MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING WED., JANUARY 14, 1998 (1)
OIL AND GAS
NYMEX
Crude-oil futures ended little changed while petroleum-products finished mixed on the New York Mercantile Exchange Wednesday, despite a bullish decline in crude-oil inventory data and generally bearish products data.
February light sweet crude oil settled up $0.02 to $16.45.
Crude-oil stocks declined 3.179 million barrels, according to the American Petroleum Institute's inventory report released Tuesday evening. The U.S. Department of Energy reported Wednesday morning that crude oil stocks fell 1.1 million barrels. The reports cover the week ended Jan. 9.
The API showed a build in gasoline stocks of 5.686 million barrels, and the Department of Energy reported a gasoline build of 6 million barrels.
A 796,000-barrel build in U.S. distillate stocks, which include heating oil, was smaller than most players had expected and was mostly due to growing stocks of low sulfur diesel, according to the API, which allowed the heating oil market to discount it, said an analyst. Heating-oil stocks fell last week in the Northeast, the world's largest market for the product, according to the American Petroleum Institute, as demand in the region picked up.
Natural gas futures, boosted by cold weather and a firmer cash, ended higher Wednesday in moderate trade, then lost ground on ACCESS after slightly bearish weekly inventory data, sources said.
February rose 0.2 cent to close at $2.016 per million British thermal units, then slipped to $1.99 in after-hours trade following the storage report. At 1635 EST, the spot contract had rebounded to $2.04. March settled 0.8 cent higher at $2.02. Other months ended up by one-half to 1.8 cents.
"The AGA number was on the low side of expectations. We got an initial drop, but now we're running into some short covering," said one Midwest trader.
AGA said Wednesday that U.S. gas stocks fell last week by 50 bcf, below Reuter poll estimates in the 65-75 bcf range.
Overall stocks climbed to 67 bcf, or 3.5 percent, above year-ago. Eastern stocks fell 24 bcf and were 2.6 percent above last year. Consuming region west storage, which dropped 16 bcf last week, was 6.8 percent below 1997 levels. Inventories in the producing region dropped 10 bcf for the week but remained 12 percent over year-ago.
Forecasts this week call for some below-normal temperatures in the East, while cold Midwest weather is expected to warm to normal or above before cooling again Sunday. Texas is expected to range several degrees on either side of normal.
Chart traders said February's higher close today after yesterday's technical reversal to the upside could signal a short-term buy, particularly with the rebound on ACCESS tonight despite the bearish inventory report. But most needed a close above resistance at $2.085 to be convinced. Next resistance was seen at $2.25 and then at $2.34.
February support was pegged at the new contract low of $1.97, with spot continuation support seen at $1.85-1.88. Further support should be at prominent continuation chart lows of $1.77 and $1.68, the spot low last year.
In the cash Wednesday, Gulf Coast quotes were up slightly to the low-$2s. Midcon pipes also were modestly higher at about $2.00. New York city gate swing gas gained about a dime to the $2.50 level, while Chicago was up more than a nickel to about $2.10.
The NYMEX 12-month Henry Hub strip rose one cent to $2.167.
CANADA SPOT GAS
Canada Spot Gas Flat Despite Warmer Temperatures
Canadian spot natural gas prices were mostly unchanged on Wednesday despite warmer temperatures in the key Alberta producing region, traders said.
Spot gas at the AECO storage hub in Alberta was quoted at C$1.40/1.41 per gigajoule in thin trade, about even with Tuesday and down about three cents from last Wednesday.
Term business was also at about the same level, with February AECO quoted at C$1.38/1.39 per GJ, unchanged from yesterday.
''There are no spreads on anything, so you can't do any deals in the short term,'' a Calgary based marketer said.
Environment Canada said temperatures in southern Alberta were expected to moderate to highs of -5 to -14 Celsius (7 to 23 Fahrenheit) through Sunday, up from the -25 Celsius (-13 Fahrenheit) values experienced over the past two weeks.
The trader said he expected storage withdrawals would be cut back over the next few days, which would keep AECO prices stalled at about the same level.
At the borders, Sumas, Wash. spot gas was quoted anywere between US$1.85 and US$2.05 per million British thermal units, down about 20 cents from Tuesday and 15 cents from last week.
A marketer of British Columbia gas said milder temperatures on the west coast following this week's snow storm was cutting heating demand.
He also said Westcoast Energy Inc's (NYSE:WE - news; Toronto:W.TO - news) 700 million cubic feet a day McMahon gas plant in northeast B.C. was shut down for about five hours on Tuesday, which resulted in the cut of about 150 million cubic feet a day of supply. The plant was running again on Wednesday, he said.
Westcoast officials were not immediately available for comment.
Niagara spot gas was talked at US$2.15 per mmBtu, unchanged from Tuesday and down about a dime on the week.
WEEKLY ENERGY REPORT
Crude Oil Commentary and Trading Strategies
The market remains overwelmingly bearish. As we have recently witnessed, crude oil prices have been hammered as bearish concerns about both supply and demand have increased. Higher production from OPEC (with or without Iraq) and non-OPEC sources, coupled with lower demand growth due to winter weather conditions and the turmoil in Asia have been the primary factors behind the recent slide. But as importantly, the technical picture has been and continues to be bearish and adding to the downward momentum. We are of the view that prices should be gaining some support at around current levels, but would not rule out a move lower to the $16.00 level, before we see a rally of any significance.
NYMEX prices probably reflect most of the bearish news, however we do not yet know the full impact on the demand-supply balance from either the Asian crisis or the North American winter heating season. In addition, planned refinery maintenance in the United States will cut crude oil demand adding more pressure to the physical market.
Technically speaking, the charts (daily, weekly and monthly) all point to lower prices before any significant market rally materializes.
Natural Gas Commentary
The February natural gas contract is on track to move below $2.00, as pressure continues to build from recent record low temperatures across much of the United States. Weather conditions across the continent have outweighed the effect of larger-than- expected storage withdrawals. The storage levels are neutral to bullish news for gas, and while we remain bearish in the near term, we believe prices are well supported further out.
The technical outlook for NYMEX gas remains bearish in the near to medium term.
In spite of the recent cold snap in Western Canada (and believe me, coming from down South, this is cold), Aeco spot prices have faced strong resistance at C$1.50/Gj. The near term outlook for gas prices in Alberta is negative, with the outlook more positive in the longer term..
OIL & GAS PRICE REFERENCES
Charts: oilworld.com
NYMEX Reference quotewatch.com
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