MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY DECEMBER 29, 1997
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OIL & GAS
The U.S. market for foreign crudes was quiet on Monday, as traders returning from their Christmas holiday were catching up with deals done last week.
Last Wednesday, a U.S. major said it sold the third cargo of Canadian Hibernia to two U.S. Gulf Coast buyers, for delivery in the first decade of February. Further details were not yet available.
Meanwhile partners in the Hibernia development project - Mobil Oil Canada and Chevron Canada - confirmed on Monday that U.S. refiner Tosco had bought the first cargo of Hibernia in early December. While the price of that first cargo was not disclosed, foreign crude oil traders in the U.S. put it at dated North Sea Brent plus 60-65 cents.
Traders also said they heard Odudu, a relatively illiquid crude from the Congo, and Malaysian Tapis were sold into the U.S. Gulf Coast last week. While no details were available, traders said the deals were possible amid run cuts at Asian refineries, which would normally take the crudes.
Nigerian Qua Iboe, Equatorial Guinea's Zafiro and Angolan Cabinda were among the African grades being plentifully offered into the U.S. Gulf, traders said.
A U.S. major was offering Zafiro at dated Brent minus 90 cents fob, "with a little room," sharply lower than prices of dated minus 60 cents being offered last week.
"It's backing up because it's not going to the Far East," said one trader, adding that Cabinda particularly was a crude that typically ended up in Asia.
Cabinda was being offered at dated Brent minus $1.20-25, traders said.
"I haven't heard of anyone wanting to buy at that price," the trader said.
Most of the Qua Iboe arriving in January had been placed, with only one or two cargoes still unsold. Several players were showing February-arrival Qua, traders said.
Activity in Latin American crudes was slight on Monday, as traders are still awaiting details of the February loading program for Colombian sweet grade, Cusiana. Some traders speculated that the program would have around 13 cargoes, in line with the December and January programs. The last Cusiana cargo in the January program sold at WTI minus 58 cents.
Colombia's Cao Limn pipeline began pumping crude again early last Friday, two days after guerrillas attacked the line for the 65th time this year. But though pumping has resumed, traders say that the recent spate of bombings of Colombia's Cao Limn pipeline has resulted in delays in the loadings of Cao.
NYMEX
At the New York Mercantile Exchange, crude oil prices dropped to 23-month lows on talk that Iraqi oil sales are likely to resume soon under an "oil-for-food" scheme backed by the United Nations, traders said.
Crude oil prices tumbled to a nearly two-year low Monday as Iraq appeared close to resuming oil exports, a move that will boost world-wide supplies.
Crude oil for delivery in February dropped 58 cents to $17.62 a barrel on the New York Mercantile Exchange, sinking below the $18-a-barrel floor above which the nearby contract has recently hovered.
Earlier in the day, the contract dipped as low as $17.58, the lowest for a nearby crude oil contract since February 1996.
Iraq's oil minister Amer Mohammed Rasheed said Saturday that Baghdad had sent its aid distribution plan to Secretary-General Kofi Annan for approval, and that he expected Iraq oil exports to resume this week. Iraq had stated that it wouldn't export oil under the United Nations supervised oil-for-food program until its aid plan is approved.
A United Nations spokesman said Monday that U.N. Secretary-General Kofi Annan was expected to approve by the end of the week a new proposal by Iraq to sell up to $2 billion of oil over six months to buy goods for its people.
Those supplies will further glut a market already staring at a 10 percent rise in OPEC production targets next year and growing worries that the financial turmoil in east Asia will further erode oil demand there.
"If you're a commercial or speculative player, there's really no reason to buy this thing," said Jim Ritterbusch, a trader with Sweeney Oil in Chicago.
January gasoline and heating oil contracts, which expire Wednesday, followed crude's downward trend. January heating oil pushed below 50 cents a gallon for the first time since June of 1996.
Natural gas futures mostly ended higher Monday in a moderate session, with forecasts for some colder weather this week and reports of firmer physical prices lifting the front of the complex.
January expired 5.7 cents higher at $2.309 per million British thermal units. February settled up 3.7 cents at $2.28. Other months ended mixed, with some 1999s flat to off slightly.
"When we came in today, it was colder than expected in some areas, but colder temps in the Northeast later this week should be offset by more normal weather in the Southeast and warmer temps in Texas. I think Feb is a sale," said a Midwest trader.
Much colder weather is forecast to arrive in the East by Wednesday, dragging temperatures down to about 10 degrees below normal. A brief cold spell is also forecast for the upper Midwest, but both the Midwest and East are expected to moderate Thursday. Above normal temperatures are expected to cover Texas, while the Southeast will warm to more seasonal levels later in the week.
Early withdrawal estimates for Wednesday's weekly AGA inventory report range from 100 bcf to 135 bcf. For the same week last year, stocks declined 128 bcf. The report is expected to be out early Wednesday at
about 1100-1130 EST.
