MARKET ACTIVITY/ TRADING NOTES FOR DAY ENDING THUR., JUNE 18 1998 (3)
OIL & GAS
Oil Recovery Stalls as Key Producers Bicker
LONDON, June 18 - Oil markets limped lower on Thursday, as teeming global supplies and a producer squabble took the pace off a recent price bounce.
Global marker Brent crude was trading at $13.02 a barrel at 1630 GMT, down four cents, and still barely $1 above 10-year price lows.
The losses refocused the market's gaze on producer efforts to cut output and revitalise revenues as they prepare for the June 24 meeting of the Organisation of the Petroleum Exporting Countries.
Producers' morale was hardly helped by a spat between Mexico and Venezuela - with Saudi Arabia, the architects of March's Riyadh Pact aimed at bolstering prices.
Luis Giusti, powerful president of Venezuela's state oil firm PDVSA, stirred up the row when saying that one of its two partners in the Riyadh Pact seemed to be cheating on the agreement.
Mexico's Energy Minister Luiz Tellez immediately retorted that it is complying with pledged export cuts.
"Mexico has scrupulously complied with its commitment to reduce crude oil exports... and is preparing itself to a rigorous implementation of the additional cuts agreed," Tellez declared.
Venezuelan Energy Minister Erwin Arrieta sought to defuse the row, denying any evidence of cheating, and saying Giusti's comments had been misconstrued.
Mexico and OPEC members Venezuela and Saudi Arabia have spearheaded a fresh round of producer cuts in recent weeks, expected to total around 800,000 bpd, in addition to combined cuts of 1.5 million bpd agreed in March.
They got some encouragement earlier this week as Brent prices battled back over $13 on signs that the vast global petroleum stockpile may finally be on the wane.
The American Petroleum Insitute - a leading indicator of inventory patterns in the world's biggest consumer - this week said that crude stocks had fallen for the third straight week.
Yet analysts say that producer cuts of more like one million bpd are needed to make a real dent in the stock surplus, as producers have failed to live up to their March promises.
Prospects for the OPEC meeting did get some encouragement on Thursday when Russia announced that it would send a delegation for the first time in five years.
Some Russian politicians have said it will consider further oil export cuts on top of a reduction of 61,000 bpd promised in March.
But analysts doubt there will be significant further cuts in output or exports.
As often in the run-up to an OPEC meeting, fresh problems lommed over Iraq's oil-for-aid deal with the United Nations, Baghdad reiterating demands that the latest six-month phase of the humanitarian programme is the last one.
Iraq's ambassador to the U.N., Nizar Hamdoon, insisted on Thursday this phase should be followed by the full lifting of sanctions on Iraqi oil exports - a move that will face strong U.S. opposition.
A row has also been simmering for several weeks over the U.N. Security Council's delay in approving $300 million worth of spare parts to repair Iraq's oil industry.
The U.S. want this distribution plan to be made a permanent part of the oil-for-food deal, in turn fiercely opposed by Iraq.
NYMEX Crude Continues Slide After Rally
Crude oil futures on Thursday gave up gains made a day earlier on the New York Mercantile Exchange as investors rushed to dump their positions rather than take possession next week of ample U.S. supplies because storage space is scarce.
Crude for July delivery fell 83 cents to $11.77 a barrel; July heating oil fell .41 cent to 36.91 cents a gallon; July unleaded gasoline fell .67 cent to 45.84 cents a gallon
Crude on Wednesday saw heavy buying in the wake of the American Petroleum Institute's report that inventories fell an unexpectedly heavy 1.135 million barrels last week to 344.469 million barrels. Unleaded gasoline inventories also fell, down 41,000 barrels to 217.736 million barrels -- an indication that the crude decline did not come from the production of gasoline.
But investors taking stock of the situation on Thursday noted inventories around the country still are sharply higher than a year ago and noted that supplies in the important Cushing, Okla., delivery point remain ample. With the active July contract expiring late Monday, market participants rushed to shed their holdings rather than take delivery of physical supplies and with them, the headache of figuring out where to store them.
Futures prices have plunged in the last few months upon a contract's expiration, a reminder of the ample supplies on hand.
There also is widespread skepticism that oil producers who pledged in March to cut a total 1.72 million barrels a day from the market actually met that target.
Kuwait, the United Arab Emirates and Oman, members of the Gulf Cooperation Council, on Tuesday announced a second round of cuts that raised total reductions pledged by members of the Organization of Petroleum Exporting Countries and other producers to about 800,000 barrels a day. Analysts have said exporters must cut another 1.5 million barrels a day from the market to overcome weak demand from economically depressed Asia.
