MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY, JANUARY 5, 1998 (4)
OIL AND GAS
NYMEX
Crude oil futures prices tumbled Monday to the lowest level in more than two years on the New York Mercantile Exchange amid perceptions that Iraq's return to world oil markets will boost already ample supplies.
February light sweet crude oil settled down $0.54 to $16.89.
Heating oil and unleaded gasoline futures also fell sharply.
Energy futures have been retreating for weeks following the Organization of Petroleum Exporting Countries' decision to raise the daily output ceiling for member countries by nearly 10% -- at a time when many already have been exceeding their quotas.
That pressure has been intensified with a decision by the United Nations to allow Iraq to continue exporting oil to buy food and medicine under an exception to an embargo imposed after Iraq's 1990 invasion of Kuwait. Iraq is allowed to export $2.1 billion in oil, amounting to about 1% of world output. The U.N. is, however, considering boosting the amount that can be exported.
The increased world output normally would be ignored by market participants, since demand in the past year has been exceeding supply. But some investors are worried that the economic crisis in many Asian nations will sharply reduce demand from a region that had been showing the biggest growth in petroleum demand, said analyst Gerald E. Samuels at ARB Oil Inc.
"The bigger picture is what's causing the problem," Mr. Samuels said. "We are clearly seeing more production from both OPEC and non-OPEC countries, which was fine as long as the demand was there. But if demand is slackening, we have a big problem."
Heating oil fell amid continued weak demand for the fuel in the Northeast, the region that most uses it to heat homes. Temperatures throughout the fall and early winter have been far above normal, allowing many homeowners to cut back on heating use.
Gasoline futures retreated on the weakness on other markets and as cargoes from Europe continued to reach New York ports, at a time when driving demand is at its lowest.
February natural gas settled up $0.054 at $2.207.
REFERENCES
Charts: oilworld.com
NYMEX Reference quotewatch.com
MARKET ACTIVITY
Canada energy stocks slide along with oil prices
Canadian oil and gas stocks were hammered on Monday as world crude oil prices slid to their lowest level in two years.
The Toronto Stock Exchange's oil and gas subindex was down more than 107 points, or 1.62 percent, to 6519 points in morning trade, with producers, integrateds and service stocks all dropping by similar percentages.
''It's purely commodity price-driven,'' said analyst Ken Faircloth of Goepel Shields & Partners. ''You just can't fight it -- there's really no economics. We're bearish on the oils in the short term.''
After sliding steadily for weeks, NYMEX crude oil was off 36 cents on Monday to US$17.07 a barrel. World markets grew jittery over possible oversupply this year, with more Iraqi crude expected to be sold shortly and an increase in the Organization of Petroleum Exporting Countries (OPEC) production ceiling.
Forecasts of warm weather in the eastern United States also raised concerns about the possibility of lower heating oil demand this winter.
Despite Monday's drop in the Canadian integrated oil subindex, those four companies -- Imperial Oil Ltd (AMEX:IMO - Toronto:IMO.TO), Shell Canada Ltd (Toronto:SHC.TO), Petro-Canada (NYSE:PCZ -Toronto:PCA.TO) and Suncor Energy Inc (NYSE:SU - Toronto:SU.TO) -- represented a safer haven for investors in the next few months if commodity prices stayed low, Faircloth said.
''The integrateds have pretty clean balance sheets, whereas the producers are highly leveraged, and they're becoming more highly leveraged relative to declining estimates of cash flow,'' he said.
He said many producers would undoubtedly cut their 1998 capital spending budgets to reflect lower expected cash flow and projected difficulties in raising cash in equity markets.
''That's going to reduce the estimates again because it's going to affect production volumes.''
Producers taking big stock price hits on Monday included Talisman Energy Inc (NYSE:TLM - Toronto:TLM.TO) down 1.60 to 42.40, Canadian Occidental Petroleum Ltd (AMEX:CXY - Toronto:CXY.TO), down 1.40 to 30.40, Canadian Natural Resources Ltd, (Toronto: CNQ) off 1.80 to 29.00 and Remington Energy (Toronto:REL) down $1.50 to $23.70.
