OIL AND NATURAL GAS PRICING SCENE - PART 3 WEDNESDAY AM 10/21/98
10/21 01:57 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.
10/21 01:58 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.
10/21 09:44 NYMEX Dec crude open seen up 20 cts on API draw
NEW YORK, Oct 21 - December crude on the New York Mercantile Exchange was called to open 10 to 20 cents higher Wednesday, as traders said a small crude stockdraw in the American Petroleum Institute's latest weekly inventory data was seen as bullish.
November heating oil was expected to start 0.25 to 0.50 cent higher while gasoline was seen opening unchanged to a little higher than Tuesday's close.
The API said late Tuesday there was a draw in U.S. crude stocks of 290,000 barrels for the week ended October 16, defying forecasts of a build of about four million barrels.
10/21 10:47 NYMEX crude, heat oil surge on API draws
NEW YORK, Oct 21 - The new December crude oil contract on the New York Mercantile Exchange surged in early trading Wednesday, buoyed by a slight drop in U.S. crude stocks in the latest industry weekly inventory report.
"On the face of it, people consider the API crude draw as not bearish enough, but the buying that's going on is unexplainable," said a New York oil trader, adding there were "outright buying" on December crude.
"Its confusing because the Department of Energy has reported a vastly different figure," he said.
In its own weekly data released early Wednesday, the DOE reported a crude stockbuild of 3.5 million barrels, closer to market estimates.
The American Petroleum Institute reported late Tuesday that for the week ended October 16, there was a small 290,000-barrel drop in crude oil inventories nationwide, though after a revision to the previous week's data was taken into account they were up more than 500,000 barrels.
But traders said the API data was confusing because of lower refinery runs and a rise in import for the past week.
At 1034 EDT/1434 GMT, December crude was up 44 cents at $13.96 a barrel, near its early high of $13.98. The contract opened at $13.62, up 11 cents from Tuesday's settlement.
November heating oil was up 1.10 cents at 38.85 cents a gallon, easing from an early jump to 38.85 cents as players called "supportive" an API draw of 2.4 million barrels. The DOE "confirmed" the figure with a slightly lower draw of 1.9 million barrels.
November gasoline was up 0.40 cent at 43.35, lagging behind the rise in crude and heating oil as traders said the slight build of 384,000 barrels in the API data and 1.9 million barrel increase in the DOE's were within market expectations.
"While the DOE data overall appear neutral to bearish, the market seems to think the complex is due for a rebound because of recent large losses," said a NYMEX trader.
"And so the market may be giving the API some credit, but traders are at a loss to explain it." he added.
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