TUNISIA - The Global Petroleum Perspective.

Tunis has been resigned to the fact that its reliance on oil imports is increasing. Its imports consist of oil products (see Part 3). But currently high oil prices - not likely to drop much in the coming months - can be absorbed by a diversified economy as energy accounts for less than 8% of Tunisia's GDP. In 2001, for example, energy and mining accounted for a mere 10.4% of the country's total GDP, whereas in neighbour-ing Algeria and Libya, the share of energy in GDP remains very high.

Mainly because of high oil demand in the US and China, compounded with capacity shortages on both sides of Suez, oil prices will remain strong this year. ExxonMobil predicts a 40% rise in world energy consumption to almost 300m b/d of oil equivalent by 2020; it says about 80% of the growth will be in the developing world.

In the US, where the cost of driving is just half that in most other OECD markets, demand for gasoline has gathered strength since early March and is expected to hit almost 10m b/d in July-August. US refining margins have been the highest for many years, in 2003 having risen 6.4%.

There is a shortage of refining capacity in Asia/Pacific, an oil market which in 2004 is likely to rise 800,000 b/d to reach 22.8m b/d. In Europe, where the auto-diesel market of 137m t/y growing by about 5% per annum, a capacity shortage will be building up because of new specifications for this fuel. In 2005 the EU will impose minimum cetane numbers for diesel.

The Price Background: Oil futures prices in New York (NYMEX) and London (IPE) ended higher at the end of the past working week on March 26 caused by a late bout of short-covering. Prices dropped to four-week lows at one point as funds continued to sell on the belief there will be no shortage of gasoline for the summer and doubts over OPEC implementing planned production cuts during its ministerial conference in Vienna on March 31.

Concerns over global security, which could threaten oil supplies, and uncertainty over whether OPEC might spring a surprise at its meeting pushed prices back up ahead of the weekend. A strong finish in gasoline futures, causing WTI and Brent futures to rise, was fuelled by news of reduced catalytic cracking operations due to boiler problems at Motiva Enterprise's Delaware refinery in the US (Motiva is a JV of Shell and Saudi Aramco - see survey of Saudi Arabia and the other OPEC countries in 2003 Vols. 60 & 61).

May WTI fell to $34.75/barrel in morning trade on March 26, breaking a support level of $35, but recovered to settle 22 cents higher at $35.73. May WTI at NYMEX was 5%, or $1.89/b, from a week earlier. May Brent settled 22 cents higher, at $31.99. News that saboteurs had set fire to a secondary crude oil pipeline in Iraq - though not affecting exports - was a reminder of the risk to the market from terror attacks. A narrowing differential between Dubai and Brent to less than $2/b, compared to $3.74/b between Brent and WTI, reflected strong Asian demand - mainly in China, where exports of refined products to neighbouring markets were halted last week, causing prices to rise further on the Singapore spot market.

Profit taking by investment funds was the main price driver during the last three days of the past week, March 24-26. Futures prices were expected to rise again in the following week. But the same pattern will form when investment funds again liquidate positions for profit taking. Normally, the cycle from a build-up in gasoline or crude futures positions to liquidation for profit taking lasts between 3-6 weeks.

Reduced fears of tight summer supplies together with a fall in gasoline prices had knocked NYMEX prices 8% lower from a March 17 closing of $38.18, the highest level in 13 years. On March 24, weekly US energy stockpile figures from the Energy Department's EIA showed crude oil inventories rising 7.5m barrels in the week to March 19 to sit comfortably above year-ago levels. Uncertainty over the OPEC meeting kept trade light.

OPEC's price trigger, meanwhile, has become a major issue with several member-states arguing that the fall in the value of the US dollars justifies sticking to the top end of the organisation's $22-28/b price band. But Venezuela and Nigeria are saying the price defence band for OPEC's basket of seven crude oils now should be $25-32/b.

The market value of OPEC's basket price has been above $28 almost continuously since early November 2003. On March 25 it was valued at $31.93. Nigeria's top oil official, presidential petroleum adviser Edmund Daukoru, told Platts on March 26 OPEC's target price band would be more reasonably placed at $25-32/b, and that the group should not increase supply to bring the price back into the lower range. He also said OPEC was unlikely to implement the planned 1m b/d production cut to a ceiling of 23.5m b/d by April 1 because of concerns that prices could rise to $40/b, which would be unacceptably high.