OIL AND NATURAL GAS PRICING SCENE - PART 1 FRIDAY 10/15/98
World oil prices sag under U.S. stocks build
World oil prices lost further ground on Thursday, pressured by U.S. inventory data showing producers' efforts to boost prices by trimming output had so far failed.
International marker Brent crude fell deeper below the key $13 a barrel level to close at $12.58, down 11 cents from Wednesday's close and 45 cents off Tuesday's $13.03.
The drop was largely due to a report by the American Petroleum Institute (API) late on Wednesday showing U.S. crude inventories ballooned by 8.22 million barrels last week.
Crude inventories in the giant U.S. market, which traders monitor closely as a yardstick for global supply, had been run down heavily in the week before due to disruptions from Hurricane Georges in the Caribbean, but were still riding about 22.71 million barrels higher than year-ago levels.
"Its been difficult for this market to find its legs, and the situation in the U.S. hasn't helped," a trader on floor of London's International Petroleum Exchange said on Thursday.
Oil prices now wallow about $8 below year-ago levels, having thus far failed to react to a seven-month initiative by members of the Organisation of the Petroleum Exporting Countries (OPEC) and other major producers to adapt to a sputtering world economy and dwindling oil demand growth by trimming exports.
The now chronic price weakness, which has cut deep into the revenues of major oil exporters and been blamed by economists as the undercurrent behind a building wave of global deflation, has put further pressure on producers to cut back supplies.
Traders are looking to a conference between key suppliers and consumers in Cape Town at the end of October as the possible venue for an extension to production cuts, which already amount to a collective three million barrels per day (bpd).
OPEC member Kuwait said on Tuesday it would push for the producer club to increase its oil output cuts beyond the present 2.6 million bpd.
And Algerian Energy Minister Youssef Yousfi said in Brussels this week his country would be willing to cooperate with further cuts if such action was deemed necessary, adding that he wanted to see oil prices restored to the 1997 level of $18-$20 a barrel.
Key OPEC producers Saudi Arabia and Venezuela have said they do not see the need for further reductions.
An Iranian official told Reuters on Wednesday Tehran would also prefer to defer any decision on further cuts until it became clear how much support the market would draw from winter demand.
The official suggested it could be too early to form an accurate assessment of the strength of winter demand by OPEC's next ministerial conference on November 25.
NYMEX crude, heat oil end flat, mogas up on APIs
November crude oil futures on the New York Mercantile Exchange (NYMEX) ended unchanged on Thursday, after dipping below $14 a barrel, pressured by a big jump in U.S. crude inventories, traders said.
"The front-month crude found support after it hit $13.88 and it tried to move to the upside, but failed because the general outlook remains bearish," said a NYMEX trader.
In the morning, traders said the stockbuild reported by the American Petroleum Institute had been anticipated on Wednesday, causing November crude to drop 18 cents to $14.05 a barrel.
On Thursday, it settled at the same price, $14.05, after trading sideways for most of the day as the market deemed the rise of 8.2 million barrels in crude inventory for the week ending Oct. 9 as just slightly bearish.
In London, November Brent crude fell deeper below the key $13-a barrel level to close at $12.58, down 11 cents from Wednesday's close. The contract, which expired Thursday, dropped largely due to the API stockbuild on U.S. crude, brokers said.
Traders said that after the effects of powerful hurricanes that caused production shut-ins and import delays due to stalled tanker offloadings, the U.S. crude inventory situation was set to return to its previous high levels.
"The storm premium was temporary," said a floor trader.
U.S. crude inventories now stand at 327.4 million barrels, up nearly 23 million barrels from a year ago.
Gasoline exhibited some strength in the morning trade, supported by an unexpected big API stockdraw of 7.0 million barrels. That reduced gasoline inventories to 199 million barrels, whittling down the year on-year surplus to just 992,000 barrels, from 9.75 million barrels the week before.
Gasoline's "implied demand," which factors in imports, output and inventory changes, was at a high 8.9 million barrels per day, rising from the previous week's 8.6 million bpd.
Front-month gasoline traded as high as 44.40 cents a gallon before settling at 43.91 cents, up 0.39 cent from the previous close.
November heating oil posted modest gains during the day and then eased to end flat at 38.16 cents a gallon. It had traded as high as 38.60 cents. The API said there was a stockdraw of 1.7 million barrels, reducing inventories nationwide to 149.5 million barrels from 151.1 million barrels, near its 11-year high, in the previous week.
