KUWAIT - Part 3 - The Exports & Logistics.

Kuwait's exports of crude oil and petroleum products since the beginning of June have averaged 2.34m b/d, up from 1.871m b/d in the first week of June 2003. Its crude oil production since June 1 has averaged 2.65m b/d. Exports of petroleum products have averaged 640,000 b/d, up from 545,000 b/d in the first week of June 2003, compared to about 750,000 b/d in 1997.

Kuwait's three local oil refineries have a nameplate capacity of almost 1m b/d. The three refineries' total throughput now averages about 950,000 b/d, up from less than 775,000 b/d in the first week of June 2003 (see background in Vol. 60, No. 13).

Overseas, the trans-national system of Kuwait Petroleum Corp. (KPC) has market shares on both sides of Suez. KPC refining capacities will reach 300,000 b/d in Europe and 400,000 b/d in Asia in the coming years (see Part 4). Kuwait's gas plants have the capacity to produce more than 5m t/y of LPG, plus quantities of NGLs (see Gas Market Trends of this week).

The Global Perspective & OPEC's Position: The European Commission wants OPEC to raise production at its June 15 meeting to ensure security of oil supply. Rupert Krietemeyer, the Commission's energy spokesman on June 3 said a prior meeting with OPEC in Brussels on June 9 was being sought. This was to be between EU Energy Commissioner Andris Piebalgs and Kuwaiti Energy Minister Shaikh Ahmad Al-Fahd Al-Ahmad Al-Sabah, who is the current OPEC president. The focus on the talks from Commission's side will be "high oil prices".

Front-month WTI on NYMEX ended the week on June 3 at $55.03/barrel, up by $3.06 since May 31. Front-month Brent on the IPE settled at $54.17, up $1.77/b from June 2 and in deep contango as the June 3 price of Dated Brent closed at $52.76. The week ended on June 3 with NYMEX heating oil at $1.5995/ gallon, up $5.73 from the June 2 level. NYMEX gasoline rose $4.17 from June 2 to $1.5571/g. But it is the strength of the distillate market in the US which is pushing WTI futures upward, with demand for diesel rising faster than that for gasoline. Demand for diesel in 2004 rose 6.5% from 2003 to 2.99m b/d. Diesel accounts for about 75% of US distillate demand and its share is rising as heating oil demand is falling. Steady economic growth in 2005 will raise US demand for diesel by up to 5%. Equally strong demand for diesel in Europe and Asia/Pacific will keep the world's market for light/sweet crude oil tight through the rest of this year and in 2006.

But Dubai, the only marker for heavy/sour crudes, has been in backwardation for several weeks due to tighter east of Suez markets than in the West.

WTI and Brent futures jumped back above $54/b, after prices were cooled only briefly by the latest EIA report which on June 1 showed swelling US stockpiles in crude and other fuels. The week ended on June 3 with NYMEX futures for natural gas closing at $6.88/m BTU and the Henry Hub spot price of gas settled at $6.63/m BTU. The New York City Gate gas price closed at $6.99/m BTU.

US government forecasters predict that, for the 10th year in a row, the hurricane season in the Atlantic basin will be worse than the average since 1950. There could be 12 to 15 tropical storms will form in the Atlantic, of which at least seven to nine might become hurricanes, with three to five likely to become major hurricanes. The June 1-Nov. 30 season generally peaks in late August to October. Last year, Hurricane Ivan in the Gulf of Mexico damaged 31 platforms and caused US oil production there to drop from 1.7m b/d to 1.225m b/d. So Goldman Sachs' end-March forecast or a $105/b WTI "super spike" could occur in the coming winter or in the next one.

Energy supply security is a priority for Europe, Krietemeyer said. The EU is a major world consumer of oil and is heavily dependent on energy supplies from abroad. Three-quarters of the EU's oil and half of its gas needs are met by imports. These figures will rise to 90% for oil and 70% for gas by 2030. The EU-OPEC meeting is part of the EU's strategy to forge closer ties between producer and consumer countries. EU governments will be represented at the event by the energy ministers from the UK, the Netherlands and Luxembourg, the present holder of the EU's rotating presidency. OPEC's Acting Secretary- General Adnan Shihab-Eldin, a Kuwaiti technocrat, also will attend the Brussels meeting - which will take place behind closed doors and will be followed by a press conference. Krietemeyer said: "The oil price, which is quite high, and which continues to stay high, will be the main topic of this meeting. The security of supply will be the main issue and...we will ask OPEC as well to raise the production".

A Reuters survey on June 4 showed that OPEC oil production in May rose 20,000 b/d to 29.77m b/d - up from 29.75m b/d in April. This, it said, meant OPEC maintained output near its highest rate in 25 years to build stockpiles ahead of expected strong demand in the fourth quarter. Reuters cited consultants, shippers, industry and OPEC as sources for its survey. It said production from OPEC's 10 members excluding Iraq, which is exempt from quotas, averaged 27.94m b/d in May, up 70,000 b/d from 27.87m b/d in April. OPEC output has helped US stocks build to their highest levels in nearly six years. It said Saudi Arabia boosted May output by around 100,000 b/d to 9.5m b/d. Iranian output rose 40,000 b/d to 3.99m b/d. The rise came as Shell steadily increased output through the month at the Soroush/Nowruz fields to a capacity of 190,000 b/d. The fields had previously been producing at around 100,000 b/d. Kuwait boosted supply by 40,000 barrels to 2.48m b/d. But APS Energy Group on June 3 said OPEC's total oil production with Iraq in May averaged about 30.30m b/d, putting outputs in Saudi Arabia at 9.7m b/d, Iran at 3.98m b/d and Kuwait at 2.65m b/d. This compares with an official fixed ceiling of 27.5m b/d for the OPEC-10 - excluding Iraq - agreed in March in the Iranian city of Isfahan.

In Kuwait Shaikh Ahmad Al-Fahd on June 1 said OPEC was most likely to maintain current output levels at its June 15 meeting in Vienna. He said: "I started consulting with some of my [OPEC] colleagues. I think the situation is that we will continue to maintain our production [levels] now. And this will be...unless there is something unexpected in our meeting in June... We will keep the ceiling the same and also the [level of] over-production".

Refineries typically produce more gasoline and less of other fuels in the spring to meet summer driving demand, and the industry on both sides of Suez may have trouble keeping storage tanks filled with diesel, jet fuel, and other distillates in the midst of rising consumption. "Globally, distillates are really tight right now", said Doug MacIntyre, an analyst at the EIA.

US distillate demand growth is due in part to higher diesel use from truckers moving Chinese products from the West Coast to markets in the rest of the country, and rising jet fuel consumption from airlines. Heating oil normally strengthens in the autumn ahead of the colder winter weather, while gasoline normally rises in the spring heading into peak driving season. For the next indications of the adequacy of supplies, traders will await US stockpile data to be released on June 8.