MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING MONDAY, APRIL 13, 1998 (3)
OIL & GAS
The International Petroleum Exchange In London Was Closed For A Holiday
Asia Crude Cuts Fail to Hold Back Tide of Supply
SINGAPORE, April 13 - China and Indonesia are draining 220,000 barrels per day (bpd) from Asia's crude supply, but analysts said they doubted this would have a significant impact in an otherwise bloated regional market, analysts said on Monday.
"It's helpful, it will reduce the overhang in supply, but it won't erase it" said Craig Pennington, regional analyst for SBC Warburg Dillon Read.
"Overall it's not enough to change things in Asia," he said.
A bearish pall has clouded the Asian crude market since last year. A mild winter and Asian economic crisis resulted in a sharp slowdown in demand.
Asia -- which consumes around 20 million barrels per day (bpd) of crude -- was previously a magnet for crudes worldwide, but this year has been forced to export crude out of the region in search of buyers.
The president of China National United Oil Corp (CHINAOIL) Lin Qingshan told Reuters earlier this month that China had cut production by 150,000 bpd to 2.65 million bpd from April 1 to support the Riyadh Pact -- an agreement between OPEC and some non-OPEC countries to cut around two percent of world supplies.
CHINAOIL is the overseas marketing arm of state-owned China National
Petroleum Corp (CNPC), which handles onshore crude production.
Indonesia, a member of the Organisation of the Petroleum Exporting Countries, has agreed to cut 70,000 bpd to 1.31 million bpd.
But analysts said the real effect of the Asian cuts would be minimal.
China is a net importer of crude, so its production cut would only tighten the demand and supply if there was a corresponding increase in imports.
China's current production of 2.65 million bpd is substantially lower than 1997 production, which totalled 3.3 million bpd.
At the same time, Indonesia's cut takes genuine supply out of the world market because the country is a net exporter, but the reduction is so small its direct effect would be slight.
China's move surprised world markets because it is not a member of OPEC. In 1997 it made net imports of 15 million tonnes, or around 308,000 bpd.
Analysts do not doubt China has cut production, but said they suspected it was in response to weak domestic demand rather that an affiliation with efforts to bolster prices.
"They've got too much crude oil, and high stockpiles of products so refineries don't need the crude," Pennington said.
"It doesn't make sense for them to increase production, so cutting is more to do with their local situation," he said.
Some analysts said the cutbacks may coincide with plans for field maintenance, so in effect, it would not be much of an effort by China to reduce total production.
With crude oil prices in an upward trend, it would be feasible for a cutback at the present time, and a possible resumption when oil prices surge in the longer term, they said.
"I suspect that we would have a production loss anyway," said Norm Whitton, director of energy practice at Arthur D. Little.
He said it made sense for China to take production off-line if they can currently import crude at a low price, rather than purchase it later on when prices are higher.
The production cuts have had an initially bullish psychological effect on world markets and have generally contributed to a one dollar rise in prices that had been languishing at more than nine year lows.
But markets, sceptical that producers can maintain discipline, will require hard evidence that real cuts are taking place.
Chinese oil field operators said they had not been instructed to cut production from April 1, but had cut production much earlier in the year in response to weak domestic demand.
Indonesian Oil Minister Kuntoro Mangkusubroto said he would instruct state oil firm Pertamina to allocate the production cuts among oil contractors. But producers so far have not confirmed they have received instructions to cut production.
Despite these factors, analysts said the cuts in Asia represented a small dip in an otherwise bloated market.
"You have to remember how much crude oil is already in storage. Everybody is full, up to the limits," said Farooq Kureishi, manager of upstream practice at Arthur D Little.
Kureishi said it would take two or three months of sustained lower production in Asia to run down inventories.
Most analysts also said they were waiting for physical evidence that field contractors had actually reduced production before taking Pertamina's word on production cutbacks.
NYMEX Crude, Products End On Weak Note
NEW YORK, April 13 - NYMEX crude oil ended on a weak note in light trading Monday, continuing to drift down as the market pulled back after a short-covering rally last week.
''We seemed to have gone a little overboard last week,'' said a Paribas Futures Inc trader, noting the market's advance Wednesday with stock inventory builds on gasoline.