A Washington-based trader said that last week's drop in distillate supplies involved mostly its low-sulphur component while heating oil stores were unchanged.
In other news, officials at Chevron Corp.'s Nigerian oil-producing unit said on Thursday a plan to restore about 106,000 bpd of output shut in by protesting youths had been put on hold.
The youths' protests over the past week have hit hard Royal Dutch/Shell and Italy's Agip, both of which have been forced to declare force majeure from their terminals.
U.S. cash crudes collapse on glut worries
U.S. cash crude differentials crumbled Thursday in a heavy sell-off following a round of bearish stock figures from the American Petroleum Institute (API).
Sharp losses were recorded across the board in the first hours of trade, and while the market rebounded slightly by the afternoon, both sour and sweet crudes still closed the day 10 to 20 cents a barrel lower.
One cash crude trader attributed the losses to a "tremendous amount of posturing" early in the day as the bears took advantage of the stock figures to push the market lower.
Nonetheless, it was the second straight day in which U.S. crudes have been pushed down, partially by worries that a stream of crude imports could be heading toward the U.S. Gulf Coast over the coming weeks.
The additional foreign supply would place an even greater burden on a market already struggling with the combined effects of huge stocks and slack demand from the refining sector, traders warned.
In API figures released after the close of trade Wednesday, crude stocks were put at 327 million barrels following a build of 8.2 million barrels last week. While nearly half of that rise came on the West Coast, stocks nationwide are still more than 22 million barrels above year ago levels.
The futures market held up better than the cash crude market Thursday, with the November contract settling at $14.05 a barrel, exactly where it left off on Wednesday.
That left WTI/Cushing, the cash crude benchmark, camped at between $14.10 and $14.15 a barrel.
Nonetheless, cash crude grades were mostly weaker with the sharp drop in differentials. Light Louisiana Sweet/St. James changed hands at 50 cents below WTI/Cushing after finishing Wednesday at between 40 and 37 cents below the benchmark. Its sister grade, Heavy Louisiana Sweet/Empire, slipped from a discount of 90 cents to $1.05 below WTI/Cushing before coming back to close at about minus $1.00 a barrel.
The hardest hit was West Texas Sour/Midland, which at one point traded more than 20 cents down at $1.72 a barrel. It also staged a slight rally later in the day and finished at -1.60/-1.55 a barrel. was even harder hit, tumbling 20 cents a barrel lower to trade at minus $1.70 and $1.72 a barrel, traders said.
In other trade, Eugene Island changed hands at $1.10 below the benchmark and West Texas Intermediate/Midland was said to have been done at minus 32 cents a barrel.
U.S. West Coast ANS stable in light trading
U.S. West Coast Alaska North Slope (ANS) crude prices were steady on Thursday with no deals reported in California, traders said.
The notional value of ANS is West Texas Intermediate/Cushing minus $1.25 on the bid and minus $1.04 on the offer.
While no fresh ANS trades were reported, there was talk that several sellers have emerged and the market could feel additional downward pressure in the days ahead.
But no takers were stepping up on Thursday. The last deal for ANS was Friday, when a cargo was sold at $1.025 under November WTI.
In the futures market, the New York Mercantile Exchange November contract settled unchanged at $14.05 per barrel.
Colombia's Oriente is be offered into Los Angeles at WTI/Cushing minus $2.10 and into San Francisco at WTI/Cushing minus $1.90.
Figures released by the American Petroleum Institute (API) Wednesday evening showed a 8.2 million barrel build in nationwide crude stocks last week, leaving inventories at 327 million barrels.
On the West Coast, crude inventories jumped by 3.7 million barrels last week to 56.4 million barrels, the API reported.
North Sea December Brent firms in late U.S. trade
November North Sea Brent prices climbed higher in late U.S. trading, though most of the attention focused on December deals, traders said Thursday.
One full cargo of November Brent traded in the aftermarket at $12.66 a barrel, after Brent expired on the International Petroleum Exchange (IPE) in London at $12.58 earlier Thursday.
Meanwhile, December Brent was assessed at $13.05 in the aftermarket, three cents higher than it finished on the IPE. Traders said a full cargo traded at $13.05, while a 200-lot partial and a 100-lot partial also traded at that level.
In addition, the Brent November-December spread traded at minus 37 cents and minus 36 cents.