Investors say the next important litmus of world oil producers' resolve will come next week, at OPEC's meeting in Vienna.
NYMEX crude prices flat on lightly traded ACCESS
LOS ANGELES, June 18 - U.S. crude oil futures were nearly unchanged Thursday in a lightly traded after-hours market, driven down by dwindling interest from speculators.
July crude oil rose three cents a barrel on ACCESS to $11.80 a barrel after falling 83 cents in daytime trade.
Volume was light, with 435 lots exchanged early in the session, and 191 traded for July.
''It's real quiet. Still fundamentally it's bearish,'' a trader said. ''It looks like we'll just drift down until there's news.''
On ACCESS, refined products also fell.
July gasoline did not trade early on, but August was priced 46.75 cents a gallon, down 0.11 cent from the settle, while heating oil fell 0.06 cent to 36.85 cents by 1730 PDT. Volume for heating oil was 153 lots traded, while August gasoline saw volume of eight lots.
NYMEX Hub natural gas ends down on technical selling
NEW YORK, June 18 - NYMEX Hub natural gas futures, pressured by bearish weekly inventory data and technical selling when an early rally stalled, ended lower Thursday in active trade, but prices remained in the recent range.
July slipped three cents to close at $2.144 per million British thermal units after trading today between $2.09 and $2.20. August settled 3.3 cents lower at $2.164. Other deferreds ended down by one to 3.8 cents.
"July failed twice to get over $2.20 or under $2.09. It's a titanic battle between concerns about heat and concerns about storage," said one Midwest trader, adding the market may be attempting to find a bottom and move up from here.
But with stocks now 471 bcf, or 34 percent, above year-ago, traders said only a broader, more sustained heat wave could trim the surplus and drive the market significantly higher.
Temperatures through Monday in the East and Midwest are forecast to average several degrees F above normal. Texas readings are expected to remain hot, climbing to as much as 12 degrees F above normal. Florida will average about eight degrees F above for the period. In the Southwest, temperatures are expected to warm to several degrees above normal.
Technical traders said July seemed locked in a range.
Resistance was seen at $2.22 and $2.235, two recent highs, and then at $2.255 and at $2.33. Support was seen at $2.09, with psychological support at $2.00. Further buying should emerge at $1.97 and then at last Wednesday's low of $1.915. The prominent spot continuation low of $1.77 from March, 1997, should provide another shelf of support.
Record or near-record heat in the Gulf this week and warmer forecasts for other regions next week helped firm the cash Thursday.
Gulf Coast swing quotes jumped about a dime to the $2.05-2.10 area. Midwest pipes firmed a similar amount to about $2.05. Chicago city gate gas also was about 10 cents higher in the mid-to-high teens, while New York was up the same at about $2.30. In the West, El Paso Permian was talked nine cents higher at $1.96-2.01.
The NYMEX 12-month Henry Hub strip slipped 2.9 cents to $2.378 NYMEX said an estimated 93,439 Hub contracts traded today, down from Wednesday's revised tally of 103,123.
U.S. spot natural gas prices firm with southern heat wave
NEW YORK, June 18 - U.S. spot natural gas prices rebounded sharply Thursday, helped by some near-record heat in Texas and the South and warmer forecasts next week for much of the nation, industry sources said.
Despite Wednesday's bearish inventory report, traders said the market remained more focused on the scorching heat from Florida to Texas that has triggered near-record electric loads.
''I think weather concerns will outweigh the storage surplus in the short term,'' one Midwest trader said, adding cash also was reacting to the NYMEX rally yesterday.
Most viewed as bearish Wednesday's AGA stock data showing an unexpected 104 bcf weekly build. The number was well above Reuter poll estimates in the 85-95 bcf range and left overall inventories at 471 bcf, or 34 percent, above year-ago.
But with forecasts next week calling for slightly above- normal temperatures in other regions, including Southern California, some traders said the market seemed well supported near-term.
Swing gas at Henry Hub mostly was quoted in the $2.13-2.15 per mmBtu area, up about a dime from Wednesday's levels and more than 10 cents over the June index.
South Texas prices gained a similar amount to $2.05-2.10, helped by more near record temperatures in the area and forecasts for more hot weather next week.
In the Midcontinent, prices also were 10 cents higher at about $2.05, eight cents over June 1 levels. Gas at the Chicago city gate was quoted in the high-teens, up from the $2.06-2.09 area yesterday.
