MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING THURSDAY, APRIL 9, 1998 (2)
OIL & GAS
Oil Narrowly Higher As Supply Glut Pressures
LONDON, April 9 - World oil prices shed early gains on Thursday as a glut of physical crude dominated sentiment ahead of the long Easter weekend.
A late sell-off saw benchmark Brent crude close only two cents higher at $14.00 a barrel, well down from earlier highs of $14.21.
Futures traders said they had sold as a precautionary measure, unwilling to go into the holiday period carrying excess oil in such an oversupplied market.
Earlier Brent had strengthened on news that key producer Venezuela would not honour some supply contracts as it starts to implement output cuts agreed in a groundbreaking pact between OPEC and non-OPEC producers.
The deal aims to bolster world oil prices by trimming about 1.5 million bpd from global supply. Venezuela has pledged to cut production by 200,000 barrels per day (bpd).
Bulls also took heart from U.S. efforts to delay the sale of oil in its Strategic Petroleum Reserve and Russia's decision to slash exports through Latvia as political tensions between the two countries rise.
Prices have been under pressure since the output cuts were agreed because of doubts about producers' solve to actually carry out the reductions.
Some traders remained sceptical of Venezuela's commitment, insisting that the announcement of force majeure by state oil company Petroleos de Venezuela (PDVSA) was too vague.
''How many contracts? And when will the force majeure take effect? There are just too many questions still unanswered,'' one trader said.
''The market is saying 'Show me the cuts'. We've got to wait until we see the April production returns,'' said Nauman Barakat of Prudential Bache in New York.
Producers have seen Brent average a disastrous $4.50 a barrel less so far this year than in 1997, cutting export earnings for OPEC member countries by some $8 billion in the first quarter of 1998.
Traders said the market had not yet reacted to the U.S. Department of Energy's report on Wednesday that Americans would be guzzling more gasoline during their summer holidays.
The DOE said in its annual driving forecast that U.S. highway travel and gasoline demand during this summer's driving season was expected to post the largest annual increase in a decade.
Due to low gasoline prices, highway travel is expected to rise 3.8 percent and gasoline demand should increase 2.8 percent between April and September compared with the same period a year ago.
OECD Oil Stocks In Mystery February Decline - IEA
LONDON, April 10 - Commercial oil stocks held by the world's industrialised nations appeared to register a surprising and sizeable decline in February, the International Energy Agency (IEA) said on Friday.
Preliminary data showed commercial inventories of crude and petroleum products held in the Organisation for Economic Cooperation and Development (OECD) fell by a million barrels a day (bpd) in February, reversing a build of that size in January, the IEA said in its monthly oil market report.
''Preliminary data for a few key markets show little or no increase in industry stocks through most of March,'' the agency added.
But it said the February drawdown appeared to contradict its data for supply and demand which by itself pointed to a 1.2 million bpd stockbuild in February.
A buildup of oil stored at sea and outside the OECD by producers could explain part of the imbalance, it said.
There was also the ''growing possibility'' that the IEA had overestimated world oil supply in the early part of 1998, the report said.
Even given future revisions to IEA supply data ''there would remain a large inventory overhang,'' it added.
The IEA's preliminary data estimated end-February OECD stocks at 2.518 billion barrels, 129 million higher than the year previous and 208 million above end February 1996.
Oil Glut To Keep Pressure On Producers-IEA
LONDON, April 10 - Glutted oil markets will continue to put pressure on revenue hungry producers despite a groundbreaking pact to curb global output and rescue battered prices, the International Energy Agency (IEA) said on Friday.
Supply exceeded demand by a hefty 1.5 million barrels day (bpd) in the first quarter of the year, leaving stocks to build heavily, the West's energy watchdog said.
''Current supply exceeds demand and stocks are high, suggesting a continuation of a difficult market for producers,'' the Paris-based agency said in its monthly oil market report.
