MARKET ACTIVITY / TRADING NOTES FOR DAY ENDING WED, MAY 27 1998 (1)
OIL & GAS
Gasoline slumps on unexpected API build
NEW YORK, May 27 - An unexpected build in U.S. gasoline stocks reported by the American Petroleum Institute late on Wednesday sent prices reeling down, traders and analysts said.
''Overall, it (the API data) falls into the bearish category ... particularly for gasoline'' said Nizam Sharief at Hornsby & Co.
The API showed a hefty gasoline build of 3.232 million barrels to 125.72 million, contrary to the expected drawdown of 1.35 million barrels by traders and analysts polled by Reuters.
''At this time of the year there should have been a draw but instead we saw a significant build in inventories,'' Sharief told Reuters.
The market had predicted a drawdown amid healthy gasoline demand, for the long Memorial Day holiday which passed last Monday, which traditionally kicks off the summer driving season.
''I am somewhat disappointed in terms of gasoline demand,'' Sharief said, adding that the implied demand was at 8.0 million barrels per day (bpd), or half a million short of the overall summer demand projections.
As a result of the data, gasoline futures on the overnight ACCESS trading on NYMEX lost around 0.60 cents per gallon to 49.35 cents, but later recovered slighlty to 49.45 cents.
Tom Bentz, trader and analyst at Cresvale International said he saw gasoline futures shedding around 0.50 cent on the data, and heating oil losses around a quarter penny.
''On distillates, a seasonal build is within expectations,'' Bentz said.
But the API reported a slightly larger than expected build of 1.69 million barrels compared to forecasts of 1.4 million.
''The API is bearish on both heating oil and gasoline, and neutral on the crude,'' Bentz said.
Crude stocks actually fell 3.6 million barrels to 349.53 million, contrary to forecasts of a stockbuild of 2.55 million barrels for crude.
Analysts had expected a build amid a continuing strong phase in imports, but API's draw resulted with a huge fall in stocks on the West Coast, they said.
Padd 5 fell 2.793 million barrels, while stocks in Cushing, Oklahoma (Padd 2) rose 604 million.
''If half the draw comes from the West Coast, it does not leave much for the rest of the country,'' Sharief said.
He added that the API stockdraw should also have been larger considering it reported a large drop in crude oil imports of 990,000 barrels.
World prices edge upward in a soggy market
LONDON, May 27 - World oil prices edged slightly upward on Wednesday but the market was subdued as further signs of global oversupply weighed on prices, oil traders said.
Brent crude futures were up six cents from Tuesday's close at $14.20 a barrel by 1842 GMT, having clawed back from an intra-day low of $13.99 a barrel.
Some traders attributed the bounce to technical buying after Tuesday's heavy selling and said there was no fundamental reason for the rebound.
Crude oil inventories have reached five-year highs in both the United States and Europe, traders said, with commercial storage facilities on both sides of the Atlantic nearing capacity.
The glut comes in spite of a March pact reached in Riyadh in which members of the Organisation of the Petroleum Exporting Countries agreed to cut two percent from global supply in an effort to shore up prices.
Earlier on Wednesday, former Saudi Oil Minister Sheikh Zaki Yamani said in remarks in London that OPEC would have to cut output again to stabilise prices when it meets in Vienna on June 24.
Yamani said in a speech presented at an oil company conference that if the producer club wanted to stabilise Brent at around $14 a barrel, then it would have to restrain output to 27 million barrels a day.
A Reuters survey for April pegged output output by the 11-member OPEC at around 28.2 million bpd.
Crude oil inventories, meanwhile, are surging throughout much of the western hemisphere.
Commercial oil stocks in the European Union and Norway rose to end-April levels of 348 million barrels, their highest level since March 1993, according to Jan Stuart, editor of monthly oil fundamentals guide Oil Market Intelligence.
May stocks, bolstered by crude oil markets in which price values for future supplies are higher than for prompt supplies, should see a continuation of the trend, analysts say.
London-based Energy Market Consultants forecast a global stockbuild in May of around 50 million barrels for crude and products, combined.
