MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING TUESDAY JULY 15, 1998 (2)
OIL & GAS
OPEC Mulls Plan To Strip Membership Of Weaker Members
CARACAS, Venezuela - The Organization for Petroleum Exporting Countries should eject its smaller members and concentrate on a long-term policy of lifting market share through low prices, a senior analyst said Monday.
Fadhil al-Chalabi, a former OPEC executive secretary-general and currently executive director of the Center for Global Energy Studies in London, said the current policy of chasing high oil prices marginalized the cartel and sacrificed its long-term interests.
"OPEC needs a new strategy and a new thinking and this can be done only by the major producers: Venezuela, Saudi Arabia, Kuwait, (the) UAE, Iraq after sanctions and perhaps Mexico, although there is a reluctance in both Mexico and Norway to join," he told a conference here, later adding that Iran would also be included.
OPEC members with relatively small oil reserves, such as Libya and Algeria, had undue influence on cartel policy and distracted it from its true interests, he said.
The idea of a new core group was proposed by Saudi Oil Minister Ali al-Naimi at June's OPEC meeting in Vienna, but was rejected by Venezuelan Energy and Mines Minister Erwin Arrieta, among others.
"The major oil producers should stop sacrificing their long-term interests under the pressure of financial considerations," Chalabi said. "Higher prices can help solve short-term financial questions, but higher market share can bring greater benefits in the longer run."
OPEC ministers this year responded to a slump in fiscal revenues by slashing output in the hope of easing oversupply and forcing a price recovery.
Al-Chalabi said the oversupply was the product of years of misguided OPEC policies and the glut was unlikely to change in the medium-term.
"This price weakness is not an accident; it is just a delayed reaction to a situation of oversupply, which characterized the oil market for many years, but which was hidden mainly because of the embargo on Iraqi oil," he said.
He predicted that supply would outstrip demand over the medium term as sanctions on Iraq are lifted. Within five years of the end of sanctions, Iraq could add 2.5 million to 3.0 million barrels per day of additional oil production, he said.
WORLD OIL
Oil Price Rises On U.S Stocks, Oil Cuts Evidence
LONDON, July 15 - World oil prices were lifted on Wednesday by news of a reduction in crude oil inventories in the United States and further evidence that major oil producers were cutting supplies.
Bellwether Brent blend futures traded in London up 17 cents at $13.19 a barrel by 1221 GMT.
Traders said a surprise draw in U.S. crude stocks gave oil prices some extra support in a market already given a lift by evidence of August cuts from Middle East OPEC producers.
Qatar told its Asian buyers that it would cut August term liftings by nine percent from three percent in July.
On Tuesday, Saudi Arabia informed European and Asian buyers that August term liftings would be slashed by an average eight to nine percent, deeper than reductions in July.
Abu Dhabi said last week August term crude liftings would be reduced by five percent.
But Iran, OPEC's second largest producer has deferred Asian July crude sales to August. Asian traders said this would allow Iran to avoid the cuts other Middle East producers have made to meet OPEC obligations.
The Organisation of the Petroleum Exporting Countries agreed in June to extend output cuts to 2.6 million barrels a day, cutting by nearly 10 percent output which earlier this year had helped force prices to 10-year lows.
Dealers said a timely draw of crude stocks shown in weekly American Petroleum Institute (API) data released late on Tuesday was also supportive of prices but they noted that they still remained $6 lower than on average last year.
The API said U.S. crude stocks were down 6.3 million barrels in the week to July 10 to 335 million barrels.
But some dealers cautioned against expectations of a strong price rebound.
Crude stocks remained nearly 17.5 million barrels above this time last year, despite last week's fall, dealers said.
Further, the data showed that U.S. crude imports rose by two million bpd to 9.323 million bpd.
"It all depends on gasoline, if gasoline demand continues to rise and stocks are down, the current price recovery may be definite," said one European oil trader.
Meanwhile market scepticism lingered over producers' adherence to pledges of oil cuts.
"It is going to take some time to make serious inroads into the stock excess," said Leslie Nicholas at GNI London.
"Overall global crude supple has peaked but more evidence of production cuts is needed -- which we hope to see in the second half of July -- before prices develop a solid raft of support," he added.
Prices in dollars per barrel:
..............................................July 15..........July 14
..............................................(1221 GMT) (close)
IPE August Brent.....................13.19............13.02
NYMEX August light crude.....14.77............14.55
Asian Oil Prices Up On Saudi Cuts, U.S. Stocks
SINGAPORE, July 15 - Oil prices in Asia jumped on Wednesday, continuing the rally in western markets, following a large drop in U.S. crude oil stocks and more reductions in Saudi Arabia's crude exports.
