MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING TUESDAY, NOVEMBER 25, 1997 (2)
Crude-oil futures edged lower on the New York Mercantile Exchange Tuesday, while petroleum products futures settled mixed, ahead of the Organization of Petroleum Exporting Countries meeting Wednesday in Jakarta.
January light sweet crude settled down $0.10 TO $19.73
Nymex players are waiting to see if Wednesday's OPEC meeting results in a rollover or a rise in OPEC's production ceiling of 25.033 million barrels a day before they start trading crude futures, observers said.
There was some volatility in the petroleum-products contracts as speculative players unwound positions ahead of Wednesday's product futures expiration, a trader said. Players also awaited product inventory data in the American Petroleum Institute's weekly inventory report, due out after Tuesday's close.
API Crude Oil Inventories Rise: Economic Instant Insight
11/25/97
Market Reaction
Limited. U.S. crude oil inventories rose last week, the American Petroleum Institute said in a report released after markets closed. The increase in stockpiles was above analysts' expectations, most of whom predicted a decrease. Changes to stockpiles of distillate fuels and gasoline, were within expectations. Crude for January delivery fell 5 cents to $19.68 in after-hours trading on the New York Mercantile Exchange.
Behind the Numbers
U.S. crude oil inventories rose 3.6 million barrels to 317.576 million barrels in the week ended Nov. 21, the API said. A Bloomberg News survey of analysts called for supplies to fall 600,000 barrels, with five of seven analysts calling for decreases ranging from 500,000 barrels to 4.0 million barrels.
Crude imports rose 105,000 barrels a day to 8.02 million barrels a day from a week earlier.
Stocks of distillate fuels, such as heating oil and diesel, fell less than anticipated by 379,000 barrels to 134.56 million barrels. Stocks still are up 16.345 million barrels, or 13.8 percent, from last year.
Analysts had expected stocks to fall by an average of 900,000 barrels with estimates ranging from a drop of 3.0 million to an increase of 2.5 million.
Heating oil demand peaks during the winter. Major oil companies' distillate inventories, as measured by the API, should begin to shrink as heating oil is sent to regional depots from which it's distributed to residential consumers.
There is currently so much heating oil coming to market that Colonial Pipeline Co., owner of the largest U.S. gasoline and petroleum products pipeline system, said it must ration space until the end of the year because of overbooking by 20 percent.
Colonial often rations space on the Texas-New Jersey line during the first part of winter. The report is expected to reduce prices as refined products that had been headed for markets in the Northeast pile up, traders said.
U.S. gasoline stockpiles rose 432,000 barrels to 197.04 million barrels, the API said. The Bloomberg survey called for an average increase of 120,000 barrels, though estimates ranged from a drop of 2.5 million barrels to a rise of 2.0 million barrels.
What Experts Say
''We're going to retest the lows off these APIs,'' said Abe Glass, an analyst for Spear, Leeds & Kellogg in New York. Glass said historical price trends indicate that prices could fall as low as $19.05 a barrel. ''The fear right now that is that OPEC will raise the production ceiling. This doesn't bode well for tomorrow.''
Recent Prices
December heating oil recently fell 0.29 cent a gallon to 55.20 cents a gallon. December gasoline fell 0.08 cent to 59.00 cents a gallon on the Nymex.
Previous Market Reaction
The previous API report, issued Nov. 18, showed a larger-than-expected weekly increase in crude oil inventories of 3.98 million barrels and a rise in imports of 1.312 million barrels a day to 8.589 million barrels a day. December crude oil, the contract closest to expiration at the time, fell more $1.19 a barrel over the next three days as concern eased that a dispute between the United Nations and Iraq over weapons inspections could erupt into a military confrontation that would disrupt Middle East oil supplies.
Market Trend
Oil prices have fallen 13.3 percent since reaching an eight- month high Oct. 3 in response to tensions in the Middle East, which supplies about a third of the world's oil. The decline has been precipitated by expectations that production quotas will be expanded during this week's meeting of the Organization of Petroleum Exporting Countries.
NYMEX Hub natgas futures ended mixed Tuesday in a sluggish session, with soft cash and mild weather forecasts still pressuring the front of the board though January held its recent technical range. January slipped 2.2 cents to close at $2.66 per million British thermal units. February settled 1.1 cents lower at $2.539. Most other deferreds ended flat to up slightly.
"We could get some cold weather after the first week of December, so I don't think anyone wanted to go home short for the long (U.S. Thanksgiving) holiday weekend," said one Midwest trader.
