OIL AND NATURAL GAS PRICING SCENE - PART 1
Kuwait Pushing For Oil-Output Cuts, Warns Violators
Kuwait on Tuesday indicated it would push for a third round of collective oil-output cuts as world prices appeared unlikely to reach the "just" target price of $17 for a barrel of benchmark Brent crude by November.
Oil Minister Sheikh Saud Nasser al-Sabah also warned OPEC and non-OPEC producers against violations and a production war, stressing that Gulf Arab allies would suffer the least as they could damage the economies of others with their huge reserves and low crude oil production costs.
But despite the stern warning, Sheikh Saud said most oil- exporting states would hold ministerial talks in South Africa in late October to review measures needed to boost oil prices.
"If it does not reach $17, then we have the other options before us. We are still at our (earlier position)," he told reporters, referring to an earlier Kuwaiti demand for an output cut -- if Brent failed to rise by some $4 a barrel by the Nov. 25 ministerial meeting of the Organisation of Petroleum Exporting Countries.
On Tuesday, Brent crude for November delivery on the International Petroleum Exchange in London settled down eight cents at $13.02 a barrel -- more than $6 a barrel below the average price in 1997.
Kuwait's oil minister said the South Africa talks on the sidelines of an international energy conference would centre on two "inclinations and desires" to extend the duration of earlier agreed cuts and "additional cuts, if there is a need."
He declined to say which of the two proposals enjoyed majority backing, but said a cut would be needed if oil prices were at an unacceptable level, emphasising that current prices were unacceptable.
Although Sheikh Saud stressed that Kuwait was eager to see a more effective OPEC, he said OPEC lacked a clear strategy for the future.
He added in an address to a seminar of the Kuwait Graduates Society on Tuesday that if violations of OPEC output allocations continued, then there would be a strong reaction from members that were complying with their promised supply reductions.
And if non-OPEC producers also failed to abide by pledged output cuts, they should realise that Gulf Arab producers such as Saudi Arabia, the United Arab Emirates and Kuwait could live with low oil prices, in case of a production and market share war.
The three Gulf Arab states control almost 50 percent of the world's oil reserves, which could last them 100 years or more at current output levels. But their share of total world output is much smaller.
If these three Gulf Arab states "wanted to flood the market (with oil) and destroy non-OPEC economies, then the impact upon them (non-OPEC) would be grave. I warn that we can live with low oil prices...if they do not abide by their pledges.
"I hope that we will not be forced to adopt such a policy," added Sheikh Saud, who later explained that his remark was a warning and not a threat.
The sheikh told fellow OPEC states: "I fear for the future of OPEC because if violations continue, there will be very strong reaction from some of the states abiding (by their quotas)...therefore, I always have a fear for the future" of OPEC.
OPEC and a handful of non-member producers pledged a total of 3.1 million barrels per day (bpd) of output cuts earlier this year to try to raise glutted markets from recent 12-year lows.
The sacrifices have stimulated a modest price recovery but oil remains a third below last year's average, gouging producer revenues and savaging international oil companies' shares.
Sheikh Saud said his country was complying 100 percent with two pledged cuts totaling 225,000 bpd it made earlier in the year to bring its output down to 1.98 million bpd.
Although OPEC's compliance with pledged cuts was seen at above an average 90 percent in recent weeks, Sheikh Saud said some states were only meeting 50 percent of their obligation.
"I do not acccept that we become the victim of our compliance and credibility while (non-OPEC states) play on prices at our expense. I will not accept it," he said, adding that oil exporters were suffering from a "credibility disease."
Algeria's Yousfi Open To New OPEC Oil Cuts
Algerian Energy and Mining Minister Youcef Yousfi said on Tuesday he did not rule out a further cut in oil output by OPEC states before the group's next ministerial meeting on November 25.
"If necessary we could cut before November 25. There are permanent consultations between the large exporting countries. If there is a consensus to reduce before the meeting, we would not oppose it," Yousfi told Reuters in an interview.
Yousfi said there had been no oil overstocking during the 1998 third quarter so a further output cut was not needed now.
But he said it was essential to watch how the situation developed and take further action, if needed, to stabilise prices.
The minister was in Brussels for a two-day roadshow organised by Algeria's state-owned oil and gas monopoly Sonatrach in a bid to woo foreign investors to the country's downstream energy sector.
