MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING TUESDAY JUNE 30, 1998 (4)
OIL & GAS, Con't
OPEC To Pump Less Oil To Raise Prices
The Washington Times
The next several weeks will determine whether the world's largest oil exporters will be able to re-energize the OPEC cartel and put an end to the bonanza of cheap gasoline that U.S. consumers have been enjoying so far this year.
Starting tomorrow, Saudi Arabia and a group of other oil producing nations will try to cut back production by about 2.6 million barrels of oil a day in a desperate attempt to prop up depressed prices.
The cuts are designed to reverse months of falling crude oil prices - prices that have crippled the economies many oil-producing countries while blessing U.S. consumers with historically low gasoline prices.
But oil analysts and traders were skeptical yesterday about whether the fractious Organization of Petroleum Exporting Countries will be able to stick to the new agreements during the next several weeks.
"It's a turning point. If we see evidence that they carry out the deal that they cut, we'll definitely see oil prices move higher," said George Gaspar, an oil industry analyst with Robert W. Baird in Milwaukee. "If they don't, the price of crude is going to fall back again."
The average price of crude oil has slid by more than $8 a barrel during the first half of this year, bottoming out earlier this month at less than $12 a barrel.
The decline was triggered when increasing production from places like South America and the North Sea collided with slowing demand from the problem plagued economies of Asia.
The collapsing price of oil has caused severe financial hardship in oil-producing countries like Saudi Arabia, Iran and Russia.
"The budgetary pressures in all oil-producing countries are just horrendous at this time," said Ted Eck, an oil economist based in Colorado.
In the United States, meanwhile, every dollar in the per-barrel price of crude oil equates to roughly 3 cents a gallon in the price of gasoline.
In response to price collapse, OPEC's ministers have forged three separate agreements during the past five months and have agreed to slash OPEC's normal output of some 25 million barrels a day.
"They were able to come up with a larger cut than we anticipated," said James Placke, Middle East expert with the consulting firm Cambridge Energy Research Associates. "What it suggests is the sense of desperation that they were seized with - that they really felt they had to do something."
The latest agreement among OPEC's 12 member nations last week was followed days later by Saudi Arabia's disclosure that it's trying to organize a new consortium of seven or eight major oil exporters that would do a better job of controlling oil production and holding down prices.
The new consortium could solve a vexing problem for OPEC, since it would include oil producing nations of Mexico and Venezuela. Those two countries have been making it difficult for OPEC to control prices by freely pumping oil into the United States and other world oil markets.
"It will not only strengthen OPEC's ability to control the market," Mr. Eck said. "It makes the members of OPEC more willing to cooperate within that organization."
But all the initiatives have been met with skepticism from oil traders and analysts.
OPEC agreements have had a tendency to unravel during the last decade, usually after Venezuela and another member country exceed their export quotas.
"As soon as you get one free rider, then you're going to have others asking, 'Why should I stick to the rules when someone else is running off with the loot,' " said Pietro Nivola, a senior fellow at the Brookings Institution.
Because of those kinds of reservations, the agreements haven't done much to boost the price of oil contracts. The price of West Texas crude oil closed yesterday at $14.07 a barrel, down 6 cents from Friday.
"I think the market is not going to make a conclusive judgment until it sees exactly where production levels are because OPEC has a history of not living up to these agreements," Mr. Placke said.
Analysts were also doubtful about the long-term viability of any new agreements among exporters.
"The trouble is that any cartel becomes even more unstable the larger it gets," Mr. Nivola said. "As soon as you get into half a dozen, a dozen or more than a dozen, you're in a situation where somebody is going to jump ship."
"Over the longer haul, eventually that strong impulse to kind of undercut your competitors will come back into the equation and they'll be back where they started from," Mr. Nivola said.
WORLD CRUDE
U.S. Missile Attack on Iraq Prods Oil Prices
LONDON, June 30 - World oil prices jumped on Tuesday on news of a U.S. warplane attack on an Iraqi radar site which stoked fears of fresh tension in the Middle East.
U.S. military officials confirmed that a U.S. F-16 warplane had fired a High speed Anti-Radiation Missile (HARM) at a radar site in southern Iraq in the early hours of Tuesday.
U.S. Central Command in Tampa, Florida, said the attack was a response to Iraqi radar locking onto British jets flying a routine mission over the Iraqi no-fly zone.
Global benchmark Brent crude took off on the news to hit a $13.65 a barrel high, 46 cents up on opening prices.
But prices soon eased as traders took the view that the attack was probably a one off incident. Brent closed 18 cents higher at $13.37.
Iraq said the attack was an ''aggressive and unjustifiable action'' which might lead to an new all-out assault against the country.
An official at the Culture and Information Ministry said the missile had missed its target and landed in a drinking water reservoir in Basra in southern Iraq.
He denied that the radar had locked onto the plane. ''There was no (Iraqi) military unit in that area and our defence units did not open their radars at that time.'' he said.
