MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING MONDAY, MAY 4, 1998 (2)
OIL & GAS
U.S. tells Saudi Arabia it is against oil output cuts
NEW YORK, May 4 - U.S. Energy Secretary, Federico Pena, told Saudi Arabia's oil minister on Monday that the U.S. government is against any collective agreement between OPEC and non-OPEC nations to make additional cuts in world oil production.
''Markets should determine prices,'' Pena said he told Saudi oil minister Ali al-Naimi, during a meeting Monday, which lasted just over an hour.
WASHINGTON, May 4 - U.S. Energy Secretary, Federico Pena, told Saudi Arabia's oil minister on Monday that the U.S. government is against any collective agreement between OPEC and non-OPEC nations to make additional cuts in world oil production.
''Markets should determine prices,'' Pena said he told Saudi oil minister Ali al-Naimi, during a meeting Monday, which lasted just over an hour.
''We do not endorse collective action which might attempt to interfere with the market,'' Pena told reporters, during a briefing on his meeting with Naimi.
As he left the meeting, Naimi declined to make any further comment on this week's scheduled talks with Venezuelan and Mexican oil officials.
Since the ''Riyadh Pact'' agreement in March and the subsequent emergency OPEC meeting, which together achieved total output cuts of around 1.5 million barrels from major oil producers, world oil prices recovered slightly and then weakened again.
Several OPEC ministers, including Saudi Arabia, said immediately after their March meeting that they would consider further cuts if the market did not recover sufficiently.
Over the weekend and on Monday, oil ministers from Iran and Kuwait reiterated their support for further cuts.
Oil rally halted as producers bide time
LONDON, May 5 - World oil prices suffered a setback on Tuesday (Market was closed Monday) as speculation that major producers would meet at the weekend to make more output cuts came to nought.
London June futures for benchmark Brent blend shed 31 cents in early business to $14.82 a barrel.
Brent jumped 64 cents on Friday amid rumours that Saudi Arabia, Venezuela and Mexico would meet over the weekend in a repeat of the March Riyadh pact which took 1.5 million barrels a day (bpd) out of the glutted market.
''The market got somewhat overheated going into the weekend and now it's cooling off,'' said an oil trader in London.
''The talk of more cuts has shored up prices when they would have otherwise have dropped but the market will soon start discounting these conversations in the absence of concrete news,'' said Leslie Nicholas of brokers GNI.
Venezuela has already suggested another 500,000 bpd be removed from the market to help prices which are still running $4.50 lower than on average last year.
The visit of Saudi Oil Minister Ali al-Naimi to the United States for a meeting on Monday with the U.S. Department of Energy had led to speculation that further output cuts might be agreed.
But Adrian Lajous, the head of Mexico's state oil company Pemex, was reported on Tuesday saying it was too early for further reductions.
''It is not on the table to make any further production cuts now,'' Lajous said.
Mexico also denied that any meeting with the Saudi and Venezuelan oil ministers was scheduled.
Attention will now turn to a meeting of the Organisation of the Arab Petroleum Exporting Countries in Damascus on May 10.
Saudi's Naimi will attend as will OPEC President Obeid al-Nasseri of the United Arab Emirates.
Host Syria has been approached as a possible candidate to reduce its output.
Traders were also taking notice of lower OPEC output in April.
A Reuters survey last week pegged OPEC output in the first half of April at 28.1 million bpd, with 10 members cutting a million bpd from the February benchmark for Riyadh pact reductions.
But that was offset by an extra 350,000 bpd from Iraq over the period.
NYMEX crude ends off, doubts up on output cut talk
NEW YORK, May 4 - Crude oil prices slipped Monday, giving back some gains made Friday, as traders expressed doubts that three key producers would meet soon to make further production cuts.
Traders were not moved by a statement by Saudi Arabian Oil Minister Ali al-Naimi that he was to meet with his Venezuelan and Mexican counterparts this week to discuss additional cuts.
''For the moment, the market is treating this as just talk,'' a trader said.
But another trader said al-Naimi's comment was ''somewhat supportive,'' in that it kept crude futures in trading range rather than drop to much lower levels.''
June crude settled at $15.95 a barrel, off 18 cents, rising from $15.75, the day's low. The contract hit a high of $16.04 early, but quickly pulled back.
Refined products sustained losses. June heating oil settled at 45.42 cents a gallon, down 0.36 cent while gasoline ended at 54.04 cents a gallon, off 0.25 cent.
The day's trade was a pull-back from Friday, when crude prices surged on speculation that a meeting was afoot last weekend between oil chiefs of Saudi Arabia, Venezuela and Mexico.
Traders were disappointed, however, that no such meeting took place, roiling the crude and refined products markets.
Just after the market closed Monday, Mexico's energy ministry said Minister Luis Tellez had no plans to meet with Venezuelan Oil Minister Erwin Arrieta or al-Naimi.
''There is no such meeting planned,'' a ministry spokesman said on news from Washington that al-Naimi, responding to reporters' queries, said he would meet this week with the two other ministers.
Al-Naimi was in the U.S. capital on a scheduled meeting with Energy Secretary Federico Pena Monday. On Thursday, he was in Houston to attend a scheduled board meeting of Saudi Aramco.
Saudi Arabia, Venezuela and Mexico were the chief architects of the Riyadh agreement in March that called for the reduction of OPEC and non-OPEC oil production by about 1.5 million barrels per day (bpd).
''The key obviously is that producers want to get some price recovery,'' said Chevron analyst Pat Hughes.