He said he wanted to see oil prices return to 1997 levels, adding: "Eighteen to twenty dollars a barrel would be acceptable -- for the moment."
Yousfi said September production figures showed members of the Organisation of Petroleum Exporting Countries (OPEC) were "at least 80 percent" compliant with agreed output cuts, a result he classified as "remarkable".
Estimates by the Paris-based International Energy Agency suggest that OPEC compliance with agreed production cuts may have been as high as 98 percent in September.
There were no indications that Iran was violating quotas, he said.
The minister rebuffed suggestions that OPEC was no longer in a position to control the world oil market, given the strength of non-OPEC players like Venezuela, Russia and Norway.
"It is thanks to the actions of OPEC and other big oil countries outside OPEC that oil prices have stabilised. I do not think OPEC is obsolete. It is a factor of stability for the market, which is in the interests of consumers too."
Oman's Oil and Gas Minister Mohammad bin Hamad bin Seif al-Ramhi told Kuwait News Agency (KUNA) earlier on Tuesday he believed several OPEC members "including Kuwait, Qatar, Iran and Algeria" would propose further production cuts if prices continued to drop.
Last month non-OPEC Oman attended a meeting in Kuwait along with Iran, Algeria and the United Arab Emirates to discuss measures to boost world oil prices.
Ramhi told KUNA that if prices improved in coming weeks there would be no need for a third round of cuts this year.
Weary Oil Markets Unimpressed By Cuts Talk
World oil markets mauled by months of oversupply ended slightly lower on Tuesday despite bullish producers' talk of fresh output cuts.
The market was largely unmoved by news that output from Norway's North Sea Ekofisk development remained shut in on Tuesday following a fire.
Brent crude futures was last trading in London at $13.02, down seven cents and nearly $1.90 down from their $14.90 level at the beginning of October.
Prices have been squeezed recently by high stocks as well as particularly low demand and dealers said they were keeping an eye out for crude and product inventories in the United States -- the world's largest oil market -- due out on Wednesday.
The Washington-based Petroleum Finance Company has said it expects crude oversupply to persist in the United States this month.
The crude market has drawn some support in recent weeks from troubles in Nigeria, where ethnic groups have cut the African country's output by more than 500,000 barrels a day -- a quarter of its production -- demanding greater political say and modern amenities for their areas where the nation's oil is produced.
But the continued disruption failed to improve prices for producers on Tuesday.
The market also paid little attention to fresh comments from oil producers of further production cuts.
Kuwaiti Oil Minister Sheikh Saud Nasser al-Sabah said OPEC ministers should be prepared for a third round of output cuts in November if Brent failed to rise to $17.00 in November.
"If it does not reach $17.00 then we have other options before us. Wea re still at (earlier position), he told reporters, referring to an earlier Kuwaiti demand for an output cut if Brent failed to rise satisfactorily by OPEC's late November meeting.
Comments by oil producers of Algerian Energy and Mining Minister Youcef Yousfi that OPEC states might agree to further production cuts too failed to have any impact on the market, traders said.
The market also yawned at similar remarks from Oman's Oil and Gas Minister Mohammad bin Hamad bin Seif al-Ramhi earlier in the day.
Analyst Mehdi Varzi, of Desdner Kleinwort Benson, said he believed OPEC producers had made enough cuts in their effort to raise oil prices. He said the group had emphasised the need for compliance with the reduced output quotas and while oil prices had been propped up, they had not been raised.
Each time OPEC producers cut production they also lost market share while a period of sustained low prices would force some of the higher cost non-OPEC producers to reduce their output too, he said.
"This is a new era in the oil market in which oil might stay down for some time," Varzi said.
"Lower prices have their own supply and demand curve and (would result in) substantially lower non-OPEC production on the five-year view."
Prices in dollars per barrel:
.............................................................Oct 13........Oct 12
.............................................................(close).........(close)
IPE November Brent.............................$13.02........$13.11
NYMEX November light crude.............$14.24........$14.41
NYMEX November Crude Ends Off 21 Cents On Oversupply Woes
Crude for November delivery fell on the New York Mercantile Exchange (NYMEX) on Tuesday on market concerns that U.S. inventories may be building up amid an already large overhang of supply, traders said.
Volume was moderate, but the sell-off was led by at least one big commission house, which somehow encouraged some players to reduce long positions, said one NYMEX floor trader.