U.S. President Al Gore said the United States would continue to patrol the Iraqi no-fly zone and would take ''decisive'' action to respond to any hostile acts by Iraq which threaten pilots' lives.
He was cautious when asked whether Iraq was trying to escalate tensions with the United States.
''I would urge you not to assume its a deliberate provocation. We do know from the history of patrolling the no-fly zone that there are a lot of incidents like this from time to time and there are other explanations,'' he told reporters at the White House.
The missile attack and oil price gains came to the aid of the OPEC oil producer cartel, whose decision last week to cut combined production by an additional 1.355 million barrels per day from July 1, was followed by a price weakening.
Oil traders expressed themselves dissatisfied with a total OPEC cut of 2.6 million bpd, including an earlier pact hammered out back in March, and were sceptical producers could match words with deeds.
Tuesday's prices were still some $6 a barrel below last year's average and, in real terms, no higher than they were 25 years ago.
A sickly Asian economy, a warmer northern hemisphere winter just past and the return of limited Iraq exports to world oil markets have all conspired to push prices down to historic lows over recent months.
Brent crude had earlier on Tuesday held on to modest gains amid expectations that weekly U.S. oil data due for release after the close of trade would show only a modest build in stocks.
Prices in dollars per barrel:
...............................................June 30...June 29
IPE August Brent.....................13.37......13.19
NYMEX August light crude.....14.18......14.07
NYMEX CRUDE
Crude Oil Gets Boost From Iraqi Confrontation
NEW YORK, June 30 (AP) - Crude oil futures prices rose Tuesday on supply concerns after a U.S. attack on an Iraqi missile station.
Light sweet crude oil for August delivery rose 11 cents to $14.18 a barrel on the New York Mercantile Exchange.
U.S. officials said the jet fired after locked its radar onto British patrol planes, a charge the Iraqis denied. The U.S. fighter was accompanying the British Tornadoes enforcing the southern no-fly zone, set up to protect Shiite Muslims from reprisals by the Iraqi
government.
The news drove oil prices up sharply early in the day, but gains eased in late trading.
Oil prices have remained relatively low because of an excess of crude, partly due to a weakening of demand by Asian countries caught in a financial crunch.
The American Petroleum Institute reported late Tuesday that supplies of most oil products rose last week.
The API said crude reserves rose by 1.83 million barrels last week to 341.30 million barrels. Gasoline stocks were down 1.39 million barrels to 220.10 million barrels, the API reported.
In trading of other energy futures Tuesday, July heating oil fell 0.40 cent to 38.15 cents a gallon; and July unleaded gasoline rose 0.38 cent to 46.42 cents a gallon.
ACCESS
Late U.S Energy Prices Rise Amid lower Gas Stocks
LOS ANGELES, June 30 - U.S. energy futures rose on ACCESS Tuesday after a weekly report showed lower gasoline supplies, traders said.
August unleaded gasoline rose 0.23 cent a gallon to 47.65 cents a gallon after hours. The overnight market, ACCESS, was moderately busy, with total gasoline volume at 40 lots by 1625 PDT, traders said.
Data from the American Petroleum Institute (API) showed gasoline inventories down nearly 1.4 million barrels as of June 26, with the biggest draw in the Northeast (PADD 1).
''The numbers on the APIs were supportive, but not for crude,'' a trader at a New York brokerage told Reuters.
API reported crude supplies rose by 1.834 million barrels, a greater than expected climb, which lifted stocks to 340.299 million barrels last week.
ACCESS crude oil prices rose slower than products, up only one cent a barrel to $14.19 a barrel by 1645 PDT. Volume reached a total of 1,134 lots and 780 for August contracts.
August heating oil rose 0.10 cent a gallon to 39.25 cents by 1625 PDT. Total volume was 128 lots traded, while 98 lots traded in August.
On the NYMEX, August gasoline settled up 0.38 cent a gallon to 47.42 before the API released their weekly report late Tuesday.
On NYMEX, crude oil rose while heating oil futures eased.
NYMEX NATURAL GAS
Natural Gas Ends Mixed
NEW YORK, June 30 - NYMEX Hub natgas futures ended mixed Tuesday in a
moderate session, with front months scoring gains with firmer cash prices and more short covering after an early attempt to move lower stalled, sources said.
August rallied eight cents to close at $2.469 per million British thermal units after trading today between $2.38 and $2.485. September settled 8.3 cents higher at $2.492. Other deferreds ended mixed, with some 1999 contracts down slightly.
"Early strength in crude helped provide the basis for the move higher, then the funds came in above $2.45," said one Midwest trader, noting cash firmed today but lagged the gains in paper.
But with moderate forecasts this week and demand in early July likely to taper due to plant closings and the upcoming Independence Day holiday, few expected much more upside despite a higher technical bias.
Injection estimates for Wednesday's weekly AGA storage report range from 59 bcf to 85 bcf. For the same week last year, stocks gained 76 bcf.
