MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING TUESDAY, APRIL 21, 1998 (2)
OIL & GAS
Oil Firmer as Iraq Rhetoric Touches Nerve
LONDON, April 21 - Oil prices firmed on Tuesday, pushed higher by rallying U.S. product prices and verbal skirmishes between Iraq and the United States over U.N. arms inspections.
Benchmark Brent blend for June loading closed 12 cents up at $14.51 a barrel on the London futures exchange, but down from a session peak of $14.68 in a bout of late profit-taking.
A strong performance by heating oil on New York markets, gasoline in paricular, helped to nudge crude prices higher.
But exchanges between Iraq and Washington over arms inspections also gave the market a supportive tone.
Dealers said prices drew strength from a commentary in Iraq's most influential newspaper Babel that the United States had sent its defence secretary to the Middle East to prepare for a military strike against Iraq.
Further support came from a warning that low prices could cut as much as 100,000 barrels per day (bpd) from U.S. crude output as smaller producers are forced to shut in marginal wells.
A new study by the head of the Independent Petroleum Association of American (IPAA) forecast U.S. production to drop to 6.3 million bpd this year, undermining the country's longer-term balance between supply and demand.
''As bad as oil prices are, the reality is that we will be challenged to meet demand,'' said George Yates, IPAA chairman. ''The longer-term outlook for oil is very positive and we need to invest with that in mind.''
The market was also underpinned by reports of a first sale of 1.85 million barrels of oil under a German tender to buy 22 million barrels of North Sea crude over the next six months.
''We're looking at the Iraq news and also the German tender. They're both supportive,'' said one London dealer.
He cited concern over a discussion at the U.N. Security Council expected later this week of a report by weapons inspectors that they had made almost no progress in the past six months in verifying that Iraq had destroyed any remaining weapons of mass destruction.
Such verification is a key condition for lifting sanctions. Downward pressure on prices has come from traders' scepticism that Organisation of Petroleum Exporting Countries (OPEC) producers, committed to 1.25 million barrels a day (bpd) of reductions, will do as they say.
To date this year, Brent has run $5 a barrel lower than the average of $19.80 over the past two years, giving producers every incentive to stick by promised pledged output cuts.
The Iraqi newspaper Babel, owned by President Saddam Hussein's eldest son Uday, said in a front-page editorial on Tuesday: ''William Cohen's tour in the Arab homeland aims at consulting with American allies to identify what should be done against Iraq.''
''This means that guard dogs start barking again to prepare the ground for an aggression that was impossible to commit because of world condemnation,'' the paper said.
Cohen has been on a Middle East tour to reassert U.S. support for the stalled Middle East peace process.
The United States, which maintains a strong military presence in the Gulf, threatened a few months ago to launch military strikes against Iraq to force it to comply with U.N. resolutions, particularly those on U.N. weapons.
The threat of force was averted when U.N. Secretary-General Kofi Annan struck a deal in February with Iraqi leaders guaranteeing inspectors could enter any site in Iraq including eight disputed ''presidential sites.''
In Washington, State Department spokesman James Rubin on Monday accused Baghdad of failing to cooperate with weapons inspectors despite Annan's agreement with Iraq.
He said the time was far away when U.N. sanctions imposed for Iraq's 1990 invasion of Kuwait could be lifted.
NYMEX Crude Up As May Expiry, Gasoline Rally
NEW YORK, April 21 - NYMEX crude oil and refined products futures posted gains Tuesday, ahead of the expiration of the May contract and after getting a lift from gasoline, which rallied on expectations of supportive inventory data.
May crude settled at $15.45 a barrel, up four cents on the day. The buying surge pushed the May contract to a high of $15.61 in the afternoon after trading range bound in the morning and dropping to a low of $15.18 before rebounding.
''Some profit-takers came in as we moved up,'' said one trader, ''and that knocked us down a bit at the close.''
The June contract settled at $15.98, up by seven cents.
Refined products rallied in anticipation of draws in stock inventory data for the past week from the American Petroleum Institute.
A survey by Reuters showed that analysts and traders were expecting a build in crude of 2.2 million barrels in the API data for the week ending April 17.
