MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING FRIDAY, FEBRUARY 20, 1998 (4)
OIL & GAS
WORLD
World oil markets fell on Friday on optimism over the resolution of the Iraqi crisis as U.N. Secretary General Kofi Annan arrived in Baghdad.
London April Brent crude futures closed 17 cents lower at $14.68 a barrel but well above the 46-month front-month futures low of $14.22 hit on Wednesday this week.
Annan met Iraqi Deputy Prime Minister Tareq Aziz on his arrival in Baghdad and is expected to stay an extra day, until Monday to discuss the oil-for-food deal.
Both sides said they were optimistic about the chances of averting a military attack on Iraq.
Annan hopes to broker an end to the stand-off between the United States and Iraq over Baghdad's refusal to allow weapons inspectors into sensitive sites.
Earlier, Britain's ambassador to the U.N, John Weston said he expected a unanimous vote in the Security Council later in the day, adopting an increase of Iraq's oil-for-food deal.
The U.N. Security Council is due to vote on more than doubling the value of the ''oil-for-food'' deal to $5.3 billion every six months.
Prices rallied from Wednesday's low on Saudi Arabia's announcement that it was prepared to consider reducing output with other OPEC members if those pumping above assigned quotas showed some output
restraint first.
Venezuelan Oil Minister Erwin Arrieta reacted by saying Caracas would ''absolutely not'' consider any output cut. The OPEC founder-member is widely seen as the cartel's most conspicuous quota-buster.
But traders said the fact that the issue had been raised was sufficient to help boost prices. They said the market would now be looking for concrete evidence that the Saudi initiative was receiving support.
By offering the carrot of a reduction in its own massive supply, Riyadh apparently hoped that over-limit producers Nigeria and Qatar, but chiefly Venezuela, would be tempted to join in.
The Organisation of the Petroleum Exporting Countries (OPEC) lifted its official output ceiling in November by 10 percent to 27.5 million barrels a day (bpd) but output is already over 28 million bpd and
rising.
OPEC's best chance of limiting the damage on members' oil-dependent economies of the slump on world markets may lie with Riyadh's improving relations with Iran, the group's second biggest producer.
Iranian Oil Minister Bijan Zanganeh will accompany former president Akbar Hashemi Rafsanjani on his landmark 10-day visit to Saudi Arabia on Saturday.
Iran is suffering more than other OPEC producers because it is physically unable to raise supplies to meet its new higher OPEC quota.
Oil prices have tumbled from nearly $25 over the past year after rising steadily from under $14 three years earlier.
The most recent slide from just under $22 last November was due to rising OPEC supply, faltering Asian demand and an aggressive selling campaign by speculative financial funds, said dealers.
Many oil traders believe a peaceful solution to the Iraqi arms inspection crisis could renew downward pressure on oil prices because it would lessen the chance of an interruption to Baghdad's oil exports.
Iraq is currently exporting over a million barrels a day of oil under an ''oil-for-food'' deal which is separate from the current arms row.
These exports have weighed heavily on Western oil markets, already facing a supply glut, high stocks and unwanted oil from Asia.
NYMEX
Crude Oil
Crude-oil futures slipped while petroleum-products futures ended moderately lower Friday on the New York Mercantile Exchange as U.N. Secretary General Kofi Annan engaged in a last-ditch attempt in Baghdad to resolve the stand-off with Iraq over weapons inspectors.
March light sweet crude oil settled down $0.01 to $16.15.
Traders said players stuck to the sidelines ahead of a weekend that may hold important developments in the Iraq arms inspection crisis.
"The market had one eye on Kofi Annan's trip to Baghdad and the other on a bearish fundamental picture," said Peter Beutel, an energy analyst with Cameron Hanover.
Natural Gas
Natural gas futures ended lower across the board Friday in a moderate session, pressured by softer weekend physical prices and forecasts for more mild weather next week, industry sources said.
March slipped 1.9 cents to close at $2.198 per million British thermal units after after dipping this afternoon to an intraday low of $2.165. April settled down the same amount at $2.24. Other months ended down by 0.4 to 2.7 cents.
"We closed lower, but March's failure to close on a weak note could make shorts nervous the first hour Monday and lead to a minor short covering rally, but I still expect closing weakness for the last three days (before expiration)," said one Midwest trader, noting sellers today failed to mount a serious test of key support at $2.15.
With storage 26 percent above year-ago and more mild weather ahead, most agreed March could be on the defensive early next week before it goes off the board Wednesday.
