MARKET ACTIVITY / TRADING NOTES FOR DAY ENDING TUESDAY, MAY 19 1998 (2)
OIL & GAS
We are unable to provide a full scope of coverage related to oil and gas pricing this morning due to lack of information from our news sources.
World Oil Prices Dip Despite Russia Boost For OPEC
LONDON, May 19 - World oil prices eased again on Tuesday as glutted markets continued to drown out hints by oil producers this week that output might be trimmed again later this year.
Bulging storage tanks, sluggish demand and bearish trader sentiment more than offset Russia's potentially bullish announcement that it would attend OPEC talks in Vienna next month.
London futures for July Brent crude were down 15 cents a barrel at $14.31 at 1328 GMT and have fallen nearly a dollar over the past week.
''The market has a lot to do to negate the long term downtrend,'' said brokers GNI in a market comment.
The seasonal downturn in global oil demand has already tarnished a pact reached in Riyadh in March to trim some two percent from supply. Prices have slipped from a peak of nearly $16 in the immediate euphoric aftermath of the deal.
Asian demand had faltered in recent weeks and the market looks ''in trouble,'' said Nigel Saperia of Bankers Trsut International in London.
Storage tanks are brimming again in the West and many oil traders now see little chance of a price recovery until after the summer.
Even hints by big oil producers that more exports might need to be cut from global markets had little impact.
Saudi Arabia, the world's largest oil exporter, signalled this week that it was prepared to see even deeper cuts by oil producers if prices stayed depressed.
And Russia gave the Organisation of the Petroleum Exporting Countries a much needed boost by saying it would attend the cartel's meeting in Vienna next month.
Russian Deputy Prime Minister Boris Nemtsov said on Tuesday. ''We have made considerable progress for the first time in coordinating our actions and reached agreement that Russia will be present at the OPEC session in Vienna in June.''
Itar-Tass news agency said Nemtsov spoke after a meeting with OPEC Secretary-General Rilwanu Lukman in Moscow.
But traders were sceptical that Russia would add to the 60,000 barrel per day cuts it has already said it would make.
The oil producers' cartel is due to meet in June when there might be a gap in U.N.-monitored oil exports from Iraq. Baghdad is expected to renew its oil-for-food exchange in early June but a request by Iraq to use some of the proceeds for telecommunications may meet resistance from the United States.
Any delay could help tighten supply ahead of the northern hemisphere's autumn and winter months when seasonal oil demand begins to recover.
The U.N. Security Council has agreed to increase the value of the deal to $5.25 billion from $2 billion every six months.
But Baghdad has repeatedly said it lacks the technical capacity to export more than $4 billion of oil over a six-month period given the current state of its infrastructure.
Nine-year-low oil prices in March gave demand for petroleum products in Europe and the United States a welcome boost, but the buying spree by end-users appears to have been short-lived.
In April OPEC producers excluding Iraq cut a million bpd from February production, the benchmark for the cuts, according to the International Energy Agency.
This was roughly 80 percent of OPEC's 1.25 million bpd target but extra Iraqi exports took some of the shine off the cartel's efforts.
June NYMEX crude slumps at expiry on storage worry
NEW YORK, May 19 - June crude futures on the New York Mercantile Exchange (NYMEX) slumped sharply on Tuesday on worries about brimming storage tanks at the contract delivery hub in Oklahoma and heavy physical delivery, traders said.
In a day of volatile trading, the June contract settled $1.11 lower at $12.96 a barrel, having traded between $13.90 and $12.50. The June contract hit its lowest since 1988.
While June fell sharply, July was down just 10 cents at $15.01, leaving the June discount to July at $2.05, the widest gap since the Gulf Crisis.
Such a wide gap would in normal circumstances make it profitable to buy prompt-delivery crude, put it in storage and sell it forward. But inventories at Cushing last week were just below 82 million barrels, the highest since 1990 and near the estimated total capacity of 85 million barrels.
''But there's absolutely no storage in Cushing,'' a trader said, who noted this had forced traders to liquidate.
''We haven't seen anything like this before,'' said a NYMEX floor trader.
''It obviously shows that things are concentrated on PADD II,'' the Midwest, including Cushing, said William Brown, president of the consultancy W.H. Brown & Co. of New York. ''But you have to realize that the U.S. is still part of the global market. Unless we see fundamental changes and OPEC and non-OPEC producers take steps to mop up excess oil, I would doubt whether we can see any improvements.''
