MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING TUESDAY DECEMBER 23, 1997 (3)
OIL & GAS
Natural gas futures fell to a 13-month low Tuesday on the New York Mercantile Exchange as warm weather in the Midwest and Northeast reduced demand for the heating fuel, at a time of ample supplies.
The natural gas market has been in the doldrums for a month, falling more than 40%, amid perceptions that supplies will easily meet demand during the peak winter period for natural gas.
That has been reinforced by mild fall weather across most of the country and long-term predictions from the National Weather Service that temperatures during the winter will be normal to above-normal. In the Midwest, the region that uses natural gas most for home heating, temperatures have been above-normal for weeks.
Market participants also were betting the American Gas Association on Wednesday would report natural gas in storage fell 85 billion to 110 billion cubic feet in the past week. Inventories already are 3.4% above levels of a year ago.
January natual gas fell $0.151 to settle at $2.216.
February light sweet crude oil gained $0.01 to settle at $18.33.
Canada Spot natgas Softens On Warm Weather
Canadian spot natural gas traded mostly lower on Tuesday as warm temperatures in the west and a weaker futures market pressured prices, traders said.
Spot gas at the AECO storage hub in Alberta was quoted at about C$1.30 per gigajoule, down from C$1.38/1.39 on Monday. January AECO was talked at C$1.37 per GJ, down about four cents on the day.
One Calgary-based marketer said continuing warm temperatures in western Canada coupled with strong field receipts on the NOVA Gas Transmission intra-Alberta pipeline system kept a lid on prices.
Sumas, Wash. spot gas was quoted at about US$2.15 per million British thermal units, about even with Tuesday.
Marketing sources said they expected prices there to remain strong until more interruptible transport was made available on Westcoast Energy Inc [NYSE/WE] British Columbia mainline.
In the east, gas for export at Niagara fetched about US$2.35 per mmBtu, down nearly 20 cents from Tuesday, which one trader of eastern gas attributed to the 16 cent drop in the NYMEX January contract price on Tuesday.
US Foreign Crude - Few offers in pre-holiday lull
Action on the U.S. foreign crude market was stifled by a dearth of offers on the Gulf Coast on Tuesday, compounding an already sleepy pre-holiday mood. The market for Colombia's Cusiana, the key foreign mover in the Gulf for several weeks, had reached a hiatus with all the cargoes from the January program sold out and February loaders not yet offered. Regular buyers of Cusiana said they were still waiting for the February loading schedule.
The last three cargoes of January Cusiana were sold on Friday through an Ecopetrol tender at February WTI minus 58 cents. The earliest cargo, loading 21-25, was sold to a European major with a Louisiana refinery, while the later two went to a large independent Gulf coast refiner.
Exports of Colombia's second major crude stream, Cao Limn, were halted late Monday by a rebel bomb attack on the pipeline carrying crude from the field to the Caribbean port of Coveas.
The blast was the 64th attack of the pipeline this year, making 1997 the worst year for the pipeline since 1992 when it was blown up 62 times, state oil company Ecopetrol said.
By late Tuesday, repair work on the ruptured line had not yet started as the army was still in the process of securing the area. Repairs were expected to begin on Wednesday.
Traders said despite the recent concentration of attacks, there was no hint that Ecopetrol would have to declare force majeur on liftings, although delays were likely.
"One of the things they're doing is to widen out the loading windows to give themselves some breathing space," said one player active in the Latin American market.
The last deal heard on Cao was a cargo with a loading window of January 15-25 which was sold on Friday at around February WTI.
The premium for WTI over Brent failed to hold above the $1.00 a barrel on Tuesday, dampening refiners' already lacklustre enthusiasm for North Sea and West African barrels.
Cargoes of Nigerian Qua Iboe and Zafiro from Equatorial Guinea were still being shown but buyers were relaxed, traders said.
"No one is really too keen to move before the holidays," said one.
Traders were braced for the return of Iraqi barrels to the market with exports of crude, including the U.S.-bound Basrah Light grade, expected to resume in early January.
Iraq had made a new aid distribution agreement a condition for renewing exports under the third term of the oil-for-food deal with the United Nations.
The U.N. is now awaiting formal Iraqi government approval of the aid deal before submitting it for rubber stamping by U.N. Secretary General Kofi Annan in New York.
At the New York Mercantile Exchange, gasoline lost ground ahead of oil inventory data that traders expected would show a two million barrel increase in gasoline supply, though dealings were thin ahead of the Christmas holiday.
"Traders are looking for a build in gasoline. We have a half-day tomorrow, so position-squaring was done today ahead of the holiday," said a petroleum dealer on the trading floor.
January gasoline settled 0.48 cent a gallon lower at 55.22 cents.
After the close of trading, the American Petroleum Institute said gasoline stocks rose 92,000 barrels in the week ended December 19.
But crude oil bucked the trend, closing 1 cent higher at $18.33 for February delivery. Crude oil stocks dropped by 4.64 million barrels, much as expected.
