MARKET WRAP -5 / Crude Oil Markets - Commentary
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12/18 15:00 Warm US Northeast may mean blue Christmas for heating oil 12/18 15:41 Mexico ready to cut oil exports more, if other follow
12/18 15:50 World oil closes below $10 despite Iraq onslaught
12/18 16:46 U.S. cash crude prices slip in volatile trade
12/18 17:01 NYMEX oil ends week off, despite Iraq air strikes
12/18 17:04 US spot natural gas prices mostly higher on weather,
12/18 17:06 North Sea Brent drops five cents in U.S. trade
12/18 17:16 U.S. Cash Prods:Conv. mogas up in NYH, down in USG
12/18 18:06 U.S West Coast ANS sells at wider discount
12/18 15:00 Warm US Northeast may mean blue Christmas for heating oil market
NEW YORK, - An unusually warm Christmas is expected for the Northeast but colder weather could come after that, spelling relief to the heating oil market where demand has stayed flat ahead of winter, forecasters said Friday.
Winter officially begins Monday, but "for the next 10 days, it's going to be remain pretty much above normal, potentially five to 10 degrees above the usual," said forecaster Mike Palmerino of Lexington, Mass.,-based Weather Services Corp.
But after that, the outlook is for colder weather in the region as the effects of the La Nina phenomenon -- the cooling of sea surface temperatures in the tropical Pacific -- replace El Nino, its warm-weather cousin, Palmerino said.
Since August, the Northeastern region has experienced warmer than normal weather, putting it in the record books as within the upper third of warmest periods since the U.S. government started compiling weather data 104 years ago, said Patricia Viets of the National Oceanographic and Atmospheric Administration (NOAA).
And with record warmer temperatures in recent weeks, the demand for distillate stocks, which consist mostly of heating oil, has remained tepid. The Northeast is the largest U.S. heating oil market.
During the last week of November, the "implied demand" for distillates was calculated at about 3.2 million barrels per day (bpd). Three weeks later, the demand barely inched up to 3.6 million bpd.
Added to the low demand, prices have remained cheap because of a long-standing inventory stockbuild. As of Dec. 11, U.S. distillate stocks stood at 151.9 million barrels, some 17.2 million barrels above their levels a year ago.
On Friday, the January heating oil futures contract, traded on the New York Mercantile Exchange, settled at 32.39 cents a gallon, unchanged from Thursday's close.
"Heating oil dealers in the Northeast are hurting, with low prices and demand that is anywhere between 20 (percent) to 35 percent lower," said David Taylor, a climatologist at WSC.
Major heating oil-consuming cities in the Northeast have seen a marked decrease in heating degree-days this year, he said. In Boston, the heating degree-days were down 20 percent while they were down 26 percent in New York and down 23 percent in Philadelphia,, he said.
A heating degree-day is a measure of the coldness of the weather, based on the extent to which the daily mean temperature falls below 65 degrees Fahrenheit. A heating degree day is calculated by taking the difference of the daily average temperature and 65 degrees.
The Northeast is experiencing almost a reverse of weather from last year, when it started out very cold in the autumn and warmed up in December and January, Taylor said. February and March of 1998 still turned out to be very warm, with very little snow.
But for the coming months, the changing weather pattern could produce a chilly or La Nina winter, Palmerino said.
12/18 15:41 Mexico ready to cut oil exports more, if other producers follow
MEXICO CITY, Dec 18 - Mexico wouldn't hesitate to cut its oil exports further to prop up prices at 25-year lows, so long as other producers follow suit and the price recovery justifies the move, government officials and oil analysts say.
Unlike cuts by other oil producers, Mexico's 200,000 barrel per day (bpd) reduction in oil exports hardly drew a peep domestically. The oil union and opposition legislators backed the move.
Energy Minister Luis Tellez has defended his unprecedented cooperation earlier this year with Saudi Arabia and Venezuela to cut oil supply as essential to keeping his government's oil revenue from sinking even further.
Prices for Mexico's oil mix have already fallen to about half what they were a year ago. Earlier this month, Mexico's oil price hit a 25-year low of an average $6.95 per barrel. On Friday, Mexico's crude traded at a price similar to Thursday's close of $7.40 per barrel.
