News archive August 2003

Oil workers in Nigeria are threatening strike action in protest of an oil majors' restructuring plans. Union leaders are saying the restructuring will lead to job cuts, although the oil major denies this claim. The protests come on top of weeks of civil unrest in the oil producing areas of Nigeria and could jeopardise exports. Over the past few days nearly 100 people have been killed and more than 1,000 injured in ethnic warfare which has rocked the oil city of Warri in the past week.

One industry report estimates that at least 200,000 barrels are currently being lost from production on a daily basis in Nigeria as a result of the instability. Production averaged 2.1mb/d in the 1h03. In April of this year, output fell to 1.88mb/d due to field closures in response to civil unrest.

The latest report from the International Grains Council (IGC) forecasts a drop in the world wheat and coarse grain trades in 2003/04. As a result of large domestic wheat crops in Brazil, China and Iran and lower yield forecasts in Europe, the IGC lowered its forecast by 2 Mt for the world wheat trade in 2003/04 from last month. The world wheat trade is predicted to fall to 97Mt -- 6 Mt lower than the 2002/03 level. The IGC maintains its forecast of 104 Mt for the world coarse grain trade in 2003/04 -- still down 3 Mt from the 2002/03 estimates.

Leaked drafts of the IMF's world economic outlook report suggest that the fund has revised its forecasts for US economic growth upwards, according to the Financial Times. The US forecast has reportedly been raised to 2.4% this year and 3.7% for 2004, however, the report expressed concern over the US current account imbalances. Moreover, predictions for economic growth in the eurozone this year were allegedly revised downwards -- more than halved to 0.5% -- following recent disappointing announcements on growth in France, Germany, Italy and the Netherlands.

Chinese GDP in the 1h03 rose 8.2% over the same period last year, exceeding 5 trillion yuan (US$605 billion), state officials have announced. However, as China Economic Net reports, the minister of the National Development and Reform Commission added a note of caution, commenting that the steel and construction sectors still faced "wasteful" practices. He also warned against the rapid increase in the number of loans granted by China's financial institutions.

Australian coal exports during July 2003 have risen by 4.3% on July 2002 to 17.5 Mt, McCloskey reports. Exports in the January-July period have also increased on the same period last year -- up 4.9%. The high levels of Australian exports have been linked to strong demand from Japan, which, according to McCloskey, has increased following fears over Chinese supplies and the upcoming introduction of the carbon tax on imported coal to Japan in October.

A senior member of the US army has suggested crude oil production in the Kirkuk region will increase by more than 50% to reach a daily
output of 770,000 bpd by December. The northern oil fields are currently producing around 0.5 M bd compared to their pre war levels of 0.8 - 0.9 M bd.
Repairs to the Ceyhan pipeline are due to be completed at the end of the week, the capacity of a fully operational pipeline is 300,000 bd from the Kirkuk oil fields. Baghdad is targeting an output of 800,000 bd in September, nearly half of its pre war total of 1.7 M bd. Total Iraqi production is expected to reach half of pre war levels (2.8 M bd) next month.

In the latest edition of Oil Market Intelligence (OMI), Venezuela's president is quoted as saying he will defend his "revolution" by force if necessary in response to attempts to mount a referendum against his rule. "The confrontation between government and opposition looks set to intensify and could have an impact on already wobbly production targets," reports the OMI. This in turn could lead to fewer cargoes, putting direct downward pressure on TD9 and have a knock on effect onto other Atlantic clean and dirty routes. Meanwhile, the OMI also reports on the US gasoline stocks - saying the picture is "not pretty" as inventories continue to remain below their average range. For week ending Aug 15, US gasoline inventories slumped, putting inventories at their lowest level in nine months.

US crude and gasoline inventories have fallen again, adding to the upward pressure on domestic prices for the United States, particularly since the electricity cuts and refinery outages late last week. Meanwhile there are signs that the US economy is improving with preliminary figures indicating a rise in consumer confidence in August from the previous month. The growth signals in the United States has helped drive up the dollar today in trading. The improved economic picture and low inventories could raise oil and tanker demand particularly in the run up to the American winter season.

The Chinese news agency Xinhua reports that the Chinese government is attempting to slow aluminium production by holding back approval of the construction of new aluminium plants as well as the expansion of existing production facilities. According to Lloyd's Register, government sources estimate that scheduled new capacity could reach 9 Mt/year, exceeding market demand and causing a glut in supply. Official sources state that approximately 0.7 Mt of added capacity will not become operational due to shortages of power and alumina.

French GDP fell by 0.3% in the 2q03, the Financial Times reports, leading to speculation that the EU statistics institute Eurostat will now revise its forecast for eurozone economic growth in the 2q downwards. Today's announcement by the German Federal Statistics Office that GDP in the country decreased for the second successive quarter (by 0.1%) means that Germany together with Italy and the Netherlands are technically in recession.

According to the US Energy Department, gasoline stocks at the end of last week were the lowest for 9 months at 196.9 million barrels. They have dropped by 1.2 million barrels over the last week, and in the light of last week's refinery closures, due to power failures, the inventories are even tighter in the West Coast. Gasoline demand over the last 4 weeks was 1.8% higher than a year ago, and with the US driving season still current, upward pressure is being exerted on gasoline futures.
With refinery throughputs under pressure, a demand for imports of clean products in the short term is likely.

Chinese coal exports in July 2003 have risen by 1.15 Mt on the same month last year to 9.44 Mt, making July the strongest month for exports this year, McCloskey reports. Year-to-date figures also indicate a year-on-year increase in coal exports of some 6.85 Mt to 55.18 Mt. However, supply in the near future could be set to slow after a series of three large mine disasters in the last two weeks. According to the BBC, officials in Shanxi have now instructed privately owned local mines in the province to close for seven days to allow safety inspections.

