C:\Annual Report 1998\AR1998 fo - Peace Palace Library

Oil Market Developments
undermined product prices and refiners‘ margins in the USA, thereby curtailing demand and lowering
crude prices. The only help for prices came from a cold snap that led to freezing temperatures in the
US North-East.
The WTI/Brent differentials were normal for most of the year, except in May when this differential was
negative. This was caused by the purchase of most of the cargoes by one trading house, which led to
an inflated Brent price at a time when WTI prices were depressed in the futures market due to full storage
at Cushing, Oklahoma, the delivery point of the NYMEX WTI futures contract.
Brent/Dubai differentials started narrowing and reached a negative 25¢/b by mid-June and stayed in negative
territory for most of July and August, as European prices were under heavy pressure from high stocks,
while Asian prices were supported by OPEC cuts which affected those markets more. In September, the
differentials regained their positive values due to a strong Brent market, as cargoes were amassed to meet
US refiners’ demand. However, in October the differential was negative again as disruptions in Asian supplies
and demand from India and China, in addition to strong fuel oil prices, supported Dubai while Brent
prices fell continuously under the influence of the supply glut.
The Refining Industry
The domestic refining configuration and capacity of OPEC Member Countries has not undergone any major
changes since 1997. Crude distillation capacity for the year 1998 was 8.36m b/d, an increase of 290,000
b/d, or 3.6 per cent compared to the 8.07m b/d of the previous year. All the increase in capacity took
place in the Middle East (Table 12).
Distillation capacity grew by 240,000 b/d in IR Iran and Saudi Arabia’s capacity rose by 90,000 b/d. However,
Kuwait registered a decline of 40,000 b/d during the year. The vacuum distillation capacity in OPEC Member
Countries registered a growth of 60,000 b/d, from 2.39m b/d in the previous year, to 2.46m b/d in 1998,
mainly due to the increases of 20,000 b/d, 30,000 b/d and 20,000 b/d in IR Iran, Kuwait and the United
Arab Emirates, respectively.
Total conversion capacity decreased slightly by 20,000 b/d from 1.62m b/d in 1997 to 1.60m
b/d in 1998. The decline was due to the falls in catalytic hydro-cracking capacity in Kuwait and
the United Arab Emirates, partially offset by a rise in catalytic cracking and hydro-cracking capacity
in IR Iran.
The conversion/distillation ratio in OPEC Member Countries of 19.1 per cent for the year 1998
28