Tellez has pledged to take measures to bring Mexico's average 1999 oil price to $9.25 per barrel, the reference level in the government's budget. That price corresponds to about $13 per barrel for benchmark IPE Brent, analysts say.
"Certainly, we are going to work together to stabilize the markets and...look to establish oil prices around the price that we need for our budget and we are not going to hold back from taking the actions needed," Tellez told Mexican media while in Madrid Thursday for a meeting with his Saudi and Venezuelan counterparts.
Adrian Lajous, chief of Mexican oil monopoly Petroleos Mexicanos or Pemex, also has said he is open to more cuts. Yet Mexico will not act alone, he has said, but push for concerted action with other producers. Energy Ministry sources add that further oil export cuts must be justified by a higher price, to compensate for lost export sales.
Still, Mexico cannot afford to sit by passively while prices sink, analysts say.
"Unfortunately, there are a lot of political issues, but the economic, logical outcome has to be further cuts," said Ken Miller, senior principal with Houston energy consultants Purvin & Gertz. "The problem is an oversupply of crude. Period."
Mexico's oil income accounts for a third of government spending, already cut to the bone.
After trimming spending by some $4 billion in 1998, when oil prices sank to 25-year lows, the government is approaching 1999 strapped for cash as key presidential elections, scheduled for 2000, are in sight.
"Hydrocarbon producers should act to revert the recent price behavior," Lajous said, while in Madrid. "They should do it to protect income that is so needed in the short term and to develop projects that will determine medium-term supply."
As the sole producer of Mexican oil, Pemex and the government can single-handedly decide at what level to set exports, analysts note.
Pemex's approximately 100,000 workers under contract have not criticized the exports reduction, saying they do not complain so long as jobs are safe.
"We have no opposition. We are part of the production, not the sales. It means the same to us," oil union spokesman Victor Garcia Solis told Reuters.
12/18 15:50 World oil closes below $10 despite Iraq onslaught
LONDON, Dec 18 - Oil markets lurched lower on Friday, extending a dramatic collapse which has wiped 13 percent from already battered prices in just two days.
International benchmark Brent sank back to $9.98 a barrel at settlement, losing another 11 cents on top of Thursday's $1.20 slump.
The spectacular losses in the face of the strongest U.S. and British military attacks on key producer Iraq since the 1991 Gulf War highlighted the havoc that a huge stock overhang is wreaking on oil prices.
Brent has seen the opening gains that took it to $10.35 a barrel fizzle out and the slump continued across the course of the day despite news of damage to oil facilities by the bombings on Iraq.
U.S. Defense Secretary William Cohen said on Friday a "limited" attack was carried out against the Basra refinery to stop illegal oil smuggling.
But oil traders said they will be waiting for the weekend to see if Iraq's oil exports would be affected by the military action.
"The market's quiet now, so it is not reacting a great deal to that (attack on Basra refinery). People are waiting for the weekend to see if anything more happens to see if the (Iraqi oil) exports will be affected," one trader said.
Some 1.8 million barrels per day (bpd) of Iraqi crude exports supplies continued to flow on Friday despite the approach of a third wave of the U.S-led military strikes.
Border monitors from Dutch firm Saybolt, employed by the United Nations to check Iraqi oil sales under the exchange for food and medicine programme remained at their posts.
The price decline gathered pace on Thursday after a meeting of key producers Saudi Arabia, Venezuela and non-OPEC Mexico in Madrid failed to pull out any new moves to combat the glut.
The slump more than wiped out gains of nearly 80 cents made on Wednesday as the United States prepared to launch missile strikes and traders wondered if the producer trio could come up with surprise new output cuts.
It pulled prices back within range of 12-year lows set just last week at $9.60 and heaped fresh misery on oil producers already enduring the lowest yearly average price for over 20 years.
The only concrete new measure to emerge from Madrid was Venezuela's commitment to extend cuts by six months to the end of 1999, matching pledges from Saudi Arabia and Mexico.