NYMEX will be closed Thursday and Friday for the U.S. Thanksgiving holiday.
Traders said some extended forecasts calling for another cold wave in the Midwest late next week helped trigger some short covering today, but few expected a significant rally without a sustained Arctic blast.
After a brief cold snap early this week, more seasonal temperatures are forecast for the East by midweek, with the Midwest and Texas expected to climb to above-normal. Normal to above normal conditions are forecast for most of the nation into early next week.
Technical traders agreed January was still holding its recent range. Support was seen at $2.58, a recent low, and then in the mid-$2.50s and at $2.40, the top and bottom of the summer trading range. Resistance was still pegged at $3.03, 3.11 and then at $3.21.
In the cash Tuesday, November Gulf Coast gas was pegged about a dime lower in the mid-$2.40s, with December Gulf mostly quoted in the mid-to-high $2.40s. November Midcon tumbled 15 cents to $2.30 on milder weather in the region. December Midcon was mostly talked in the low-to-mid $2.30s. Chicago city-gate quotes for November
slumped about a dime to the mid-$2.50s, while New York swing was talked 20 cents lower in the low-$3.00s ahead of milder weather this week.
The NYMEX Henry Hub 12-month strip eased 0.1 cent to $2.334. NYMEX said an estimated 39,224 Hub contracts traded, down sharply from Monday's revised tally of 95,674.
Canadian Natural Gas Prices Stay Soft With Weather
Canadian spot natural gas prices remained on the defensive in the West Tuesday, still pressured by warmer-than-normal weather over much of the region, market sources said. "There's no break in the beautiful warm weather and there's plenty of gas on offer," said one Calgary-based trader.
Spot gas at the AECO storage hub in Alberta was quoted at C$1.45-1.50 per gigajoule, off several cents from Monday.
Temperature highs in Calgary are forecast this week to hover around 50 degrees F, well above normal highs in the low-30s. More seasonal weather is expected next week.
December AECO was talked about 10 cents lower in the low-C$1.60s per GJ, while December-March AECO was down a similar amount to the low-C$1.50s.
At Sumas, Wash., prices were down only slightly to the US$1.05-1.10 per million British thermal units (mmBtu) range.
Temperatures in the U.S. Northwest this week are expected to range from normal to several degrees above normal.
In the East, Niagara prices slipped more than a nickel to $2.80-2.85 per mmBtu, pressured by softer East Coast city gate gas prices in the face of milder weather forecasts this week.
IN THE NEWS
Syncrude Predicts Oilsands Will Meet Half Canada's Needs
The Financial Post
Production from Alberta's oilsands is accelerating to the point it will meet half Canada's crude oil needs by 2007, the chairman of Syncrude Canada Ltd., said yesterday.
The company is the world's largest producer of oil from oilsands.
"Years ago, producing oil from oilsands used to be quaintly referred to as a research experiment and an expensive one at that," Eric Newell told a news conference in Calgary to detail plans for a $3-billion expansion of Syncrude's upgrader near Fort McMurray, Alta.
"Today, our company and our industry are stewards of a national prize."
Companies manufacturing light synthetic oil from the huge deposits already supply 25% of Canada's crude oil.
The project, part of $6 billion in investment plans for the oilsands operation, is expected to create 74,000 person years of direct and indirect jobs across Canada.
While most of procurement funds are expected to be spent in Alberta, and particularly Calgary, the expansion will also mean large economic spinoffs for the Ontario-based manufacturing and steel industries.
And because of the project's large labor requirements -- 2,000 construction jobs a year for eight years -- recruitment drives for skilled people will be held across the country, Newell said.
The expansion will take place over the next 10 years and should be partly operational by 2002.
The project is aiming for a return on investment of about 20%, Newell said, based on oil priced at US$18.50 a barrel.
Syncrude's largest owner is Imperial Oil Resources, with a 25% interest.
Alberta Energy Co. Ltd. is another major owner, with a 10% interest in its AEC Oil Sands LP and a 5% interest in the AEC-Oil Sands Limited Partnership. AEC is also majority shareholder of Alberta Oil Sands Pipeline, which launched a $220-million expansion to handle the extra production.
Gulf Canada Resources Ltd. has a 9.03% stake, while Athabasca Oil Sands Investments Inc., the royalty trust fund managed by Gulf, has a 11.74% interest. The other owners are Petro-Canada (12%), Canadian Occidental Petroleum Ltd. (7.23%), Canadian Oil Sands Investments Inc. (10%), Mocal Energy Ltd. (5%) and Murphy Oil Co. Ltd. (5%).
