MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING TUESDAY, MARCH 3, 1998 (3)
OIL & GAS
WORLD
Oil Wins Brief Support From US Iraq Threat
Oil prices, softened by global oversupply, received short-lived support on Tuesday from a U.S. threat to attack Iraq if Baghdad failed to honour an arms inspections accord.
But the glut of crude and doubts that OPEC would launch a rescue operation helped push prices back down again.
World benchmark Brent blend closed 13 cents lower at $13.92 a barrel in London, more than $5 below the average price for last year and some $11 below a post-Gulf War peak about 16 months ago.
The contract had languished under $14 for most of the day before rising gradually to a peak of $14.22 on a U.S. statement that Iraq would face military action if it failed to honour the agreement.
White House spokesman Mike McCurry said a U.N. Security Council resolution passed on Monday night and warning Iraq of the ''severest consequences'' if it did not live up to the agreement meant that Iraq would face military action.
Traders and analysts said the market's leisurely rise in reaction to the stern White House comment and its later correction showed the extent to which it was reflecting excess supply.
''To see that kind of reaction to that kind of statement shows the market is dead,'' said Leo Drollas of Cambridge Energy Research Associates.
Traders noted that other Security Council members, including France, Russia and China, had said the resolution stopped short of authorising military action.
Iraqi Deputy Prime Minister Tareq Aziz said his country would live up to the agreement.
The resolution also endorsed the agreement which Secretary-General Kofi Annan brought back from Baghdad a week ago providing access to ''presidential sites'' that had previously been off limits to U.N. weapons inspectors.
The market has crumpled under the strain of a resumption in January of Iraqi oil exports, plans for an increase in Baghdad's sales later this year, poor Asian demand and a mild northern hemisphere winter.
Further pressure on the market comes from apparent disarray inside oil cartel OPEC about what to do to shore up prices that have fallen by more than $7 a barrel since October.
Cartel discussions have centred on turning a meeting of OPEC's four-man ministerial monitoring committee scheduled for March 16 in Vienna into a full meeting with the power to address output quotas.
''If OPEC turns it into an emergency meeting, it will bring up the prices and then it will drift down again as the market waits to see if the meeting delivers,'' said Drollas.
Some in OPEC, having endorsed a Saudi plan to raise the limit on group output by 10 percent to 27.5 million barrels a day (bpd), now want to reverse their decision.
Any output cuts would fall squarely on Saudi and to a lesser extent its Gulf Arab neighbours Kuwait and the United Arab Emirates.
''Is it fair to ask Kuwait, Saudi Arabia and the United Arab Emirates to cut back while others are overproducing at our expense?'' asked a senior Kuwaiti official.
The official said Kuwait wanted to see OPEC overproducers returning to official quotas before considering any more collective measures to boost prices.
But Venezuela, the largest overproducer in volume terms, last week said it would not cut by even one barrel. It pumped 3.4 million bpd in February, more than 700,000 barrels above its official quota.
NYMEX
Crude Oil
Oil Ends Near 4-year Low On OPEC
Crude oil futures settled at their lowest price in nearly four years Tuesday on sentiment that members of the Organization of Petroleum Exporting Countries would not convene an emergency meeting to cut back on oil exports.
Elsewhere, the promise of large Brazilian coffee and soybean crops pressured U.S. prices in those markets. Gold also fell.
Crude oil for April delivery settled at $15.27 a barrel, down 7 cents, after making a life-of-contract low at $15.17 earlier in the day.
OPEC Tuesday appeared to be floundering in its bid to find a formula that might attract the group's big producers to emergency talks designed to prop up sagging world oil markets.
OPEC delegates said they were concerned that without a clear agenda, talks would fail and only cause more damage to stricken oil prices.
"We need an agenda," said one senior OPEC delegate said Tuesday "Just calling an emergency meeting in itself solves nothing."
"We have to know in advance the purpose and result of any emergency meeting," a senior Kuwaiti oil official added.
The bearish trend that began in early October has been blamed on ample crude oil supplies, with Iraq pumping more than 1 million barrels a day over the past two months and OPEC producers boosting their export quotas last fall.
Natural Gas
NYMEX Hub Natural Gas Ends Lower But Holds Range
NYMEX Hub natgas futures ended lower across the board Tuesday in a sluggish session, with a softer physical market pressuring the complex most of the day though prices held the recent technical range.