NYMEX Crude Settles Higher
Crude-oil and petroleum-product futures settled higher Wednesday on the New York Mercantile Exchange, buoyed by sharp gains in the June gasoline contract. June unleaded gasoline jumped as bears bailed out of the front-month contract ahead of its expiration Friday. June heating oil was also higher. The American Petroleum Institute's weekly inventory report for the week through May 22 is due out late Wednesday afternoon. Analysts said they expect that gasoline stocks declined by 1 million to 3 million barrels last week. Most expect crude oil stocks to decline, also.
July crude settled up $0.17 to $14.99.
NYMEX Hub natural gas ends down, June expires near lows
NEW YORK, May 27 - NYMEX Hub natural gas futures, pressured by a soft physical market and long liquidation ahead of June's expiry, ended lower Wednesday, then on ACCESS reacted little to neutral weekly inventory data, sources said.
Earlier, June expired 7.8 cents lower at $2.017 per million British thermal units after trading in a range between $1.99 and $2.10. July settled down 7.2 cents at $2.046, then on ACCESS mostly drifted between $2.04 and $2.05 after the weekly AGA report. Other deferreds ended 0.9 to 6.8 cents lower.
''It's (the AGA number) about what we expected. The storage operators are running like clockwork,'' said one Texas-based trader. But he said the growing year-on-year stock surplus was still a bearish factor, likely to soon pressure prices lower.
AGA said Wednesday U.S. gas stocks rose last week by 92 bcf, in line with Reuter poll estimates in the 80-90 bcf range. Overall stocks climbed to 453 bcf, or 41 percent, above a year ago.
Eastern stocks rose 54 bcf and were still 55 percent above last year. Consuming region west storage, which climbed 14 bcf last week, was up three percent from 1997 levels. Inventories in the producing region gained 24 bcf for the week and held at 44 percent over year-ago.
Traders said concerns about milder forecasts next week prompted some longs to bail before June went offthe board.
Forecasts this week call for mostly above-normal temperatures across the central and eastern U.S. Texas is expected to continue hot through the weekend, with a high of 95 degrees F forecast for Houston on Thursday. Cooler-than-normal readings are still expected for most of the West.
But some forecasters are predicting more seasonal weather for the Midwest, Mid-Atlantic and Northeast next week.
Chart watchers said the market was oversold and due for a bounce.
''All the bearish factors are in the market, and everyone's already short. I'm not bearish down here,'' a Midwest trader said.
Technical traders pegged July support at Friday's prominent low of $2.03, which roughly coincides with the $2.025 double bottom from last July. Spot continuation lows at $1.99 and $1.96-1.97 should also stir some buying.
In the cash Wednesday, Gulf Coast swing quotes slipped about two cents to the $2.02-2.07 area. Midwest pipes were three to four cents lower in the mid-$1.90s. Chicago city gate quotes were down two cents to the mid-to-high teens, while New York was little changed in thelow-$2.30s.
The NYMEX 12-month Henry Hub strip tumbled 4.4 cents to $2.288. NYMEX said an estimated 113,697 Hub contracts traded today, up sharply from Tuesday's revised tally of 73,101.
U.S. spot natural gas prices drift lower with futures
NEW YORK, May 27 - U.S. spot natural gas prices turned lower Wednesday, in line with a softer expiring June contract, industry sources said.
Short-term forecasts are calling for mostly above-normal temperatures across the central and eastern U.S. this week, with a high of 95 degrees F expected in Houston on Thursday. Cooler-than-normal weather is expected to remain in the West.
Forecasts for June 1 are anticipating below-normal temperatures in southern Texas and from the upper Mississippi Valley across the Great Lakes states to the Northeast. Above-normal temperatures are expected to cover eastern and southern Florida, northwestern Texas, the Rockies and California.
Physical gas at Henry Hub was quoted today mostly at $2.07-2.10 per mmBtu, while June futures traded at$2.04-2.10.
In the Midcontinent, prices also slipped a little to the mid-$1.90s, with Chicago city gate pegged mostly at $2.16, market sources said.
In west Texas, Permian prices lost three cents to $1.85-1.88, while San Juan prices similarly eased to $1.72-1.78.