This disappointed analysts who have been calling for a further 1.5 million bpd of producer cuts to try to pep up prices.
But Saudi Arabia claimed to have secured a new commitment from Venezuela for a fresh attack on global oversupply.
A senior Saudi source said the three producers, who earlier this year marshalled a 3.1 million bpd producer cutback package, have no qualms about making further sacrifices.
Venezuela has previously said it could not consider fresh cuts as its new government prepares to take office in February.
The producer trio also agreed to enforce rigorous compliance with their combined cuts of 1.45 million bpd. Accusations of Venezuelan indiscipline was among the disputes that stopped OPEC reaching any agreement at an acrimonious November meeeting.
Renewed co-operation could prepare the ground for potential new producer action early next year, analysts said, warning that a long dispute over Iran's production level could block progress.
Saudi Arabian oil minister Ali al-Naimi admitted on Friday that there was between 150 and 250 million barrels of excess oil in the market.
"It will take time between now and year end 1999 to withdraw this overhang," Naimi said in Norway, where he had a consultative meeting with Oil and Energy Minister Marit Arnstad.
Naimi said the supply glut had far more bearing on the state of the oil price than the conflict in Iraq.
"There is too much oil on the market to worry about what is happening in Iraq," he said.
12/18 16:46 U.S. cash crude prices slip in volatile trade
NEW YORK, Dec 18 - U.S. cash crude prices creaked lower Friday, weighed down by concerns about oversupply even as British and U.S. forces launched another round of air strikes on Iraq.
New York Mercantile Exchange (NYMEX) front-month crude futures barely reacted to news that Friday's military action included a "limited" attack on Iraq's Basra oil refinery.
January crude futures finished the week at $10.95 a barrel after, losing another eight cents a barrel Friday after suffering heavy losses Thursday.
That left cash crude benchmark West Texas Intermediate/Cushing around $11.00 a barrel given a slight exchange-for-physical premium, and put it within striking distance of fresh 12-year lows.
U.S. crude traders said the losses came in yet another volatile session in the cash market.
In the first hours of trade, Light Louisiana Sweet/St. James jumped to a 10 cent premium to the benchmark after spending most of the week at a slight discount to WTI/Cushing.
But crude traders said the short-covering rally proved short-lived, and LLS/St. James retreated back to parity with the benchmark by the close of trade.
In other trade, West Texas Sour/Midland changed hands at 95 cents under the benchmark before it dropped back to discounts of $1.07, $1.10, and $1.15 a barrel.
West Texas Intermediate/Midland was talked at a discount of about 25 cents a barrel after trading at minus 22 and 27 cents.
WTI/Cushing postings plus changed hands between $2.19 and $2.24 a barrel.
12/18 17:01 NYMEX oil ends week off, despite Iraq air strikes
NEW YORK, Dec 18 - Front-month crude oil futures on the New York Mercantile Exchange (NYMEX) posted small losses at the close on Friday, as the market slowed and aggressive selling ebbed, despite a third wave of U.S. bombing against Iraq, traders said.
Market participants remained jittery over the punitive U.S.-led strikes. One target hit was Iraq's oil refinery in Basra, and news of the attack created some support, traders said.
U.S. Defense Secretary William Cohen said the refinery, which can handle 126,000 barrels per day of crude, was attacked because it was being used to illegally smuggle oil in violation of a United Nations program that allows the country to export up to $5.256 billion of oil every six months. Most of the proceeds go to buy food and medicine for Iraqi citizens.
But the market remained weak as the U.N. reported that Iraq's oil exports had been going on smoothly as of early Thursday, New York time, despite the bombings.
At 1510 EST/2010 GMT, NYMEX January crude, which expires on Monday, last traded at $10.90, down 13 cents on the day.
NYMEX January crude settled at $10.95, down only eight cents from Thursday's close, but still around 12-year lows. Today's settlement price is 16 cents above last Friday's close of $10.79. The contract traded as high as $11.18 late Friday. It fell in morning activity to a session low of $10.75.
"The inability of the crude market to rally despite the air strikes against Iraq simply reinforces its current weakness," said Jim Ritterbusch, a trader for Chicago's Sweeney Oil.
