China Petroleum and Natural Gas Industry Research Report 2002Q2--Beijing HL Consulting Co., Ltd

The world petroleum demands don¡¯t recover obviously in the second quarter and increasing demands at the last half year may be lower the former expectation. Up to now, it is effective that OPEC executes the slight modulation on market supplies. After the output quota in the first quarter is used in the second quarter, OPEC decides to sustain and carry out the quotas until the third quarter in June. OPEC¡¯s serious over-production since the second quarter and increasing demands less than anticipated practically make OPEC have no space to augment the yield further. The limiting production in oil-producing countries controls the growing west storage, which shows that market supplies meet demands at present from another aspect.
Demands
In the first half of this year, the petroleum demand amounts in USA level with one year ago roughly. The demands amount in June is up to 19,600,000 barrels daily, up 0.4% compared with the same period in 2001. When the demand amounts of other oil products such as gasoline, liquid gas and naphtha are up, the demand amounts of middle cut oil and fuel oil are down. Lower price of natural gas makes the power factory¡¯s users turn to burn more cheap natural gas and so the demand amounts of fuel oil decrease 1/3 compared with June last year. Because the American public are lack of confidence on the travel safe by air, the demand amounts of aviation kerosene is down to 1,600,000 barrels from 1,800,000 barrels.
Gasoline is one of main oil products whose demands are increased. In the first half year gasoline demands amounts is up 2% in USA, which is because lower retail price and more travel by cars under mild weather in the first quarter. When it enters into the third quarter, the world petroleum demands will exceed the level of the same period last year. According to the prediction from IEA, the global demand amounts is up to 75,900,000 barrels per day, up 300,000 barrels compared with a year ago; the increasing amplitude is 1,100,000 barrels per day, up to 77,500,000 barrels.

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Table 2 World petroleum supplies and demands prediction of international energy organization

Project	1Q02	2Q02	3Q021	4Q021	2002	1Q03	2Q03	3Q031	4Q031	2003
Demands
Economic cooperation organization	4790	4610	4760	4870	4760	4850	4660	4800	4930	4810
Non-economic cooperation organization	2820	2890	2830	2890	2860	2880	2940	2890	2940	2910
Total	7620	7500	7590	7750	7610	7730	7600	7700	7870	7730
Supplies
Non-OPEC	4780	4770	4780	4820	4790	4850	4830	4850	4900	4860
OPEC crude oil	2500	2430
OPEC natural gas	330	350	350	350	350	360	360	370	370	360
OPEC total	2830	2780
Total	7610	7550
Demands for OPEC	2510	2390	2460	2580	2480	2530	2410	2480	2600	2510
Industrial storage amounts	-30
Balance of total storage amounts	-10

Source of documents£º IEA, ¡±Monthly Report of Petroleum Market¡±, July 12, 2002

Supplies
To accommodate the decreasing demands, the world petroleum supplies are also reduced in the first half year. However, the decreasing parts are all from OPEC, OPEC are losing the market shares. In the second quarter, while OPEC¡¯s daily output decreases from 27,000,000 barrels to 24,700,000 barrels compared with the same period in 2001, the supply amounts not from OPEC increase from 46,100,000 barrels to 47,700,000 barrels. Decreasing production enlarges the OPEC¡¯s residual yield capacities and some member states begin to complain that the exploit capacities costing a lot of capital are in idle for a long time, which leads to more and more serious over-production. Due to the limiting production by oil-producing states, it prevents from the excessive increase of west storage. At the end of the second quarter the storage amounts in Europe and USA level with the average storage amounts of last three years roughly.

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Figure 2 Daily capacities and quotas of OPEC since 2000
Daily output of OPEC¡¯s ten member states increases from 23,220,000 barrels to 23,410,000 barrels. Iraq is the most uncertain cause in the international petroleum supply market. Due to the argument on the problem of export price with UN, the daily output in Iraq is down to 1,620,000 barrels from more 2,000,000 barrels normally. Increase yield of ten member states and decrease yield of Iraq make the OPEC¡¯s output down by 400,000 barrels per day, up to 24,730,000 barrels and the yield of ten member states from 22,830,000 barrels to 23,190,000 barrels.
Table 3 Oil-producing quotas, daily output and idle capacity of OPEC