''We could only manage a light volume, with some pressure on the whole complex,'' the Paribas trader said.
The day ended with crude losing 0.24 cents at $15.32 a barrel.
Refined products also lost steam. May heating oil finished down 0.52 cent at 42.81 cents a gallon. Front-month gasoline settled at 49.82 cents a gallon, off 0.46.
Traders paid little attention to reports that two U.S. medium-sized cat cracker units would be idled for one-to-two weeks.
Phillips Petroleum said it shut down ahead of schedule its 65,000 barrel per day (bpd) cracker in Sweeney, Texas, after it detected a leak on Sunday in the overhead line. The unit, one of two at the 95,000 bpd refinery, will be out two weeks.
Shell Oil, meanwhile, idled on Monday a 48,000 barrel per day fluid cat cracking unit at its Wood River, Ill., refinery for minor repairs.
The unit, also one of two at the refinery, will be down for about a week for for addditional repairs folllowing a scheduled maintenance last month. The refinery has a 95,000 bpd cat cracker capacity, with total crude distillation capacity at about 170,000 bpd.
On the crude front, Mexican President Ernesto Zedillo and his Venezuelan counterpart, Rafael Caldera, may discuss additional measures to support flagging world oil prices, Mexican Foreign Minister Rosario Green said on Monday.
''They may broach the topic of whether or not there is more to be done to avoid the fall in oil prices,'' Green told reporters in a briefing on Zedilla's two-day visit to Caracas, which begins on Tuesday.
Mexico joined OPEC members Venezuela and Saudi Arabia last month in spearheading global cuts in oil prouction aimed at halting a steep slide in crude prices.
Despite the landmark agreement, however, oil prices have continued to come under pressure, with worries over the remaining supply overhang and whether participants in the output cut agreement would stick to their pledges.
From Bogota, British Petroleum said repairs to a flow line damaged in a weekend bomb attack at the Cusiana-Cupiagua oil field in eastern Colombia will take a ''couple of days.''
About 75,000 barrels per day of production has been shut in as a result of the blast, which occurred midday Sunday on one of the pipes leading to a pigging station, where crude is cleaned, midway between the Cusiana and Cupiagua central production facilities.
Traders were awaiting stock inventory data due to be released late Tuesday by the American Petroleum Institute. The data usually gives the market short-term direction.
US Cash Crudes - Few Deals In After-Holiday Trade
NEW YORK, April 13 - U.S. cash crude differentials were largely unchanged on Monday as traders said activity was light on a day where there was no direction from the IPE in London, which was closed.
Europe's markets were closed in observance of the day after Easter.
The same factors that affected the cash crude market last week are expected to play a role this week, traders said. Those are a general oversupply of domestic and foreign crudes and last of storage not only in the U.S. but in the Caribbean.
West Texas Sour/Midland and Light Louisiana Sweet/St. James are the only crudes that traders on Monday saw the liklihood of price changes this week. But both were essentially unchanged from Friday with WTS at $2.30 to $2.25 under West Texas Intermediate/Cushing, the U.S. cash crude benchmark. LLS was pegged around 75 to 70 cents below WTI/Cushing.
WTS was reported done at -$2.25 and LLS was done at minus 73 cents.
The NYMEX front-month crude futures contract closed down 24 cents at $15.32 per barrel.
With the premium for ensuring delivery of domestic crudes, the exchange for physicals (EFP) remaining at eight to 10 cents, WTI/Cushing was talked around $15.38 to $15.45 per barrel.
West Texas/Midland remained steady at 39 to 37 cents under the benchmark. It was done Monday at minus 38 cents.
Postings-related plus was talked at a premium to WTI/Cushing of $1.94 to $1.98. It was done Mondy at $1.96.
Heavy Louisiana Sweet/Empire was offered at minus $1.20 and bid at minus $126. It was done at minus $1.20.
Eugene Island crude was talked in a range of -$2.05/-$1.97. It was done at $2.00 discount to WTI/Cushing.
The May/June WTI/Cushing spread was talked a couple of cents either side of 34 cents.
