MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY, MARCH 16, 1998 (2)
OIL AND GAS
WORLD
Oil Price Plunges to Record Low
Vienna - The price of a basket of seven crudes plunged to 11.83 U.S. dollars a barrel last week, the lowest in nearly a decade, the Organization of Petroleum Exporting Countries (OPEC) said on Monday.
OPEC had expected a price of 21 dollars a barrel and seems quite helpless in tackling the problem. It had planned to hold a special meeting of its Market Monitoring Committee on Monday to consider ways of stopping the price decline. However, members, including Saudi Arabia and Venezuela, refused to attend, forcing OPEC to put off the meeting until the end of March.
Oil prices, which have been going down in recent years, increased slightly at the end of 1996 and the start of 1997 when a freezing winter afflicted Europe and the United States.
The price dropped dramatically after October 1997 as the Southeast Asian economies went into a financial crisis and a mild U.S. and European winter cut demand.
Iraq began exporting limited amounts of oil in 1997 to buy food and medicine and this contributed to the price problem.
But experts say the essential reason behind the slump lies inside OPEC, which boosted its production by 10 percent in January. The output ceiling for OPEC members rose to 27.5 million barrels a day this year from the 1997 ceiling of 25.05 million barrels.
Saudi Arabia, the world's largest exporter, has adamantly opposed curtailing output without having all the producers -- including non-OPEC members -- to do so as well.
Venezuela, the second-largest producer within OPEC, and the largest exporter to the United States, also showed no inclination to cut production already well above its quota. The South American country is producing 3.5 million barrels a day, an increase of 36 percent on its quota of 2.58 million barrels.
Because most OPEC members gain their earnings through oil exports, decreases in oil outputs and exports will devastate their economies. For example, crude oil and natural gas account for 79 percent of the total exports in Venezuela.
Analysts also have different views on the falling price. Some believe that OPEC could only stop the decline after the price slides under 10 dollars.
Others say the low price will not last long and will go up to 15 to 17 dollars in the summer.
Oil At Nine-Year Low, Faces Further Fall
London - World oil prices slipped to fresh nine-year lows at the start of the week in the absence of any coherent support strategy by major producers, and analysts said the market had further downside potential.
May delivery Brent blend, the international benchmark grade, slumped 68 cents to close at $12.37 a barrel.
The contract was dragged down by selling on the New York market, where the April contract spiralled down to $13.26 a barrel after crashing through $13.75 for the first time since 1988. It ended the day down 77 cents at $13.29 a barrel.
''Losing this support opens the door to further medium-term falls to around $10, the April 1986 low,'' Omar Gadsby of brokers MCM said in his daily report.
Analysts said the price slump could easily deepen if the Organisation of Petroleum Exporting Countries failed to respond quickly.
''Single-digit oil prices (are) a real possibility by the summer unless OPEC producers take decisive action to reduce their output substantially,'' London's Centre for Global Energy Studies said in a monthly report.
The consultancy, headed by former Saudi Arabian oil minister Zaki Yamani, said that even a cut of a million barrels a day by OPEC from current output would not be enough to underpin the oil price.
OPEC pumped 28.7 million bpd in February, or 1.2 million above its official ceiling.
''Too much oil has already been produced and placed in storage by both producers and consumers,'' it said.
''The market is facing a huge oversupply yet there is little to suggest that respite is near.''
Oil prices were last in single digits in 1986, but in real terms have not been as low since 1973.
Dealers said the postponement of OPEC's Market Monitoring Committee (MMC) meeting from Monday until March 30 had reaffirmed the impression the group was in disarray.
''It looks as though things will go lower still before the meeting,'' said a London oil broker. ''It's clear there is new downward pressure coming out.''
The committee, made up of oil ministers from Iran, Nigeria and Kuwait, had been due to assess member compliance with new output quotas agreed at OPEC's last full gathering in Indonesia in November.
Its decision then to raise output allocations by 10 percent, and continued quota busting by leading cartel members, have been blamed for triggering the 40 percent slide from last year's average price of $19.30 a barrel.
Domestic political tribulations in some member states and a fear that the MMC meeting would do more to damage cartel credibility than restore it lay behind the postponement, insiders said.