Petro-Canada (PCA/TSE), was down 60› to $24.70, on volume of 579,912 shares. Nova Corp. (NVA/TSE), down 20› to $13.30, on volume of 1.8 million shares. Ranger Oil Limited (RGO/TSE), down 60› to $9.05, on volume of 537,173 shares. Unusually warm global temperatures attributed to El Nino have contributed to depressed oil and gas prices. Natural gas prices have fallen 41% since late October, due mainly to higher-than-normal temperatures in large markets like New York and Chicago. According to the American Gas Association, natural gas inventories were 5.1% higher than a year ago in the week ended Dec. 26.
U.S. Oil Service Companies Sink With Energy Prices - Analysts
Oil service stocks declined as a group on Monday, dragged down by declining energy prices.
''It's the price of oil -- pretty simple,'' said Gordon Hall, a Credit Suisse First Boston analyst, by way of explanation.
Earlier Monday, the front-month February contract traded below $17 a barrel for the first time since October 1995. And U.S. spot natural gas prices softened as warmer-than-normal weather dampened demand for incremental supply.
''Right now you're at the mercy of supply in the crude market and demand in the natural gas market,'' said Stephens Inc analyst R. Michael Henzi.
Tidewater Inc (NYSE:TDW) was off 3-3/16 at 50-5/16 in late-afternoon trading. Halliburton Co (NYSE:HAL) was off 2-3/4 at 48-1/2, Global Marine Inc (NYSE:GLM) was down 1-1/16 at 23-1/8, and Schlumberger Ltd (NYSE:SLB) was off 2-14/16 at 77-13/16.
The Standard & Poors oil drillers index was down 4.30 percent.
Henzi said the commodity price declines contributed to a continuing downward trend for stock prices in this sector than beganMin late October, when the group was perceived as having become overvalued.
WORKING RIGS FALL 125 TO 368 IN CANADA THIS PAST WEEK
North American Rig Count (repeat Article)
The number of rigs exploring for oil and natural gas in the United States stood at 1,003 as of January 2, down three from the previous week, and 158 above the year-ago total of 845, Baker Hughes Inc reported.
The number of rigs drilling on land fell by one to 851, while rigs working offshore fell by two to at 129.
The number of rigs active in inland waters fell by one to 23.
Among the individual states, the biggest changes occurred in Oklahoma, down by 13, and in Texas and Ohio, both up by seven.
The Gulf of Mexico rig count fell by two to 126.
The number of rigs searching for gas fell by 13 to 633, the number of rigs searching for oil rose by nine to 366, while the number of miscellaneous drilling projects remained at four.
There were 235 rigs drilling directionally, 58 drilling horizontally and 710 drilling vertically.
In Canada, the number of working rigs fell by 125 to 368 versus 358 one year ago.
The weekly rig count reflects the number of rigs exploring for oil and gas, not those producing oil and gas.
Reference: bakerhughes.com
INDEXES
The Toronto 300 Composite Index rose 0.5% or 30.72 to 6742.10.
In comparison, the Oil & Gas Composite Index fell 2.6% or 174.34 to 6451.75. Looking at the sub-components, the Oil & Gas Producers took the blunt of the blow, losing 3.0% or 175.20 to 5680.27. The Oil & Gas Services didn't fare much better, losing 2.9% or 88.44 to 2968.21. The Integrated Oils continued their strong slide downward for the past few trading days, falling 1.7% or 152.10 to 8735.09.
INDEX CHARTS
TSE 300.............. chart.canada-stockwatch.com
O&G Composite. chart.canada-stockwatch.com
Integrated Oil's.... chart.canada-stockwatch.com
O&G Producers.. chart.canada-stockwatch.com
O&G Services..... chart.canada-stockwatch.com
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