MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING THURS., JANUARY 8, 1998 (2)
OIL AND GAS
NYMEX
Oil markets bucked the selling in many other commodity markets, with traders citing some buying by speculators to cash in profits on previously sold futures contracts. But the fact of huge supplies this year and weaker demanddue to the Asian economic troubles continued to overhang the market.
Crude oil and product futures were pushed higher Thursday at the New York Mercantile Exchange as bears took profits.
Sellers' profits have been building for more than three months, when the bear trend reasserted itself, and the mood in the market remains bearish. Rising oil supply, declining demand from Asia, and lackluster heating oil demand in the U.S., threaten to pull crude-complex values lower in the near-term.
But on Thursday, the market took a breather from the selling, and values recovered a bit, traders said.
Statements from a pro-Iranian government newspaper that oil ministers from the Organization of Petroleum Exporting Countries should hold an early meeting to find a solution to the "oil glut" also supported crude complex values.
OPEC's decision to raise its production ceiling by 2.5 million barrels a day to 27.5 million barrels a day has been a key factor in the 25% decline in crude oil futures on the Nymex since October. Gasoline and heating oil futures, which also have been sold hard recently, pushed higher on back of crude oil.
"The small speculators like the local players are short-covering while the funds are still in a selling mode due to bearish fundamentals overhead," said Chris Schachte, a trader and analyst with GSC Energy in Atlanta.
At the New York Mercantile Exchange, February crude oil ended 15 cents higher at $16.97 a barrel. Tracking crude, February heating oil ended 0.42 cent higher at 47.75 cents a gallon and February gasoline ended 0.68 cent a gallon higher at 52.62 cents.
February natural gas fell $0.099 to settle at $2.046.
U.S. SPOT GAS
Mild Weather Still Chips Away At U.S. Spot Natural Gas
U.S. spot natural gas prices slipped a couple more cents Thursday as six- to 10-day forecasts called for above-normal temperatures across the eastern two-thirds of the U.S. next week, sources said.
Swing gas at Henry Hub was quoted mostly at $2.10-2.12, off an average of two cents from Wednesday's levels.
In the Midcontinent, prices similarly fell to about $2.07-2.09, while gas prices at the Chicago city gate eased to about $2.15-2.16.
In west Texas, Permian Basin gas was quoted down three cents at $2.04-2.06. Southern California border prices were similarly softer at $2.29-2.32 as West Coast buyers picked over an ample supply of gas in Texas.
In generation news, the 350 MW unit 2 at the San Juan coal plant in New Mexico, which tripped off line early Tuesday because of a tube leak, was back to full power by this morning.
In the Northeast, New York city gate prices continued to erode into the low-to-mid $2.40s.
Temperatures are expected to return to near- to slightly below-normal levels by this weekend but then jump back up to above normal by midweek.
AGA said Wednesday U.S. gas stocks fell last week by 138 bcf, pushing overall inventories 17 bcf, or about one percent, below 1997 levels.
CANADA SPOT GAS
Canadian Spot NatGas Holds In Alberta Due To Cold
Canadian spot natural gas prices remained firm Thursday as buyers turned to ample storage supplies to meet their heating demand needs, traders said.
Spot gas at the AECO storage hub in Alberta was quoted again at C$1.45-1.46 per gigajoule.
"There's enough storage now that crushes any uprising in the spot market," a Calgary-based trader said.
February AECO was also talked steady at C$1.45 per GJ.
Environment Canada said temperatures in southern Alberta were expected to reach highs of -24 degrees Celsius on Friday, -26 on Saturday, and -20 on Sunday.
Meanwhile, gas for export at Sumas, Wash., rose a couple of cents to US$2.06-2.12 per million British thermal units(mmBtu).
In the East, gas at Niagara was quoted mostly at $2.16-2.17 per mmBtu, down about five cents from Wednesday.
WEEKLY REPORT - CRUDE OIL COMMENTARY & TRADING STRATEGIES
Let's begin with a little historical data - the high for 1997 was 26.62, the low was $17.60 and the average price over the year was $20.61. Crude oil ended the year on a negative note with prices slipping to $17.64 on December 31st.
The bearish sentiment has been caused by numerous factors: (i) the resumption of Iraqi oil sales which are now expected back on the market by week-end; (ii) above normal heating oil inventories; (iii) El Nino, which has resulted in a mild North American winter to date; (iv) an increase in the OPEC production quota and (v) the perception that the Asian crisis will have a negative medium term impact on the demand for crude oil and products.
