MARKET ACTIVITY / TRADING NOTES FOR DAY ENDING TUESDAY, MAY 12 1998 (2)
OIL & GAS
Oil Jumps As Saudis Say Not Against More Cuts
LONDON, May 12 - Oil prices surged higher on Tuesday on news that Saudi Arabia is keeping an open mind about the need for more output cuts from petroleum producers to trim global oversupply.
London futures for benchmark North Sea Brent closed 27 cents a barrel firmer at $15.11 after slicing through $15 earlier in the session.
The market drew strength from comments by a Gulf source that Saudi Arabia had no objections to further output cuts by oil producers if prices languish at current levels.
The source added the kingdom and fellow major producers Venezuela and Mexico had been in contact in recent days over possible further production cuts, and if necessary a decision on the issue could be made before a key OPEC meeting in June.
Saudi Arabia was ''not against cuts and is willing to participate in any decision'' that will improve weak oil prices, the source said.
The source was speaking at a conference of the Organisation of the Arab Petroleum Exporting Countries (OAPEC) in the Syrian capital Damascus that ends on Wednesday.
His comments helped sentiment by raising hopes that further producer cuts would drain a glut of crude that pushed Brent under $12 in early March for the first time in nine years.
They helped stoke a rally on international benchmark Brent already gathering pace as traders take aggressive buying positions on Brent derivatives markets.
Major Organisation of Petroleum Exporting Countries (OPEC) members and non-OPEC producers have already pledged to cut output by about 1.5 million barrels a day (bpd) until the end of the year to support oil prices.
''They (output cuts) could happen before June. Everything is possible,'' the source said in reference to a ministerial meeting of OPEC starting in Vienna on June 24.
The source described the oil market as ''not bad.'' But he added: ''The possibility of cuts is there if prices do not improve.''
Asked whether there were any disagreements between OPEC and non-OPEC producers about the output issue, he said: ''Not really. There are more agreements than disagreements.''
OPEC President Obeid bin Saif al-Nasseri of the United Arab Emirates said earlier he expected loud calls from oil producers for more output cuts unless crude prices rise further.
''There will be loud voices asking for cuts,'' Nasseri told Reuters on the sidelines of the Damascus conference.
But Nasseri said he expected no decision on further cuts at least until OPEC ministers meet in Vienna.
Oil prices have risen nearly $2 a barrel since the March 22 agreement sealed at a secret meeting in Riyadh which paved the way for the first significant supply cuts by oil producers in a decade.
But Brent is still running more than $4 below last year's $19.30 a barrel average.
NYMEX Crude Up, Saudis Not Against Fresh Cuts
NEW YORK, May 12 - NYMEX crude futures firmed at the close Tuesday, after pulling back from a surge around midday on news that Saudi Arabia was not against more oil output cuts if prices remained at current levels.
June crude spurted to a gain of about 20 cents on the news, and settled at $15.24 a barrel, up seven cents on the day, coming back down on profit-taking.
The front-month contract hit a high of $15.39 earlier but kept within trading range, dipping to a low of $15.11.
According to a Gulf source who talked to reporters in Damascus, OPEC member Saudi Arabia was ''not against cuts and is willing to participate in any decision'' that will improve weak oil prices.
The kingdom and major producers Venezuela and Mexico had been in contact in recent days over possible further production cuts, and if necessary a decision on the issue could be made before an OPEC ministerial meeting in Vienna on June 24, said the source.
''What you can read into what the Saudis are saying now is that if prices don't recover before OPEC's meeting in June, there is a chance there can be further cuts,'' said Tom Bentz, analyst for Cresvale International.
''Most people had expected there would be no cuts until the June meeting,'' he said. With the prospect of a meeting earlier if prices did not improve, the market popped, he said.
NYMEX crude futures backtracked later but within the range following ''people going out of their positions,'' said a NYMEX floor trader.
For most of the day, crude futures stayed up in the trading range despite some forecasts that the front month may retest the area just below $15.00, where it dropped briefly on Monday before regaining buying interest.
NYMEX activity on the day lifted the July and August contracts. July rose six cents at $15.93 and August closed up three cents at $16.32.
Refined products rose, with June heating oil finishing up 0.25 cent at 43.16 cents a gallon, while gasoline ended up 0.43 cent at 52.73 cents a gallon.
In London, IPE Brent futures closed well up after the remarks by the Gulf source on the Saudis' position on further oil output cuts.
Front month June Brent closed at $15.11 a barrel, off a $15.25 session high, but up 27 cents on the day.
Saudi Arabia, Venezuela and Mexico, a non-OPEC producer, crafted the Riyadh agreement in March that led to OPEC and non-OPEC members pledging to cut production by about 1.5 million barrels per day.
The cuts took effect in April, but prices have continued to be low and many analysts say additional cuts were needed to mop up excess output and raise prices.
Venezuela recently said the markets needed additional cuts of about 500,000 barrels to raise oil prices.
Meanwhile, the market was awaiting release of weekly inventory data from the American Petroleum Institute, which usually signals short-term market direction, to be issued later in the day.
A Reuter poll showed that traders and analysts forecasting an increase in crude stocks by 1.3 million barrels for the week ending May 8.
They also predicted stockbuilds in gasoline, by 1.3 million barrels, and in distillates, mostly heating oil, by 500,000 barrels.
In addition, they also think refinery runs would be up 0.4 percentage point.