Traders also said they expect heavy delivery of foreign crude on the June contract, predicting about three million barrels, which would be nearly as much as last spring's record.
Analysts noted crude oil futures kept falling despite news that a Nigerian refinery outage is likely to hold 375,000 barrels of crude oil off the market over the next three days.
Market participants also ignored comments made Monday by Saudi Arabia's oil minister that about 500,000 more barrels a day should be cut from daily production. Few observers believe oil producers will take any action before the Organization of Petroleum Exporting Countries (OPEC) meets next month to discuss the prices.
Analysts say economic troubles in Southeast Asia, which have reduced demand of crude oil to that region, has led to a battle among oil producers to find other markets, leading to more U.S. imports at favorable prices.
Although OPEC and other large oil producers made a decision to cut 1.72 million barrels daily from production, oil prices kept falling because U.S. crude oil inventories stood at their highest level since December 1993, said the American Petroleum Institute.
Meanwhile, refined products futures had a fairly quiet day, awaiting the weekly status report from the American Petroleum Institute.
Traders and analysts said they were expecting the report to show gasoline and distillate stocks building last week as refineries cranked up production. While both gasoline and distillate stocks were expected to be up 1.4 million barrels on the week, crude was expected to see a stocks draw of 2.5 million barrels.
June gasoline futures were down 0.02 cents at 50.03 cents a gallon, while heating oil was off 0.04 cents at 40.95 cents. More forward contracts were generally a touch firmer.
TOP STORIES
Oil Sinks To Near Ten Year Low - Oversupply Causes Price Drop, But Stockwell Day Says No Reason To Panic
Edmonton Sun
Oil prices plunged to a near 10-year low yesterday as jittery commodities traders finally balked at a worsening world oversupply problem.
Crude oil sank below $13 per barrel after a raft of bad news from Indonesia and reports of growing oil surpluses finally got the best of the markets.
West Texas Intermediate light crude for June delivery lost $1.11 US per barrel on the New York Mercantile Exchange to close at $12.96 US, the lowest it's been since November of 1988.
Prices on the spot market, which sells oil for immediate delivery, suffered a similar fate, dropping $1.28 US to end the day at $12.80 US a barrel. Oil now sits well below the March lows of around $13.20 that sparked a rare emergency meeting of OPEC and other oil-producing nations.
That meeting ended in a decision to turn down the taps to the tune of about 1.7 million barrels a day.
But evidence is mounting that the Organization of Petroleum Exporting Countries did too little too late.
"Besides the signs that some countries aren't living up to their commitments to cut production, we've said since the meeting the cuts weren't big enough anyway," said Judith Dwarkin, managing director of the Canadian Energy Research Institute.
OPEC's troubles, combined with a warm winter, an increase in Iraqi production and Asia's ongoing economic turmoil, have contributed to a supply glut in the U.S. that is hovering at four-year highs.
But despite the drop, provincial Treasury Minister Stockwell Day said there's no reason to panic, Alberta's economy is no longer a one-trick pony. "Oil prices are low but the price of gas is offsetting that," he said.
"Economic analysts have told me the Alberta economy will still be strong.
"Alberta has a lot of other strengths, we are very much more diversified than in 1988."
Chris Pierce of the Canadian Association of Petroleum Producers agreed.
Blaming a good chunk of the drop on simple technicalities in world commodities markets, Pierce said CAPP is still calling for prices to rally in the coming months.
"Our expectation is that (prices) will return to where they were before the fall and eventually will rebound," he said. "The question is how soon they'll turn around and by how much."
B.C. Cuts Oil And Gas Royalties, Red Tape
The Financial Post
British Columbia is slashing royalties on oil and natural gas production by up to 40% in a move to generate more exploration activity in the province.
Initiatives unveiled yesterday in Vancouver by B.C. Premier Glen Clark include the reduction of red tape and $113 million in infrastructure spending over the next 10 years.
Last year was a record-breaking one for the $1.7-billion oil and gas sector, which contributes about $400 million to provincial revenues.
Clark said natural gas production reached 800 billion cubic feet, while oil production, at 16 million barrels, was the highest since the early 1970s.
"We have been doing well in this sector of the economy, but we can clearly do better,'' he said.