The forecasters also expect a draw in gasoline stocks by 1.0 million barrels and a draw of 500,000 in distillates, mostly heating oil.
They also expect a drop in refinery runs by 0.5 percent, reflecting the outage in several U.S. refineries last week. Gasoline remained strong, with the May contract settling at 52.68 cents a gallon, up 0.26 cents. May heating oil finished at 44.04 cents a gallon, up 0.37 cent.
''The current price of crude is not bad,'' considering the fundamental oversupply, said John Lichtblau, president of the New York-based Petroleum Industry Research Foundation.
''But the price averaged nearly $20 a barrel last year and the reason it is still down is that by and large oil stocks are still somewhat excessive,'' he said.
"That means oil prices may still go lower," he said.
In the morning, early selling pushed the May crude contract down. Last week, crude rose on the back of a gasoline led rally and on developments concerning Iraq, whose ruling party demanded the lifting of U.N. sanction on Thursday.
Crude again dropped Friday, on profit-taking, and Monday on luckluster, sideways trading.
The Iraq demand was ''not viable,'' observed a market watcher, after U.N. arms inspectors said they have virtually had made no progress in the past six month in their task to examine Iraq's claims that it has destroyed weapons of mass destruction, which was a condition for the lifting of the sanctions.
Based on that report, the U.S. on Monday accused Iraq of failing to cooperate with the U.N. arms inspectors despite an agreement with the international body that defused threats of an American military attack.
State Department spokesman James Rubin said this means the time is ''far away'' when tough U.N. sanctions on Iraq could be lifted.
In the latest on the verbal skirmish between Iraq and the U.S., an Iraqi newspaper owned by President Saddam Hussein's eldest son, Uday, commented on a Middle East tour by U.S. Defense Secretary William Cohen. It said the tour ''aims at consulting with American allies to identify what should be done against Iraq.''
''This means that guard dogs have started barking again to prepare the ground for any aggression that was impossible to commit because of world condemnation,'' the paper said.
''The exchange of words is somehow holding crude up,'' said one market player, although analysts said the market tended to discount any escalation of the situation.
U.S. Cash Crudes Up As May NYMEX Contract Expires
NEW YORK, April 21 - On the day of the NYMEX May contract expiration, U.S. cash crude differentials gained on Tuesday, led by robust gains for Light Louisiana Sweet/St. James. Traders said the 10-cent gain for LLS was more a factor of short-covering than of any fundamental reason.
Light Louisiana Sweet/St. James gained more than 10 cents in differentials to the U.S. cash crude benchmark West Texas Intermediate/Cushing.
''Some of the bigger buyers of LLS were watching it weaken recently and kept waiting for it to go down even further, but when it started to rise a little, they all jumped in buying to keep from being left out,'' said a trader for a major U.S. oil company.
After rising to as high as 70 cents below the benchmark WTI/Cushing, LLS finished Tuesday in a range of minus 77 cents to minus 73 cents.
Outright prices for cash crudes were up slightly, boosted only four cents by the NYMEX. The May contract on the NYMEX settled up four cents at $15.45 per barrel.
The exchange-for-physicals (EFP) premiums traded Tuesday at 10, 11 and 12 cents. By the end of the day it was talked around six cents, so the cash benchmark WTI/Cushing was talked $15.50 to $15.57 per barrel.
Postings-related WTI/Cushing values continued to fall because of the widening spread between May and June crudes, traders said. At end of trading Tuesday, WTI/Cushing postings-plus was talked $1.80/$1.83.
West Texas Intermediate/Midland was done at 36 cents under WTI/Cushing as well as 37 cents under.
West Texas Sour/Midland was done Tuesday at $2.16 under and $2.15 under WTI/Cushing and was talked five cents stronger than on Monday, at -$2.15/-$2.10. But later on Tuesday, a -$2.19 deal was reported done.
Bonito Sour was talked at -$1.68/1.63.
NYMEX Hub Natural Gas Clambers Higher Early With Cash
NEW YORK, April 21 - NYMEX May Hub natural gas futures clambered higher early Tuesday in tandem with firmer cash prices, fueled early by rumors of a pipeline rupture, industry sources said.
