Oil production drops, concern about heating oil supply Filed: 07/11/2000

LONDON (AP)  World oil production fell in June despite increased output by most OPEC members, and a key industry watcher expressed concern about the possibility of heating oil shortages later this year.

Refiners are now concentrating on gasoline production at the expense of heating fuel, the International Energy Agency said Tuesday in its June report.

World oil production was down 420,000 barrels per day in June, dragged down by a decrease of 490,000 barrels per day in Iraqi output, the IEA said. Production by other OPEC countries rose by 250,000 barrels per day.

Distillate and gasoline stocks remain well below 1999 levels, a situation that "warrants serious attention," the IEA reported.

"This is not just a U.S. problem," said David Knapp, editor of the IEA's monthly oil report. "It is really an Atlantic Basin problem. The European stocks of distillate and gas are also low."

On Monday, President Clinton said he was moving to stockpile 2 million barrels of heating oil in the Northeast in an attempt to avoid a repeat of last winter's sharp jump in heating oil prices.

The United States has 37 million barrels of heating oil in inventory, about half as much as a year ago, said Gene Sperling, the president's chief economic adviser.

Iraqi crude supply for June averaged 2.56 million barrels per day, while exports were 1.94 million barrels per day. The seventh phase of the U.N. oil-for-food program expired June 8, but Iraq didn't sign the memorandum of understanding for next phase until June 22.

On June 21, OPEC nations excluding Iraq raised their production target effective July 1 by 708,000 barrels per day to 25.4 million barrels per day. Those nations had already exceeded that target in June, the IEA said, with production averaging 25.49 million barrels per day.

World oil production averaged 76.48 million barrels per day in June, a drop of 420,000 barrels a day from May. Crude prices rose because of "speculative interest, low crude and product inventories and strong gasoline demand," the IEA reported.

The state of the market was discouraging refiners, the report said.

"The trouble is that the market is confused and nervous," the report added, because of uncertainty about what producers will do next.

"Refiners do not really believe today's prices are sustainable, and hesitate to run crude for product restocking: but product stocks are already unacceptably low because of similar uncertainties earlier in the year..."

The report added that much of the crude coming into the market is heavier and higher in sulfur than the light crudes normally used to refine gasoline, and stricter standards are being imposed in the United States to minimize pollution.

The heavy crudes "will be difficult and expensive to refine into gasoline, particularly gasoline meeting the new standards," the report said.

"In fact, the weekly average prices of some of these crudes (Urals and Iranian Heavy) have actually declined over the last five weeks and others, such as Dubai and West Texas Sour, have increased only slightly."

http://www.bakersfield.com/oil/i--1248818680.asp

-- Martin Thompson (mthom1927@aol.com), July 11, 2000