Technically, traders said August remained in a range, but most agreed a close above key resistance at today's high of $2.485 could drive prices to next resistance at the $2.655 double top from April. Support was pegged first at last week's low of $2.32, followed by the low-$2.20s, the 50 percent retracement of the recent rally to $2.48.
In the cash Tuesday, Gulf Coast quotes firmed two to three cents to the mid-$2.30s. Midwest pipes were up the same amount to about the $2.30 level. Chicago city gate gas also was modestly higher in the mid-$2.40s, while New York gained about a nickel to $2.60. In the West, El Paso Permian was little changed in the low-$2.20s.
The NYMEX 12-month Henry Hub strip gained 3.2 cents to $2.52. NYMEX estimated Hub volumes were not available at 1600 EDT.
NORTH AMERICAN SPOT NATURAL GAS
U.S. Swing Gas Prices Edge Higher With NYMEX, Heat
NEW YORK, June 30 - U.S. spot natural gas prices edged mostly higher Tuesday, led by an early rally on NYMEX and continuing hot weather in the South, industry sources said.
Traders noted that additional buyers emerged late in the nomination period, thereby pushing prices several cents over indices.
Swing Henry Hub gas for July traded about two cents higher at $2.35-2.37 per mmBtu early and the low-$2.40s by late morning. These prices compare with August's trading range of $2.38-2.48 on NYMEX.
Temperature highs across the South continued to soar to near 100 degrees F, with Phoenix, Ariz., showing a reading of 114 degrees F and Tallahassee, Fla., forecasting a high of 101 degrees.
In the Midcontinent, swing prices were also a little higher around $2.30, with Chicago city-gate business reported done in the mid-to-high $2.40s.
Northern Natural Gas Co. is performing unplanned maintenance on its system today, affecting up to 25 million cubic feet per day (mmcfd) of supply. Pipeline operators are repairing a dehydrator on its system near the Texas/Oklahoma border in Ochiltree County, Texas, a company spokeswoman said.
In West Texas, Permian Basin prices tacked on about two cents to $2.20-2.24, while San Juan jumped to $1.83-1.90 due to a shortage of supply in the basin.
Tightening supply in the basin were unplanned outages at El Paso Natural Gas Co.'s Belen 2 and Roswell 3 compressor units in New Mexico. The pipeline will reduce capacity on the San Juan Crossover by about 40 mmcfd today and by 20 mmcfd on Wednesday and Thursday. The company will also perform scheduled maintenance starting Sunday at its White Rock station, which is expected to reduce San Juan Basin capacity by 160 mmcfd through July 25.
At the southern California border, however, prices eased a couple of cents to the mid-teens as temperature highs in the region still hovered under 80 degrees F and were expected to cool further by Thursday.
In the Northeast, New York city gate quotes were mostly $2.55-2.62, while Appalachian prices on Columbia similarly rose to about $2.44-2.51.
Forecasts are calling for mostly moderate weather across the Northeast and upper Midwest into the long holiday weekend, while temperatures are expected to continue to average above normal in the South through this week's end, according to Weather Services Corp.
Canadian Natural Gas Rises In Alberta Amid Less Supply
NEW YORK, June 30 - Canadian spot natural gas prices recovered in Alberta on Tuesday as supplies tightened and NYMEX staged an early rally, industry sources said.
Total field receipts yesterday in Alberta slipped to 12.2 billion cubic feet per day (bcfd) from the previous 12.34 bcfd.
Linepack on NOVA yesterday was at 12.6 bcfd, down from about 12.9 bcfd on Sunday and the pipeline target of 12.8 bcfd.
Storage injections were also on the rise again, totaling 376 million cubic feet per day (mmcfd) into AECO, up from 352 mmcfd.
Spot gas at the AECO storage hub in Alberta rose an average of five cents to C$1.99-2.02 per gigajoule (GJ) in light trade, while monthly prices were quoted firmer at C$1.90-1.92.
July/October business was reported done at C$1.91-1.94, up from C$1.85-1.88.
In the export markets, Sumas, Wash., prices held in the low-to-mid US$1.40s per million British thermal units (mmBtu), while the Station 2 market climbed to about C$1.99-2.03 per GJ.
Propped up by a firmer August contract on NYMEX, Niagara prices rose six cents to the low-to-mid US$2.40s per mmBtu.
COMMENTARY
Energy Commentary For July 1, 1998
By John Moore
Energy prices were up early on Tuesday following news that the US fired a missile at an Iraqi radar site.
Funds were quick sellers when prices spiked on the opening. The threat of a labor strike in Venezuela also is keeping prices supported for the near term.
API data released after the close had crude stocks up1.8 million barrels for the week. Gasoline inventories were down 1.3 million barrels and distillates were up 362,000 barrels. Refinery runs were down 0.7% at 98.1%.
For today, expect crude and products to be slightly higher.
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