MARKET ACTIVITY / TRADING NOTES FOR DAY ENDING MONDAY, MAY 11 1998 (2)
OIL & GAS
OPEC Oil Ministers To Consult On Low Prices
DAMASCUS, Syria - Oil ministers of the world's largest oil exporters will consult on action needed to increase low oil prices on the sidelines of an Arab energy conference opening in Damascus on Sunday.
Saudi Arabian Oil Minister Ali Bin Ibrahim al-Naimi told Reuters on arrival in Syria on Saturday he had hoped market reaction to recent oil production cuts would be stronger.
Naimi said he and other OPEC ministers taking part in the conference, organised by the Organisation of Arab Petroleum Exporting Countries (OAPEC), would consult over the current low oil prices and how these could be improved.
He said the Damascus meeting "constitutes a good chance for us to discuss the prices and the general market situation."
Asked about the possibility of a meeting between Saudi, Venezuelan and Mexican oil ministers to try to improve oil prices, Naimi said: "We will do, if we are obliged."
OPEC Secretary-General Rilwanu Lukman said he had come to Damascus to take part in the Arab energy conference, but would participate in consultations among OPEC ministers about the markets and their response to the recent production quota cuts.
"The first month of the cuts has just passed, and consequently we have to see what the effect of that cut is in the market. Then the ministers will decide what the next step would be."
Asked whether he was satisfied by the reaction so far, he said: "prices are not bad, but not good."
Lukman told reporters output figures for April were still coming in, so it was premature to discuss the possibility of further cuts.
He did not expect a decision on any new quota cuts before an OPEC meeting next month.
"When the time comes to examine the result of the cuts, then a decision will be taken what to do."
Asked when this might be, he replied: "We have a meeting scheduled for June... we are already in May."
Lukman and Naimi will attend the OAPEC meeting which runs from May 10 to 13.
Arab officials taking part in the Damascus meetings were cautious when discussing the possible need for further production cuts.
Suleiman al-Omani, undersecretary of the Kuwaiti Oil Ministry, told reporters in Damascus: "Nobody in the producing countries is happy with these prices."
But he said: "No consensus yet among oil producers on further output cuts."
Asked if Kuwait would push for more production cuts he said: "For the time being we have to see the situation."
Salim Shaaban Ojaili, undersecretary at Oman's Ministry of Oil and Gas said Oman would be happy to see producers that had not cut production under the Riyadh pact move to reduce their output.
Saudi Arabia Believes Oil Market on the Mend
DAMASCUS, May 11 - Saudi Arabia believes oil markets are on the mend with supply and demand back in balance after oil producers started reducing supplies, a Gulf source said on Monday.
The source, familiar with Saudi oil policy, said OPEC's biggest producer was "optimistic" that crude prices would continue their recovery from the nine-year lows of early March.
"We are 100 percent sure prices will not fall," the source told reporters on the sidelines of an Arab energy conference.
He said it could take another four to six weeks to see the full impact on the market of the cuts agreed by OPEC and non-OPEC after a secret March meeting hosted in Riyadh by Saudi Arabia.
"The market is getting tighter. Prices will improve in coming weeks and months," he said, calling the market "well balanced."
But he said all producers, including Saudi, remained open to the possibility of a second round of production cuts if necessary.
Producers were discussing ways to improve the market "including the possibility of further production cuts if required," he said.
Mexico, one of the Riyadh trio of producers which orchestrated the cuts, said last week that the outlook for the market indicated more cuts would probably not be needed.
Major oil producers have pledged reductions of about 1.5 million barrels a day (bpd) to year's end including 1.25 million from Organisation of the Petroleum Exporting Countries (OPEC) members.
The source said Saudi Arabia was satisfied that producers were sticking by those pledges.
"We are sure that most countries are committed to pledges -- OPEC and
non-OPEC," he said.
Estimates were that OPEC and non-OPEC oil producers removed at least 1.3 million barrels a day (bpd) from the market in April compared to the February benchmark for cuts, the Gulf source said.
The estimates came from a number of secondary sources which monitor the market.
Oil markets had found further support from a fall in Russian exports and were likely to draw strength from North Sea maintenance and some improvement in Asian demand, the Gulf source added.
The oil market situation would be discussed further at a scheduled meeting of Gulf Cooperation Council (GCC) oil ministers on June 16 in Riyadh.
OPEC members Saudi Arabia, Kuwait, the United Arab Emirates and Qatar
and non-OPEC Oman are GCC members along with Bahrain.
OPEC meets in Vienna on June 24.