"Unless oil is taken out to balance supply and demand, the market will remain weak," he added.
January heating oil last traded at 32.30 cents a gallon, marginally down 0.09 cent from Thursday's settlement. It settled at 32.39 cents, unchanged from Thursday.
January gasoline last traded at 33.75 cents a gallon, down 0.66 cent, before settling at 33.82 cents, down 0.59 cent.
In London, February Brent crude on the International Petroleum Exchange last traded at $9.98, down 11 cents.
Hopes that three major oil producers -- Saudi Arabia, Venezuela and Mexico -- would act on another round of production cuts raised prices early in the week, driving the January crude futures up nearly 80 cents on Monday and Tuesday.
On Wednesday, NYMEX crude futures jumped at one point to $12.60 before settling at $12.38 after the U.N. Special Commission, charged with disarming Iraq of biological, chemical and ballistic weapons, withdrew its arms inspectors. UNSCOM chief Richard Butler ordered the withdrawal after issuing a report criticizing Iraq for failure to restore full compliance on arms inspection.
The U.S., acting on Butler's report, launched air strikes against Iraq late Wednesday afternoon, New York time. But after the first wave of U.S.-led air strikes against Iraq left Iraq's oil exports flowing, NYMEX January crude crashed, losing $1.35 on Thursday to $11.03 a barrel.
The big price drop on Thursday also also followed the end of the Madrid meeting of the trio of oil producers and registered the markets' disappointment at their failure to make any new production cuts. Instead, Venezuela agreed to extend its output cuts to the end of 1999, matching similar pledges by Saudi Arabia and Mexico.
"It may take a few months, but even though they did not agree on anything specific at the meeting, it appears rather clear they have to do something in the next few months," said Ken Miller, a senior analyst and principal at Houston-based Purvin & Gertz.
12/18 17:04 US spot natural gas prices mostly higher on weather, NYMEX
NEW YORK, Dec 17 - U.S. spot natural gas prices in the Gulf and Midcontinent regions scampered higher Thursday as buyers latched onto colder weather forecasts and an early rally on NYMEX, industry sources said.
NYMEX's January contract jumped to a high of $2.068 this morning following over-the-counter trades as high as $2.09.
A sharp drop in temperatures is anticipated in the West over the weekend, with levels expected to be 20 to 35 degrees below normal on Sunday and Monday. Cooler-than-normal weather is also forecast for the central U.S. next week, while above-normal temperatures are expected to cover much of the East and Gulf Coast regions.
Cash prices at Henry Hub were quoted at $2.00-2.04 per mmBtu, up about seven cents from Wednesday.
In the Midcontinent, prices were steady to up slightly at $1.90-1.94, with Northern at Demarcation seen trading at $1.93-1.98.
Chicago city-gate deals were reported done mostly at $2.04.
In west Texas, however, swing Permian Basin prices slipped about three cents to $1.84-1.87, while the San Juan market hovered around $1.85-1.90 and Southern California border trading ranged mostly from $2.17 to $2.20, sources said.
In the New York area, city-gate prices were quoted little changed around $2.20 on Texas Eastern and at $2.28-2.34 on Transco.
12/18 17:06 North Sea Brent drops five cents in U.S. trade
NEW YORK, Dec 18 - North Sea Brent prices slipped five cents in late U.S. trade, dealers said on Friday.
February Brent was valued at $9.95 a barrel in a thin aftermarket session, down from its close earlier Friday at $10.00 on the International Petroleum Exchange.
Crude traders said 400 lots of February cash partial cargoes traded at $9.95 a barrel. No full cargoes changed hands in the session.
12/18 17:16 U.S. Cash Prods:Conv. mogas up in NYH, down in USG
NEW YORK, Dec 18 - New York Harbor conventional gasoline differentials ended the week firmer as the closed arbitrage from the U.S. Gulf Coast tightened supplies, traders said on Friday.
"There are less M-cargoes (conventional gasoline) and only reformulated A-cargoes coming in..so the M is up and the A stays weak," a trader said.