Forecasts next week still call for mostly above-normal U.S. temperatures. with levels in the Midwest expected to climb to as much as 25 degrees F above normal during the period. Eastern temperatures should average five to 15 degrees F above normal into next week.
Chart traders noted decent buying today as March broke minor support at $2.18. Most agreed the spot contract needed to close below key support at $2.15 to void the recent range. Next support was seen in the $2.03 area.
Key resistance still lies at the $2.32-2.35 gap, with major selling also expected at the prominent high of $2.435 and then in the $2.50 area.
In the cash Friday, Gulf Coast weekend quotes slipped a couple of cents to the mid-teens. Midcon pipes were talked about three cents lower at about $2.10. New York city gate gas lost several cents to the mid-to-high $2.30s, while Chicago was down almost a nickel to the $2.20 level.
The NYMEX 12-month Henry Hub strip fell 2.1 cents to $2.374. NYMEX total estimated natgas volumes were not available at 1645 EST.
CANADA SPOT GAS
Canadian spot natural gas prices for weekend supply lost ground Friday in quiet trade, pressured by mild weather over much of the nation and forecasts for more of the same well into next week, sources said.
''Cash is slipping today. The weather is really nice and expected to stay that way at least until midweek next week,'' said one Calgary based trader, noting weaker NYMEX futures also helped pressure prices today.
Spot gas at the AECO storage hub in Alberta was talked in the low-C$1.60s per gigajoule, off about three cents on the day. March AECO slipped a similar amount to the C$1.63-1.64 area, with April-Oct pegged in the mid-C$1.60s, also about three cents lower.
Temperatures in Calgary are expected to remain about 15 degrees F above normal through at least midweek next week.
At the border, spot gas at the Huntingdon, British Columbia-Sumas, Wash. export point slid a few cents to the US$1.13-1.15 per million British thermal units area, with March Sumas done early at US$1.11.
In the east, Niagara gas lost several cents to the low-to-mid US$2.30s.
U.S. SPOT GAS
U.S. spot natural gas prices for the weekend lost ground Friday in moderate activity, undermined by mild weather and forecasts for more of the same ahead of bidweek next week, industry sources said.
''The weather is mild, and we see some LDCs (utilities) selling their gas. I think we'll see more pressure heading into bidweek next week,'' said one Texas-based trader, noting weekend cash prices were down in all regions today.
Swing gas at Henry Hub, the NYMEX delivery point in Louisiana, slipped two cents to about the $2.20 per mmBtu area, still more than 15 cents over the Feb 1 index.
Forecasts call for mostly above-normal U.S. temperatures well into next week, with levels in the Midwest still expected to climb to as much as 25 degrees F above normal during the period. Eastern temperatures should average five to 15 degrees F above normal into next week.
Traders said rising concerns about storage, now 298 bcf or 26 percent, above year-ago also continued to weigh on sentiment.
In the Midcontinent, prices lost three cents to about the $2.10 area but remained about 15 cents over indices. Gas at the Chicago city gate skidded about a nickel to $2.20.
South Texas gas was talked only slightly lower in the $2.10-2.12 area, while west Texas gas on El Paso Permian shed more than five cents to the low-$2s.
In the East, New York city gate prices were down several cents to the mid-to-high $2.30s, with more mild weather next week likely to keep prices on the defensive.
Appalachian prices on Columbia were slightly lower in the mid-to-high $2.20s.
OIL & GAS REFERENCES
Charts
oilworld.com
oilworld.com
NYMEX
quotewatch.com
NORTH AMERICAN RIG COUNT
The number of rigs exploring for oil and natural gas in the United States stood at 989 as of February 20, up 17 from the previous week, and 126 above the year-ago total of 863, Baker Hughes Inc [NYSE:BHI - news] reported.
The number of rigs drilling on land rose by nine to 820, while rigs working offshore rose by three to 142. The number of rigs active in inland waters rose by five to 27.
Among the individual states, the biggest changes occurred in Texas, up by 23, in Louisiana up by 5, and in Kansas, down by three.
The Gulf of Mexico rig count rose by three to 140.
The number of rigs searching for gas rose by 30 to 612, the number of rigs searching for oil fell by 13 to 372, while the number of miscellaneous drilling projects remained at five. There were 256 rigs drilling directionally, 63 drilling horizontally and 670 drilling vertically.
In Canada, the number of working rigs rose by one to 512 versus 412 one year ago.
The weekly rig count reflects the number of rigs exploring for oil and gas, not those producing oil and gas.
For more detail and table data, see bakerhughes.com
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