OPEC Implements Most Oil Output Cuts
LONDON, May 11 - OPEC has implemented most of the output cuts it agreed in March to help rescue prices, removing some of a bearish surplus of petroleum supply, the International Energy Agency said on Monday.
The agency said the cuts were among several factors tackling the global glut and helping to brighten sentiment in uncertain oil markets, the Paris-based agency said.
At the end of April, OPEC production cuts appeared to have been largely implemented, removing some, but certainly not all, of the second quarter surplus,'' the agency said in its Monthly Oil Market Report.
Members of the Organisation of the Petroleum Exporting Countries excluding Iraq agreed in March to reduce output from April 1 by 1.25 million barrels per day (bpd) under a pact with non-OPEC producers to shave two percent off world production.
The agency said it estimated OPEC produced 27.95 million bpd in April, some 1.03 million bpd below February output levels used as a benchmark or 80 percent of its pledged goals.
Allowing for an increase of 160,000 bpd in Iraqi exports, OPEC's April production was 800,000 bpd below its March output. Outlining another bullish factor, the agency revised down its 1998 non-OPEC supply forecast by 200,000 bpd to 45.1 million bpd.
''The market had expected not only slower implementation...but also a lower level of compliance,'' the IEA said.
Non-OPEC supply reductions removed an additional 200,000 to 250,000 bpd, it said.
The IEA said strong demand for gasoline in the United States was expected to contribute to global oil demand growth of 1.5 million bpd in 1998, but it added that this remained sensitive to continuing uncertainty about Asian demand.
More support for the market could come from what the IEA called Iraq's reminder that it could remove as well as add to global supply in the event of prolonged disagreements about the U.N.'s oil-for-food arrangement under which Baghdad exports crude.
Prices have remained about $2 a barrel above their mid-March lows but benchmark North Sea Brent crude still languishes more than $4 a barrel below the $19.32 it fetched on average in 1997.
OPEC ministers have said they would be prepared to consider making more reductions to support the market if prices continue to look sickly.
The IEA said the next major events for the oil market included a scheduled OPEC ministerial conference in Vienna on June 24 and discussions between Iraq and the United Nations about exports of Iraqi oil under the oil for food arrangement.
It said the market remained in wait-and-see mode on OPEC and possible increases in Iraqi exports.
''Without definitive developments on either front, market sentiment may continue to push upwards while the physical market fundamentals, although improving, still pull downwards,'' the agency said.
Tosco Positive On Asian Crisis Fallout
NEW YORK, May 11 - Asia's economic crisis and depressed global crude prices are providing a bullish outlook for U.S. refiners, Tosco Corp (TOS) Chairman Thomas O'Malley said on Monday.
''We view the Asian crisis as an absolute positive,'' O'Malley told Reuters in an interview.
O'Malley said the crisis will lead to better margins because Asian refiners will be forced to cut back on investments in refining capacity, which will lead to a gradual tightening and rationalization in worldwide refining.
''We are seeing an adjustment in refining investment decisions, particularly in countries like South Korea which were irrational. The slowdown in demand in Asia was a bubble waiting to burst,'' O'Malley said.
He added the possible import of surplus Asian barrels into the U.S. was not a threat since Asian refiners were not capable of meeting the strict specification requirements of California, one of the largest gasoline markets in the U.S.
''It hasn't really worked as a negative for us,'' O'Malley said. ''They can't make the products, ....and we are just as efficient as the Asian manufacturers.''
Although Tosco is based in Stamford, Connecticut, it has a strong presence on the West Coast, running five refineries which produce 500,000 barrels-per-day (bpd) of products.
It has another 450,000 bpd on the East Coast, making it the the largest independent oil refiner and marketer in the U.S.
The Asian crisis also prompted the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC oil producers to agree to shave some two percent from world supplies in a bid to strengthen crude oil prices.
O'Malley said however he did not see evidence of ''real concrete evidence of cuts in oil production.''
''In the absence of any real agreement by the producers of oil that had a meaningful adjustment and any political event, we can't understand why crude prices should go up.''
''We see WTI prices ranging between $15 to $16 (per barrel) over the next couple of months,'' he said.
Crude prices fell to record nine-and-a-half year lows in March, and are still under pressure leading to calls for further cuts.
But low crude prices have boosted refining margins in March which have contributed toward strong downstream company results in the first quarter.
Sector leader Tosco's first-quarter results topped analyst estimates, with a net income of $41.5 million or $0.26 per diluted share on sales of $3.0 billion, compared with net income of $3.6 million or $0.03 per share on sales of $2.4 billion in the year-ago quarter.
Analyst have projected even better margins in the second quarter amid a boom summer gasoline demand season as U.S. highway travel and gasoline demand is expected to post the largest annual increase in a decade, rising about 2.8 percent between April and September.