NYMEX Hub Natural Gas Ends Sharply Lower With Cash
NEW YORK, April 13 - NYMEX Hub natural gas futures ended near session lows Monday after last week's new highs triggered some technical selling this morning, industry sources said.
May finished 17.8 cents lower at $2.479 per mmBtu, just shy of the $2.475 session low. June followed May lower to settle at $2.514, off 17.4 cents from Thursday.
The 12-month strip slid 13.5 cents to $2.564.
Following today's break through a couple of support levels like $2.51, traders said May support was now at $2.46-2.465, and then at the double bottom at $2.33. Resistance was pegged at today's high of $2.635, and then at the contract high of $2.725 and $2.78.
Most traders agree the storage surplus to last year will likely inflate over the next few weeks as traders prepare for the upcoming summer, which may bring a warmer-than-normal post-El Nino season and the potential threat of coal shortages.
However, Union Pacific Corp reported last week that the backlog of southbound railcars to Laredo, Texas, has fallen to about 3,300 from 5,800 on March 24 when the company issued an embargo on the traffic.
In the cash market, Henry Hub prices were off an average of seven cents to the low-$2.50s, while Midcontinent prices slumped to the low-to-mid $2.30s. New York city-gate prices were also lower in the low-$2.70s, while Permian prices slipped into the low-to-mid $2.30s.
Meanwhile, the May contract on KCBT ended 17.5 cents lower at $2.375.
U.S. Spot Natural Gas Prices Retreat With Futures
NEW YORK, April 13 - U.S. spot natural gas prices followed the downward spiral in the futures market on Monday amid warmer-than-normal weather across much of the U.S., traders said.
Warmer-than-normal weather is expected to prevail this week throughout much of the U.S., with the Chicago area forecast to average six to 12 degrees above normal. However, western temperatures are still hovering below normal but are expected to warm as the week progresses. By Friday, cooler weather is anticipated to return to the Midwest.
Henry Hub swing gas traded anywhere from $2.60 early to the mid-$2.40s late, in line with May futures' slump into the low-$2.50s. Most cash business at the Hub was reported done in the low-to-mid $2.50s.
Similarly in the Midcontinent, prices fell an average of eight cents to the mid-to-high $2.30s, with early business reported done as high as $2.45.
Chicago city-gate values retreated into the low-$2.50s by late morning from the low-$2.60s earlier in the session.
In the West, southern California border prices dropped seven cents to $2.58-2.60, while Permian business was confirmed done mostly at $2.33-2.34.
Meanwhile, San Juan prices were talked mostly at $2.25-2.29, also off about three to four cents from last week's levels.
In the Northeast, New York city-gate prices slipped to about $2.78-2.80 early and proceeded to follow the Gulf lower to the mid-$2.60s by late morning. Appalachian values on Columbia were also lower in the mid-to-high $2.60s.
Taking a look ahead, some traders said they were anticipating additional softening Tuesday, attributing it to moderate weather and weakness on NYMEX.
''People are reluctant to buy storage gas before it hits bottom,'' one trader said.
Canadian Spot Natural Gas Softer In Alberta Amid Snow
NEW YORK, April 13 - Canadian spot natural gas prices drifted a little lower in Alberta on Monday, though a late snowstorm and continued tight supplies prevented further erosion, traders said.
Spot gas at the AECO storage hub in Alberta was quoted at C$2.30-2.32 per gigajoule (GJ), off about six cents from Thursday.
''NOVA packed a lot over the weekend. Then they drafted about 240 (million cubic feet per day) yesterday,'' one Calgary based trader said.
Injections in the west totalled 615 mmcfd on Sunday, up sharply from Saturday's tally around 285 mmcfd. However, injections were expected to taper off significantly today due to the arrival of snowy weather in Alberta.
Meanwhile, field receipts totalled 12.55 bcfd on Sunday.
At the borders, Sumas pricing was quoted mostly in the low-to-mid US$1.90s per million British thermal units (mmBtu), with some business reported done near $2.
Gas for export at Niagara, however, retreated 13 cents to the low-US$2.60s per mmBtu, in line with May futures' decline to the low-$2.50s.
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