May, breaking through first resistance early, was up 8.1 cents at $2.55 per mmBtu at 1146 EDT. June was similarly firmer at $2.60, up 8.5 cents, while other deferred months in 1998 were up five to eight cents.
Traders attributed the strength to an early uptick in cash and technical buying after the $2.44 low held in Monday's session.
The cash market quickly tacked on gains this morning, with Henry Hub quoted early at $2.44 and recently offered at $2.48. Midcontinent prices were similarly stronger in the mid-$2.30s, while Permian quotes were heard around $2.30. Chicago city-gate values were also higher in the low-$2.50s.
Triggering more buying, traders said, was the circulation of news that a pipeline may have ruptured. Industry sources noted that a small fire on Pacific Gas and Electric's system on Monday affected only about 20 million cubic feet per day. The company was not available to confirm this news or provide further details.
After breaking through $2.526, where the 14-day and 18-day moving averages converged, the next technical level traders are eyeing is $2.56. Further resistance was pegged at $2.635 and then at the $2.725 contract high. Support was seen at $2.47-2.48, and then at $2.44, $2.40 and the $2.33 double bottom.
Forecasts are calling for slightly above-normal temperatures across the Northeast and upper Midwest this week, becoming even warmer in the Midwest and Texas by week's end. Southwestern temperatures are expected to run eight to 14 degrees above normal before turning cooler late this week.
Early injection estimates for Wednesday's American Gas Association storage report ranged from 10 bcf to 50 bcf, versus a draw of seven bcf a year ago and an injection of 22 bcf a week ago.
As of 1045 EDT, 15,160 Hub contracts had traded on NYMEX.
On KCBT, May jumped 6.8 cents to $2.443.
U.S. Spot Natural Gas Prices Rally Higher Early
NEW YORK, April 21 - Buyers surfaced early in the U.S. spot natural gas market on Tuesday, thereby pushing prices several cents higher, industry sources said.
Cash prices at Henry Hub moved into the mid-to-high $2.40s today, with quotes heard as high as $2.50 per mmBtu. This compares with an average price of $2.40 on Monday.
In the Midcontinent, prices traded up about two to three cents to the low to mid $2.30s, with Chicago city-gate pegged in the low-$2.50s.
In the West, where temperatures were hovering several degrees above normal, southern California border prices rose five cents to about $2.60-2.61.
Permian prices stepped up an equal amount to about $2.30, while San Juan values similarly firmed to about $2.20-2.21. Waha gas traded mostly at $2.36-2.37, sources said.
El Paso said it has scheduled to shut down one of three compressors at its Bondad station on Thursday morning for four hours, starting at 0900 MDT.
In the Northeast, New York city-gate prices jumped into the mid-$2.60s to low $2.70s, while Appalachian values on Columbia climbed into the low $2.60s.
Forecasts are calling for slightly above-normal temperatures across the Northeast and upper Midwest this week, becoming even warmer in the Midwest and Texas by week's end. Southwestern temperatures are expected to run eight to 14 degrees above normal before turning cooler late this week.
Early injection estimates for Wednesday's American Gas Association storage report ranged from 14 bcf to 50 bcf, versus a draw of seven bcf a year ago and an injection of 22 bcf a week ago.
Canada Gas Prices Hold In West, Strengthen In East
NEW YORK, April 21 - Canadian spot natural gas prices were mostly steady in the west on Tuesday but were propelled higher in the east by a NYMEX rally, industry sources said.
Spot gas at the AECO storage hub in Alberta was quoted again at C$2.28 per gigajoule (GJ), while May business moved a little higher to C$2.27-2.28 from C$2.25 per GJ.
One-year business at AECO was talked at C$2.47-2.49 per GJ.
''NOVA's linepack was on target at 12.8 (billion cubic feet per day),'' one Calgary-based trader said, noting the balanced supply on the system kept trading fairly quiet.
Also keeping demand at a minimum were forecasts calling for temperature highs in the high-60s to low-70s F on Wednesday and Thursday.
In the export markets, Sumas, Wash., gas traded mostly unchanged at US$1.94 per million British thermal units (mmBtu).
In the east, prices at Niagara tacked on about five cents to US $2.58-2.62 per mmBtu as May futures rallied to a high of $2.58. |