Early June business in the Permian Basin was reported done at $1.88-1.92.
In the Northeast, next-day gas at the New York city gate was quoted at $2.30-2.32, while Appalachian deals on Columbia were reported done at $2.19-2.22.
Scheduled maintenance work is underway on Sonat Inc.'s Sea Robin line at the Vermilion Block 149 compressor station. The outage, which is still expected to end this weekend, is affecting about 70-75 million cubic feet per day of supply.
Injection estimates for this afternoon's American Gas Association storage report, according to a Reuters poll, were mostly 80-90 bcf, versus a 76 bcf gain a year ago.
Canadian spot natural gas prices hold mostly steady
NEW YORK, May 27 - Canadian spot natural gas prices held previous ranges on Wednesday as ongoing maintenance outages in the West kept supplies fairly tight, traders said.
Spot prices at the AECO storage hub in Alberta for both day and June gas were talked mostly again at C$1.70-1.71 per gigajoule (GJ). Summer was also reported done at C$1.70.
Storage injections in Alberta totaled 805 million cubic feet per day (mmcfd) on Tuesday, down from 827 mmcfd on Monday.
Field receipts on NOVA were higher at 12.0 billion cubic feet (bcf) on Tuesday.
Also, available interruptible transportation (IT) from the east continued to rise. The allowable IT at the East Gate (Empress/McNeill) will be 70 percent of IT nominated, equating to a cut of 353 mmcfd. This is compared with 34 percent yesterday.
At the borders, Sumas gas prices in the west were quoted unchanged at US$1.37-1.38 per million British thermal units (mmBtu).
At Niagara, prices were steady to slightly lower at US$2.18-2.20 amid a softer NYMEX June market set to expire.
Commentary
ProView
May 28, 1998
Energy markets were up slightly on Wednesday. Most attribute the marginal increase to short covering amidst rumors that the API data would show a draw in crude stocks.
API data released after the close had crude stocks down 3.6 million barrels on the week. Distillates were up 1.7 million and gasoline inventories were up 3.2 million barrels. Refinery runs were up 1.4% at 98.4%.
Most traders believe nearby crude will be locked in the $14 to $15.50 range until OPEC meets on June 24th.
For today, expect prices to remain on the defensive. The overwhelming sentiment remains extremely bearish.
RBC
May 25, 1998 (for week ending May 23rd)
Crude Oil Commentary:
It was a wild ride for crude oil this past week as the contract expired on Tuesday. We saw an initial sell off last Friday and a continuation of sellers (mainly covering recently established long positions) on Monday and Tuesday. The contracts range (as the nearby) was $12.50 to $16.30. There remains little in the way of bullish fundamentals at this point with crude oil stocks more than ample, no important (credible) news from OPEC and little in the way of political uncertainties (with the exception of Asia, whose demand was expected to wane - but at these prices, can afford to buy as much as in previous years).
The technical picture remains neutral. We have made what could be a double bottom, but do not see any major signals quite yet that the downtrend will reverse. So we would remain cautious at this point and continue to play from the neutral side.
Technicals suggest that the lows may be tested again and confirm our view to remain short or flat until the signals change. Don't get long quite yet!
Natural Gas Commentary:
The question is will $2.00 now hold? This remains a solid support level, but fundamentals certainly don't look all that possitive at the moment.. The fundamentals suggest further consolidation and potential weakness, especially if we continue to see stocks build as they have in recent weeks. Fundamentally, there is not much at this point that suggests we'll see a near term rally. Technically speaking, prices are still oversold with strong support at $2.00. The triangle formation that we discussed last week is still holding and, unless we break $2.00, the charts suggest that we will bounce off $2.00 and then see a short term rally up towards the $2.35 level before the end of May. Any takers?
AECO term prices remained relatively quiet this week with summer (Jun-Oct) showing continued signs of weakness, while winter and next summer have held up quite nicely. We fell that we could see further softening over the summer, but believe that winter will remain firm. Our recommendation would be to consider hedging a portion of next summer between $2.25 and $2.40, hold off for now on the winter term or look at a winter over winter extendible.
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