Saudi Arabia told customers on Tuesday it would cut August crude term liftings by a greater percentage than in July.
For a market which has been sceptical of compliance with an Organisation of Petroleum Exporting Countries (OPEC) cutback agreement, this was seen as a positive factor, traders said.
"In the very short term, today, the biggest factor (for prices) is the API. The mid-term factors are OPEC and Nigeria," said Tom James, regional derivatives commodity head for Credit Lyonnais.
August WTI crude futures trading on the electronic ACCESS system in Asia rose by 23 cents per barrel to $14.78 at 0500 GMT.
The contract extended the strength seen in New York, where August WTI had surged by 64 cents to close at $14.55.
"The API (American Petroleum Institute) was pretty good, there was a nice draw on PADD 2, so it was certainly bullish," said Matt Sims, a broker with ED&F Man of New York.
PADD 2 is the delivery hub for West Texas Intermediate (WTI) crude futures on the New York Mercantile Exchange (NYMEX).
Brent crude oil futures on the Singapore International Monetary Exchange also saw stronger bids at $13.20 for August after the contract settled 31 cents firmer at $13.01 on London's International Petroleum Exchange (IPE).
Sentiment in London and New York strengthened after Saudi Arabia, the largest producer in OPEC, told buyers in Europe and Asia that August term liftings would be cut by an average of eight to nine percent.
This compares to reductions in July which averaged six to seven percent for Japanese customers and 4.5 percent for South Korea.
For Europe, only some customers had their Saudi term volumes cut in July.
"Apparent reasonably good adherence to cutbacks is no doubt a factor in the overnight rise," Lyonnais' James said.
Crude prices in the West were also propped up by expectations of bullish API statistics.
But the actual API data, released late on Tuesday, showed a larger drop in crude stocks than predicted and that pushed prices even higher in early Asian trading.
API reported crude stocks in the week ended July 10 fell by 6.3 million barrels to 335 million barrels.
Traders had earlier forecast a slight build of 250,000 barrels.
But traders said that while crude stocks had fallen week on week, imports continued to flow into the United States and that could keep the oil price recovery shortlived.
"The large crude draw was because of the refineries running more crude, but imports actually rose," ED&F Man's Sims said.
The API said U.S. crude imports increased by two million barrels per day (bpd) to 9.323 million bpd.
"It was one strong day today. WTI has been so weak, the good news really drove it," Sims said. "But we have to see what happens again tomorrow."
He said that despite the recent boost, it was still difficult to be sure if oil prices were in an upward trend as
NYMEX CRUDE
NEW YORK (July 15) - Crude oil futures surged to their highest level in five weeks Wednesday on the New York Mercantile Exchange after sharp declines in U.S. stockpiles indicated output reductions by world oil producers may begin to pay off.
Crude for August delivery rose as much as 47 cents, or 3.2 percent, to 15.02 U.S. dollars a barrel, the highest since June 8. It settled up 32 cents, at 14.87 U.S. dollars a barrel.
Crude oil futures rose after the American Petroleum Institute's report late Tuesday that showed stockpiles fell an unexpectedly sharp 6.2 million barrels last week, to 334.7 million barrels. Those figures were reinforced by the U.S. Department of Energy's findings Wednesday of a 6.7 million barrel decline.
The dwindling of those inventories indicated output reductions by world oil producers may begin to pay off. Traders are expecting prices to rise in coming weeks.
Other oil products also rose on the market.
NYMEX NATURAL GAS
NYMEX Natural Gas Ends Down
NEW YORK, July 15 - NYMEX Hub natural gas futures, pressured Wednesday by negative technicals and concerns about high storage, mostly ended lower in moderate trade, then lost more ground on ACCESS after a bearish weekly inventory report.
In the day session, August slipped 3.5 cents to close at $2.231 per million British thermal units after trading between $2.20 and $2.29. On ACCESS, August traded in the $2.18-2.19 area shortly after the weekly AGA storage report. September settled 3.8 cents lower at $2.253. Other deferreds finished flat to down 3.9 cents.
"Everyone thought it (the AGA number) was going to be in the 80s. It's pretty bearish," said one East Coast trader.
AGA said Wednesday U.S. gas stocks rose last week by 93 bcf, well above Reuter poll estimates in the 75-85 bcf range. Overall storage climbed to 436 bcf, or 25 percent, above the year-ago level.
Many viewed this report as the last chance this month to significantly trim the year-on-year surplus, noting the number wasn't likely to fall much in the next three reports, with weekly injections averaging just 55-60 bcf for the same period last year.
To get stocks to 3.0 trillion cubic feet by October 31, average weekly injections of 51 bcf are needed.
