MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING THURSDAY, JANUARY 22, 1998 (2)
OIL & GAS
NYMEX
CRUDE OIL
Crude oil futures prices dropped Thursday at the New York Mercantile Exchange to lows not seen in more than three years on oversupply concerns generated by inventory reports.
March light sweet crude oil settled down $0.32 to $16.04.
Data from the American Petroleum Institute released late Wednesday showed a staggering 14.643-million-barrel build in U.S. crude oil stocks to 318.091 million barrels during the week ended Jan. 16. It was the largest weekly increase in crude oil stocks in more than 10 years, according to the API.
The U.S. Department of Energy confirmed the scale of the build in its report early Thursday, reporting a crude oil build of 11.3 million barrels for the same period.
The nearby March crude oil contract, the futures contract nearest to physical delivery, fell 32 cents to $16.04 a barrel.
"This was a clear response to the inventory data," said Gerry Samuels, an analyst and trader with Arb Oil in New York. "The crude build allowed us to blow right through support levels that had held several tests." Support levels are prices identified by traders as resisting downward pressure. The oil inventory increase reinforced fears about excess supplies.
Crude oil futures have been building in expectations that there will be a glut of oil supply well into this year, sliding nearly 30% since October. That was when the market first got wind of the Organization of Petroleum Exporting Countries' intention to raise its daily production ceiling by 10% to 27.5 million barrels in 1998. World demand is pegged at around 75.8 million barrels a day by the DOE.
The slide gained momentum when the United Nations said it would consider doubling Iraq's oil-for-food sale, which would allow the country to export around $4 billion in oil every six months. No decision has been made yet on that proposal, but most analysts expect it to pass.
Weak heating-oil demand due to a mild U.S. winter and the Asian financial crisis, which threatens the region's growth in oil demand, have also weighed on prices.
NYMEX Hub natgas futures ended higher across the board Thursday in fairly active trade, with slightly firmer physical prices and a late wave of short covering driving prices back to session highs, sources said.
February jumped 7.6 cents to close at $2.16 per million British thermal units. March settled 7.5 cents higher at $2.161. Other months ended up by two to 6.1 cents.
"Cash was up a bit, and once we couldn't break down this morning, we saw some heavy short covering, particularly at the end," said one Midwest trader, noting forecasts were still calling for normal or above-normal U.S. weather right into early February.
While some viewed Wednesday's 159 bcf weekly AGA stock draw as supportive, others said bullish enthusiasm should be tempered by the large jump in the year-on-year surplus to 177 bcf. Overall stocks are now 10.7 percent above year-ago.
Technically, traders said February was still in a range. Support was pegged at today's low of $2.075, with further buying expected at the $1.97 contract low. Spot continuation chart support was seen in the $1.85-1.88 area. Minor resistance was talked at $2.175-2.185, with better selling likely at $2.25 and $2.34.
In the cash Thursday, Gulf Coast quotes were up slightly to the $2.05-2.10 area. Midcon pipes were little changed in the low-$2s. Gas at the New York city gate was flat to modestly lower at about $2.50, while Chicago held steady in the mid-teens.
The NYMEX 12-month Henry Hub strip rallied five cents to $2.282. NYMEX said an estimated 54,006 Hub contracts traded, up from Wednesday's revised tally of 39,444.
U.S. SPOT NATURAL GAS
U.S. spot natural gas prices were marginally higher in the Gulf but slightly weaker in the western markets as more gas was demanded eastward in the Ohio Valley region, industry sources said.
A storm brewing in the Gulf was expected to bring snow and rain to the East by Friday after dumping five to 10 inches of snow in the Midwest Wednesday. Cooler weather is forecast to remain in Texas Friday before above-normal temperatures return Sunday.
As a result of the approaching storm, Appalachian prices on Columbia rose about two cents to $2.22-2.24. However, New York city-gate prices eased into the $2.40s as inland areas anticipated more snow.
Swing gas at Henry Hub was quoted mostly at $2.07-2.12 per mmBtu, up an average of one cent from Wednesday's levels.
