Southland oil hits a new patch of price volatility; oil industry insiders see another year of...

More petroleum price volatility, with emphasis on the downside, was forecast for the new year in the Los Angeles Basin by local oil industry executives and international analysts.

Crude oil production, they projected, will remain high, likely even rise, despite demand dampened by the faltering

"Everybody is anticipating tight margins and real belt-tightening," declared Jim Wampner. "The economy has a big impact," added the manager of volume planning at L.A.-based Atlantic Richfield Co.

Crude oil prices in 1992 will average $1 a barrel less than in 1991, predicted Albert J. Anton Jr., perhaps the nation's premier petroleum analyst at Carl H. Pforzheimer & Co., a New York-based brokerage specializing in oil. Moreover, he recalled, 1991 crude prices averaged "a lot lower than '90" because of the price spike that averaged $3.75 a barrel in August through November 1990 after Iraq invaded Kuwait.

Anticipating even tougher times in the new year than in 1991, when prices posted for crude produced in L.A. County fell roughly a third between year-end 1991 and a year earlier, oil companies curbed their 1992 capital spending budgets.

Arco's directors cut its 1992 capital spending budget to $2.4 billion, reported Lodwrick M. Cook, chairman and chief executive officer. That would make 1992 down 11 percent from last year's estimated $2.7 billion capital spending for ongoing operations (excluding $700 million for petroleum property acquisitions).

Last year's capital spending (excluding acquisitions), in turn, was down about $500 million from 1990, said Dan F. Smith, Arco's vice president of corporate planning. Of course, Arco earnings in 1990 were a record, Smith said, thanks at least partly to the petroleum price spike caused by the Persian Gulf War.

Westwood-based Occidental Petroleum Corp.'s capital expenditures will range between $900 million and $1 billion in 1992, reported Ray R. Irani, chairman, president and chief executive officer. That would be about the "same as" to "lower than" the $1 billion Oxy estimated it spent in 1991, but the 1991 estimate is down 31 percent from the previous year's $1.446 billion of capital spending.

L.A.-based Unocal Corp.'s capital spending this year is projected to be about the same as the $1.2 billion to $1.3 billion estimated for 1991 and $1.2 billion in 1990, related Gary W. Sproule. The vice president of budgets, planning and economics noted the figures exclude spending for acquisitions, such as Unocal's purchase late in 1991 of about half of Shell Oil Co.'s Carson oil refinery.

By combining key units of both the Carson refinery and Unocal's Wilmington refinery, the company hopes to cut its refining costs and make a higher percentage of gasoline from each barrel of crude. The acquisition will enable Unocal to use more lower-cost, heavy-gravity California crude as refinery feedstock to displace higher-priced, lighter-gravity crude from Alaska, Unocal executives indicated.

Another benefit expected by Unocal from the acquisition: It will better position the company to make lower-emission products and so help it meet more stringent gasoline requirements to achieve cleaner air standards, scheduled to become effective January 1996 for major refineries here.

Besides the unreported cost of acquiring parts of the Shell refinery, though, Unocal allowed it would take a $41 million writedown in the fourth quarter of 1991 to reflect canceled construction projects at the Wilmington refinery. The projects were canceled because they were made redundant by Unocal's acquisition of upgraded units at the Shell refinery in Carson.

Another consequence of the acquisition: Combining the best parts of the two refineries reduced demand for crude by about 100,000 barrels daily in the L.A. Basin.

While obviously bad news for local producers and thousands of Angelenos with stakes in crude wells, the reduced refinery capacity here also is bad news for motorists and truckers here because of projected lower supplies of motor fuels. Losing that refinery capacity will tighten L.A.'s motor fuels market by summer, opined Pforzheimer's Anton.

Nor is Unocal's move the only bad news for local crude producers and motorists:

* Fletcher Oil & Refining Co., concerned by the estimated hefty costs to upgrade its local refinery to meet new regulations that ban all lead from gasoline, plans to cease refining operations here.

* When added to other refinery closures -- such as Anchor, Chemoil, Demmeno, ECO, Edginton and Newhall -- they represent a reduction of more than 200,000 barrels daily of California's refining capacity over the past 30 months, noted Jerry Hoffman. "And more refinery closures are expected," added the president of the California Independent Petroleum Association.

* Despite the shrinking market for crude here, Hoffman noted, production from the newly discovered Point Arguello field offshore Santa Barbara was projected to double this month -- to 60,000 barrels daily from 30,000 late last year.

Besides reacting to California's oversupply of crude and reduced refining capacity, he indicated, prices posted for local crude also reflect spot and futures prices for crude on Chicago and New York commodity exchanges. They, in turn, are affected by global events.

This was demonstrated dramatically after the United Nations slapped an embargo on oil exports from Iraq and Kuwait after the Iraqi invasion of Kuwait in mid-1990. Prices were bid up on world markets, which was reflected here as local crude prices more than doubled. But the other 11 member nations of the Organization of Petroleum Exporting Countries boosted production dramatically to offset the embargoed oil, creating a worldwide crude glut that caused prices to plummet.

By the end of the Persian Gulf War, prices posted for crude produced in L.A. County had dropped below where they had been before the invasion. Crude prices thereafter rose somewhat in anticipation OPEC would cut production quotas and output.

But OPEC members couldn't agree to cuts and Kuwait resumed production sooner than predicted, quickly extinguishing oil well fires set by Iraqi troops before they departed. As 1992 began, Kuwait was producing 500,000 barrels daily, Pforzheimer's Anton said, and Iraq was producing a like amount for internal use and for shipment to neighboring Jordan.

Nor is that the end of it, Anton said. He forecast Kuwait's crude production will climb to 1.5 million barrels daily by the fourth quarter of 1992 when OPEC's production capacity will have risen to 27 million-28 million barrels daily.

Yet demand for OPEC output will be "only in the area of 24 million barrels daily," Anton projected. That will require discipline on the part of OPEC to curb production, he said.

The Saudis likely will be willing to cut their production by 600,000 to 700,000 barrels daily, Anton said. The other 10 OPEC members could agree to cooperate by reducing total OPEC output by 1 million barrels daily to offset Kuwait, he said.

The effect of all this on posted prices, Anton said: They likely will be higher in a couple months, "depending on the weather or a little thing such as a blowout at a North Sea well."

By March-April, though, Anton continued, "more oil could be hitting the market" even if Iraq does not resume exports to world markets. "Prices could plunge," however, if Iraqi crude comes back onto world markets, he concluded.