MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING FRIDAY, JANUARY 9, 1998 (1)
OIL AND GAS
Oil Hits 29-Month Low
Oil prices dropped to their lowest level in 29 months Friday as continued bearish sentiment about supply and demand sent prices sinking.
At the New York Mercantile Exchange, crude oil for February delivery hit a low of $16.60 a barrel in the late afternoon, the lowest price since July 1995. The contract closed at $16.63, down 34 cents on the day.
Mostly mild winter weather this year and last November's decision by OPEC oil producers to raise production targets 10 percent made for overwhelming sentiment to sell petroleum.
Even this week's freak ice storms in New England left much of the northeastern United States unscathed and with spring-like temperatures.
Traders said a United Nations deal this month with Iraq to allow it to sell more oil to buy food and other supplies has just added more reason to sell.
"Clearly, it doesn't give you much hope for market turning around with OPEC production increases, Iraq being allowed to maybe double the amount it can sell, and the warm weather we're seeing," said Eildon Associates trader Thomas Blakeslee.
Heating oil futures closed 1.05 cents a gallon lower on Friday at 46.70 cents a gallon, adding to a precipitous fall that has seen prices drop more than 20 percent since mid-November without stopping for breath.
"Historically, gasoline is high for this time of year and there's no question that any strength in this market is in gasoline at this stage," said Blakeslee.
But gasoline's strength is relative -- it has dropped less than crude and other refined products.
February gasoline futures gained 0.19 cents to close at 52.81 cents a gallon, partly helped by Thursday's news that the gasoline-exporting Amuay refinery in Venezuela would be down for maintenance and after news Friday of unplanned outages at two Canadian plants.
But the week's bounce in gasoline went against the grain of a downtrend that has seen prices decline from around 60 cents a gallon in October.
Natural Gas Ends Mixed
NYMEX Hub natgas futures ended narrowly mixed Friday in a moderate session, with spot February kept above key support today by a fairly stable weekend gas market, industry sources said.
February finished unchanged at $2.046 per million British thermal units after trading in a narrow, five-cent range between $2.03 and $2.08. March settled one-half cent lower at $2.046. Most other months ended up by 0.3 to three cents.
"Cash held today, but the fundamentals and technicals still point lower. It's a bear market, and there's nothing out there to make me question that yet," said one Midwest trader, adding even cold weather may not be enough to stir much buying interest with inventories in good shape.
Most agreed record mild East Coast temperatures this week helped undermine sentiment. And while cooler weekend weather is forecast for most regions, only the Midwest is expected to dip below normal. The East should cool to seasonal levels, while Texas should remain slightly above.
Chart traders pegged key February support in the $2 area, which coincides with the contract low of $2.01. A close below that level should set up a test of spot continuation support in the $1.85-1.88 area, with next support seen at prominent continuation chart lows of $1.77 and $1.68, the spot low last year. Resistance was seen at $2.25 and $2.34, with further selling likely at $2.46 and $2.515.
In the cash Friday, Gulf Coast weekend quotes were little changed in the $2.05-2.10 area. Midcon pipes were steady to up slightly at about $2.10. New York city gate swing gas was little changed in the low to mid $2.40s, while Chicago also was flat in the mid-teens.
The NYMEX 12-month Henry Hub strip rose 0.9 cent to $2.172. NYMEX total estimated natural gas volumes were not available at 1635 EST.
REFERENCES
Charts: oilworld.com
NYMEX Reference quotewatch.com
NORTH AMERICAN RIG COUNT
The number of working rigs in Canada stood at 509 versus 410 one year ago and up 141 from last week.
The number of rigs exploring for oil and natural gas in the United States stood at 990 as of January 9, down 13 from the previous week, and 165 above the year-ago total of 825, Baker Hughes Inc [NYSE:BHI] reported.
The number of rigs drilling on land fell by 22 to 829, while rigs working offshore rose by 10 to at 139. The number of rigs active in inland waters fell by one to 22.
Among the individual states, the biggest changes occurred in Texas, down by eight, and in New Mexico, down by seven, and Louisiana, up by four.
The Gulf of Mexico rig count rose by ten to 136.
The number of rigs searching for gas fell by eight to 625, the number of rigs searching for oil fell by five to 361, while the number of miscellaneous drilling projects remained at four.
There were 234 rigs drilling directionally, 59 drilling horizontally and 697 drilling vertically.
The weekly rig count reflects the number of rigs exploring for oil and gas, not those producing oil and gas. For more detail, go to; bakerhughes.com
INDEXES
The Toronto Composite 300 Index fell 3.4% or 218.24 to 6272.43.
