WEDNESDAY MORNING UPDATE / Oil & Gas + TSE Opening Comments
12/30 09:06 World Oil Sags On Glut Despite Iraq Clash
World oil prices sagged under the weight of global oversupply on Wednesday despite a fresh clash between producer Iraq and U.S. and British warplanes.
Benchmark Brent crude for February delivery was trading 17 cents down at $10.44 a barrel at 1325 GMT.
Prices declined early after neutral U.S. storage data released overnight failed to excite buyers, traders said.
Mild weather in northern Europe also played its part in dampening winter demand in an enfeebled market buried under a mountain of stored oil.
Prices recovered a meagre 10 cents on news that Iraq opened fire on U.S. and British aircraft on Wednesday in the southern Iraqi no-fly zone and coalition aircraft retaliated.
It was the second such incident in two days and traders said the market looked like becoming inured to such confrontations nine days after the end of the full-scale Anglo-American attacks of operation Desert Fox.
Markets were unimpressed by weekly data from the American Petroleum Institute (API) industry grouping late on Tuesday showing U.S. crude inventories falling by 2.36 million barrels.
Traders said a rise in stocks of refined products like distillates and gasoline had offset the crude drawdown to an extent, pulling crude futures prices lower.
And overall crude stocks of 337 million barrels were more than 20 million barrels higher than at the same week last year, dampening any bullish impact from the weekly drawdown.
Brent this year has averaged only $13.37 a barrel, down by a third from an average $19.30 in 1997 and the lowest average price since 1976. Last week it hit a 12-year low of $9.55.
Further pressure came from a report that stocks at sea are rising, showing that previous output cuts "are looking like a passing phase," according to industry newsletter Oil Movements.
Loud weekend complaints from cash-strapped Gulf producers about overproduction only confirmed traders' belief that rapid assistance cannot be expected from the producer club OPEC.
The 11-member group has been waylaid by a rancorous dispute about some countries' lack of compliance with promised output cuts aimed at rescuing glutted markets.
OPEC watchers say Iran's insistence that it be allowed to pump more than it signed up for may only be solved if and when political contacts take place between Iran and Saudi Arabia.
Iran's production has come under scrutiny since Saudi Arabia, Venezuela and non-OPEC Mexico reached an accord in Madrid this month aimed at securing Venezuelan compliance.
12/30 09:43 NYMEX natgas called higher ahead of storage data
NYMEX Hub natgas futures were expected to open about six cents higher Wednesday due to cold weather forecasts and an anticipated hefty storage number this afternoon, industry sources said.
February traded at $1.83-1.85 per mmBtu in over-the-counter business this morning following Tuesday's settlement at $1.781 and January's expiry at $1.765.
Withdrawal estimates for AGA's storage report range from 105 to 221 bcf. For the same week last year, stocks declined 96 bcf. Total inventories stand at 704 bcf, or 31 percent, over year-ago.
"The kicker will be the West," one East Coast trader said, noting last week's freeze-offs due to the severely cold weather prompted buyers to withdraw the lower-priced gas from storage.
Technically, resistance was seen at the top of Monday's gap at $1.86, and then at the psychological level of $2.00. Minor support was seen at Tuesday's new contract low of $1.77, and then at $1.61, which is the spot continuation low for the year.
The significantly colder weather now in the Midwest, where Chicago lows are in the single digits, is expected to arrive in the Northeast Thursday, Weather Services Corp. said.
Next week's forecast shows continued colder-than-normal weather in the central plains, with a brief spell of milder weather early next week in the Midwest but cooling off again in the Northeast later in the week.
NYMEX will close at 1300 EST Thursday and will be closed Friday for the New Year's Day holiday.
12/30 10:30 Toronto Stocks Open Lower
Prices on the Toronto and New York stock markets opened lower this morning in early trading.
The TSE composite index fell 3.85 to 6,468.31.
Volume was moderate as 5.5 million shares changed hands.
In New York, the Dow Jones average slipped 16.48 to 9,304.5.
Volume was active as 73.9 million shares traded.
In Toronto, Seagram slipped $1.15 to $58.35; Teleglobe Inc. climbed $1.05 to $55.50.
12/30 11:27 NYMEX crude, products off on bearish API data
Crude oil and product futures on the New York Mercantile Exchange (NYMEX) fell in early trading Wednesday as bearish builds in heating oil and gasoline stocks triggered a selloff, traders said.
One trader said a fire at Exxon Corp.'s flexi-coker unit at its 427,000 barrel per day (bpd) refinery in Baytown, Texas, had raised some concerns, but the incident had little impact on early activity as damage is still unknown.
The fire had restarted at mid-morning after reports that it had been put out, according to local officials. The flexi-coker unit has a rated capacity of 37,000 bpd. Exxon said there had been no injuries.
News that Iraq fired missiles on Wednesday at U.S. and British aircraft patrolling the southern no-fly zone over Iraq and that the coalition jets fired back had limited impact, traders said.
At 1122 EST/1622 GMT, NYMEX February crude was down 18 cents at $11.54 a barrel. The front month has gone as low as $11.43, in a flurry of selling. It opened at $11.60, down 12 cents, and rose near the opening to $11.62, its early high.
February Brent on the International Petroleum Exchange in London, at 1122 EST/1622 GMT, traded at $10.38, down 23 cents, dropping back to near session lows after the weak NYMEX opening.
The American Petroleum Institute (API) reported a stockdraw of 2.4 million barrels in U.S. crude inventories for the week ending Dec. 25. But a stockbuild in heating oil and gasoline stocks of about 1.7 million barrels each for the same week offset the crude draw, traders said.
Some traders were skeptical of the figures as they expected normal year-end inventory reductions to have shown a drop in crude and product inventories.
They also noted that a more accurate weekly report by the Energy Information Agency (EIA), the statistical arm of the U.S. Department of Energy, which normally comes out on Wednesday mornings, will not be out next until Jan. 6 when the government will report data for the previous two weeks.
The January front-month heating oil and gasoline contracts, which expire on Thursday, posted losses.
January heating oil fell 0.63 cent t0 32.70 cents a gallon, rising above its early low of 32.60 cents. It was trading on a narrow range, with an early high of 33.00 cents.
The February contract was down 0.42 cent at 33.55 cents.
January gasoline was quoted at 34.60 cents a gallon, down 0.87 cent, at 1126 EST/1626 GMT.
The February contract was off 0.57 cent at 35.95 cents.
12/30 11:49 ADR Report - Oil ADRs Hit By Low Crude Prices
American Depository Receipts - of oil exploration and development companies were hit hard Wednesday amid a decline in crude oil prices and thin trading volume in both the U.S. and domestic markets. "Marginally there is a bit of profit taking here in an illiquid market due to the New Year's holiday, as well as the drop in oil prices, and some fear over the euro," said Christopher Arroyo, an equity salesman at Paribas in New York.
British Petroleum Co. Plc.<BP.L> was down 3-9/16 at 86-3/8 after the U.S. Federal Trade Commission conditionally approved a proposed $49 billion merger with U.S.-based Amoco Corp.<AN.N>.
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