Similarly in south Texas, prices rose to about $2.05 as gas previously moving westward was now being delivered to eastern and northern markets.
The waning demand in the West pushed Permian Basin prices about two cents lower to $1.91-1.94, while southern California border prices slipped one cent to $2.23-2.29. San Juan prices were quoted early at $1.92-1.94, but by late morning quotes were heard in the low-$1.80s.
In generation news, the 1,080 megawatt (MW) San Onofre 3 nuclear unit in California was still at 75 percent power due to a problem with a circulation water pump and is expected to remain at a reduced rate through Friday, according to SoCal Edison.
Also, the 316 MW coal unit 1 at the San Juan generating station in New Mexico was expected to shut Feb 7 for about three weeks of planned maintenance.
The 750 MW unit 2 at the Navajo coal plant in Arizona is also scheduled to shut Jan 31 for eight weeks of routine maintenance.
In the Midcontinent, prices remained in the low-$2 area amid forecasts for above normal temperatures through at least early next week.
Separately, American Gas Association reported gas stocks fell 159 bcf last week to 58 percent of capacity.
CANADA SPOT NATURAL GAS
Canadian spot natural gas prices moved higher in Alberta on Thursday despite weak fundamentals like milder weather, traders said.
Spot gas at the AECO storage hub in Alberta was quoted at C$1.44-1.45 per gigajoule (GJ), up three cents from Wednesday.
February was similarly firmer at C$1.44-1.45 per GJ, while summer business was talked at C$1.46-1.47.
Forecasts for southern Alberta called for a gradual warming to a high of +5 degrees Celsius by Monday.
At Sumas, Wash., spot gas was talked at US$1.76-1.80 per million British thermal units (mmBtu), off about four cents from Wednesday.
Temperatures in the U.S. Northwest were expected to climb to about six to 12 degrees above normal by Saturday, according to Weather Services Corp.
In the East, Niagara gas was quoted steady to higher at US$2.20-2.23 per mmBtu.
UK OIL OUTPUT
British oil output rose to 2.634 million barrels per day (bpd) in December, thanks to increased output from the Brent and initial flows from the Foinaven field, industry newsletter Aberdeen Petroleum Report said on Thursday.
The figure was up on November's 2.56 million bpd but some 3,445 bpd adrift of October's 2.638 million bpd, the newsletter said.
Edinburgh-based consultants Wood Mackenzie have said the average daily output for last year was 2.53 million bpd, below 1996's figure of 2.57 million bpd.
The Aberdeen Petroleum Report said most of December's rise stemmed from the start-up on November 26 of British Petroleum Co Plc's (quote from Yahoo! UK & Ireland: BP.L) Foinvaven field, the first West of Shetland development to come onstream.
Foinaven, which was initially due to start in 1996 but suffered lengthy delays, flowed at a daily average of 50,800 bpd in December and was expected to reach a plateau of 85,000 bpd in first phase production.
Texaco Inc's (TX) Erskine development was the other field to enjoy its first full month of production, averaging 4,742 bpd.
Shell Expro's (RD.AS)(UK & Ireland: SHEL.L) Brent field added 35,000 bpd to reach 152,000 bpd in December, ''following the field's return to full four-platform production after redevelopment,'' the newsletter said.
BP's Harding/Cyrus put on 18,600 to 95,200 bpd while Shell Expro's Dunlin/Osprey was up 10,000 bpd at 33,000 bpd and Chevron Corp's (CHV) Alba returned to near peak production with a 5,969 bpd increase to 98,431 bpd.
The month's losers were Enterprise Oil Plc's (UK & Ireland: ETP.L) Nelson, which lost 10,802 bpd to 142,615 bpd, Elf Aquitaine's (NYSE:ELF - ELFP.PA) Claymore/Scapa, BP's Millar and Oryx Energy Co's (ORX) Ninian, which each fell by around 7,000 bpd.
OIL & GAS PRICE REFERENCES
Charts: oilworld.com
NYMEX Reference quotewatch.com
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