CVRD is to expand its iron ore production capacity at Caraj

There is some consensus amongst economists that Japan's economy could achieve growth of at least 1% this year despite earlier forecasts of an economic contraction. Reports today suggest that GDP growth could reach 1.4% for the fiscal 2003 year, based on a Reuters poll of 20 experts. This is based on improved Japanese exports and capital spending by domestic manufacturing companies in response to better than expected US economic recovery.

The implication of the latest forecast for the tanker sector could mean some fundamental growth for oil and tanker demand later this year. This would be at a time when the exceptional oil imports for power generation could start to tail-off, should Japan's nuclear generators be reactivated in the balance of this year.

Oil prices were slightly lower today on reported profit taking by traders.

The latest International Iron & Steel Institute report records a 7.7% year-on-year rise in global steel production to an estimated 79.9 Mt in July 2003, up only 0.9% compared with the previous month, however. Chinese steel production continued to expand rapidly -- up 20.3% over July 2002 and making up 22% of July's global output. Other Asian countries also recorded large increases (output in India and Japan rose by 14.1% and 3.1% YOY, respectively). While EU steel production grew over the same period by 2.4%, its largest steel producer, Germany, saw its output fall 7.8% from July 2002.

Such figures reflect Germany's disappointing economic performance (its GDP in the 2q03 decreased by an annualised rate of 0.2%) and encouraging news from Asia-Pacific (Japan's GDP beat expectations, growing 2.1% in the 1h03).

Having only resumed pumping last Wednesday, for the first time since the war in Iraq ended, the export pipeline to Ceyhan has already been sabotaged. This will prolong the time before Iraqi exports will return to the market via the Mediterranean. Reports suggest that it could be 2 months before the pipeline will be back in service again.
There are also reports today of further ethnic violence in the Niger Delta area which may cause further disruption to oil supplies from Nigeria.

A temporary iron ore export terminal is to be built at the Indian port of Ennore. With a capacity of 2 Mt/year, the new facility is due to be operational by December, according to Metal Bulletin, and should further boost exports to China. In the 1h03 China imported 16.6 Mt of Indian ore -- up 41% on the 1h02.

The widespread power cuts yesterday in North East USA and Canada, have caused the closure of at least six refineries, amounting to more than 600,000 bbls/day of refining capacity. With the current high level of demand for gasoline, due to the US driving season, and inventories being at their lowest level for 9 months, refineries will be concentrating on gasoline production in the short term, thus possibly creating demand for imports of other products.

The US Department of Agriculture (USDA) estimates that the soybean trades are poised to benefit from the arid weather conditions that have lowered grain production in Europe. The USDA forecasts that the EU will raise soybean imports by just under 1 Mt from 2002/03 to 18.6 Mt in 2003/04, surpassing the Chinese soybean import level of 18.5 Mt. Brazil is expected to export an additional 2.1 Mt.

According to a report from Reuters today, looting of copper power lines is hampering exports of crude from the southern oilfields. A senior oil ministry spokesman said that exports have fallen from 500,000 bbls/day to between 200,000 and 300,000 bbls/day, and that if the looting persists it could close down exports completely.
The report also states that pumping has resumed on the Kirkuk-Ceyhan pipeline, and that flows are expected to average between 200,000 and 300,000 bbls/day. Exports from Ceyhan are unlikely to start until the storage of around 8million barrels is close to capacity.

The Chinese National Bureau of Statistics has announced that industrial production grew in July by 16.5% over July 2002 and 16.9% over June 2003, according to the state news agency Xinhua. Steel output rose to 19.8 Mt in July, up 25.1% from July last year. Such figures reinforce the view that the SARS epidemic has had a limited impact on Chinese economic strategy.

Xinhua also reported a warning by Ma Gai, a leading official from the country's State Development and Reform Commission, about excessive investment in the Chinese steel, construction and automotive industries. He cautioned against "wasteful duplication" in production methods, which risked creating oversupply, and also urged tighter controls on investment levels.

Contrary to expectations, crude oil stocks in the US rose by 200,000 bbls last week according to the US Department of Energy. Inventories now stand at 280.4 million barrels. The increase puts inventories down 6.5% year-on-year compared to a difference of 7.9% a week ago. Although crude oil imports for the week fell by 3.2% to 9.97mb/day, they were 8% higher than in the same week last year.

McCloskey's reports that coal stocks at Rotterdam's EMO terminal have jumped from 1.74 Mt at the end of July to 2.5 Mt, as a result of low water levels in the Rhine reducing barge load capacity to 40%. With congestion occurring on alternative routes such as Antwerp and market report suggestions that narrowing channels may bring about force majeure conditions in carriage contracts, longer delays in the near term are likely.

Four months after the fall of Baghdad, US engineers are struggling to maintain crude oil production levels, amidst a background of continuing sabotage and political infighting. Given daily reports of sabotage and technical problems, analysts are casting doubts on the official production figures of1.2mb/day and exports of 650kb/day. Recent loadings of oil tankers at Mina Al Bakr have been repeatedly interrupted by power failures, according to a report today from the Energy Intelligence Group, which also highlighted the problems of putting a viable administration in place.

The Korea Energy Economics Institute forecasts that domestic coal demand for 2003 will rise to 78.9 Mt, up 3.9% from 2002. The Institute predicts a quarter-on-quarter increase for the rest of this year, rising from 19.0 Mt in the 2q03 to 19.5 Mt in the 3q03 and 20.7 Mt in the 4q03.