MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING THURS. JUNE 25, 1998 (4)
WORLD CRUDE
Oil Prices in Asia Offer No Reward to OPEC for Cut
SINGAPORE, June 25 - Oil prices in Asia showed no signs on Thursday of rewarding OPEC for its promise to cut supplies by 2.6 million barrels per day (bpd) from July, oil traders said.
The Organisation of Petroleum Exporting Countries agreed in Vienna on Wednesday to drain supply by 1.355 million bpd, more than doubling an earlier set of cuts agreed in March, to bolster sagging prices.
World oil markets though gave a sceptical response to the news, suspecting that the fractious oil group would find it difficult to deliver the cuts.
New York Mercantile Exchange (NYMEX) August crude futures closed in New York overnight at $14.60 per barrel, up eight cents on the day, but down 15 cents from the day's high.
The sell off continued in Asia with the same contract last traded at 0620 GMT at $14.42, extending the losses by 18 cents.
Brent crude futures in London shed 31 cents to $13.61. The same contract was untraded on the Singapore International Monetary Exchange (SIMEX).
John Russel, managing director of Bangkok-based Petroleum Economics Ltd (PEL), said: "If the agreement is fully implemented it should be sufficient to support prices.
"But there is a degree of scepticism, particularly with regards to Iran, as to whether or not these production cuts would be fully implemented."
Traders said the cuts were largely factored into prices before the announcement. The market now needs evidence the cuts are being implemented to start pushing prices higher, they said.
"People are just taking a wait-and-see attitude. The agreement doesn't mean a chunk of oil supplies disappears from the market immediately, as the cuts will be implemented from July," said a trader in Japan.
"And even after that, it would take time to drain bloated oil tanks in oil-importing as well as oil-exporting countries."
But analysts said the dilemma facing OPEC and other producers is that they face a moving demand/supply picture, compared with previous years when growth was relatively set.
Asian demand, which has accounted for half of the world's demand growth in recent years, has slumped leaving forecasters expecting only flat consumption this year.
Supply has been growing, but if Asian demand continued to slide, OPEC could well have to cut again, traders said.
"The basic problem for OPEC in their job of trying to manage the market, is that it is getting progressively difficult," PEL's Russel said.
But for this year, OPEC can look forward to the onset of seasonal winter demand, which could be enhanced by increasing expectations that the demand friendly La Nina weather phenomenon will follow the waning El Nino.
The El Nino weather pattern inspired a warm north Asian winter, curbing consumption further, while the La Nina is characterised by abnormally cold ocean conditions in the eastern equatorial Pacific.
"If production cuts are implemented from July, crude oil prices will recover, and (prices) can be expected to rise with the approach of the winter demand season," Japan's Nippon Oil Co President Hidejiro Ohsawa said in a statement.
Oil Markets Ignore OPEC Cut, Pundits Applaud
LONDON, June 25 - Sputtering global oil markets failed on Thursday to respond positively to OPEC's jump-start effort and fell despite the cartel's pledge to cut world supplies by a hefty 2.6 million barrels per day.
International benchmark Brent reacted coolly to the OPEC deal, sagging to $13.48 in early Thursday trade and then extending the losses in the afternoon to $12.99 before closing 49 cents lower on the day, at $13.12 a barrel.
Many analysts saw the promised cuts, to take effect from July 1, as just the spark markets needed to achieve long-term recovery although some suggested a recovery would not be seen before proof of implementation.
Thursday's price decline flew in the face of a bail-out plan announced on Wednesday by the Organisation of the Petroleum Exporting Countries, which promised to trim supplies in order to lift oil prices from their lowest level in 12 years.
Oil traders, who had already been expecting OPEC cuts, pointed to OPEC failures to fully adhere to cuts in the past, and were less than impressed by both the size of the reduction and the credibility of the cartel's vows.
While markets scoffed, however, analysts were singing OPEC's praises and suggesting the cuts could be enough to secure higher prices.
"It was a fantastic meeting for oil prices," said Merrill Lynch oil analyst Constantine Fliakos.
"This is a lot of oil to take out of the system and I think we are going to see an inventory drawdown in the third quarter because of the agreement," trading sources quoted Fliakos as telling an internal briefing with Merrill equity advisers.
Other analysts pointed to the duration of the promised cuts, more than the size of them, as the key to long term price recovery.
"The duration of the cuts is one year," said Leo Drollas of the Centre for Global Energy Studies.