Last month oil cartel OPEC approved an agreement to remove 1.245 million bpd of its output from the market between April 1 and the end of the year to nudge up prices that had sagged to nine year lows.
In a rare act of cooperation with the Organisation of the Petorleum Exporting Countries, other producers such as Norway and Mexico pledged cuts last month of 270,000 bpd, while Russia later chipped in with cuts of 61,000 bpd.
But prices have been under pressure since the output cuts were agreed because of doubts about participants' resolve to actually carry out the reductions.
Traders say it could be several more weeks before firm evidence emerges that crude sales have been curbed.
Producers have seen Brent average a punishing $4.50 a barrel less so far this year than in 1997, cutting export earnings for OPEC member countries by some $8 billion in the first quarter of 1998.
The report by the IEA said it had lowered its estimate of global oil demand in the first quarter of 1998 by 400,000 bpd to 75 million bpd.
It said this was due to continuing mild weather in the northern hemisphere and a marked reduction in deliveries to South Korea in the first two months of the year.
''Demand remains sensitive to further downward revision,'' it said.
The agency also revised downwards 1998 non-OPEC supply by 300,000 bpd to 45.3 million bpd.
Further pressure on oil producers will come from European refinery maintenance, which will take a hefty 1.1 million bpd of capacity out of the market in May, the agency said.
It said European refinery work would peak in May after taking out 680,000 bpd of capacity in April with about 560,000 bpd of plant down for repairs in June.
The agency noted commercial oil stocks held by the world's industrialised nations appeared to register a surprising and sizeable decline in February.
Preliminary data showed commercial inventories of crude and petroleum products held in the Organisation for Economic Cooperation and Development (OECD) fell by one million bpd in February, reversing a build of that size in January.
They agency said one explanation was that it may have overestimated world oil supply in the early part of 1998, but even given future revisions to supply data there would remain a large inventory overhang.
NYMEX Crude Ends With Slim Gains On Shortened Week
NEW YORK, April 8 - NYMEX crude futures closed Thursday with marginal gains, aided by shortcovering and book squaring trades ahead of the three-day Easter weekend.
''Basically, the market is trying to find the bottom,'' said William Brown, president of New York consulting firm W.H. Brown & Co., as trade during the shortened week moved sideways -- down on Monday and Tuesday and up Wednesday and Thursday.
The sideways trade is encouraging,'' Brown said, noting that the market has been going up and down since the end of March, when OPEC confirmed an agreement to cut oil output by about 1.5 million barrels per day (bpd) to lift prices amid a glut.
''But I see the market's bias, over time, is upward,'' he said.
As traders headed home for the weekend, NYMEX May crude settled just a cent higher at $15.56 a barrel after going as high as $15.80 during the session. The closing was the culmination of a shortcovering rally that began on Wednesday after May crude refused to break below support at $15.16.
For the week, May crude lost 19 cents from last Friday's closing of $15.99, which was made possible by technical buying and traders' gradual warming to the OPEC moves aimed at stabilizing falling prices.
Refined products gained Friday, but like crude, also ended lower than the previous week's close.
May gasoline closed Friday 0.16 cent lower at 50.28 cents a gallon, after getting a bullish boost earlier in the week from inventory data showing a draw of as much as four million barrels. May gasoline closed last Friday at 51.76 cents.
''Initially, the inventory draws pushed gasoline up, but I did not see that would be sustained,'' said Irene Benvenuto of Texaco in Houston.
But other news on gasoline was bearish, such as the scheduled arrival of ''substantial'' gasoline imports from Europe and the return to service of Colonial Pipeline Co.'s main pipeline, Benvenuto said.
She said the short-lived gasoline-led rally manifested itself in the gasoline to crude crack spread, which initially rose after the bullish inventory data, but faded as the trading week drew to a close.
The May gasoline crack fell by about 19 cents this week to $5.56 a barrel from $5.75 last Friday.
''We may already be in a period where traders are discounting the gas season ahead of us,'' said Brown, referring to the coming summer months, when travel and gasoline demand typically go up.
