MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING WEDNESDAY, JANUARY 21, 1998 (2)
OIL & GAS COLUMN
WORLD
New Worries Cut Crude Price To Fresh 45-Month Low
SINGAPORE, Jan 22
Reuters
Crude prices in Asia dropped to fresh 45-month lows on Thursday as a massive build in U.S. stocks added to a market already worried by mild weather, rising OPEC supplies and weakening demand in Asia.
The latest sales added to a wave of selling that has hit the market since October, knocking more than 30 percent off the value of crude.
''The question now is, who is left to sell the market,'' said Tom James, Asia-Pacific manager for commodity derivatives at Credit Lyonnais Rouse.
Prices fell after the American Petroleum Institute (API) said U.S. crude stocks rose a hefty 14.643 million barrels in the week ended January 16.
The data stunned oil traders, who had expected a rise of around 2.5 million barrels.
New York Mercantile Exchange March crude futures fell in electronic trading as low as $16.00 per barrel -- the lowest level since mid-April 1994.
March North Sea Brent futures followed suit and fell on the Singapore International Monetary Exchange (SIMEX) to $15.04 per barrel -- also the lowest level in 45 months.
''We saw the new stock data and suddenly everyone was selling -- there wasn't a single bid in sight,'' one New York-based broker said.
Traders said it was difficult to ascertain what caused the rise in the U.S. stocks.
Domestic U.S. crude production was steady, while a rise in imports and a fall in refinery production were not big enough to account for the build in stocks.
The stock build has added another layer to the bearish pall hanging over crude prices.
On Wednesday, Saudi Arabia signalled it was not willing to single-handedly prop up the sagging market by curtailing production.
A Gulf source familiar with the kingdom's oil policy said it was producing near to 8.76 million barrels per day (bpd) under its new OPEC allocation.
However, Saudi Arabia would not play the role of swing producer to help support the oil price.
Analysts estimated that actual OPEC production would rise to 28.5 million bpd during the first half of 1998, despite setting a supply ceiling of 27.5 million bpd.
In addition, mild winter weather in the northern hemisphere has reduced the normal surge in demand for heating oils, leaving more stocks hanging over the market.
The financial crisis in Asia is expected to sharply rein in demand growth. Asia has been the powerhouse of global demand growth in recent years.
On Wednesday, Taiwan said it expected its crude import demand to be steady in 1998. Other countries are expected to show modest demand, but possibly half the levels forecast before the crisis.
Mobil Corp (MOB) said on Wednesday its 300,000 bpd Singapore refinery had cut production by up to 20 percent because of the soft oil price.
Refineries in Singapore, Thailand, Japan and South Korea have also cut production to try to bolster prices.
With currencies still falling in the region, there appeared to be little prospect of a pick up in demand growth.
However, analysts and traders said price falls might be limited in coming days.
Sellers might hold off to wait and see if stock data, due later on Thursday from the U.S. Department of Energy, confirms the API data.
The pace of the decline in oil prices has slowed sharply in the past week, so speculators who had previously laid down heavy bets on a lower price might now cash in their gains.
In addition, OPEC's ministerial committee monitoring output is to meet in Vienna on Friday. Although the committee has no power over directly setting policy, ministers outside the committee have been invited as observers.
Traders said the meeting would make speculators cover their bets for lower prices or at least pause in selling further in case any comments emerged from the sidelines of the meeting.
However, the effectiveness of any sideline discussions would be limited by the absence of Saudi Arabian oil minister Ali al-Naimi.
NYMEX
CRUDE OIL
Crude-oil and petroleum-product futures finished moderately lower Wednesday on the New York Mercantile Exchange, as squabbling among the world's largest oil exporting countries raised fears output will rise dramatically in coming weeks.
March light sweet crude oil settled down $0.20 to $16.36
Venezuela and Saudi Arabia, the two largest exporting members of the Organization of Petroleum Exporting Countries, appear to be locked in a war of words over who is to blame for falling oil prices on world markets.