U.S. foreign crude - Cusiana may weaken by 30 cents
Traders on Thursday said they were awaiting word from Colombia's national oil company Ecopetrol on bids received by Wednesday for a 550,000-barrel cargo of Cusiana crude. It is expected to lift from Colombia in the Nov. 25-29 window, traders said.
Some seller-friendly traders say that the cargo will fetch as much as West Texas Intermediate/Cushing minus $1.25 per barrel. But others say the boat may be awarded at closer to WTI/Cushing minus $1.40 or even as low as WTI/Cushing minus $1.50 per barrel.
If the cargo it sold at WTI/Cushing minus $1.50, it would mean a weakening of 30 cents from the last time Cuzy deals were reported.
An ultra-large crude carrier filled with North Sea Brent and two one million barrel boats was sold by Koch to Ultramar Diamond Shamrock. The company has announced it will enter a joint venture with Phillips 66 and its downstream operations in North America will be run by an entity called Diamond 66.
But a large portion of the North Sea Brent also went into the Seaway Pipeline, traders said.
The unrest in Nigeria continued on Thursday. About a fourth of the nation's usual daily oil output of two million barrels per day (bpd) has been shut-in. Officials at Chevron Corp. <CHV.N> on Thursday said that 106,000 bpd of its onshore production in Nigeria remained shut in.
Traders in the U.S. said they didn't think that the Chevron shut-in will have as dramatic an impact on the foreign crude cash market as the shut-in of Royal Dutch Shell's <RD.AS> <SHEL.L> Forcados terminal. Loadings of Forcados have been delayed by at least 10 days.
Traders said the notional value of Forcados will decrease as sellers find it more difficult to buy buyers who are willing to risk the chance that the shipments will arrive as scheduled.
Bonny Light from Nigeria was done on Thursday at both even to Dated Brent as well as 10 cents under Dated Brent.
"There is still plenty of Bonny Light out there," said one trader. "There are still come October barrels that need to find buyers. I think that this will push down the value by 10 to 15 cents.
Qui Iboe crude was said to be talked at about the same level as Bonny Light, from even to Dated Brent to 10 cents below it.
Champion crude from Brunei was done on Thursday at Dated Brent minus $1.20 per barrel.
Oriente crude was notionally talked about WTI/Cushing minus $4.30.
U.S. spot products-Stocks spur GC, shrugged by NYH
U.S. Gulf Coast and Midwest gasoline and low sulphur diesel held onto their firmer differentials late Thursday after being spurred higher by bullish stock data, traders said.
The unexpected seven million plus draw in gasoline stocks also kicked Gulf Coast activity back to life with both products trading heavily despite most traders from across the hubs attending an industry outing in Texas.
The New York Harbor market however completely shrugged off any impact with differentials unchanged.
Outright prices were firmer as the oil futures basis rose on the data.
November gasoline settled at 43.91 cents per gallon, 0.39 cent firmer from its close on Wednesday before the American Petroleum Institute (API) released its weekly stock data.
The API reported a unexpected hefty draw in stocks for the week ending Oct. 9, of over seven million barrels to around 120 million barrels, bringing inventories down to just around 1.0 million higher year-on-year.
The data for distillates was less bullish with the prompt month NYMEX heating oil contract settling unchanged at 38.16 cents per gallon.
The API reported stocks down 3.2 million barrels to around 150 million, bringing supplies to just 13 million above 1997 levels, a minor improvement from September when stocks were at an 11-year record high of 153 million but still considered very substantial.
November crude also settled unchanged at $14.05 per barrel after the API reported an expected 8.2 million barrel build to 327 million.
GULF COAST
Prompt conventional gasoline slipped from its early day highs but ended the day around half a cent firmer amid the bullish API reports while low sulphur diesel edged up around 0.40 cent.
Both gasoline and low sulphur diesel were the only stocks on refining row to fall below last year's levels in the latest API report -- respectively down four million barrels to two million and 42,000 barrels to 69,000 year-on-year.
Regular conventional M3 gasoline was last pegged at a2.50/2.30 cents discount, from earlier trades at 2.20 cents under the screen.
Low sulphur diesel was last pegged at a 1.90/2.10 cents premium from Wednesday's 1.60 cents over the print.
Heating oil was actively bid at 1.50 cents under the print but faced no offers with levels holding unchanged.