"The market appeared to be moving technically, but the underlying concerns were about the long standing glut," the trader said.
November crude fell to a session low of $14.05 a barrel, breaking the $14.14 low of last week, before recovering a bit and rising a few more pennies on MOCs (market-on-close) buying.
The contract settled at $14.23, down 21 cents. In early trading, November crude rose as high as $14.58, up 16 cents.
Despite the uptick at the close, technical traders said they see the contract dropping further to $13.87 if the bears rule again on Wednesday and unless significant market-moving news jolts the market to the upside.
Worries over the U.S. oversupply was stoked by a report Monday by the Washington-based Petroleum Finance Co., which said it expects crude oversupply to persist in the U.S. this month.
Refined products, which traded with small gains early Tuesday, also fell, but recovered a bit toward the close.
November heating oil settled at 38.59 cents a gallon, down 0.01 cent, recovering a bit from its session low of 38.30. The contract traded as high as 39.20 cents in the session.
November gasoline pared early losses, closing just a touchlower at 43.46 cents a gallon, down 0.04 cent, after trading as low as 42.75 cents. The contract rose as high as 44.10 cents.
In London, November Brent crude on the International Petroleum Exchange ended down eight cents at $13.02, recovering somewhat from the intraday low of $12.87.
News that Mobil Corp. had shut a reformer early Tuesday at its 320,000 bpd refinery in Beaumont, Texas, supported gasoline's late rise.
A Mobil source could not say what caused the unscheduled shutdown at the reformer, which has a capacity of approximately 130,000 bpd. It was unclear when the unit would be restarted.
In refinery news, Chevron Corp. said on Tuesday it had not yet fixed the restart of its 295,000 bpd Pasagoula, Miss., plant, which was flooded when Hurricane Georges hit the Gulf Coast on Sept. 28.
Traders were awaiting the latest weekly inventory report from the American Petroleum Institute, which has been delayed a day to Wednesday due to Monday's observance of the federal Columbus Day holiday. The API, as well as the U.S. Department of Energy's own status report, usually give the market short term direction.
U.S. Cash Crude Prices Pulled Lower, Sour Retreats
U.S. cash crude prices slithered lower as hints that OPEC ministers may consider more production cuts to arrest any further drop in oil prices failed to impress the New York futures market on Tuesday.
While cash crude differentials were fairly steady, the underlying benchmark, West Texas Intermediate/Cushing, followed futures prices lower. Cash crude traders said it closed at between $14.25 and $14.30 a barrel, factoring an exchange-for-physical premium of about four cents into the price of the front-month November futures contract.
That contract settled at $14.23, down 21 cents a barrel, on the New York Mercantile Exchange despite comments by oil ministers from Kuwait and Algeria that further production cuts could be agreed by OPEC.
In the cash crude market, U.S. traders kept a close watch Tuesday for signs of imports heading toward a market already suffering from oversupply.
Light Louisiana Sweet/St. James, the crude likely to be hardest hit by any jump in light, sweet crude imports from the North Sea, steadied at 30 cents under WTI/Cushing on Tuesday.
"There's still a lot of nervousness about (North Sea) Brent in the market, but some now seems to be staying in Europe" one trader said.
While cash crude traders were taking a wait-and-see attitude toward sweet crudes, sour grades were once more coming into demand, reversing a slide which has knocked almost 25 cents from differentials in the last week.
At one point, West Texas Sour/Midland changed hands about a dime higher at $1.33 below WTI/Cushing on what one trader described as "tactical" buying. The market later trimmed its gains, however, trading at $1.37, $1.38, and $1.39 below the benchmark. Other cash crude differentials were largely stuck in a narrow range, traders said. Heavy Louisiana Sweet/Empire was discussed between discounts of 90 and 85 cents a barrel, while Eugene Island Crude was said to be around minus $1.10 a barrel. Traders couldn't point to a single deal for either grade.
West Texas Intermediate/Midland changed hands at 26 and 25 cents below WTI/Cushing.
WTI/Cushing postings-plus traded at $2.38 and $2.39 a barrel.
U.S. Spot products - NYH Differentials Add Half A Penny
New York Harbor spot product differentials rose by around half a penny a gallon by late Tuesday amid active buying ahead of an industry event on the Gulf Coast later in the week, traders said.
Gasoline on the Gulf also rose by around half a penny on shortcovering but jet fuel, the bull of the barrel so far this week, pared half of its gains as buying interest died down.