"We have a ready-made market in Canada and the U.S. with the decline of the light conventional crude oil. If we don't move fast to develop this great resource of ours, then others will," Newell said.
Oilsands Boom Driven By The Smell Of Money
Canadian Press
It was a shot Eric Newell couldn't resist. Syncrude Canada's chairman was in the middle of extolling the economic, environmental and social benefits of his firm's proposed $3-billion expansion of its oilsands project in northeastern Alberta when he stopped during a news conference Tuesday.
"Years ago, the oilsands were quaintly referred to as just a research project, and an expensive one at that," Newell said of those who doubted 25 years ago that the project would succeed.
"Well, you ain't seen nothing yet."
Newell, who is also chief executive officer of the 10-company consortium, held the news conference to release more details of the proposed expansion of its crude oil upgrader. He told reporters in Edmonton and Fort McMurray through a satellite video link that Syncrude expects to account for 50 per cent of Canada's total crude oil production by 2007. Syncrude's announcement pushed the total expected investment in the oilsands over the next 10 years to about $16 billion. The project will be designed and built over the next 10 years to increase oil production capacity nearly 60 per cent to 175 million barrels per year.
Work on the expansion is set to begin in 1999. Suncor Energy Inc. will spend more than $1 billion on capital projects in 1998, a figure that reflects that company's massive oilsands expansion. At least $500 million will be spent in the oilsands on projects such as the new Steepbank Mine and Suncor's fixed plant expansion. Preliminary work will also start on Project Millennium, the company's proposed $2.2 billion oilsands expansion. Joining the veteran oilsands' players are companies such as Shell Canada, Mobil and Imperial Oil.
Martin Molyneaux, an oil industry analyst with First Energy Capital Corp., said the oilsands rush can be traced to two factors - a projected 20 per cent return on investment and a stable view for the world oil price of about $20 US a barrel. He said production costs are projected to tumble to about $10 Cdn a barrel, making the oilsands far more attractive than plugging holes in the ground to try to tap conventional reserves.
"They are stepping up volumes at a lower cost," he said. "Syncrude has a game plan where they will have their costs under $10 a barrel. "I think all the producers lining up for this thing are relatively comfortable about the long-term price of oil being in the $20 a barrel range."
Molyneaux envisions a day when Canada is producing around one million barrels a day of synthetic crude - a tripling of current levels.
Shell recently announced a $1.8-billion oilsands project and is in the process of applying for the first stage - the mine and extraction portion of the project. Shell spokeswoman Tara Black said the company's plunge into the oilsands came because other producers have shown it can be produced for a reasonable price and provide excellent returns to investors. It also helps to replace diminishing conventional supplies of crude, which are becoming more expensive and difficult to find. She said Shell can also use its own Scotford refinery near Edmonton to refine the crude, giving them an advantage over other oilsands companies.
"It's a growth opportunity for Shell and we know it's there, we don't have to go looking for it," said Black.
Ipsco Shows Its Mettle
Tuesday, November 25, 1997
Globe & Mail
IPSCO, whose steel plant sits hunched on the prairie just north of this Saskatchewan city, started life in 1956 as Interprovincial Steel and Pipe Corp., and the company still gets a large part of its revenue from the oil and gas pipeline business. But Ipsco is trying to get the message out that it is more than a one-trick pony.
That message will get a boost from one recent development -- namely, the startup of Ipsco's new steel mill in Montpelier, Iowa. After more than 1« years of unexpected delays, the company took control of the mill from the contractor this month and is getting it ready to begin full production, says Ipsco spokesman Mario Dalla-Vicenza.
The new mill has a total capacity of about 1.25 million tons of steel, which will more than double Ipsco's production capacity to about 2.25 million tons. Something industry analysts have been particularly positive about is the fact that the Montpelier mill will be versatile, able to produce both plate and coiled steel.
The delay in getting the new mill on-line hasn't hurt Ipsco financially in a direct way, the company says, because it wisely negotiated a contract with the developer that requires him to bear the brunt of any cost overruns and delays. However, the steel maker has missed 18 months of production in one of the strongest steel markets in years.
Mr. Dalla-Vicenza says the contract contains provisions that require the developer to provide a certain amount of compensation for the delay, with any further payment the subject of negotiations between the two companies. The Ipsco spokesman says those discussions are scheduled, and the steel maker should wind up better off than it might have been. But that lost marketing period "is a pretty big loss, no question."