Where are crude prices headed in 1998? Prices should begin building some support at around $17.00, and remain in the $17.00-18.50 range for a good portion of the year. We expect that, baring any unforeseen events (political tension/unrest, war, supply disruptions etc....), prices will average between $18.00-19.00 in 1998.
WEEKLY REPORT NATURAL GAS COMMENTS
1997 in review - gas prices remained volatile in 1997 with NYMEX spot prices ranging between $1.78 and $3.79, and averaging $2.48 for the year, well above the average of the last seven years $1.9725. Where are prices headed?
NYMEX prices look set to head lower in the medium term with support at around $2.00 and then at $1.75. Things to keep in mind are El Nino, additional exports into the U.S. from Canada in the second half of 1998 and storage levels.
Aeco spot prices gyrated with NYMEX prices, reaching a high of C$2.98 in January and a low of C$1.38 in March. The outlook is that prices will strengthen by mid year, however, our view is that NYMEX will decline some and Aeco will rise to narrow the differential - the impact of additional pipeline capacity will not all be on prices at Aeco.
EIA SAYS NATURAL GAS CAPACITY MORE THAN ADEQUATE THROUGH 1998
The Energy Information Administration expects a continuing increase in natural gas productive capacity in the United States through 1998 to be more than adequate to meet normal production demand. Increased drilling resulting in new discoveries, especially in the Gulf of Mexico Outer Continental Shelf, will be a major factor.
According to the sixth in a series of EIA reports on natural gas wellhead capacity in the lower 48 States, the decline in gas productive capacity that began in 1986 was clearly reversed in 1996 and capacity is expected to continue increasing through 1998. Exceptionally high "peak-day" or "peak-week" heating or cooling demand may temporarily exceed projected productive capacity, or production may be limited by other factors such as pipeline availability, but various methods, such as deliveries from storage and peak-day shaving, are available to meet peak demand.
Surplus capacity above average production is needed to respond to seasonalvariations in demand caused by weather and other factors, although expanded imports and storage of gas in recent years have increased the flexibility of the supply system. However, the more flexible supply system has not prevented price spikes like that in late 1996, when gas demand was high and there was an industry perception of actual or potential tightness in gas supply. The increased drilling in 1996 and projected increases in 1997 and 1998 allow for increased production and an increasing surplus capacity.
REFERENCES
Charts: oilworld.com
NYMEX Reference quotewatch.com
FEATURE STORY
Sable Offshore Project Begins
Mobil Corp. announced Thursday that with the necessary government and regulatory approvals in place, construction has begun on the Sable Offshore Energy Project (SOEP), in which Mobil is the lead partner with a 50.8 percent interest.
The SOEP fields are located in the Scotian Shelf, 125 miles off the coast of Nova Scotia. Construction will include building and installing six offshore platforms, drilling up to 30 wells, building an onshore gas plant, and laying more than 250 miles of pipe.
The estimated recoverable natural gas reserves in the six fields which comprise the SOEP are in excess of 3 trillion cubic feet (TCF) plus about 100 million barrels of natural gas liquids (NGL).
Production, which is expected to commence by late 1999, is designed to average 460 million cubic feet of natural gas and 20,000 barrels of NGL per day in the year 2000 and be maintained at this level for at least 12 of the 25 years of project life.
The first phase is expected to cost approximately US$1.4 billion and is scheduled for completion by December 1999. During this two-year period, offshore production platforms, gathering lines and onshore processing facilities will be built to handle production from the Thebaud, North Triumph and Venture fields.
The second phase is expected to cost about US$700 million for the development of the three additional fields, Alma, Glenelg and South Venture. Development of these fields will be phased in with completion by 2006.
''We are very pleased to be moving the Sable project forward in a growth basin where Mobil is already the dominant player,'' said Lou W. Allstadt, Mobil's group operating officer for North America Exploration and Producing. ''This will be a very complex project but the economic results for the partners will be robust.
''The addition of Sable production by late 1999 fits Mobil's aggressive expansion plans for Eastern Canada. The clean-burning products from Sable will be solid contributors to growth in the economies of Nova Scotia, New Brunswick and New England.''
The interim development and production ownership of the SOEP is Mobil Oil Canada (50.8%), Shell Canada (31.3%), Imperial Oil (9%), Nova Scotia Resources (8.4%), and Mosbacher Operating Limited (to be confirmed)(.5%).
Natural gas from the SOEP will be transported to markets via the US$700 million Maritimes & Northeast Pipeline, in which Mobil also has an interest.
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