Kuwait's government has resigned and current OPEC president Ida Bagus Sudjana, who would also have been at the gathering, was replaced as Indonesian Energy minister at the weekend by Kuntoro Mangkusubroto.
The MMC would have no power to adjust quotas and looks unlikely to be converted to a full emergency meeting.
Saudi Arabia, the world's largest oil exporter, is locked in a dispute with Venezuela, OPEC's biggest over producer, over responsibility for the price fall.
Saudi Arabia says other OPEC members must join in output cuts. It has accused quota-busters of trying to steal its customers and says it is prepared to tough out current price falls until others buckle.
''OPEC is in complete disarray. They know they need to cut back but they are not sure who's going to do it first,'' said one London oil futures trader.
Venezuela has said OPEC cannot take sole responsibility for prices, and has pointed to hefty production levels outside the 11-member group.
''Collective action should take place by all the main producers -- somehow related to market share,'' said Leslie Nicholas of brokers GNI in his daily market report.
Extra Iraqi oil due to be exported in the summer under the auspices of an expanded United Nations ''oil-for-food'' deal will swamp markets already drowning in unwanted crude.
But analysts doubt the extra two weeks before the rescheduled MMC will be long enough to bridge the current divide within OPEC.
Last week Washington-based consultants The Petroleum Finance Company said prices would have to fall further ''to soften entrenched positions.''
NYMEX
Crude Oil
NYMEX Crude Loses Key Support, Ends At $13.28/bbl
Crude oil futures took a pounding Monday, settling at $13.28 a barrel, off 78 cents and just a touch above the $13.25 low hit in November 1988, and traders saw no respite from the downslide unless OPEC moved to cut production.
Key support at $13.75, a 1993 low, broke shortly after midday and the downslide worsened. Trading was volatile with the day's high hitting $13.95, from an opening of $13.88, and a low of $13.26.
''There was a lot of selling, it's like some people threw in the towel,'' said a dejected floor trader, who added he saw the market ''headed toward $12.80-$12.90 area.''
Crude oil for delivery for the rest of the year. Nearby May and June contracts both lost 87 cents at $13.65 and $14.05, respectively.
Refined products also took big losses. Heating oil for April delivery lost 1.73 cents to close at 38.52 cents a gallon while front-month gasoline slipped 2.01 cents at 45.24 a gallon.
In London, May Brent at the International Petroleum Exchange closed down 68 cents at $12.37 a barrel, slightly out of line with May West Texas Intermediate (WTI). April closed down 44 cents at $12.32 a barrel.
Traders uniformly blamed the market's woes to the current oil glut and OPEC's continued inaction to shore up depressed prices.
''There is really not much you can do to a market if producers don't want to get their act together,'' said a trader.
Last week, speculation on the possibility of the OPEC converting a market monitoring committee meeting on March 30 into a full-blowm emergency meeting somehow kept hopes flickering.
Without any weekend developments, NYMEX on overnight trading lost 19 cents, closing at $13.90, a low not reached since the first week of April, 1994, with the spread between $13.83 and $14.05.
''That sort of set the tone for the day,'' said a market-watcher.
From Paris, the head of the International Energy Agency said Monday oil prices could fall further unless some action was taken.
''There is a surplus of supply so until someone takes some action, the price is going to keep on going down, IEA executive director Robert Priddle told reporters at an informal briefing on oil market trends. He did not say what kind of action might boost prices, now how low prices could go.
In the past week, traders pinned their hopes on the possibility the market monitoring committee meeting of OPEC, postponed for two weeks to March 30, could be transformed into a full-blown emergency meeting.
But continued wrangling between Saudi Arabia and Venezuela over production policy appears to have put that possibility ''out of reach,'' one market watcher said.
Oil prices have now fallen some 40 percent since their October levels.
OPEC raised its official output ceiling by 10 percent to 27.5 million barrels per day (BPD) in November, but the 11-nation cartel produced about 28.7 million BPD in February.
The higher output is blamed by Saudi Arabia and other Middle East producers on ''quota-busters,'' the biggest of which is Venezuela.
Venezuela produced 30 percent above its 2.6 million BPD quota in February and has vowed it will not cut its output by even a single barrel.
On Monday, Remigio Fernandez, a senior official of Petroleos de Venezuela who spoke at a conference in San Francisco, repeated the same stand and called OPEC quotas ''an insult.''