"When you get into 1999, especially if you have a cold winter, the call on OPEC is going to exceed (the group's) production levels, even with a bit of slippage, so we're talking about some pretty hefty kicks upward in the price if they stick to these kinds of figures," Drollas told Reuters Television.
Oil prices are floundering well below last year's average of $19.32 a barrel, and petrodollar revenues of many major oil producers have collapsed.
Prices were on an upward trend until last November when OPEC raised output just as Asian demand was fading, oil storage tanks were swelling and the West basked in unusually warm winter weather.
Some oil company executives echoed analysts' sentiments, saying that OPEC's latest remedy, together with normal seasonal demand patterns, could lift the beleaguered oil price back to its feet.
"If production cuts are implemented from July, crude oil prices will recover, and (prices) can be expected to rise with the approach of the winter demand season," Japan's Nippon Oil Co President Hidejiro Ohsawa said in a statement.
Prices in dollars per barrel:
..............................................Jun 25 Jun 24
IPE August Brent.....................13.12 13.61
NYMEX August light crude.....14.00 14.33
NYMEX CRUDE
NYMEX Crude, Products Retreat On Supplies
New York, June 26 - Crude oil futures prices retreated Thursday on the New York Mercantile Exchange, sending a message to world oil producers that pledges of deep output cuts must be fulfilled to end a supply glut and boost prices from near-historical lows.
Crude oil resumed its recent slide one day after members of the Organization of Petroleum Exporting Countries agreed in Vienna, Austria, to the third round of production cuts this year in an effort to combat falling prices.
The oil ministers, holding their summer conference, agreed to remove 1.38 million barrels of oil a day from the market beginning in July.
Analysts have said world oil producers must slash at least 3 million barrels a day from daily exports to see prices rise significantly, and the new agreement brings the total from all producers to 3.3 million barrels, or 4.4 percent of daily consumption.
But many market participants are skeptical that individual countries will stick to their new export quotas since past experience has shown that some won't. And that's led investors to focus on the short-term supply picture in which U.S. unleaded gasoline and crude inventories are ample.
Light, sweet crude for August delivery fell 57 cents to $14.03 a barrel; July heating oil fell 1.65 cents to 38.80 cents a gallon; and July unleaded gasoline fell 2.03 cents to 45.93 cents a gallon. Natural gas futures rose 2.8 cents amid hot temperatures across the country that were boosting cooling demand. The July contract settled at $2.364 for each 1,000 cubic feet.
In London, North Sea Brent Blend crude oil for delivery in August settled at $13.11 per barrel, down 50 cents, on the International Petroleum Exchange.
NYMEX CRUDE
NYMEX Hub Natural Gas Ends Up On Tech Buying, Hot Temperatures
NEW YORK, June 25 - NYMEX Hub natural gas futures mostly ended higher Thursday in an active session, with stable physical prices from a searing summer heat wave and late technical buying lifting the complex, industry sources said.
July climbed 2.8 cents to close at $2.364 per million British thermal units after trading today between $2.295 and $2.42. August settled 2.7 cents higher at $2.394. Other deferreds ended flat to up 2.5 cents.
''When July held the ($2.295-2.30) gap, the shorts started covering. With this weather, the market feels like it's trying to set up for higher prices in July and August, but I expect July futures to expire (Friday) in the $2.30s,'' said one Midwest trader.
While the season's first broad heat wave helped trigger the June rally, traders said further upside seemed stalled by ongoing concerns about storage, still 456 bcf, or 31 percent above year-ago.
But with cash still several cents above the screen, few expected July to crater before it goes off the board tomorrow.
Eastern temperatures through Monday are expected to average four to 12 degrees F above normal, with cooler levels forecast for early next week. Similar levels are predicted for the Midwest. Readings in Texas are expected to stay hot this week, averaging as much as 10 degrees F above normal. Florida will average two to six degrees above normal for the period. In the Southwest, the mercury will drift on either side of normal.
Forecasts early next week call for more seasonal weather in the upper Midwest, Northeast and Mid-Atlantic. Florida also may drop closer to seasonal levels from the near-record highs seen this week. Texas is expected to remain above normal,
Chart traders noted the July gap at $2.295-2.30 was filled today. Most agreed July needed to hold above that level to keep the recent uptrend intact. A July close below $2.295 could lead to a test of next support in the the low-$2.20s, with further buying expected at $2.09 and then in the $2.00 area. Resistance was seen first at the recent $2.425 high, with next resistance at $2.585 and then at the $2.65 double top from April.