Distillate stocks, composed of heating oil and diesel, fell by 2.01 million barrels, also as expected.
Forecasts for warm weather in the U.S. Northeast, the world's largest heating oil market, cooled heating oil futures. January heating oil ended 0.42 cent a gallon lower at 50.73 cents.
The National Weather Service's six- to-10 day forecast starting December 28 called for above-normal temperatures in the U.S. Northeast.
Abroad, an increase in tensions between the United States and Iraq in the oil-rich Middle East Gulf helped keep crude prices steady.
The Iraqi military is moving its air defenses around in a manner that could spell danger to U.S. planes, the Pentagon said Tuesday.
Last month, Iraq threatened to shoot down American U-2 spy planes during a confrontation with the United States and the United Nations over whether Americans should take part in U.N. teams seeking weapons of mass destruction in Iraq.
The United States has deployed 29,800 troops in the Gulf region and has repeatedly refused to rule out military action if Iraq does not comply with the U.N. inspections regime.
Still, major players were seen avoiding large positions with NYMEX closing early Wednesday for Christmas Eve at 1300 EST (1800 GMT) and remaining closed Thursday for Christmas Day. NYMEX will have regular hours Friday.
REFERENCES
Charts: oilworld.com
NYMEX Reference quotewatch.com
North American Rig Count
The number of rigs exploring for oil and natural gas in the United States stood at 1,007 as of Tuesday, down 12 from Friday and 156 above the year-ago total of 851, Baker Hughes Inc. reported.
The number of rigs drilling on land fell by 12 to 852, while rigs working offshore remained at 131. The number of rigs active in inland waters remained at 24.
Among the individual states, the biggest changes occurred in Texas, down 13, and Wyoming, up three.
The Gulf of Mexico rig count fell by one to 128.
The number of rigs searching for gas fell by eight to 646, the number of rigs searching for oil fell four to 357, while the number of miscellaneous drilling projects remained at four.
There were 237 rigs drilling directionally, 65 drilling horizontally and 705 drilling vertically.
In Canada, the number of working rigs remained at 493, versus 404 one year ago.
The weekly rig count reflects the number of rigs exploring for oil and gas, not those producing oil and gas.
FEATURE STORY
Tallisman expands in Indonesia
Asia economic woes won't hurt project, says Buckee
Stephen Ewart, Calgary Herald
Talisman Energy Inc. has expanded its operations in Indonesia with the signing of a production sharing contract covering an exploration block offshore Madura in the Java Sea.
"The (contract) is on trend with a number of significant oil and gas discoveries and we are very excited about the potential," Talisman president Jim Buckee said in a statement Monday.
The Calgary-based company described the 4,246-square-kilometre block as a "high potential exploration acreage in a proven hydrocarbon basin. "
There were no projections for reserves or potential production targets from Madura, but Talisman said it expects a review of "the extensive seismic data" from the block will identify additional exploration potential.
Talisman, which holds a 100-per- cent working interest in the block, plans to drill its first well on the acreage in 1999.
Although currency problems have wreaked havoc on the economies of southeast Asia in recent months Buckee expressed confidence the region's monetary woes wouldn't hurt the project.
"We have no hesitation about increasing our portfolio in Indonesia because sales are denominated in U.S. dollars and the fiscal regime for the oil and gas industry has been very stable over many years," he said.
No financial details of the contract were released.
Of the 225,000 barrels of oil equivalent Talisman currently produces daily, about 30,000 barrels are from its operations in Indonesia.
Martin Molyneaux, an analyst with FirstEnergy Capital Corp., said the fiscal regime in Indonesia "almost demands" that a foreign company expand its operations to get the maximum benefit for its investment.
"It certainly makes sense that, if they can see prospective acreage come their way, they can run their economics with relatively low finding costs and it's very, very profitable," he said.
Talisman is already teamed with Gulf Canada Resources Ltd. on the $600 million US Corridor Block gas project on the island of Sumatra.
The project is expected to eventually produce 300 million cubic feet of gas a day. First production from Corridor is expected by September.
Gulf has a 54 per cent interest in the project and is the operator. Talisman has a 36 per cent stake.
The remaining 10 per cent is held by Pertamina, Indonesia's state-owned oil company.
INDEXES
The Toronto 300 Index benchmark fell 0.6% or 42.48 to 6553.05.
In comparison, the Oil & Gas Composite Index slipped 0.7% or 48.32 to 6478.30. Among the sub-components, the Integrated Oils fell 1.0% or 91.55 to 8990.30. The Oil & Gas Producers fell 0.7% or 41.81 to 5663.34. The Oil & Gas Services reversed the trend, gaining 0.2% or 6.09 to 2887.46.
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To All,
M E R R Y......C H R I S T M A S ------------ H A P P Y......H O L I D A Y S
Tis Christmas Eve and now is the time to stop my mouse from stirring.
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