MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING FRIDAY, JANUARY 23, 1998 (2)
OIL & GAS
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Just a brief note to let you know that over the near term, I will be including information pertaining to the US markets. My objective is to establish clear sentiment of the oil and gas sector in North America. In doing so, I feel investors can get a better grip on situations as they occur. One of my often used phrases comes into play - as the US goes, Canada follows.
NYMEX
A sharp sell-off in heating-oil futures dragged the crude oil futures to a new low Friday at the Nymex.
The February heating oil contract broke through so-called long term trend line support dating back to 1986 on monthly price charts, which may have triggered the heavy fund selling seen in the contract, analysts said. Trend lines are one tool of technical analysis, which seeks to discern the future direction of markets based on trading patterns.
The front-month heating oil contract fell 1.30 cents to a session low of 44.30 cents a gallon, the lowest point for front-month heating oil futures since early March 1995, before settling a bit higher. That low bested Thursday's low of 45.30 cents a gallon, which also was last hit in March 1995.
March crude oil was able to resist some of the heating oil pull following news that a 2,500-barrel oil leak forced Amoco Corp. to shut an offshore crude oil pipeline that supplied light, sweet crude oil to Texas City-area refineries. The size of the pipeline isn't clear, but a U.S. Coast Guard spokesman said the line handles oil from 27 offshore oil platforms.
March light sweet crude oil settled down $0.30 to $15.74.
Natural gas futures ended mixed Friday in an active session, with front months undermined by moderate weather forecasts and some technical selling after an early move up stalled at resistance, industry sources said.
February slipped 4.3 cents to close at $2.117 per million British thermal units after stalling at $2.18 on ACCESS. March settled 3.6 cents lower at $2.125. Other months ended mixed, with some 1999s finishing up slightly.
"We saw a lot of short covering this week, but we couldn't decisively break to the upside. We couldn't get through the recent high (in February at $2.185), but we couldn't break $2.075 support either," said one East Coast trader.
Traders said a rising year-on-year stock surplus and forecasts for normal or above normal U.S. temperatures into February continued to weigh on prices.
Chartists said the technical picture also deteriorated this week when February failed to follow through on the prior week's rally, but they noted the spot month was still holding the recent technical range.
On the upside, a close above $2.185 should set up a test of next resistance at $2.25 and $2.34, but few expected to see those levels without some Arctic cold. February support was pegged at $2.075, with better buying likely at the $1.97 contract low. Spot continuation chart support was seen at $1.85-1.88.
In the cash Friday, Gulf Coast weekend quotes were up a couple of cents to the $2.10 area. Midcon pipes were flat to down slightly in the low-$2s. New York city gate gas held fairly steady at about $2.50, while Chicago was flat to modestly higher in the mid-teens.
The NYMEX 12-month Henry Hub strip fell 1.2 cents to $2.27. NYMEX said an estimated 68,522 Hub contracts traded, up from Thursday's revised tally of 54,037.
NORTH AMERICAN RIG COUNT
The number of rigs exploring for oil and natural gas in the United States stood at 996 as of January 23, up seven from the previous week, and 181 above the year-ago total of 815, Baker Hughes Inc [NYSE:BHI] reported.
The number of rigs drilling on land rose by five to 839, while rigs working offshore remained at 132. The number of rigs active in inland waters rose by two to 25.
Among the individual states, the biggest changes occurred in Louisiana, up by 12, and in Kansas, down by six.
The Gulf of Mexico rig count rose by one to 131.
The number of rigs searching for gas fell by three to 595, the number of rigs searching for oil rose by nine to 396, while the number of miscellaneous drilling projects rose by one to five.
There were 241 rigs drilling directionally, 64 drilling horizontally and 691 drilling vertically.
In Canada, the number of working rigs rose by six to 512 versus 415 one year ago.
The weekly rig count reflects the number of rigs exploring for oil and gas, not those producing oil and gas.
For additional data, go here; bakerhughes.com
HEADLINE STORY
The possibility of a merger between TransCanada PipeLines Limited and NOVA Corporation has got industry buzzing after the two pipeline giants confirmed ongoing discussions this morning.
Although no agreement has been reached, the potential of a joint enterprise has raised concerns from some producers that competition will be stifled if the merger produces a dominant force.
"It's hard to say how it would affect producers, if they kept two separate companies it may not have a heavy impact, as if they merged it and had one company controlling all the gas transportation in western Canada," said Greg Stringham, vice-president of markets and transportation for the Canadian Association of Petroleum Producers.
Stringham believes all the competitive pipeline proposals currently before the regulatory boards have fueled the merger talks. "The competition that's being brought forward right now has certainly led them to look at these kinds of competitive alternatives," he said.
Verne Johnson, president of Ziff Energy Group, agreed a NOVA-TCPL entity would definitely be a powerful corporate combination. However, the mere existence of a merger does not mean the transport capacity situation will be better or worse for producers, he said.
"It depends on how the business is conducted, neither company would want to frustrate their customers. What the industry is looking for now is additional gas export capacity and merging of existing pipelines doesn't increase or decrease that," Johnson said.
For the Small Explorers and Producers Association of Canada, the merger could have both positive and negative effects, said President George Fink.
Producers could see benefits if the combined companies lessen their administrative burden and pass those savings on. However Fink cautioned: "We have to be careful because where we have two monopolies now putting them into one could result in real abuse of monopolistic powers."
SEPAC seeks open markets and greater competition in the pipeline industry and this would create a bigger behemoth than what already exists, Fink added.
While SEPAC awaits the outcome of the talks, the organization hopes regulators will take notice and exert efforts to provide and protect open competition in the pipeline industry if the merger proceeds.
"We really feel the regulators have to be on top of the situation and give a whole lot of guidance as to what can be done and what can't," Fink said.
Tom Bugg, president of Beau Canada Exploration Ltd., thinks the merger could provide positive netbacks to producers.
"Anytime you can get a bigger size, reduce the overall cost and make it a more efficient operation, then I think it's got to be positive."
Beau Canada currently ships with NOVA, TCPL and has committed to Alliance Pipeline Ltd. Although Bugg admits lack of competition can be a problem, he believes producers would remedy a one-sided market somehow.
"Obviously from a producer's perspective you'd like to have as much competition as possible, but if they become more efficient they might be able to reduce their rates," Bugg said.
Another producer, who has also signed on with Alliance, is not as optimistic as Bugg. "One party would have too much control over the pipeline structure in Canada and we're not pleased about it at all," said an executive who did not wish to be named.
"Our biggest concern is one party having too much sway over the gas pipeline infrastructure out of Western Canada and it's not healthy. There's not much competition going on right now anyway, but it just gives one party even more clout and that never bodes well for competition," the source said.
The executive noted NOVA has got itself between a rock and a hard place in a class action lawsuit launched by disgruntled Pan-Alberta Gas Ltd.shippers. If TCPL purchases NOVA, it would have to consider the implications of the additional cost, the source said.
"Obviously there's a big dollar figure that's hanging out there, that would effect the value of NOVA. From a producer's perspective, we've applied to have NOVA named in the lawsuit and TCPL could certainly be included."
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