''We prefer lower energy prices which would mean ultimately higher consumption,'' O'Malley said.
O'Malley declined to comment on any projections for the second quarter but said the second quarter's refinery margins ''look significantly better, particularly on the West Coast.''
He added that there was ''no significant impact'' from refinery outages last month at its Los Angeles refineries after a power outage and its 100,000 bpd Trainer, Pennsylvania, cat cracker.
Oil Sideways as Extra Output Cuts Recede
LONDON, May 11 - Oil prices shuffled sideways on Monday unperturbed by renewed calls for producers to consider a second round of output reductions.
London futures for benchmark North Sea Brent ticked up seven cents to $14.76 a barrel.
Dealers remained sanguine about the chance of further output cuts from world producers. They said that in spite of a call from Qatar for more cuts, it now looked likely that producers would wait at least until June to consider more output restraint.
Qatari Oil Minister Abdullah al-Attiyah said on Monday that oil markets remained very weak and he wanted ministers to quickly agree more output cuts.
Attiyah said he wanted Arab oil ministers meeting in Damascus to consider further cuts in production to reduce what he estimated was two million barrels a day of oversupply.
"Qatar is demanding during the consultations in Damascus that a further cut should be made to support prices,'' Attiyah said.
Major oil producers have pledged reductions of about 1.5 million barrels a day (bpd) to year's end including 1.25 million from Organisation of the Petroleum Exporting Countries (OPEC) members.
But the world's largest oil producer, Saudi Arabia, appears optimistic that oil markets are now robust enough to recover without more supply being withdrawn.
A Gulf source familiar with Saudi thinking said on Monday in Damascus that the markets were on the mend, bringing supply and demand back into balance.
''We are 100 percent sure prices will not fall,'' the source told reporters on the sidelines of an Arab energy conference.
He said it could take another four to six weeks to see the full impact on the market of the cuts agreed by OPEC and non-OPEC countries after a secret March meeting hosted in Riyadh by Saudi Arabia.
But he said all producers, including Saudi Arabia, remained open to the possibility of a second round of production cuts if necessary.
Producers were discussing ways to improve the market ''including the possibility of further production cuts if required,'' he said.
Mexico, one of the Riyadh trio of producers which orchestrated the cuts, said last week that the outlook for the market indicated more cuts would probably not be needed.
The source said Saudi Arabia was satisfied that producers were sticking by those pledges.
''We are sure that most countries are committed to pledges -- OPEC and
non-OPEC,'' he said.
The International Energy Agency on Monday said that OPEC had implemented most of the oil production cuts it had promised.
The agency estimated OPEC produced 27.95 million bpd in April, some 1.03 million below February output levels used as a benchmark.
NYMEX Crude, Products Pare Gains At The Close
NEW YORK, May 11 - NYMEX crude pared gains at the close Monday, as the buying spurt that lifted the market for most of the day petered out towards the end, traders said.
The contract settled at $15.17 a barrel, up four cents. The contract briefly touched $15.75, the day's high, trigerring selling that quickly brought the front-month down.
In the morning's opening, June crude dipped to $14.90, breaking the $14.95 low of April 27.
There was also interest on the July contract, which ended unchanged at $15.87, after reaching a high of $16.14 on the day.
''While crude appeared vulnerable at the start, buying interest developed when we broke below $15.00,'' said a NYMEX floor trader.
''We managed to finish within the trading range, thanks to fund and local buying,'' said the trader.
Heating oil ended lower after trading up most of the day. The June contract finished at 42.91 cents a gallon, down 0.10 cent, after trading as high as 53.95 cents on the day.
Gasoline closed down at 53.35 cents a gallon, up 0.21 cent down from the day's high of 53.95 cents.
One trader said fund buying early in the day reversed an early drift downwards, following overnight losses on ACCESS trading.
Traders said there was very little impact on the market from the weekend meeting of the Organization of Arab Petroleum Exporting Countries (OAPEC) in Damascus, Syria.
''The calls for further production cuts have been making the rounds for quite sometime,'' said a market player, who added that Qatar's plea for the Damascus meeting to consider the issue ''only validates what we have known all along.''
However, the world's largest oil producer, Saudi Arabia, appears optimistic that oil markets are now robust enough to recover without more reducing supplies.
A Gulf source familiar with Saudi thinking told Reuters on Monday in Damascus that the markets were on the mend, bringing supply and demand back into balance.
The source said it could take another four to six weeks to see the full impact on the market under the Riyadh agremeent in March, which called for output cuts of about 1.5 million barrels per day (bpd).
Other analysts appear to see matters differently.