There was little impact of new that Mobil Corp. <MOB.N> shut a reformer early Tuesday at its 320,000 barrel per day refinery in Beaumont, Texas. The plant has a reforming capacity of approximately 130,000 bpd.
The source said the unit was shut earlier today, and it was unclear when it would be restarted.
Other market sources said the shutdown was caused by a small leak and the unit was due to restart later Tuesday, and that Mobil had not emerged as a buyer in the market.
On the NYMEX, oil futures settled a shade lower amid stock overhang fears.
November crude settled at $14.23, down 21 cents, while November heating oil settled at 38.59 cents a gallon, down 0.01 cent, and prompt month closed at 43.46 cents a gallon, down 0.04 cent.
Traders were awaiting the latest weekly inventory report from the American Petroleum Institute, which has been delayed a day to Wednesday due to Monday's Columbus Day holiday.
GULF COAST
Jet fuel pared some of its early week gains while gasoline firmed by late Tuesday amid talk of refinery problems. Traders said Mobil was however not in the market to buy despite problems at its Beaumont, Texas reformer.
"There is just more buying on the gas and less on the jet," a source said.
Regular conventional M3 gasoline was pegged at around half a penny firmer at 3.50/3.00 cents under the screen, and the A3 reformulated gasoline was pegged at 1.25/1.50 cent regrade.
The premium conventional V4 grade which schedules its back 29 cycle late Tuesday was pegged at 3.75/4.00 cents regrade. Jet fuel 54-grade on the front 30 cycle fell back to a 3.00/3.25 cent premium from early day's talk at 3.50/3.75 cents, but had yet to slip back to Friday's 2.00/2.50 cent premium.
Distillates were a shade firmer amid scheduling on the back 29 cycle of low sulphur diesel which was pegged at 1.35/1.50 cents over the print.
Discounts for prompt heating oil edged up to 1.75 cents under the screen.
NEW YORK HARBOR
Differentials rose between a half-cent or more overall Tuesday as players covered shorts ahead of an industry function in the U.S. Gulf later in the week, and as the market experienced a bounce.
"Things are bouncing up, differentially things just got too cheap last week," said one Harbor trader.
Prompt M4 Harbor gasoline firmed 0.25 cent to 1.50/1.25 cent under the November screen, and was heard done at 1.25 cents under, traders said.
Prompt heating oil traded at 1.55, 1.50 and 1.45 cents under the screen, or about a 0.40 cent gain, effectively knocking out most of late last week's losses.
Low sulphur diesel was steady to slightly stronger, trading at 2.60 and 2.75 cents over the screen.
Jet fuel 54-grade was a penny stronger at 5.00/5.25 cents, with a deal at 5.25 cents, but traders said by late afternoon jet was fading with the Gulf. Jet-kerosine 55-grade was pegged at 5.75/6.00 cents over, traders said.
On the premium grades, conventional V4 was pegged at 2.75/3.00 cents premium and D4 RFG was pegged at 4.75/5.00 cents premium.
MIDCONTINENT
The stronger numbers on the Gulf Coast spurred the midwest markets into activity and gasoline and diesel differentials firmer, traders said.
"It was just very active...people finally came out of their shells to do stuff," a Chicago trader said.
Prompt Chicago regular gasoline traded down to 3.40 cents under the screen but last levels were pegged at a 3.25/3.50 cent discount. Premium-grade was at a 2.75/3.00 cents regrade.
Group Three's regular gasoline traded up to 1.25 cent under the print but was last pegged at 1.75/1.50 cent under. Premium grades were pegged at a 6.25/6.50 regrade.
Low sulphur diesel in the Group was assessed firmer at 2.50/3.00 cent premium to the print, while Chicago traded consistently through the day at a 2.00 cents premium, a shade lower.
North Sea Brent Up 3 Cents In Aftermarket Trading
North Sea Brent gained three cents in late U.S. trading, dealers said Tuesday.
November Brent was valued at $13.05 a barrel after finishing the day at $13.02 a barrel on the International Petroleum Exchange in London.
Dealers said no full cargoes of November Brent changed hands. A single cash trade was reported. A 75-lot cargo was sold at $13.05 per barrel.
Also, the Brent November-December spread traded at minus 29 cents and minus 28 cents in Tuesday's aftermarket, dealers said.
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