A-grade regular reformulated gasoline which schedules late Thursday was talked at a 0.35/0.75 cent regrade to the M3, while the V-grade premium conventional was only offered at a 3.85 cent regrade.
Jet fuel grades which also schedule on the prompt front 30 cycle was pegged at a 3.15/3.35 cents premium after trading at a 3.35 cents premium on the 54-grade. The anys were at 3.00 cents.
NEW YORK HARBOR
Differentials held or added slightly to early-week gains in thin trade, players said.
"The Harbor's thinly traded sometimes, this is one of those days," one trader said about the general lack of buying which came after Wednesday's fairly bullish API numbers, that showed Padd 1 gasoline stocks slip by more than 900,000 barrels.
Traders said the Conoco outing in the Gulf Coast also took many players out of the market.
Prompt heating oil was steady at 1.50/1.25 cents under the screen for prompt and 1.25/1.00 cents under for any month.
Low sulphur diesel held 0.25 point gains at 2.75 to 3.00 cents over the screen.
Prompt M4 Harbor gasoline was steady, pegged at 1.50/1.25 cent under the November screen, amid thin trade, players said.
Jet fuel 54-grade was steady at 5.25/5.50 cents. Jet-kerosine 55-grade was pegged at 5.75/6.00 cents over, traders said.
Meanwhile A4 regular reformulated rose about 0.20 cent to 0.40/0.50 cent over on poor refining economics for the product.
On the premium grades, conventional V4 was pegged at 2.75/2.95 cents premium and D4 RFG was pegged at 4.75/5.00 cents premium.
MIDCONTINENT
Bullish stock data also boosted gasoline and low sulphur diesel differentials in the Midwest although trade in Chicago was thin, traders said.
Gasoline stocks in Padd 2 fell two million barrels below last years levels to 50 million, while distillates stocks were 190,000 barrels lower at 31 million barrels.
Group Three's regular gasoline traded actively between 1.50 cent and 1.60 cent under the rpint, a shade firmer. Premium grades were pegged at a 6.25/6.50 regrade.
Prompt Chicago regular gasoline was pegged a quarter to half a cent firmer at a 2.75/2.50 cent discount to the screen and premium-grade was similarly firmer at a 3.50 cents regrade.
Low sulphur diesel in the Group traded up to a 3.50 cents premium but edged back to 3.30 registering a 0.30 cent gain. Chicago was assessed around half a penny firmer at 2.40/2.70 cents premium.
US Crude Outlook - Oversupply turns market bearish
The U.S. crude oil market will feel the pressure of several ships of foreign oil heading to the U.S., particularly since U.S. demand for crude is not very strong, traders and analysts said on Wednesday, after the release of the latest U.S. inventory data.
"I think we are heading down. There is a significant upswing in (crude) imports," Ritterbusch said, pointing to a fleet of ships carrying Brent towards the U.S. market.
One U.S. trader is said to be bringing four Ultra Large Crude Carriers (ULCCs) of the light sweet European crude towards the Gulf Coast, while other traders are also said to be showing November Brent in the U.S. Gulf at discounts around 75 cents under December West Texas Intermediate. Each ULCC carries more than 300,000 tons, or more than two million barrels of crude.
While imports are said to be streaming in, few companies are keen to build stocks any higher given the relatively narrow "roll" between November and December prices of U.S. benchmark WTI.
"The roll is coming off at the moment, but you're not going to see anyone rushing to build stocks with this contango," said one Gulf Coast crude trader. November crude is now trading between 20-18 cents a barrel lower than December crude, not enough incentive to store barrels.
News of production disruptions in Nigeria is not proving especially supportive of crude markets, traders said, noting that there were still ample early November barrels and still some October barrels of West African crudes as yet unsold. A series of community disturbances in Nigeria have stopped one fifth of the country's production, but traders said they were still monitoring the situation.
The latest U.S. inventory figures released earlier this week are not much help either, and traders dismissed the odd figures, saying they reflected short-term disruptions caused by hurricane Georges. While the American Petroleum Institute (API) figures showed a sharp drawdown of 3.8 million barrels, the U.S. Department of Energy report showed a build of 2.7 million barrels in U.S. stocks of crude oil.
"The statistics were neutral to bearish," said Nizam Sharief of Hornsby & Co., adding that the the disparity in the weekly reports reflected the disruptions caused by hurricane Georges, the fourth storm to pound the Gulf of Mexico in as many weeks.