One of them, Purvin & Gertz, Inc., the Houston-based energy consultants, said Monday the cuts under the Riyadh pact will not diminish the large overhang in first quarter production, which it estimated at well over 2.0 million bpd.
''Second quarter stock increases under the March arrangements will still be excessive, especially with increased Iraqi volumes,'' it said.
It said continued producer response to market demand levels ''are not likely to be proactive, and the market should remain weak, on average, with the stock overhang remaining for some time,'' it said.
NYMEX Natural Gas Ends With Pared Gains
NEW YORK, May 11 - NYMEX Hub natural gas futures pared afternoon gains but still ended higher Monday in moderate trade, helped by some technical buying and reports the heat in Texas helped firm the cash, industry sources said.
June climbed 4.8 cents to close at $2.215 per million British thermal units after trading in a range today between $2.18 and $2.27. July settled 4.3 cents higher at $2.27. Other deferreds ended up 0.7 to 4.3 cents.
"We sold off toward the close, but we still ended up on the day. Cash was up and they couldn't get June through unchanged," said one East Coast trader.
While some remained skeptical prices will move much higher, citing mild weather in most regions and a hefty storage surplus, others noted buyers recently surfaced with the first sign of heat in Texas and psychology may now favor the upside.
Midwest temperatures this week are expected to average eight to 14 degrees F above normal. Texas also is forecast to stay several to 10 degrees above normal for the period. Eastern weather should average within a couple of degrees of normal.
Technical traders said June was still in a range but a close above the double top at $2.27 could signal a break to the upside. Next resistance was seen at last week's high of $2.355. Further resistance was expected at $2.37, which is the 50 percent retracement point of the recent selloff. Major selling was expected at another double top at $2.63.
Key support was pegged at $2.105-2.11, a spot continuation chart low and last Monday's low. Major buying was expected at the $2.05 double bottom from January and then at $2.
In the cash Monday, Gulf Coast swing prices firmed more than a nickel to the mid-teens. Midwest pipes were up a similar amount to the $2.10-13 area. New York city gate gas was more than five cents higher in the low-to-mid $2.40s, while Chicago was up almost a dime to the low-$2.30s.
The NYMEX 12-month Henry Hub strip rose 2.7 cents to $2.41. NYMEX said an estimated 63,726 contracts traded, up from Friday's revised tally of 59,848.
US Spot Gas Prices Driven Higher By Southern Heat
NEW YORK, May 11 - U.S. spot natural gas prices turned higher Monday as pre-summer heat seeped into the south central U.S. and sporadic outages drained supply, industry sources said.
Temperatures this week are expected to remain above normal throughout most of the central U.S., with the warmest weather seen in the southern plains and Texas. Weather in the Northeast is forecast to warm to normal by Wednesday and continue through next weekend, while below normal temperatures are expected to cover the Southwest.
Cash prices at Henry Hub were quoted today mostly near $2.20 per mmBtu as temperatures in the regionclimbed into the 90sF.
In the Midcontinent, prices were up by a similar amount to about $2.10-2.12, with Chicago city gate pegged around $2.30.
In west Texas, Permian prices rose five cents to about $2.00-2.02, while San Juan values rebounded to the mid-to-high $1.90s.
In maintenance news, Northern's Keystone gas plant in western Texas is still scheduled to return to service Friday following unplanned maintenance.
Also, the 750 megawatt (MW) Four Corners 5 coal unit and the 540 MW San Juan 3 coal unit in New Mexico were both expected to restart tonight.
In the Northeast, gas at the New York city gate traded mostly in the low to mid $2.40s, while Appalachian prices on Columbia moved into the mid-$2.30s, market sources said.
Canada Spot Natural Gas Prices Slide With Excess Supply
NEW YORK, May 11 - Canadian spot natural gas prices headed sharply lower in Alberta on Monday as an ample supply of gas flooded the market, industry sources said.
Spot gas at the AECO storage hub in Alberta was quoted mostly at C$1.66 per gigajoule, though prices ranged anywhere from the C$1.70s early to about C$1.60 this afternoon.
Traders attributed the softening to a weak weather-related demand and the return of field receipts on NOVA following last week's forest fires.
Also, TransCanada's system was undergoing maintenance, which will limit capacity in northern Ontario to 2.47 billion cubic feet per day (bcfd) on Tuesday and as low as 882 million cubic feet per day on Friday.
At the borders, Sumas export prices were quoted at US$1.41per million British thermal units (mmBtu), down about eight cents from Friday.
Conversely in the east, gas at Niagara traded a few cents higher at US$2.29-2.30 per mmBtu, in line with the NYMEX uptick. |
