BRACING FOR AN OIL SHOCK : Oil Companies : Nation’s Firms Scramble Amid Ban on Imports
President Bush’s order banning imports of Iraqi and Kuwaiti oil threw the U.S. oil industry into turmoil Friday, and refiners were scrambling to figure out just how the order would affect their operations.
* For some oil companies, the embargo meant a frantic search for alternative supplies of crude oil on world markets as oil prices shot up on spot markets.
* For others, it meant cutting operations until supplies could be found.
* For still others, it meant hurried negotiations with U.S. Customs Service and Treasury Department officials to determine if and how they could take delivery of Iraqi and Kuwaiti crude already sailing to U.S. ports.
Some company executives gnashed their teeth at former oilman George Bush for putting them in this position, political considerations aside. “The Executive Order says things that are very counterproductive to American interests,” said one executive, who asked not to be identified.
But analysts said oil companies should be able to find all the oil they need eventually, as long as the United States remains alone in its import ban.
Supply disruptions should be short-lived and small scale, though companies will unquestionably pay more for their oil than they did a week ago--price increases that are already finding their way to the gasoline pump.
Late Friday, the U.S. Customs Service issued guidelines that appeared to resolve a big question. Oil companies can take delivery of Iraqi and Kuwaiti oil that was loaded before Thursday and on its way to the United States--as long as it gets here before Oct. 1. Payments for such oil must go not to Iraq or Kuwait but to a special government-controlled account.
Meanwhile, foreign-owned U.S. oil companies such as BP America Inc. (owned by British Petroleum) and Shell Oil Co. (owned by Royal Dutch/Shell) could conceivably continue buying Iraqi and Kuwaiti oil through their operations outside the United States and use other oil supplies for U.S. operations.
Other companies could simply swap supplies on the open market or seek alternative oil from nations with excess oil production capacity, such as Venezuela and perhaps Nigeria.
It is not clear, however, whether those nations would be willing to violate the quotas set by the Organization of Petroleum Exporting Countries last month. And the nations with the largest excess capacity, Saudi Arabia and the United Arab Emirates, may think twice about expanding their production because they are under the threat of Iraqi military action themselves, analysts pointed out.
The spot crude oil price for West Texas Intermediate, the benchmark U.S. grade, was up more than $1 on Friday to between $24.40 and $24.50 per barrel.
The largest U.S. users of Iraqi crude are Exxon Corp., Coastal Corp., Shell, Fina Oil & Chemical Co., Mobil Corp., Lyondell Petrochemical Co., Chevron Corp., Ashland Oil Inc. and Marathon Oil Co., according to industry sources and the consulting firm of Booz, Allen & Hamilton in San Francisco.
Even for the largest users, Iraqi crude oil accounts for only a small percentage of their total supplies of crude; Iraqi and Kuwaiti oil make up less than 10% of total U.S. oil imports.
On Thursday, U.S. Customs officials seized a tanker with 312,000 barrels of Iraqi crude destined for Coastal, which operates seven refineries in the country. That oil remains in custody while Coastal negotiates with Customs officials.
But Coastal spokeswoman Barbara Johnson in Houston said the company had ample supplies from other nations as well as inventories that could cover any shortfall caused by the embargo in the short term.
Lyondell of Houston, which is 49% owned by Atlantic Richfield Co., was caught by surprise in the middle of unloading an oil tanker filled with 525,000 barrels of Iraqi crude. Crews had removed about two-thirds of the cargo, destined for Lyondell’s Houston refinery, when Bush’s order was announced.
Customs officials seized the cargo then released it after negotiations with Lyondell led them to conclude that the cargo was no longer Iraqi property.
Lyondell has since scaled back oil use at its refinery to 250,000 barrels a day from 290,000 barrels a day in expectation that it will not be able to take delivery of several tanker loads of Iraqi and Kuwaiti crude still on the open sea.
But, spokesman David Harpole said, “we have gone to the spot market and have been able to pick up the additional crude we need, and oil supplies do seem to be plentiful.”
Some Iraqi shipments have already completed their transatlantic crossing but have not made deliveries yet to avoid seizure. “We do know of several ships off U.S. territorial waters” in the Gulf of Mexico, said Donna De La Torre, a spokeswoman for Customs in Houston.
On Friday, the Eastern Trust, a tanker carrying 1.9 million barrels of Iraqi crude oil, sat in waters just off Pascagoula, Miss., where Chevron has a refinery.
If Chevron cannot take delivery, “We will have to shuffle some of our crude slates (mix of crude used by refineries) around and slow the refinery down as well,” said Bruce Frolich, vice president of supply and distribution, for Chevron U.S.A.
The nearest replacement supplies, either from the Middle East or from Mexico, would take at least a couple of weeks to arrive. “It’s a timing situation,” Frolich said.