"In the very near term, we are going to drop below $15," Sharief predicted. The front-month November contract on the New York Mercantile Exchange settled 44 cents lower at $15.06 on Wednesday, and touched a low of $15.02 in intraday trading.
Analysts pointed bearishly to the relatively high product inventories, especially in distillate stocks, which include stocks of heating oil. While U.S. stocks of gasoline are 9.75 million barrels higher than last year's levels, those of distillates are 16.86 million barrels higher than last year.
On the demand side, the picture is also bearish in the short-term, since Sun's cuts of 177,000 barrel per day (bpd) at its two-refinery complex in Philadelphia, Pennsylvania are expected to continue until the end of the month. Similarly, Tosco's 110,000 bpd refinery in Bayway, New Jersey is not expected back up until the second half of October.
Also, the crude unit at British Petroleum's 250,000 bpd Belle Chase refinery in Louisiana still hasn't been brought back on stream after a fire broke out in the unit last week. The crude unit is expected to remain shut for another week or so, according to a company statement.
Expectations are that Chevron's Pascagoula refinery in Mississippi will be shut even longer after it suffered flooding when Hurricane Georges pounded the area late last month.
U.S. Product Outlook-firm on extended outages
Extensive unplanned refinery shutdowns due to Hurricane Georges last week boosted U.S. Gulf Coast gasoline prices, and the rally is expected to continue as two major plants were affected, traders said on Monday. "Looking at the fundamentals as far as refining is concerned, the shutdowns will put more buyers in the market than anticipated,"a Gulf Coast trader said.
The hurricane which hit the Gulf Coast a week ago took down at least seven refineries in Louisiana and Mississippi. Five of them escaped any damage but the precautionary shutdowns took out around a week's worth of 928,000 barrel-per-day of production, traders said.
But what sent buyers into the market and prices soaring in "refining row", was the longer lasting mayhem the hurricane brought at Chevron Corp's <CHV.N> and BP's <BP.L> plant.
Hit by floods, Chevron's 295,000 bpd refinery at Pascagoula, Miss. had some five feet of silt and would take at least a month to begin its start up process, traders said.
More pessimistic sources said the plant will be shut until the end of the year but the company declined to comment on the duration of the shutdown.
Although largely unscathed by the hurricane, a fire broke out at BP's 250,000 bpd Alliance refinery at Belle Chasse, LA. during its start up process on Wednesday. It restarted its 100,000 bpd catalytic cracker and 37,800 bpd reformer and other secondary units on Sunday but its crude unit will remain shut for another seven to ten days.
"Chevron is quite a large producer on the Gulf Coast and I think it will keep the market supported," a trader said. "Gasoline will and can climb even higher...I wouldn't be surprised if the conventional gasoline will go into a premium...it is near enough."
Gasoline outright prices on the Gulf Coast rose nearly 3.00 cents per gallon last week to around 45.00 cents. Its differential to the NYMEX rose from a 3.75 cent discount to the NYMEX before the hurricane hit, to 0.25 cent premium on Monday.
With the cut in output, traders expected another drawdown in gasoline stocks which fell 1.8 million barrels to 21 million in the week ending Sept. 25 according to the American Petroleum Institute (API).
Both BP and Chevron were amongst the aggressive buyers seeking mainly the gasoline, jet fuel and low sulphur diesel.
But high stocks of heating oil capped any rallies in both the Gulf and the northeast, and prices in both hubs slipped by around 1.5 cents per gallon to around 40 cents per gallon.
The API reported weekly stocks grew 2.5 million barrels to 15.3 million, around 16.7 million higher than last year's build.
While an influx of Russian gas oil was also putting a lid on New York Harbor heating oil prices, gasoline arbitrage cargoes were also going to depress Harbor prices.
"Give it five to six days...then prices will be slaughtered," a trader said on the expected arrival of cargoes.
But other traders were more skeptical.
"There is a lot of talk of incoming cargoes but until I see them will I believe it. You won't be seeing these sort of premiums if the market wasn't tight," a trader said.
Harbor outright gasoline prices have actually fallen a quarter cent to around 45.60 cents per gallon, but reformulated grades differentials have risen by nearly 1.75 cents, climbing into a premium of around 1.25 cent to the NYMEX on Monday.
Conventional differentials on Monday also flipped to 0.25 cent over the NYMEX from a discount as low as 0.50 cent. |