In comparison, the Oil & Gas Composite Index fell even further, down 4.5% or 268.66 to 5682.55. The Integrated Oils lost 5.2% or 437.55 to 8,027.69. The Oil & Gas Producers fell 4.1% or 211.95 to 4946.31. The Oil & Gas Services fell 5.4% or 139.95 to 2454.86.
For the week, the Toronto 300 Composite Index fell 6.5%.
The Oil Gas Composite Index fared worse and continued its rapid decline, losing 14.2%. Among the sub-components, the Integrated Oils fell 9.7%, the Oil & Gas Producers 15.5% and the Oil & Gas Services 19.7%.
Those are staggering losses!!! To state that the oil and gas sector is under pressure and in a correctional phase would be an understatement. Yesterday, I mentioned there was a difference in the sinking shares of the Oil & Gas Producers in comparison to the Integrated Oils and Oil and Gas Service groups. Although all three groups are experiencing serious declines, I noted that the Integated Oils and O&G Services were still far from their 52-week lows while the Producers were at or near their 52-week lows.
Let me expand on that a little further. The Oil & Gas Producers Index fell to its previous 52-week low and futher penetrated another 11.0% beyond that level in a blink of the eye. The Producers, being the heavyweight of the group, dragged the Oil & Gas Composite Index down to a new 52-week low. It wiped out the previous low and fell another 6.1% beyond that level.
On the other hand, the Integrated Oils are still 30.8% above their 52-week low. The Oil & Gas Service Index is 17.6% above its 52-week low. Looking at the whole of the market, the Toronto 300 Composite Index is currently 10.9% above its 52-week low.
Another sobering view is just how fast and how far the oil and gas indexes have fallen. When we discuss 52-week highs, one immediately thinks in terms of one year. It was only three months ago when all indexes were setting their highs. How far have we fallen in just a short period of time? The Toronto Stock Exchange 300 Composite has dropped 13.2%. I hope you are sitting down for the balance of statistics for they are much, much worse. The Integrated Oils Index has fallen 17.5%, Oil & Gas Producers 33.7% and the Oil & Gas Services Index 43.6%. The entire Oil & Gas Composite Index has fallen 29.8%.
So, where are we headed from this point. The Integated Oils would appear to have more downside, especially with weaker reporting quarters lying ahead of us. Many view this past 3rd quarter as being the strongest quarter for the Integrateds. Shares of the Senior and Intermediate Oil Producers may be influenced to follow suit and continue to drift lower. Near term market perception is negative and there is no relief in sight. No need to expand upon the topic of perceptions versus fundamentals since I have covered this subject in depth over the past few days. I see continued weakness in the Oil & Gas Services sector. The major question in my mind is whether we can keep 550 rigs busy throughout 1998. The rosey previous drilling of new wells estimate of just a couple months ago is in jeporady.
What is my position on investment in the oil and gas sector at this time? I'll ba a cautious investor. I'll wait out the recent plunge in share prices and then begin to accumulate shares in selective Senior and Intermediate Oil & Gas Producers. The process may begin in another week or two. In my opinion, most of the damage has occurred. Don't rush into the market. Acquire shares periodically on a cost averaging basis over the next three months.. Don't attempt to time a market bottom, it will usually work against you. How much we drift lower over the near term will be insignificant a couple of years down the road. We will look back and wonder why shares were so cheap. Another note, now is not the time to be investing into the small speculative oil and gas situations. When this sector turns, it will be the larger producers leading the way. At this time, I would avoid investment into any of the Integrated Oils. In the Service Sector, I would focus on any companies who will benefit by pipeline construction over the coming two year period.
As always, keep in mind this is just one person's opinion — this time it was mine.
TSE 300
The Toronto Stock Exchange, in conjunction with the Index Committee, has completed its Annual Revision analysis for the TSE 300 Composite Index and wishes to announce changes to be effective at the open on Friday, February 20, 1998. Changes do effect the oil & gas indexes. Go here to review specific changes.
techstocks.com
TSE 35
The Toronto Stock Exchange, in conjunction with the Index Committee, has just completed the annual revision of the stocks comprising the Toronto 35 Index. The changes to the Index will be effective at the open on February 20, 1998. Go here for specific changes. techstocks.com
INDEX CHARTS
TSE 300.......... canoe.quote.com
O&G Composite. chart.canada-stockwatch.com
Integrated Oil's.... chart.canada-stockwatch.com
O&G Producers.. chart.canada-stockwatch.com
O&G Services..... chart.canada-stockwatch.com
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