In West Texas, Permian Basin quotes climbed nine cents to near the $2.00 level, while San Juan was up more than a dime to the low- to mid-$1.70s.
Prospects for warmer West Coast weather next week boosted prices at the Southern California border by eight cents to about the $2.10 area.
In the Northeast, New York city gate prices were talked 10 cents higher at about $2.30.
Temperatures through Monday in the East and Midwest are forecast to average several degrees F above normal. Texas readings are expected to remain hot, climbing to as much as 12 degrees F above normal. Florida will average about eight degrees F above for the period. In the Southwest, temperatures are expected to warm to several degrees above normal.
Canadian spot gas prices firm again on maintenance
NEW YORK, June 18 - Canadian spot natural gas prices in Alberta scored gains again Thursday in thin trade, still boosted by plant maintenance outages that have helped tighten supply in the province, industry sources said.
"There's not a lot of people around because of industry outings, but cash is still fairly strong. There's about 800 million (cubic feet per day) still cut (from the NOVA system) due to plant turnarounds," said one cash trader, adding supply constraints were likely to continue at least through the week.
Spot gas at Alberta's AECO-C hub firmed about five cents to the C$1.87-1.89 per gigajoule range, up more than 15 cents from the June index.
Traders said strong export demand to the U.S. also helped tighten the market.
Spot export prices in British Columbia also gained, with Huntingdon/Sumas up several cents to US$1.45 per million British thermal units, about 10 cents over June 1 levels.
In the east, Niagara was talked at US$2.17-2.21 per mmBtu, up seven or eight cents on the day and about 15 cents over index.
Energy Commentary For June 19th
By John Moore
Energy prices continued their volatile action on Thursday with July crude retreating all of Wednesday's gains and then some.
Support will probably remain around current levels with few willing to short the markets ahead of next Wednesday's OPEC meeting.
Total pledged production cuts by producers now stand at 800,000 bpd. Traders agree the key level to reach is about 1.2 million bpd.
For today, expect prices to retreat somewhat. Traders looking to get long the market can begin pricing some of the spreads. If July crude breaks the $11.40 level, next support comes in at $10.65 - $11.10. If the $11.40 level holds today, I would expect some short-covering before the close today.
Morning Update
Oil up Ahead of OPEC but Gains Look Brittle
LONDON, June 19 - World oil prices advanced on Friday but the gains lacked conviction amid market caution ahead of a key OPEC meeting next week.
Global benchmark Brent crude was valued at 13.02 a barrel at 11.42 GMT, up 24 cents but still a third lower than last year's average price.
Buying was dictated more by prudence than outright bullishness in light of a possible agreement on further output cuts at Wednesday's meeting of the Organisation of the Petroleum Exporting Countries.
Dealers said hefty oversupply and enormous global stocks of crude continued to make a tempting meal for market bears.
OPEC's second stab at supply cuts in three months risks a mauling from sceptical dealers inured to years of overproduction by the club that accounts for 40 percent of world output.
Dealers say North Sea Brent is expected to remain bound in a range between $12.50 and $13.50 ahead of the Vienna meeting of the 11-member cartel.
Some support for prices came from United Nations chief weapons inspector Richard Butler, who dampened hopes that sanctions on Baghdad could be lifted as early as this October.
He said in Australia that any progress on sanctions depended squarely on Iraqi cooperation and suggested any forecasts of a definite lifting of sanctions that month remained premature.
The Australian diplomat, head of the U.N. Special Commission on Iraq (UNSCOM) weapons inspectors, said: "There is not unalloyed optimism."
Butler will report to the U.N. Security Council in October on whether Iraq has complied with U.N. disarmament demands -- raising the possibility that Gulf War sanctions on Baghdad could be lifted by the end of the year.
But Butler said he had been misunderstood. "This whole notion that I said that it will all be over in October is just grossly misreported," he told reporters.
Further Iraq-related assistance came from news that Baghdad has refused to include nerve gas production and arms concealment in a new work programme with U.N. weapons inspectors.
OPEC's summer meeting will seek to approve an estimated 800,000 barrels per day of cuts on top of 1.245 million withdrawn under a first round agreed in March.
Many analysts say OPEC on its own should go further and make a full one million barrels daily of sacrifices this time, not counting an additional 120,000 bpd of reductions pledged by non-member producers.
Analysts say actual reductions so far have reached only about 900,000 bpd.
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