But with July set to expire Friday, traders turned their attention to August, where a gap from Monday at $2.32 also was filled. A close below that level could send prices to the $2.20 area, the 50 percent retracement of the recent rally to $2.464. Resistance was seen at the recent $2.464 high.
In the cash Thursday, Gulf Coast quotes were flat to down slightly in the mid-$2.30s. Midwest pipes were steady to one cent lower in the high-$2.20s. Chicago city gate gas was talked in the $2.41-2.49 range, little changed from the mid-$2.40s seen yesterday. Hot temperatures and high humidity firmed New York prices slightly to the mid-$2.60s. In the West, El Paso Permian mostly was pegged in the low- to mid-$2.20s, unchanged to a penny lower on the day.
The NYMEX 12-month Henry Hub strip gained 1.2 cents to $2.499.
NYMEX total estimated Hub volumes were not available at 1630 EDT but 89,732 Hub contracts had traded as of 1500 EDT versus Wednesday's revised tally of 89,074.
NORTH AMERICAN SPOT NATURAL GAS
US Spot Gas Prices Little Changed, Buoyed By Heat
NEW YORK, June 25 - U.S. spot natural gas prices were flat to down only slightly Thursday, still underpinned by the near-record heat blanketing much of the nation and forecasts for more heat later next week, sources said.
While forecasts early next week call for more moderate temperatures for the upper Midwest and East, traders said 11-15 day predictions expect the hot weather to return.
''We're supposed to cool down a little, but late next week it gets hot again, and if this weather continues, I don't see July and August (cash) getting real weak,'' said one East Coast trader.
But he said longer-term, high storage was still a concern.
Overall inventories are still 456 bcf, or 31 percent above year-ago. To get stocks to 2.8 trillion cubic feet by October 31, weekly injections need to average just 45 bcf.
Swing gas at Henry Hub traded today between $2.34 and $2.42 per mmBtu, with most deals reported in the $2.38-2.40 range, down about a penny on the day but still more than 35 cents over the June index.
Steady heat in Texas kept prices there in the low-to-mid $2.30s, more than 35 cents over index. Electric demand in the state is still fairly high but not at record levels.
In the Midwest, pipes like Panhandle were flat to down slightly in the high-$2.20s, still more than 30 cents over June indices. Gas at the Chicago city gate was unchanged in the mid-$2.40s.
In West Texas, Permian Basin quotes were off a penny in the low-to-mid $2.20s, while San Juan was talked in the $1.70s and $1.80s, down 10-20 cents due to slack West Coast demand and a one-day maintenance project on the Oasis pipeline that was restricting about 400 mmcfd.
Prices at the Southern California border also were steady to down slightly in the low-to-mid $2.20s, with mild California weather still slowing demand.
In the Northeast, warm temperatures and high humidity firmed New York city gate quotes a couple of cents to the mid-$2.60s.
Eastern temperatures through Monday are expected to average six to 12 degrees F above normal, with cooler levels forecast for early next week. Similar levels are predicted for the Midwest. Readings in Texas are expected to stay hot this week, averaging as much as 10 degrees F above normal. Florida will average two to six degrees above normal for the period. In the Southwest, the mercury will swing on either side of normal.
Forecasts next week call for more seasonal weather in the upper Midwest, Northeast and Mid-Atlantic. Texas is expected to remain above normal, but Florida may drop closer to seasonal levels from the near-record highs seen this week.
Most Canada Spot Gas Prices Flat To Down Slightly
NEW YORK, June 25 - Canadian spot natural gas prices mostly were unchanged to down slightly Thursday in quiet trade, lightly pressured by reports Alberta field receipts were on the rise as plant maintenance work wound down, sources said.
''There are still some outages, but field receipts are coming back, so prices could drop a bit further,'' said one cash trader.
Total field receipts in Alberta stood at 12.1 billion cubic feet per day (bcfd), up from 11.6 the previous day but still down from the normal level of about 12.4 bcfd. Linepack yesterday was at 12.5 bcfd, down from NOVA's target of 12.8 bcfd.
Continued outages resulted in storage injections yesterday of 95 million cubic feet (mmcf), down from 575 mmcf the previous day.
Spot gas at the AECO storage hub in Alberta was quoted down a penny today in the C$2.02-2.07 per gigajoule range, still more than 30 cents over the June index.
July delivery at AECO was discussed about five cents lower at C$1.88-1.90, while one-year packages at AECO were pegged in the mid-C$2.50s.