While traders said the heat this week across much of the nation was supportive, some said it was likely to be short-lived.
WSC expects above-normal temperatures this week in the Northeast and Mid-Atlantic to cool to within a few degrees of normal by the weekend. Midwest readings will average four to 12 degrees F above normal through Sunday. Texas is expected to remain hot, with levels averaging three to eight degrees F above normal. In Florida and the Southeast, the mercury will range from normal to four degrees F above for the period. The Southwest will see temperatures two to eight degrees above.
But the 6- to 10-day NWS forecast released late Wednesday calls for normal to below-normal temperatures next week for much of the eastern half of the nation. Readings in Texas and for most of the West are expected to remain above-normal.
While chart traders agreed the technicals turned bearish after last week's breakdown, they said August's slide tonight below $2.20 should convince even stubborn bulls that more downside lies ahead.
August support was now seen in the $2.09 area, with psychological buying likely at $2. Interim resistance was expected at the recent ACCESS high of $2.29 and then in the $2.42-2.43 area, which were last week's highs. Better selling should emerge at the $2.52 high from July 1, with next resistance seen at the $2.655 double top from April.
In the cash Wednesday, Gulf Coast swing quotes slipped a penny or two to the $2.16-2.21 area. Midwest pipes also were down slightly in the mid-to-high teens. Chicago city gate gas was modestly lower in the mid-$2.20s, while New York was flat to down one cent in the high-$2.40s. In the West, rising temperatures helped hold El Paso Permian in the low-$2.20s.
The NYMEX 12-month Henry Hub strip fell 1.5 cents to $2.394.
NYMEX said an estimated 45,568 Hub contracts traded today, down from Tuesday's revised tally of 53,336.
NORTH AMERICAN SPOT NATURAL GAS
U.S. Spot Natural Gas Prices Steady To Lower With NYMEX
NEW YORK, July 15 - Most U.S. spot natural gas prices, with the exception of western prices, crept lower Wednesday in conjunction with a marginal downward move on NYMEX.
"It's been hot for a while. It's just leveling off now. There's not much additional peak demand," one Midwest source said.
Forecasts are still calling for above-normal temperatures in Texas and stretching across to California and the Midwest, with highs expected to hover near 90 degrees F in Chicago and Los Angeles and near 100 degrees in Texas today and Thursday. Cooler weather is expected to return Friday in the upper Midwest, Northeast and southern California.
Prices at the southern California border eased a bit to the high-$2.40s to low-$2.50s, while San Juan Basin prices remained fairly firm at $1.99-2.01.
Lingering heat in the West also supported prices in the Permian Basin and at Waha in the low-$2.20s, sources said.
El Paso Natural Gas Co.'s scheduled maintenance outage at its White Rock station is reducing San Juan Basin capacity by 160 million cubic feet per day (mmcfd) through July 25.
Swing Henry Hub cash traded at $2.19-2.24, off about two cents from Tuesday, with the lower-priced deals surfacing in late trading.
Separately, Amoco said its gas processing plant in southwest Kansas will likely return to service in mid-August after shutting last Thursday because of an explosion in a heat exchanger. The outage cut about 400 mmcfd of supply from the Hugoton field that flows mostly into the Williams system.
In the Midcontinent, swing prices were also a shade lower at $2.15-2.16. In Chicago, prices remained fairly strong in the mid-to-high $2.20s.
In the Northeast, near 90-degree heat lent support to New York city-gate prices today in the high-$2.40s, traders said.
Separately, injection estimates for today's weekly AGA storage report were mostly 75-85 bcf. For the same week last year, stocks gained 87 bcf.
Western Canada Gas Up Slightly In Sluggish Trade
CALGARY, July 15 - Canadian spot natural gas prices increased slightly on Wednesday in light trade, industry sources said.
"Things are pretty quiet. There's not much going on today," a Calgary-based marketer said.
Spot gas at the AECO storage hub in Alberta was quoted at C$1.88/1.89 per gigajoule. The August contract was discussed at C$1.90 per GJ.
One-year business at AECO was reported at C$2.58/2.60 per GJ.
Prices at Westcoast Energy's compressor Station 2 in British Columbia were flat at C$1.88/1.90 per gigajoule, but are expected to increase Thursday after Westcoast cut output at its 350 million cubic feet per day Pine River gas plant by 50 per cent.
Prices at the Sumas export are expected increase tomorrow as well, but were also flat on Wednesday, at US$1.41/1.44 per million British thermal units.
To the East, prices at the Emerson export point were flat at US$1.48 per mmBtu, and up slightly at Niagara, where they were talked at US$2.18/2.19 per mmBtu.
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