The M-grade gained around half a cent on its spread to the NYMEX as offers were at a 2.50 cent discount to the print, but gaining over 2.00 cents in the past week.
Softer Gulf Coast gasoline differentials on Friday of around 0.20 cent -- was also helping to pry open the arbitrage window, traders said.
But trade was lackluster and the rest of the cash differentials ended Friday rangebound as most traders have covered their positions ahead of the holidays in the next two weeks and amid the volatile NYMEX, traders said.
"Even the Merc fell then came back and then decided to end almost unchanged..that's the tone of the whole day...its been quiet," a broker said.
NEW YORK HARBOR
Conventional gasoline crept up another half cent, bringing its total week's gain to over 2.00 cents as the high prices on the Gulf Coast have sealed off arbitrage supplies.
The regular conventional M5 was last offered firmer at a 2.50 cents below the Jan. NYMEX, its premium V5-grade at 1.00 cent under the print.
But reformulated grades were still ample and under pressure holding at a low 2.00 cents discount on prompt regular reformulated A5-grade supplies. Premium RFG D5-grade at steady at flat to 0.25 cent below the screen.
"M-grade diffs have room to move up another 0.50 cent or to the A-grade diffs as people will then buy the A-grade instead of the M," a trader said.
On the distillates, heating oil was quoted at a 1.25 cent discount while low sulphur diesel was flat to a slight premium over the screen.
Jet fuel remained soft, the 54-grade was pegged a shade softer at a 0.75/0.50 cent discount while the 55-grade was at 1.25/1.50 over the print.
GULF COAST
Volatile NYMEX futures created sloppy differentials Friday in the Gulf hub, as buyers trying to talk the market down thinned trade, players said.
Prompt conventional gasoline ended about 15 points weaker after trading as much as 25 points stronger in the morning. By late afternoon, deals were heard done at 4.60 and 4.75 cents under the January screen.
Heating oil one of the few other products to trade, was heard done 0.10 cent weaker at 3.60 and 3.65 cent under.
Not to be outdone, low sulphur diesel differentials also slipped about 10 points and traded at 2.85 cents under.
Jet fuel 54-grade weakened to 3.10/2.90 under the screen in nonexistent trade.
Regular reformulated gasoline was pegged steady at 2.75/2.50 under the screen.
MIDCONTINENT
Conventional gasoline was mixed in thin trade, as players watched the futures screen, traders said.
Group Three conventional gasoline was pegged 0.25 cent weaker at 3.75/3.50 cents under the screen. Low sulphur diesel slipped and was pegged at 0.50/0.25 cent under the screen.
Premium grade was pegged at 3.25/3.50 cents regrade.
Chicago conventional gasoline gained 0.50 cent and was pegged 3.25/3.00 cent under the print while low sulphur diesel held losses at 0.60/0.30 cent under the screen.
12/18 18:06 U.S West Coast ANS sells at wider discount
LOS ANGELES, Dec 18 - Pure prices U.S. West Coast waterborne crudes eased with broader oil markets Friday, while differentials widened when traders confirmed an Alaska North Slope (ANS) crude deal.
The official discount for ANS widened 10 cents to $2.20 a barrel under January West Texas Intermediate (WTI) after two refiners said they did the deal December 17. The full cargo was scheduled for January delivery.
An alleged deal on December 16 at $1.76 a barrel under February WTI, remained unconfirmed by the buyer.
In broader markets, crude oil futures prices eased on the New York Mercantile Exchange (NYMEX), pushed lower after the U.N. confirmed that Iraqi oil exports had not been disrupted by cruise missile attacks.
Iraqi exports 1.8 million barrels per day (bpd) of crude, or nearly 3 percent of world supply, under an "oil-for-food" programme monitored by the U.N.
With exports normal, NYMEX January crude was slightly lower at $10.95 a barrel, down 8 cents a barrel on the day.
Outright prices for January ANS on the West Coast fell to end around $8.65/8.85 a barrel, compared with $8.85/9.05 the day before.
Outright prices for California heavy grades were flat Friday, a day after major refiners dropped postings 50 cents a barrel to 75 cents a barrel in response to the NYMEX collapse.
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