Export prices were mixed, with quotes at Huntingdon/Sumas off more than five cents to US$1.51-1.56 per million British thermal units, still 15 cents over index.
Emerson, Manitoba, gas destined for the U.S. Midwest firmed two cents to the low-to-mid US$1.60s.
In the east, gas for export at Niagara gained slightly to the mid-US$2.40s, helped by warmer East Coast temperatures.
Friday Update
Oil Claws Back Slim Gains In OPEC Aftermath
LONDON, June 26 - Oil markets edged up nervously on Friday as traders covered their positions ahead of the weekend while OPEC's agreement to cut future output was still drowned out by concerns over the current oversupply.
International benchmark Brent clawed back 15 cents to stand at $13.26 in early Friday trade, having closed 49 cents lower on Thursday in spite of an OPEC bail-out plan unveiled in Vienna this week.
Traders said Friday's rise was technical short- covering rather than any genuine confidence in the Organisation of the Petroleum Exporting Countries' promised cuts of 2.6 million barrels from world markets beginning July 1.
The oil cartel said it would chop nearly 10 percent off output in an effort to drain brimming oil storage tanks and resurrect prices from their lowest levels in 12 years but traders were sceptical.
"You have to react to the cuts, because the market reacts to them, but do I believe in them? Never have, never will," said one trader on the floor of London's International Petroleum Exchange.
OPEC credibility was further undermined on Friday by reports of comments from the oil minister of OPEC linchpin Saudi Arabia, Ali al-Naimi that he expected producers would cheat on the deal.
"The market doesn't believe the compliance will be one hundred percent and they are probably right. I don't think anybody expects one hundred percent compliance." the minister told the Wall Street Journal.
While many analysts applauded both the size and duration of the promised cuts and forecast a steady rise in oil prices as seasonal demand kicks in toward the end of the year, traders continued to focus on a present-day market awash with oil.
"Tanks are full, there's very little in the way of storage, and I'm just not going to be buying the deal until we see some of that surplus come down," said one floor trader.
Many oil industry analysts were predicting that the world's call on OPEC would outpace the group's supply sometime in the fourth quarter and boost prices, but others were less certain.
"While the latest agreement will help to reduce the supply surplus later in the year, it certainly won't remove it," said Michael Barry of Energy Market Consultants in London.
"We don't go for the consensus view," Barry said, noting that the consultancy had upwardly adjusted its forecast for oil prices by the end of the year to only $14-$15.
Oil prices are floundering well below last year's average of $19.32 a barrel, and petrodollar revenues of many major oil producers have collapsed.
Prices were on an upward trend until last November when OPEC raised output just as Asian demand was fading, oil storage tanks were swelling and the West basked in unusually warm winter weather.
NYMEX Hub Natural Gas Called Up With OTC
NEW YORK, June 26 - NYMEX Hub natural gas futures were expected to open a couple of cents higher Friday, helped by strong overnight ACCESS trade and firmer early over-the-counter (OTC) quotes, industry sources said.
July over-the-counter quotes ranged this morning from $2.38 to $2.42 per million British thermal units, with the lower numbers talked later. July settled 2.8 cents higher Thursday at $2.364, then on ACCESS, last traded up 7.6 cents at $2.44, above near resistance.
Early cash quotes at the Hub were in the $2.40 area, little changed from Thursday's average.
"The heat is a big concern, and power should be screaming again today, but I still think July is going off the board somewhere in the $2.30s," said one Midwest trader.
While high storage was still a longer-term worry, traders said the near-term focus remained on the heat.
Eastern temperatures through Tuesday are expected to average six to 12 degrees F above normal, with cooler levels forecast for early next week. Similar levels are predicted for the Midwest. Readings in Texas are expected to stay hot this week, averaging as much as 12 degrees F above normal, but cooling a few degrees early next week. Florida will average three to six degrees above normal for the period. In the Southwest, the mercury will remain at about normal levels.
Chart traders noted the July filled the $2.295-2.30 gap yesterday, then rebounded, leaving the recent uptrend intact. A July close below $2.295 could lead to a test of next support in the the low-$2.20s, with further buying expected at $2.09 and then in the $2.00 area. Resistance was now seen at the ACCESS high of $2.444, then at $2.585 and at the $2.65 double top from April.
But with July set to expire today, traders turned their attention to August, where a gap from Monday at $2.32 also was filled. A close below that level could send prices to the $2.20 area, the 50 percent retracement of the recent rally to $2.464. Resistance was seen at recent highs in the $2.464-2.465 area.
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