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Zones	Yield				Quotas		Capacity
	Year 2002				Year 2002	Year 2001	Year 2002	Idle
	Jun.	May	Second quarter	First quarter	Jan.	Sep.	At the end of May	Present
Saudi Arabia	752.0	745.0	747.3	732.0	705.3	754.1	1050.0	298.0
Iran	340.0	337.0	337.7	335.7	318.6	340.6	390.0	50.0
Kuwaiti	189.0	187.0	187.7	183.3	174.1	186.1	220.0	31.0
UAE	198.0	198.0	198.0	195.3	189.4	202.5	265.0	67.0
Cartel	64.0	64.0	63.3	60.0	56.2	60.1	81.0	17.0
Algeria	84.0	85.0	83.7	78.0	69.3	74.1	105.0	21.0
Libya	131.0	131.0	130.7	128.3	116.2	124.2	150.0	19.0
Nigeria	193.0	190.0	192.7	195.3	178.7	191.1	220.0	27.0
Indonesia	115.0	115.0	115.0	115.0	112.5	120.3	125.0	10.0
Venezuela	275.0	270.0	263.3	260.0	249.7	267.0	320.0	45.0
10 member states	2341.0	2322.0	2319.3	2283.0	2170.0	2320.1	2926.0	585.0
Iraq*	162.0	177.0	154.0	227.0	-	-	280.0	118.0
Total of OPEC	2503.0	2499.0	2473.3	2510.0	-	-	3206.0	703.0
Member states of Middle East**	1543.0	1531.0	1534.0	1506.3	1443.5	1543.4	2006.0	463.0

*The supplies of Iraq according to the U.N. agreement of petroleum exchanging food, not participating in the agreement of OPEC¡£** Not including Iraq.

The second quarter is usually the season of stockpiling the petroleum storage during the slack season of the demands in Europe and USA. Because weak demand and less gross profit limit the operating rate of refineries, the increase of petroleum storage in Europe and USA in the second quarter is up to the minimum since last October. After the climbing continues three months, petroleum storage in Europe and USA at the end of June amounts to 2,096,000,000 barrels, up 24,300,000 barrels compared with the end of March. Among them, crude oil storage amounts reduce 270,000 barrels and product oil storage amounts increase 27,000,000 barrels. Gasoline storage amounts reduce 6,000,000 barrels, which is from Europe but America is up. Even so, petroleum storage in Europe and USA is still 31,200,000 barrels more than the same period last year. Most of excess parts are crude oil and crude oil storage amounts in Europe and USA are 29,400,000 barrels more than a year ago and product oil is only 1,800,000 barrels more.

Figure3 Petroleum storage in USA and EU compared with one year ago
Table 4 Changes of Europe and USA¡¯ petroleum storage since two years
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Time	USA£¨10 thousand barrels£©				Europe£¨10 thousand barrels£©
Time	Crude oil	Product oil	Gasoline	Cut oil	Crude oil	Product oil	Gasoline	Cut oil
Jun. in 2000	29380	66740	20950	10600	44200	60980	14740	31910
Jul. in 2000	28570	68800	20940	11270	43600	63150	15070	33550
Aug. in 2000	28730	67410	19440	11070	42640	63880	14940	33840
Sep. in 2000	27790	67990	19690	11510	43250	63240	15180	33660
Oct. in 2000	28320	66290	18700	11480	41760	63620	15390	33300
Nov. in 2000	28640	67260	19830	12000	42420	64240	15370	33980
DEC. in 2000	28550	64240	19590	11800	42260	64830	15420	34290
Jan. in 2001	29210	63890	20440	11520	42000	64210	15580	33640
Feb. in 2001	27810	63780	20340	11590	42520	64810	15980	33800
Mar. in 2001	30680	63100	19360	10490	44520	62340	15210	32080
Apr. in 2001	31850	64170	19940	10290	44790	63100	15770	32410
May. in 2001	32580	68600	21270	10710	43960	62270	14370	32910
Jun. in 2001	30810	71150	22070	11390	42585	61910	14396	32855
Jul. in 2001	31140	70670	20930	12160	43330	61500	14770	32220
Aug. in 2001	30250	69860	19470	12040	43410	62570	14710	32990
Sep. in 2001	30750	71930	20450	12320	43660	61450	14610	32230
Oct. in 2001	31090	71310	20730	12810	43820	61830	14140	32960
Nov. in 2001	31150	71770	21210	13800	42740	62100	14650	32940
Dec. in 2001	31040	70150	20780	13960	43650	62760	15240	32970
Jan. in 2002	31920	69800	21640	13730	43220	63340	15500	33270
Feb. in 2002	32050	68090	21270	13080	44012	63344	15955	33945
Mar. in 2002	32510	67210	21180	12010	44092	63331	15649	34088
Apr. in 2002	32240	68330	21310	12090	44370	63270	15500	34100
May in 2002	32490	69990	21590	12750	43566	62712	15122	34013
Jun. in 2002	32000	71050	21600	12920	44333	62193	14629	34125
Jun. compared with the end of Mar.	-510	3840	420	910	241	-1138	-1020	37
Jun. Compared with one year before	1190	-100	-470	1530	1748	283	233	1270
Jun. compared with two years before	2620	4310	650	2320	133	1213	-111	2215
Jun. Compared with three years before	-1200	-2290	-120	-330	-1657	-5577	-1631	-2775
Average at the same period during three years	31130	70410	21580	11747	44258	63553	15132	33888
Jun. compared with average of three years	870	640	20	1173	75	-1360	-503	237

Note: product oil including naphtha, aviation kerosene and fuel oil beside gasoline and cut oil. Cut oil including heating oil and diesel oil.

Figure 5 American storage of crude oil, cut oil and gasoline compared with that of last year