Natural Gas
NYMEX Hub Natural Gas Ends Mixed, Fronts Up On Weather
NYMEX Hub natural gas futures ended mixed Monday in a sluggish session, with front months holding modest gains on prospects for another bout of cold later this week and next, industry sources said.
April edged up 1.8 cents to close at $2.155 per million British thermal units after drifting in a range between $2.105 and $2.17. May settled 1.1 cents higher at $2.181. Other months ended narrowly mixed.
''Right now, the cold weather is helping and people are reluctant to sell, but sooner or later, natgas traders will realize they're trading a hydrocarbon,'' said one Texas-based trader, adding he expected cratering crude and oil product prices to eventually weigh on gas.
Traders agreed the recent cold snap and forecasts later this week and next for more below-normal weather in the central and southern U.S. helped prop up futures today though cash lost some ground amid talk several utilities were returning gas.
Early-week temperatures in the East and upper Midwest are forecast to average several degrees below normal, then return to normal or above by midweek. Cooler weather is expected to arrive again by the weekend for most of the eastern half of the nation.
Technical traders agreed the market was range bound. Key April support was still seen at the recent low of $2.105, which was tested again this morning and held. Further support was seen at $2.06 and $2.00. Resistance was pegged at $2.185 and $2.205, with a close above that level likely to send prices to the $2.35 area.
In the cash Monday, Gulf Coast quotes were flat to down slightly in the mid-to-high teens. Midcon pipes were two to three cents lower in the low-to-mid teens. Gas at the New York city gate fell almost a nickel to the mid-$2.40s, while Chicago was five cents lower in the high-$2.20s.
The NYMEX 12-month Henry Hub strip gained 0.8 cent to $2.335.
U.S. SPOT NATURAL GAS
U.S. spot Natural Gas Prices Trickle Lower On Weather
U.S. spot natural gas prices trickled lower Monday as more moderate weather patterns dampened demand and April futures still wavered in the same range, industry sources said.
Henry Hub cash prices softened about one cent to $2.18-2.20 per mmBtu, while April futures bounced between $2.105 and $2.17.
In the western Texas market, Permian Basin prices fell about five cents to $2.06-2.10, and San Juan values eased to $2.03-2.10. Southern California border prices similarly retreated four cents to the low-$2.30s as seasonal weather continued in the Southwest.
In the Midcontinent, prices shifted about three cents lower to $2.14-2.16, with Chicago city-gate quoted mostly at $2.27-2.28 from Friday's quotes at $2.32-2.34.
Demand in the Midwest is expected to escalate by week's end as forecasts call for temperatures to drop to about five to 10 degrees below normal on Friday.
In the East, where temperatures were hovering about five to nine degrees below normal, New York city-gate prices slipped about three cents to the mid-$2.40s. However, Appalachian prices on Columbia rose a few cents to $2.33-2.34.
Forecasts in the Northeast show normal weather midweek but a return of cooler weather by Friday and into the weekend.
CANADA NATURAL SPOT GAS
Canadian Spot Natural Gas Prices Propped Up By Cold
Canadian spot natural gas prices moved marginally higher Monday as cold, snowy weather sparked some short-term demand in western Canada, industry sources said.
Spot gas at the AECO storage hub in Alberta was quoted at C$1.74-1.75 per gigajoule (GJ), up about five cents from Friday's levels.
Despite the cold weather and snow now in Calgary, forecasts are calling for temperature highs to rise to 34 and 45 degrees Fahrenheit on Tuesday and Wednesday, respectively.
At the borders, gas prices at Sumas, Wash., also rose about five cents to the low-to-mid US$1.40s per million British thermal units (mmBtu).
In addition to the cold weather, traders said, Sumas prices were boosted slightly by an unexpected temporary curtailment at Westcoast Energy's McMahon gas plant in northeastern British Columbia.
The 700 million cubic feet per day plant experienced ''a foaming problem'' on Saturday, which cut production to about 475 mmcfd from about 540 mmcfd, a Westcoast spokesman said, adding the plant was back to normal operation by Sunday evening.
In the East, Niagara prices were quoted unchanged at US$2.33-2.34 per mmBtu as milder weather forecasts collided with a slight uptick on the futures side. April futures traded up 1.8 cents at 1438 EST to $2.155 per mmBtu.
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