanced oil recovery operations producers also opted sell gas back grid rather produce oil supply trends non opec supply fourth quarter expected 0 9 mbd year earlier 46 4 mbd recent events include shortfall mexican production curtailed october 300 000 bd owing effects hurricane keith mexico fourth quarter liquids production expected 3 64 mbd 95 percent mexican liquids capacity norway output increased 200 000 bd october november maintenance season ended norway production fourth quarter expected 3 53 mbd growing russian crude oil production throughout year supporting recent surge exports spite higher export taxes russian exports domestic oil production excluding transit volumes reached 2 5 mbd november remaining fairly steady 2 35 mbd july though october fourth quarter oil exports expected average 2 5 mbd 0 3 mbd greater fourth quarter 1999 cera estimates iraqi oil production averaged 2 91 mbd november 0 1 mbd october level cutoff exports earlier month reduced iraqi output first 12 days december roughly 0 8 mbd iraq resumed exports 1 mbd december 13 raised production 1 80 mbd assuming change iraq current production stance iraqi production would average 1 41 mbd december quarterly basis decline iraq output would lead estimated opec output fourth quarter 29 0 mbd would turn estimated global oil stockbuild 0 5 mbd stockdraw 0 1 mbd production estimates include 0 15 mbd crude oil exports syria began november 20 without un authorization continuing oil stocks us crude oil inventories doe data climbed intermittently annual low 280 million barrels september reached 292 million barrels mid december see figure 1 since prices weakened late november crude oil stocks stabilized annual low september ranges seen october levels 289 292 million barrels primary inventories us heating oil remain well year earlier levels 48 million barrels 15 million barrels 24 percent less year ago indications builds secondary tertiary inventories estimate wholesale consumer stocks 5 10 million barrels since august actually higher end last year europe crude oil stocks comfortable levels compared united states november stocks rose nearly 9 million barrels 426 million barrels level highs 1999 well low levels early 1996 see figure 2 japanese crude oil inventories end october 107 6 million barrels record low set earlier year still well levels seen recent years see figure 3 come shoot rapids us ceraweek 2001 shooting rapids strategies risks energy future houston february 12 16 2001 information register please visit http www 20 cera com ceraweek make changes cera com account go forgot username password go http www 20 cera com client forgot electronic message attachments contain information cambridge energy research associates inc cera confidential may privileged unauthorized disclosure copying distribution use contents message attachments whole part strictly prohibited terms use http www 20 cera com tos questions comments webmaster cera com copyright 2000 cambridge energy research 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