The U.S. government reported Wednesday that travel and gasoline demand in the upcoming summer months are expected to post the biggest annual increase in a decade.
Citing low gasoline prices, the Department of Energy said highway travel between April and September is expected to jump by 3.8 percent, while gasoline demand should increase 2.8 percent from year-earlier levels. Motorists are expected to drive a record 1.37 trillion miles this summer and use 65 billion gallons of gasoline, it said.
On the crude front, the market generally reacted bullishly this week to previous news Russia was planning to make small cuts in its crude exports and that China had cut output by 150,000 barrels per day, according to William Brown.
Another bullish factor was news Venezuela was invoking force majeure on some crude contracts. Some analysts said that move could be interpreted as Venezuela's earnestness to carry out its pledge to cut oil output by 200,000 barrels per day.
Overall, doubts about OPEC's commitment to reduce production are fading, according to Nizam Sharief, an energy analyst with Hornsby & Co in Houston.
''There is a good chance the OPEC and the non-OPEC producdrs will honor their pledges,'' he said.
But the market stalled this week ''because there was really nothing significant to move the market fundamentally,'' Sharief said.
US Cash Crudes - Brent Crude Favored By Traders
NEW YORK, April 9 - U.S. cash crude differentials were largely unchanged on Thursday but value seen in North Sea Brent led to a slight weakening of Light Louisiana Sweet/St. James, brokers and traders said.
On Thursday morning, LLS lost four cents in its differential to West Texas Intermediate/Cushing, getting done often at 75 cents under the benchmark. But by mid-day the crude had strengthened to 72 cents below WTI/Cushing, and remaind there for the rest of the day.
Thursday was the last day of this week's trading. Friday is a holiday and the NYMEX will be closed. Most cash traders will also take the day off, but some offices will have skeletal staffs.
LLS differentials to the U.S. cash crude benchmark have fallen 15 cents in the past week.
Traders said North Seat Brent is being offered about $2.55 under WTI/Cushing, making it profitable to bring not only Dated Brent but West African sweet crudes across the Atlantic.
Outright values for cash crudes were also largely unchanged. The front-month NYMEX crude contract gained only a cent to settle at $15.56 per barrel.
For much of the day, the May NYMEX contract was up around 20 cents.
With the exchange-for-physical (EFP) premium of eight to 10 cents added, WTI/Cushing was around $15.61 to $15.56 per barrel.
LLS was done at -75, -74, -73, -72 and -71 cents in relations to WTI/Cushing.
WTI/postings-plus was unchanged on Thursday, talked at $1.94 to $1.97.
WTI/Midland was done again at 39 cents and 38 cents below WTI/Cushing.
West Texas Sour/Midland was unchanged at -$2.28/-$2.23. WTS was done at minus $2.25.
Heavy Louisiana Sweet/Empire was unchanged at -$1.28/-$1.22. HLS was done at minus $1.26.
Eugene Island was also unchanged at -$2.10/-2.00. It was done at minus $2.05.
NYMEX Natural Gas Ends Down On Profit Taking, Soft Cash
NEW YORK, April 9 - NYMEX Hub natural gas futures ended lower across the board Thursday in a sluggish pre-holiday session, pressured by a soft physical market, bearish weekly inventory data and some profit taking after recent gains.
May slipped 3.2 cents to close at $2.657 per million British thermal units after trading today between $2.605 and $2.67. June settled three cents lower at $2.688. Other months ended flat to down 3.1 cents.
''I think we saw some profit taking, and the funds are starting to roll (length) out of May and into June, but May still held $2.605 (support),'' said one East Coast trader, adding he expected the front of the board to be weak relative to back months.
NYMEX will be closed Friday for the Good Friday holiday.
Most agreed last night's stock report showing an unexpectedly-large 53 bcf weekly gain was bearish. The number was well above Reuter poll estimates in the 10-20 bcf range and lifted inventory levels to 207 bcf, or 24 percent, above last year.
