Refiners of heavy, high-sulfur crude face prosperous years

Refiners face several prosperous years, especially those able to convert heavy, high-sulfur crude to light products, industry representatives said at a conference in London. Population growth and an increase in per-capital energy consumption in rapidly developing China and India will keep demand strong, said Tom O'Malley, chairman of US independent refiner Premcor Inc. Other speakers at a Wood Mackenzie refining seminar held in conjunction with the Energy Institute's International Petroleum Week assessed refining prospects in specific regions. "The biggest winners in the refining industry will be those companies that can deal with very heavy and high-sulfur crude oil," O'Malley said, adding that his company's high-conversion refineries make twice to three times as much money running heavy crude than it does with higher quality feedstock. Worldwide, he noted, "We have very little light crude oil coming on stream." He expects 2005-07 to be "extraordinary years for refining" but warned: "$100[/bbl] crude oil will derail it." He pointed to a "countertrade" developing in the Atlantic Basin, with the US exporting diesel to Europe and Europe exporting gasoline to the US. Refining capacity needs to grow, but construction faces resistance in the US and Europe. "We went from 'not in my neighborhood' in terms of construction to 'not anywhere in my country' in terms of construction," O'Malley said. Construction, he said, is likely in China and India, while expansion of existing plants is all that will occur in the US and Europe. Asked about energy policy and the likelihood of an ethanol mandate for gasoline sold in the US, O'Malley said President George W. Bush "has enough power now to push it through." And he added, "Ethanol is truly one of the dumb things to do."

Oil prices merit re-examining of supply/demand fundamentals

The supply and demand curves for oil aren't behaving the way we were taught they should. Consequently, every drop counts. Last year's relentless upward surge in oil prices was different from other increases, and not only for the heights it reached. Never before had the benchmark price of West Texas Intermediate (WTI) crude passed even $45/bbl, much less $50. And the caveat that "real prices were higher in the late 1970s" was little more than cold comfort.No, 2004's price surge was different because of what “the chart” said. Which chart? One of the first you see in Economics 101, with demand going in one direction along the price axis, supply coming the other way, and both intersecting nicely and neatly.The problem with "the chart," however, was that, although every student could see that supply increased with price, they could also see that at a certain point supply couldn’t go any higher because there was none left. The price of oil has surged plenty of times in the past. But spikes in other years always seemed to be associated with a particular event that could be cited as their cause: the Arab embargo of 1973–1974, the Iranian Revolution of 1979, or the disappearance from the market of Iraq and Kuwait in 1990–1991 following Saddam Hussein’s invasion of the latter. Even during price surges in those times, the world always had enough surplus capacity to produce more oil. Always, there was the belief that once the “temporary market situation” was resolved, there would be a return to normalcy. Normalcy was essentially guaranteed by the world’s spare capacity.Defying expectationsBut the oil price surge of 2004 wasn’t caused by any event. Instead, it could be explained by referring to that portion of "the chart" where the supply curve no longer follows the price curve. What's more, even as the price of oil moved into the $50 territory, on the chart the demand curve was defying Economics 101 lessons by refusing to flatten. To be sure, factors that are somewhat political could be blamed for this year's imbalance, as in the past. But it remains to be seen whether those factors are temporary or should now be considered permanent features of the oil industry’s landscape.

PDVSA to sell CITGO ops and buy Shell ops in Argentina

Venezuelan President Hugo Chavez said Tuesday in Buenos Aires that Venezuela´s oil company PDVSA wants to sell its refining operations in the U.S., while is in talks to buy the Argentine operations of Shell Group. Venezuela´s Energy and oil minister said tha Felix Rodriguez is the new CITGO´s CEO.

"Our strategy is to look for businesses in the North to sell, such refineries
( CITGO) ," While with Shell "We have a common interest," the latter wants to get out of Latin America while PDVSA wants to expand in the region, Chavez said AP quoted.

PDVSA's strategy of getting out of the US while expand elsewhere, Latin American, China, is consistent with the strain relationship of Chavez with the U.S. and enhance business relations with China and Iran among other countries to minimize Venezuela's dependence on the United States.

On the PDVSA assets in the Northern Hemisphere, he called such operations "very bad business for us." "We are subsidizing Mr. Bush," Chavez said, He likened the system to "economic colonialism." Chavez added, AP quoted.

Chavez is in Buenos Aires inaugurating two service stations run bwtween PDVSA and Argentina´s new oil cpmany Enarsa.

Chavez strategy in expanding in Argentina buying Shell´s 600 Argentine service stations, which Chavez confirmed the two sides are discussing, along with Shell´s refining, lubricants and transportation.

Rafael Ramirez Venezuela´s Energy and Oil Minister told Dow Jones Newswires that "we should know the results of the negotiations (with Shell) in a few months." Ramirez is traveling with Chavez.

Separately, Ramirez said the government has named Felix Rodriguez as the new CEO CITGO.

"He was named last week ... he starts this week," Ramirez said, Dow Jones quoted.

Venezuela is the world's fifth largest oil exporter, one of five top crude suppliers to the United States.