Venezuela on Tuesday accused Saudi Arabia, the world's biggest exporter, of exceeding its daily 761,000-barrel quota by nearly 400,000 barrels. That comes despite approval last year of a 10% increase in daily output, effective Jan. 1.
Venezuela, which ships much of its oil to the United States, last year was accused of being the OPEC's biggest overproducer.
The widespread cheating has generally been tolerated for years because increasing oil needs from booming Asian economies have taken up much of that extra out. But the recent crisis there is expected to cut demand to that region by as much as 230,000 barrels a day, according to the International Energy Agency.
The complex was also pressured by expectations of bearish inventory reports. Those concerns were confirmed late Wednesday, when the API reported crude-oil stocks rose by 14.643 million barrels in the week ended Jan. 16. Gasoline stocks rose by 2.113 million barrels, and distillate stocks, which include heating oil, fell by 1.339 million barrels. Refineries operated at 93.6% capacity, down from 95.9% the previous week.
NATURAL GAS
U.S. spot natural gas prices drifted slightly lower Wednesday amid additional selling in the futures market, industry sources said. "Cash is tracing the contract," one gas trader said, as February futures slid to a session low of $2.075.
Swing gas at Henry Hub was quoted mostly at $2.06-2.10 per mmBtu, off about three cents from Tuesday's levels.
Forecasts were still calling for above-normal temperatures across the U.S. this week, with slightly cooler weather expected in Texas Thursday and Friday. Forecasts for next week show morewarmer than weather in the northern half of the U.S. and stretching into southern California. Below-normal temperatures are only expected in the Gulf and Southeast.
In the Midcontinent, prices also lost about three cents to $2.00-2.05, with Chicago city-gate pegged mostly at $2.14-2.15.
In west Texas, Permian Basin gas prices erased yesterday's gains as most deals were reported done in the low-to-mid $1.90s. Southern California border prices were also a little softer at $2.27-2.30, while San Juan prices were quoted at $1.90-1.96.
In generation news, the 1,080 megawatt (MW) San Onofre 3 nuclear unit in California was still at 75 percent power due to a problem with a circulation water pump and is expected to remain at a reduced rate through Friday, according to SoCal Edison.
In the Northeast, New York city gate prices were quoted mostly in the low-$2.50s, while Appalachian prices on Columbia hovered around $2.20-2.21. Separately, withdrawal estimates for today's American Gas Association storage report, according to a Reuters poll, were mostly 125-135 bcf, compared to a 262
CANADA SPOT NATURAL GAS
Canada Spot Gas Mostly Flat In Lackluster Trade
Canadian spot natural gas prices were little changed on Wednesday amid warmer weather in the west and a reduced export demand, traders said.
Spot gas at the AECO storage hub in Alberta was quoted at C$1.41/1.42 per gigajoule up about a penny from Tuesday and level with last week's price. February, Summer and February-October terms were all stuck at about the same level as the day-to-day price, again up about one cent from Tuesday.
"All the prices are so tight so there are no spreads to make deals," a Calgary-based trader said, adding that more warm weather forecast for southern Alberta on the weekend and a lack of operational problems appeared to spell a slight weakening in values over the next few days.
Environment Canada forecast southern Alberta high temperatures on Saturday and Sunday of 2-3 Celsius (36-37 Fahrenheit).
At the borders, Sumas, Wash. spot gas was talked at US$1.80/1.85 per million British thermal units, unchanged from Tuesday and down about a dime from last Wednesday.
A trader of British Columbia gas said he expected prices to weaken over the next week amid concern that local distribution companies in the U.S. Pacific Northwest could start to sell storage positions in February and March amid warm weather.
In the east, Niagara, Ontario gas fetched US$2.19/2.22 per mmBtu, about even with Tuesday, as the market closely tracked the NYMEX February futures contract, trading sources said.
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