But despite the inventory report, mild weather and a technically overbought market that needed to correct, few expected prices to crater anytime soon, citing lingering concerns about a hot, post-El Nino summer and potential problems with coal supplies.
Forecasts this weekend still call for slightly below-normal temperatures in the East before moderating to several degrees F above normal early next week. Texas is expected to average several degrees F above normal for the period, while the Midwest is expected to warm to as much as 12 degrees above by early next week.
Technical traders agreed the market was overbought and due for a profit taking pullback after a five percent gain this week amid record open interest.
They pegged important May support at $2.605 and then at $2.46, both previous contract highs, with further support seen at the $2.33 double bottom. Major buying was expected at the $2.135 recent low.
May resistance was still pegged at yesterday's new contract high of $2.725 and then in the $2.78 area, a measurement objective from the recent leg up. Further selling should emerge at $2.812, a prominent spot continuation high from December.
In the cash Thursday, Gulf Coast weekend quotes slipped about a nickel to the mid-to-high $2.50s. Midcon pipes were down more than five cents to the mid-to-high $2.40s. Chicago city gate gas was down almost a dime to the low-$2.60s, while New York was two to three cents lower in the low-$2.80s.s
The NYMEX 12-month Henry Hub strip fell 2.4 cents to $2.699. NYMEX total estimated Hub volumes were not available at 1605 EDT.
US Spot Natural Gas Prices Drift Lower Ahead Of Holiday
NEW YORK, April 9 - U.S. spot natural gas prices drifted lower Thursday ahead of the long holiday weekend as milder weather was expected to cover much of the U.S. next week, traders said.
Forecasts are calling for slightly below-normal temperatures in the East before moderating to several degrees above normal early next week. Texas is expected to average several degrees above normal for the period, while the Midcontinent is expected to warm to as much as 18 degrees above normal by early next week.
Henry Hub swing gas traded mostly at $2.60-2.61, off about three to four cents from Wednesday.
Similarly in the Midcontinent, prices fell an average of eight cents to the mid $2.40s, with business reported done anywhere from the high-$2.40s early to the high-$2.30s late.
Chicago city-gate values were also seen softer in the low-$2.60s.
In the West, southern California border prices backed off slightly from yesterday's highs to about $2.66.
Permian Basin prices were also lower at $2.36-2.39, while San Juan prices were talked mostly at $2.32-2.33.
In the Northeast, New York city-gate prices lost a few cents to the low-to-mid $2.80s, while Appalachian values on Columbia slipped to the low-to-mid $2.70s.
Canadian Spot Natural Gas Up Again On Short Supplies
CALGARY, April 9 - Most Canadian spot natural gas prices continued higher on Thursday as concerns mounted over short field supply and weak storage injection volumes, traders said.
Spot gas at the AECO storage hub in Alberta was quoted in the C$2.36/2.365 per gigajoule range, after early trades as high as C$2.38. That was up from the Wednesday AECO price of C$2.30. May AECO, meanwhile, fetched C$2.29/2.30 per GJ, about three cents higher on the day.
''NOVA (intra-Alberta pipeline) field receipts came back a bit today, but still not enough to meet the demand -- and the borders are running flat out,'' a Calgary-based marketer said.
The marketer said his trading firm believed about 600 million cubic feet of gas a day needed to be injected into western Canadian storage faculties before next winter's heating season, but recent figures have only ranged from 120-150 million a day.
Meanwhile, one-year AECO gas was talked at C$2.49/2.50 per gigajoule, down about five cents from Wednesday, in an easing attributed to a slightly lower NYMEX market on Thursday and some profit-taking before the long Easter weekend.
At the borders, gas at Huntingdon/Sumas on the west coast was quoted in the low to mid-US$1.90s per million British thermal units, up about five cents from yesterday as supplies remained short.
Gas for export at Niagara in southern Ontario fetched US$2.75, down about three cents from Wednesday.
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