But he said the question is, would producers want to make a cut right now even if they have not ascertained whether the March agreement had succeeded or not?
''There is where the uncertainty is,'' Hughes said, adding that producers are under pressure to push prices up due to the big drop in revenues they have sustained because of low oil prices.
A recent OPEC estimate shows that the 11-member group's total first quarter revenues were some $8 billion lower than in the same period of 1997.
''It's hard to tell what OPEC will do,'' Hughes said. He added he was surprised at the latest stance of Saudi Arabia, the OPEC kingpin which he said usually adopted a ''wait-and-see'' attitude on issues affecting production.
The March 22 Riyadh agreement, confirmed on March 31 at a meeting of OPEC in Vienna, was effective April 1 and most analysts say the first reading of whether the participants stuck to their pledged output cuts would be early this month.
The next regular OPEC meeting is scheduled for June 24, but Venezuela last week said a further cut of 500,000 bpd was needed to shore up oil prices and that any further cuts could come before the meeting.
A number of OPEC ministers have said they will back any action to further cut output.
NYMEX Hub natural gas ends up in technical rebound
NEW YORK, May 4 - NYMEX Hub natural gas futures ended higher across the board in a moderately active session Monday, boosted by some technical buying and short covering after June held key support early, industry sources said.
June climbed 5.5 cents to close near the high of the day at $2.257 per million British thermal units after slumping early to $2.11/mmBtu. July settled five cents higher at $2.306. Other deferreds ended up by two to five cents.
"I think the market is starting to look more constructive. We're getting some heat and humidity in the Gulf this week, and the coal situation is starting to be a concern again," said one Midwest trader, referring to low coal inventories this year due to rail shipping delays that could force utilities to use more gas to meet summer air conditioning loads.
But opinions were still mixed about market direction. While some said the market was oversold and due for a bounce, few expected much upside near-term, with gas stocks still 40 percent above year-ago levels and little hot weather to stir demand.
Temperatures for much of the U.S. are mostly expected to hold several degrees above normal this week, climbing by Friday to as much as 16 degrees above normal in the Northeast.
Technically, June broke key support this morning at $2.16, but the afternoon rebound and strong close raised the possibility of a reversal higher. Interim support was pegged in the $2.105-2.11 area, a spot continuation chart low and Monday's low, respectively. Major buying was expected at the $2.05 double bottom from January and then at $2.
June resistance was now pegged at last week's high of $2.355. Further resistance was seen at $2.37, which is now the 50 percent retracement point of the recent sell-off. Major selling was expected at the $2.63 double top.
In the cash Monday, Gulf Coast swing prices were talked down slightly in the $2.02-2.07 range, though higher numbers were done later. Gulf quotes are more than 15 cents below May baseload indices. Midwest values were steady to up slightly in the low-$2s, about 15 cents under May 1 levels. Gas at the Chicago city gate was modestly higher in the mid-$2.20s, while New York slipped a few cents to about $2.30 on mild weather.
The NYMEX 12-month Henry Hub strip gained four cents to $2.423. NYMEX said an estimated 67,109 contracts traded, up from Friday's revised tally of 61,823.
U.S. spot natural gas prices revived in late trade
NEW YORK, May 4 - U.S. spot natural gas prices turned sharply lower early Monday before some late buying interest revived the market, industry sources said.
''The market was all over the place, but it ended on a high note. That could mean more strength for tomorrow,'' one gas trader said.
Cash prices at Henry Hub were quoted anywhere from $2.02 early to as high as $2.14 late, with most business reported done around $2.10.
Adding to short-term demand, traders said, was the warmer-than-normal, humid weather in Texas and the southern plains.
In the Midcontinent, prices slid early to reach lows in the mid-$1.90s, but by late morning prices fluctuated to a high of $2.10. Chicago city gate was similarly a little higher on the day to the mid-$2.20s after swaying between the teens and low-$2.30s.
In west Texas, Permian prices were quoted mostly in the low-$1.90s, indicating a gain of about three cents. San Juan values ranged from the $1.70s to as high as $1.90 by late morning.
Meanwhile, southern California border quotes eased to about $2.10 amid slightly below-normal temperatures in the Southwest.
In the Northeast, gas at the New York city gate traded mostly in the high-$2.20s, off a few cents from Friday's levels. Temperatures in the region are forecast to climb to about eight to 12 degrees above normal by Thursday and continue through the weekend.
Canada spot gas stretches lower amid mild weather
NEW YORK, May 4 - Canadian spot natural gas prices continued to tread lower Monday amid mild weather and an early slump on NYMEX, traders said.
Spot gas at the AECO storage hub in Alberta was quoted at C$1.92-1.94 per gigajoule (GJ), down from about C$1.95-1.96 on Friday. Prices for June-October also softened to a low of C$1.78 and then recovered with NYMEX to the mid-C$1.80s per GJ.
The export markets were consistent with Alberta. Sumas, Wash., prices on average fell 12 cents to US$1.41-1.47 permillion British thermal units (mmBtu).
The 700 million cubic feet per day (mmcfd) McMahon gas plant in northeastern British Columbia, owned and operated by Westcoast Energy (W.TO - news), is scheduled to shut May 17 for 19 days of maintenance. Capacity will drop to 580 mmcfd on May 17 and then to as low as 260 mmcfd on May 18-May 19. By June 5 capacity is expected to rise to about 680 mmcfd.
Meanwhile, prices at Niagara in southern Ontario were quoted about five cents lower at US$2.21-2.24 per mmBtu.
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