WTI fell below $70/bbl in early June on reports that Iran was considering a proposal from the EU and the UN to resolve the dispute over Tehran’s plans to de-velop nuclear power. Sellers took further encourage-ment from the news that the Iraqi leader of al-Qaida, Abu Musab al-Zarqawi, had been killed. July WTI futures went down as far as $69.10/bbl. The euphoria proved to be short-lived. Within a short time, Iran announced that it was to resume the enrichment of uranium, whilst in Iraq, there was no sign whatever that the killing of one terrorist leader was going to bring about peace there. During the month of June, an estimated 1,500 people were killed in Baghdad alone. Attacks on road tankers caused the suspension of exports of heavy fuel oil, which is produced to ex-cess by Iraq’s refining industry. Lacking anywhere to store the surplus fuel oil, the government ordered what were described as ‘large quantities’ to be incin-erated. The one piece of good news from Iraq was the reopening of the export pipeline from Kirkuk to Ceyhan for the first time since January. Throughput was reported in late June at 325,000 bpd. Even here, though, the situation was not entirely without its trou-bles. The state marketing company, SOMO, received disappointing bids for the oil it was offering for sale at Ceyhan.

Domestic unrest and violence continued to afflict another important oil supplier, Nigeria. The Move-ment for the Emancipation of the Niger Delta (MEND) has prevented the repair of a pipeline serv-ing the Warri and Kaduna refineries, causing their closure; there have been further threats to kidnap oil workers in the Delta region; and Shell was forced to shut down a gas plant serving its Bonny Island LNG terminal. Better news on oil supplies came from Azerbaijan with the loading of the first cargo of Azeri Light from the Ceyhan pipeline terminal (see ‘Looking Ahead’), but elsewhere there were further interruptions to supplies. Problems at the marine ter-minal have delayed the start of exports of Sudan’s Dar Blend. Production problems are also reported in a field supplying Algeria’s Saharan Blend. All this bad news meant that crude oil prices failed to sustain their downward trajectory and, by the end of June,

they were heading back towards new record levels. An oil spill closed the Calcasieu Ship Channel in

Louisiana, preventing crude oil supplies from reach-ing the important Lake Charles refining centre. Two companies requested loans from the government’s Strategic Petroleum Reserve. US gasoline prices rose on fears of refinery closures, leading to shortages dur-ing the 4th July holiday. Gasoline shortages are also feared in Iran, where the budget for imports has been exhausted. The government says supplies will have to be rationed. Iran normally imports 275,000 bpd of gasoline. Venezuela is extending its system of subsi-dized oil exports to neighbouring countries by agree-ing to supply Granada with 1,000 bpd of refined products. It has also said it may build a mini-refinery in Dominica to supply nearby islands. Venezuela has agreed to supply about 200,000 bpd of cheap oil to Caribbean countries as part of a wider plan to counter US influence in the region (see ‘Focus’, September 2005). Plans for an oil cooperation deal with Ecua-dor, however, appear to have fallen through following the failure of Petroleos de Venezuela and Petroecua-dor to agree terms of a crude oil processing deal un-der which Venezuela was to have supplied products to Ecuador in return for its Napo crude.

A US Congressional Panel said that Canada’s tar sands represented “a growing counter-weight” to OPEC crude. In an unfortunate piece of timing, Shell Canada revealed that cost overruns on the Athabasca tar sands project were forcing the partners in the scheme to reassess their plans to raise production by 350,000 bpd to 500,000 bpd. South Korea says that all its automotive diesel must contain 0.5% biofuel from 1st July. Japan’s Ministry of Environment wants the country’s gasoline to contain 10% ethanol by 2030. Indian refiners are struggling to meet gov-ernment targets to extend the use of ethanol in gaso-line. Brazil, however, expects to have more ethanol available to export to the US this year. BP is to sell its last British refinery, the 172,000 bpd unit at Cory-ton. New refineries have been proposed at Qinzhou and Zhoushan in China, Limay in the Philippines, Ivanovka, in the Amur region of Russia, and in Tuni-sia.

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© Blackwell Publishing Ltd, 2006

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Prices down, supplies down, prices back up

This section summarizes downstream developments of the previous month. Exploration & Production are covered in ‘Upstream Review’.

contains a provision for a pipeline of up to 500 mn cfd, and Kuwait may need to exercise this in the future if it is to meet its goals for gas consumption in 2010 (see Table D). Before any of this can happen,

however, Kuwait must complete its deliberations on its natural gas strategy. This is not due until the late autumn, which leaves Kuwait little time to act if it is to have the strategy in place by 2010.