Following discussions with industry officials in Calgary, the B.C. government agreed to introduce the following measures:
Cut oil and gas royalty rates by 40% on all new wells drilled on land acquired after the initiatives are implemented.
The new rate applies to lifetime production of land bought by Jan. 1, 2002 and wells drilled on this land within five years of the purchase date. The royalty rate falls by 20% for new wells drilled on land acquired before the regulations take effect.
The creation of a one-stop approach to regulation by setting up an oil and gas commission that will have the authority to issue new permits.
A 10-year fair-share deal involving the provincial government, the industry and northern B.C. communities that will inject $113 million for infrastructure in regions like Dawson Creek and Fort St. John where the drilling activity is expected to occur.
The creation of a $5-million environmental fund to monitor greenhouse gas emissions.
B.C. is also working on long- term deals with several First Nations, which it hopes will provide greater operating certainty for the industry.
Oil and gas officials welcomed the new initiatives, saying they expect activity in the province to double as a result of the measures.
"The lower royalty is very important to us,'' said Norm McIntyre, executive vice-president of Petro-Canada in Calgary, which expects to drill about 40 gas wells in B.C. this year.
"The royalty reduction will make the economics a lot better for our industry,'' added Paul Baay, chief executive of Calgary-based Remington Energy Ltd.
He estimated the cuts could mean savings of $6 million for Remington, which pays annual production royalties of about $15 million to B.C.
As well, he said the creation of the one-stop approach to regulation means his company will be able to complete more wells during the crucial winter drilling season.
"For us, this represents a one-year shortening of the drilling cycle.''
Energy Firms Play East Coast
The Financial Post
A Norwegian company has expanded its presence in the growing East Coast offshore energy industry, while a Canadian group is getting close to drilling wells on Anticosti Island in the Gulf of St. Lawrence.
Norsk Hydro Canada Oil & Gas Inc. said yesterday it has bought a 30% interest in four exploration licences offshore Nova Scotia from PanCanadian Petroleum Ltd. The price was not disclosed by PanCanadian, which retains 70% of the licences. Norsk Hydro Canada is a subsidiary of Norsk Hydro ASA, a Norwegian energy and chemicals company.
The properties include the Grand Pre and Riversdale blocks, plus two awarded earlier this month by the Canada-Nova Scotia Offshore Petroleum Board in return for a commitment to spend $10.6 million.
"We're expanding our interest in the East Coast and it was a natural for us" to talk to PanCanadian about a partnership, said Jonas Albeck, land manager with Norsk Hydro Canada.
With its North Sea and offshore Newfoundland experience, Norsk Hydro brings considerable knowledge to the play, PanCanadian spokesman Al Boras said.
Norsk Hydro owns 5% of the Hibernia project and 15% of the Terra Nova field, both on the Grand Banks.
Meanwhile, a group of large and small energy companies is preparing to move a rig to Anticosti Island from B‚cancour, Que., on the south shore of the St. Lawrence. The rig will drill two wells this year in a four-well program funded by Shell Canada Ltd. and Encal Energy Ltd.
Rio Alto Exploration And Ocelot Energy Hit By Falling Prices
The Financial Post
Two Calgary-based energy producers both saw their bottom lines eroded in the first quarter by lower gas and oil prices.
Rio Alto Exploration Ltd. used higher oil and gas production to increase revenue and cash flow in the three months ended March 31, but earnings were down from the same period in 1997.
The company earned $9 million (16› a share) on revenue of $55.3 million, down from $10 million (20›) on revenue of $40 million in 1997. Cash flow rose 18% this year to $30.5 million (53›).
Rio Alto boosted gas volumes by 52% from a year earlier, while daily output of oil and gas liquids almost tripled.
The gains partly offset a 14% drop in gas prices and a 30% plunge in the price of oil and gas liquids.
Besides reporting a lower profit, Ocelot Energy Inc. said revenue and cash flow were reduced by declining production rates and lower activity for its pipeline division.
It posted first-quarter earnings of $858,000 (3›) from revenue of $24.5 million, compared with a profit of $3.6 million (13›) on revenue of $54.2 million a year earlier. Cash flow dropped 47% to $7.7 million (28›).
Ocelot said operations at an oil pool in Gabon will be streamlined during the next two months, allowing production to rise to 1,500 barrels a day by September.
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