Anticipation of the new mill coming on stream was one of the factors that started pushing Ipsco's stock price last fall, causing it to climb on the Toronto Stock Exchange from below the $30 range to about $40 by early 1997. However, the continued delays in the Montpelier startup kept the share price hovering in that range until about July, when it started to really jump. Soon it had passed $60, and peaked at $66.25 last month. It closed yesterday at $58.30, up 15 cents on the day.
The new mill wasn't the only thing that lit a fire under the stock, however. Ipsco has been churning out a financial performance that is the envy of other steel makers. Its record third-quarter earnings of $33-million (up 43 per cent over last year) produced a nine-month result that beat the profit for all of last year, which itself was a record.
Mr. Dalla-Vicenza says that, measured by operating profit per ton, a standard performance gauge for steel makers, Ipsco is the most efficient steel company in North America, making an average of $139 a ton. The next closest, he says, is Steel Dynamics of Butler, Ind., with $100 a ton. Third is Hamilton's Dofasco with $84 a ton, while Stelco has a ratio of $59 a ton and Algoma Steel's is $54.
Part of Ipsco's higher profitability, analysts say, comes from the fact that it doesn't just make regular flat plate and rolled steel.
Like a lumber company that takes regular timber and mills it into special products that fetch a higher price, Ipsco does a lot of
business in value added remanufactured steel products. For example, it cuts the coiled steel that its Regina plant produces into
various lengths and sizes for customers.
Steel pipe and the casing and tubing used for drilling wells is obviously a big part of this business, and the fierce demand in the
oilpatch for pipe and well-drilling products has helped pump up Ipsco's bottom line. Ipsco's growth in that segment was about 30 per cent last year, and there's no reason to think it has slacked off since.
There are a couple of reasons why analysts see the Montpelier mill as being such a positive for Ipsco.
Obviously, it increases production significantly, but it is expected to do so at a fairly low cost, which means it stands a better chance of not just competing with U.S. steel, but with the growing supply of both plate and coiled steel from countries such as China and those of the former Soviet Union.
Ipsco hasn't just been waiting to get the Montpelier mill on-line, Mr. Dalla-Vicenza says. The company has announced plans for a $25-million pipe mill in Blytheville, Ark., that will join the U.S. pipe mills the
company already has in Camanche, Iowa and Geneva, Neb., as well as its three Canadian plants in Edmonton, Red Deer and Calgary.
The company is also looking at building a second steel mill in the United States, now that Montpelier is close to being operational. "It's no secret that we've been considering a second mill," the Ipsco
spokesman says. "We'll probably have made a decision on that by the first half of next year."
Spending Spree
Calgary Based Ranger Oil Ltd. Plans Record Expenditures
Ranger Oil Ltd. yesterday became the latest major player in the oilpatch to unveil record spending plans for 1998, also posting a For Sale sign on as much as $100 million of its non-core properties.
The Calgary-based firm -- which has a strong presence in the British North Sea, Western Canada and the Gulf of Mexico -- said it plans to spend $285 million US next year to expand the business.
The announcement came just a week after Suncor Energy Inc., also of Calgary, said it will spend more than $1 billion in 1998 to expand its oilsands and other operations.
Ranger's capital expenditures will be the most the company has ever spent, with about two-thirds going to development.
Development expenditures account for two-thirds of the company.
North Sea development projects will include work on Ranger's properties in the Banff, Pierce, Columbia "E" and Kyle fields.
As well, Ranger will be doing work at its holdings in the Kiame field in Angola as well as a number of Canadian conventional and heavy oil projects.
Ranger said it expects the work to boost the company's output by 40,000 barrels of oil per day to a total of roughly 100,000 barrels per day.
"It's a significant rise, for sure," said Ranger spokesman Mike D'Aguiar.
The remaining third of Ranger's outlay -- about $95 million -- will go to exploration.
For next year, Ranger plans high-impact wells in the North Sea, Angola Block 4, Ecuador Block 19 and the Northwest Territories in Canada.
Moreover, more than 30 wells are planned in the Western Canadian basin and in the U.S. Gulf of Mexico and the company plans to focus its spending on acquisitions and seismic work.
"These will lead to continued expansion of international drilling opportunities in 1999 and future years," the company said.
It also plans to sell off a number of holdings it considers to be non-core to its operations, primarily located in Canada.
Sale of the properties is slated for the second quarter of the New Year, and is expected to raise between $50 million and $100 million US.
D'Aguiar noted Ranger traditionally spends about $150 million to $200 million a year on capital projects, but 1997's total was boosted by the $720 million acquisition of Elan Energy Inc.
That acquisition, which closed in September, included about $154 million in Elan debt.
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