April slipped 5.1 cents to close at $2.241 after stalling early at $2.30. May ended 4.4 cents lower at $2.273. Other months finished down 0.6 to four cents.
''Technically, we're still in a sideways range, but we may be starting to break down. We could be close to coming unglued,'' said one East Coast trader, adding colder forecasts this week and next were not likely to be cold enough to trigger a buying spree.
Below-normal temperatures are expected to continue in the Midwest, Texas and the Southeast through midweek. Cooler weather is also forecast for the Northeast and Mid-Atlantic this week but temperatures are still expected to remain at or several degrees above normal.
Withdrawal estimates for Wednesday's weekly AGA storage report range from 30 bcf to 88 bcf. For the same week last year, stocks declined 76 bcf. Overall stocks are still 284 bcf, or 26.7 percent, above year-ago levels.
Technical traders noted April this afternoon broke minor support in the $2.25 area, but most needed a break of major support at $2.19 to turn decidedly bearish. More buying was expected at $2.06.
Key resistance was seen at $2.355, followed by the February high of $2.43 and the contract high of $2.46.
In the cash Tuesday, Gulf Coast quotes slipped almost a nickel to the high-teens. Midcon pipes were down a couple of cents to the high-teens. Gas at the New York city gate was several cents lower in the high-$2.40s, while Chicago gate gas was five cents lower in the low-$2.30s.
The NYMEX 12-month Henry Hub strip fell 3.3 cents to $2.396. NYMEX said an estimated 41,490 Hub contracts traded, down from Monday's revised tally of 37,301.
U.S. SPOT GAS
U.S. Spot Natural Gas Prices Off With Futures Slump
U.S. spot natural gas prices drifted lower Tuesday, pressured by an early decline in the NYMEX market, industry sources said.
''It was off with the screen. The cold is not really a factor right now,'' one trader said.
After opening weaker, NYMEX's April gas futures contract had reached a low of $2.23 by this afternoon.
Next-day prices at Henry Hub were pegged mostly at $2.23-2.24, down about one to two cents from Monday's levels.
In the western Texas market, Permian prices retreated five cents to about $2.10-2.11, while San Juan quotes were heard at $2.06-2.10.
On the West Coast, southern California border prices were quoted in the mid-to-high $2.30s. Cooler weather was expected to arrive to the region by this weekend and continue into early next week.
In the Midcontinent, prices eased two cents to about $2.15-2.18, while Chicago city-gate slipped to about $2.31-2.32.
In the East, New York city gate prices fell into the mid-to-high $2.40s, while Appalachian prices on Columbia were quoted at $2.33-2.35. Separately, withdrawal estimates for Wednesday's American Gas Association storage report ranged from 30 to 88 bcf, versus 76 bcf a year ago.
CANADA SPOT GAS
Canadian Spot NatGas Eases In Alberta Despite Cold
Canadian spot natural gas prices turned a little softer in Alberta on Tuesday as some pipeline maintenance backed up supply into the province, industry sources said.
''TransCanada is doing some maintenance up until the (March) 16th. It's backing about 150 million (cubic feet per day) of gas into Empress,'' a Calgary-based trader said, noting some of the excess supply in the market was soaked up by buyers trying to meet the higher heating demand. The company could not yet be reached to comment on the maintenance.
Spot gas at the AECO storage hub in Alberta was talked at C$1.67-1.68 per gigajoule (GJ), down about one to two cents from Monday. April AECO was talked at C$1.705-1.71 per GJ, while summer business was reported at C$1.71-1.72.
One-year AECO business starting November 1998 was still quoted around C$2.25 per GJ.
Forecasts in Calgary are calling for highs of about -3 to -5 degrees Celsius throughout this week.
At the export markets, Sumas, Wash., prices were quoted mostly at US$1.45-1.50 per million British thermal units (mmBtu), indicating a gain of about 15 cents.
Triggering additional buying in the Northwest market were continuing below-normal temperatures and sporadic patches of snow, market sources said. Milder weather is forecast to return later this week, according to Weather Services Corp.
In the eastern export market, Niagara gas prices fell about four cents to US$2.38-2.41 per mmBtu, in tandem with a decline in NYMEX natgas futures to a low of $2.23.
OIL & GAS REFERENCES
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