With January now off the board, chartists focused their attention on February, where resistance was seen first in the $2.46 area, then at $2.515 and the $2.68 double top from early December. Support was pegged at last week's prominent low of $2.14, with psychological support likely at $2.
In the cash Monday, December Gulf Coast gas firmed 10 cents or more to the mid-$2.20s, while January was quoted closer to the $2.30 level. January Hub gas was pegged at about $2.30. Dec Midcon prices gained a nickel or so to the high-teens, while Jan on the same pipes was talked at 15 to 16 cents under the screen. December gas at Chicago city gate was five cents higher in the low-$2.30s, while New York was pegged up 20 cents in the $2.75 area. January gas in New York was quoted in the mid-$2.80s.
REFERENCES
Charts: oilworld.com
NYMEX Reference quotewatch.com
FEATURE STORY
RED HOT 1997 TO GIVE WAY TO COOLERFUTURRE IN OILPATCH
Reg Curren
The bloom on the boom in the western Canadian oilpatch may fade slightly in 1998, but industry analysts don't foresee the precipitous die-off that has been a hallmark of the sector in past years. The oil and gas industry is coming off a magnificent 1997, when records were set for number of wells drilled and money spent on new land leases for exploration.
Mergers and acquisitions were the order of the day for 1997, along with big capital expenditure announcements for the East Coast offshore, the western oilsands and natural gas pipelines.
It was also the year that oil finally flowed from Newfoundland's Hibernia field and the go-ahead was given to Nova Scotia's Sable Island natural gas development.
But weakening prices for crude oil and natural gas, the prospect of Iraqi oil returning in force to the marketplace, turmoil in the Asian economies, higher interest rates and the Kyoto agreement on greenhouse gas emissions have converged to create a climate of uncertainty.
Rick Roberge, a senior partner at Price Waterhouse specializing in the oil and gas industry, said a robust 1997 is giving way to a nervous 1998.
"All of the production that has been brought on by the good (profit) margins in the last 18 months means there's rising supply, uncertain demand and we're sitting here today at $18.50 US oil," Roberge said.
"There's nervousness for the first time on oil prices - everybody thought we were in a $20 world ... and the short-term outlook for gas, unless it gets really cold here shortly, isn't all that good either."
Before the recent price tumble, industry watchers predicted 1998 could surpass the 1997 record of over 16,000 oil and gas wells drilled. Roberge now believes that's unlikely.
"It's budget time right now and I think you're going to see some reductions in capital spending budgets as a result."
Longtime industry watcher Ian Doig also believes oil and natural gas prices will fall in 1998 along with drilling activity.
"Where I'm at is about $18 US a barrel for next year. I think the oilpatch will weaken a little bit, but there's still strength here," said Doig, editor of Doig's Digest.
"But I would imagine it will melt into a whole bunch of mergers and acquisitions."
Doig said the highlight of the year for him in the western oilpatch was the frenetic oilsands play along the Alberta-Saskatchewan boundary from Lloydminster to Fort McMurray.
Suncor, Shell, Mobil, Syncrude and Imperial Oil Ltd. all made major commitments totalling almost $20 billion Cdn to the oilsands over the next decade.
Petro-Canada, a big player in the Syncrude consortium, is also considering branching out with its own oilsands development. A decision is expected by mid-1998.
"The oilsands themselves were a defining moment in the year with all the announcements of all the spending over the next 10 years, and it still continues to be one of the most important aspects of the Canadian oil industry," said Roberge.
David Manning, president of the Canadian Association of Petroleum Producers, is optimistic about 1998.
"It was an unprecedented drilling year," Manning said. "Will we have another year like this next year? Certainly, the way we're headed there's still a significant level of enthusiasm in terms of land sales and activity forecasts.
"How could it go sideways?
"Commodity pricing is always an issue, and signals in terms of market access are very important. There are new pipeline expansion opportunities, and if there's a setback there, that will cause some trepidation."
The fallout from Kyoto has yet to be dealt with, and Manning foresees it being a preoccupation in the coming year.
"Climate change will find its way into virtually every conversation this year," he said.
"Perhaps we can start looking at some significant CO2 research to put things in a Canadian context so we get a better understanding of the science ... and take efficiency steps. Then I think we can avoid really being in the gunsights."
Shell Canada spokeswoman Jan Rowley said her company looks forward to final approval of the Sable Island gas project - in which it holds a 35 per cent stake - and progress on its oilsands projects near Fort McMurray in northeastern Alberta and Peace River to the west.
"We're pursuing growth opportunities, but know the reason we're on sound financial footing is that we've kept costs at competitive levels and we intend to keep them there," Rowley said.
Petro-Canada, buoyed by the early success of the Hibernia field, appears set to embark on the acquisition trail and work toward proving out more oil reserves off Newfoundland.
"We're hoping for final project approval on Terra Nova early in the new year with some possibility of first oil by 2000, and beyond that there are a number of prospects like Whiterose, Hebron Ben Nevis as an adjunct to Hibernia," said spokesman Rob Andras.
"It has really started to roll. There's just a mood in the patch." |