U.S. 1998 Natural Gas Wellhead Price At $2.15/tcf
WASHINGTON, May 8 - U.S natural gas wellhead prices in 1998 should average $2.15 per thousand cubic feet, the Energy Information Administration said Friday, down from its previous estimate of $2.24 per tcf.
Higher than expected amounts of natgas in storage at the end of April are expected to weigh on prices, the EIA said.
''These relatively high storage levels should obviate the necessity for strong storage injections in the early summer, perhaps leaving more current supply for use in power generation without heavy additional pressure on spot prices,'' the EIA said.
The EIA's May estimate for 1999 natgas wellhead prices was $2.17 per tcf, up slightly from its April estimate for 1999 of $2.13 per tcf.
NYMEX Hub Natural Gas Ends Higher With Cash, Temps
NEW YORK, May 12 - NYMEX Hub natural gas futures mostly ended higher Tuesday in a moderate session, with firmer physical prices and heat across the central and southern U.S. still underpinning the complex, industry sources said.
June edged up 4.1 cents to close at $2.256 per million British thermal units after trading in a range today between $2.219 and $2.265. July settled 3.9 cents higher at $2.309.Other deferreds ended flat to up 3.7 cents.
''Cash firmed again today. Futures are still stuck in a range, but we could push higher because of the heat (in the South and Midwest),'' said one Midwest trader, adding firmer electricity prices this morning helped trigger some buying.
Most agreed the season's first heat wave last week in Texas helped raise concerns that a hot, El Nino-type summer was just around the corner.
But with storage still 42 percent over year-ago, few expected the bulls to take complete control near-term.
Early injection estimates for Wednesday's weekly AGA storage report range from 51 bcf to 105 bcf. For the same week last year, stocks gained 70 bcf.
Eastern temperatures later this week are expected to warm to as much as 17 degrees F above normal. The Midwest is expected to remain five to 10 degrees F above normal for the week, while in Texas, warmer-than-normal weather will last into the weekend. In the Southwest, mostly below-normal levels are forecast for the period.
While the market this week seemed to be probing the upper end of its recent range, technical traders said June still needed to close above key resistance at the $2.27 double top to 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 week's low, respectively. Major buying was expected at the $2.05 double bottom from Jan and then at $2.
In the cash Tuesday, Gulf Coast swing prices firmed three cents to the mid-to-high teens. Midwest pipes were up a similar amount to the low-to-mid teens. New York city gate gas was a few cents higher in the mid-to-high $2.40s, while Chicago was up about the same to the mid-$2.30s.
The NYMEX 12-month Henry Hub strip rose 3.1 cents to $2.441. NYMEX said an estimated 44,695 contracts traded, downfrom Monday's revised tally of 64,044.
U.S. Spot Natural Gas Prices Stretch Higher With Heat
NEW YORK, May 12 - U.S. spot natural gas prices continued to strengthen Tuesday as buyers clung to the market amid warmer than normal weather in the central U.S., industry sources said. The central U.S. is expected to experience above normal temperatures throughout this week, equating to some highs in the 90s F. By Friday, the warmer than normal weather is expected to seep into the East and linger there through early next week. However, cooler weather is forecast to continue in the Southwest.
Cash prices at Henry Hub were quoted today mostly at $2.22-2.24 per mmBtu, up about four cents from Monday.
In the Midcontinent, prices were up by a similar amount to about $2.14-2.15, with Chicago city gate pegged at $2.33-2.35.
In west Texas, Permian prices rose five cents to about $2.06-2.07, while San Juan values stretched to about $2.00-2.01.
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 is now expected to restart later today after Monday's restart attempt failed.
In the Northeast, gas at the New York city gate traded mostly in the high-$2.40s, while Appalachian prices on Columbia edged up to near $2.40, market sources said.
Separately, preliminary injection estimates for Wednesday's American Gas Association storage report were about 50-80 bcf.
Canadian Spot Gas Prices Sharply Lower In Erratic Trade
NEW YORK, May 12 - Canadian spot natural gas prices extended their losses on Tuesday as ongoing maintenance outages backed supply into Alberta, industry sources said.
Spot gas prices at the AECO storage hub in Alberta slid to a low of C$1.00 per gigajoule (GJ) before recovering to the mid-C$1.30s by late morning.
Forwards, however, were slightly firmer. For the remainder of the month, AECO prices were talked at C$1.72-1.83, while June business was quoted at C$1.79-1.80. The July market was pegged at C$1.80-1.81, traders said.
''It's a short-term thing. You can't push the gas into storage right now,'' one Calgary based trader said, adding he expected prices to recover in Wednesday's session.
Maintenance is underway at NOVA's Turner Valley unit 1 (scheduled to end May 15) and Schrader Creek units 1 and 3 (scheduled to end May 22). Beginning tomorrow, an oil leak will also be repaired at its Beiseker unit 1, while Turner Valley unit 2 is set to shut May 18-22 for maintenance.
Also, the allowable IT at the East Gate (Empress/Mcneil) was 11 percent of IT nominated, NOVA reported today.
In addition, TransCanada's system was undergoing maintenance, which limits capacity in northern Ontario to 2.47 billion cubic feet per day (bcfd) today and as low as 882 million cubic feet per day on Friday.
At the borders, Sumas export prices were quoted at US$1.37-1.39 per million British thermal units (mmBtu), down about four cents from Monday.
Conversely in the east, gas at Niagara traded about seven cents higher to the mid-to-high US$2.30s per mmBtu, in line with another NYMEX uptick.
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