MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING WEDNESDAY, FEBRUARY 25, 1998 (2)
CRUDE OIL & NATURAL GAS INFORMATION
WORLD
Oil Recovers Slightly, Focus Still On Iraq
Reuters
Sickly world oil prices staged a mild recovery on Wednesday as traders kept a wary eye for details of the deal between Iraq and the United Nations over arms inspectors.
Market action was mainly sideways for the last two hours of London trade, dipping a few cents just before the close. Volume was light after trading was halted on the New York Mercantile Exchange (NYMEX) at 1850 GMT due to faulty telephone lines.
The Exchange did not reopen before London's IPE closed at 2015 GMT. NYMEX reopened from 2040 to 2045 GMT in order to determine the closing prices.
''There was nothing happening here. NYMEX went down and everyone here was just waiting to see if they would fix the phones before the close. It's been a boring end to a pretty boring day,'' one London based futures broker said.
Brent crude futures for April ended the day at $13.95 a barrel, a gain of eight cents on the day. Brokers said the market was still looking for direction following a sell-off on Monday when Washington gave cautious backing to the Iraq weapons inspections pact.
''The bad news is supposedly over, but everyone is waiting for someone else to make the first move,'' said one trader.
Crude prices crashed below the psychologically important $14 barrier on Monday after President Bill Clinton tentatively endorsed the agreement between U.N. Secretary-General Kofi Annan and Iraqi President Saddam Hussein.
The agreement allayed immediate worries of a U.S. military attack on Iraq which traders had feared would lead to a cut in Iraqi oil exports.
Washington has since raised doubts about the way the accord was negotiated and is seeking clarification about some aspects of the agreement.
U.S. and British diplomats want to be assured that new procedures for investigating eight presidential sites do not bypass the U.N. Special Commission, which is in charge of scrapping Iraq's weapons of mass destruction.
''We are still working through some issues, particularly on how the agreement will be implemented...That will be going on today in New York,'' said White House spokesman Joe Lockhart.
Washington's doubts emerged on Tuesday when U.S. Secretary of State Madeleine Albright said there were ambiguities in procedures for checking the sites which are suspected of housing weapons.
Oil traders said the markets remained sceptical the pact has resolved the dispute, with many players expecting hitches in the inspections to soon emerge.
''People anticipate problems. Saddam Hussein is extremely unlikely to hand over all his arsenal to the inspectors,'' said one dealer.
U.S. stock figures on Tuesday showed a 1.86 million barrel build in crude oil stocks last week, despite a decline in refinery runs.
Distillate stocks dipped 1.2 million barrels but this was mostly discounted by traders with a stock drop usually expected for this time of year and year-on-year inventories still high.
NYMEX
Crude Oil
NYMEX Crude Ends Up At $15.45/bbl On Short Covering
Crude oil futures bounced higher Wednesday on short-covering, traders said, though much of the afternoon session was lost as the market was shut down due to a telephone fault in New York.
NYMEX trading was halted at 1350 EST/1850 GMT and reopened at 1540 EST/2040 GMT, except for natural gas, for five minutes to close the session. The halt affected both NYMEX and its metals division, COMEX.
Front month April crude, which was on a slight rebound when faulty phone lines forced the trading halt, ended the day up 14 cents at $15.45 a barrel, down from a high of $15.68.
Just before the halt, crude was up 21 cents at $15.52 a barrel, to which it climbed after hitting an intraday low of $15.33.
March heating oil settled up 0.41 cent at 43.08 a gallon, down from the day's high of $43.80, as late Tuesday's American Petroleum Institute data showed a draw of 2.63 million barrels of distillates, chiefly heating oil, for the past week.
March gasoline closed down 0.18 cent at 47.38 a gallon, off the day's high of $47.90. API reported a build of 1.618 million barrels of gasoline for the past week.
April Brent futures in London was up 12 cents at $13.95 a barrel at the close, losing six cents in the laxt half hour of trade.
''It was a day of short-covering and some profit-taking on the side,'' said Refco Energy Group analyst Tim Porter.
He doubted if crude futures would have gone higher had trading not be halted.
''We would have traded at about the same levels had there been no disruption,'' he said.
Apart from short-covering, trades were still affected by fundamentals, chiefly the current oil glut.
''We are swimming in oil and traders are wondering what OPEC will do about it,'' he said.
OPEC members set an output ceiling of 27.5 million barrels of oil a day in November, but current production is more than 28 million barrels, in part caused by overproduction of some members of the cartel.
Saudi Arabia, the cartel's lynchpin and the world's largest oil producer, had asked members to adhere to the quotas. But the main target of that overture, Venezuela, balked and said would not reduce production.
A U.N.-brokered accord between Secretary General Kofi Annan and Iraq on arms-inspection has for the time being diffused the possibility of airstrikes against Iraq, but doubts have been raised by the U.S.
At the United Nations, Britain and the United States tried to get divided Security Council members to endorse an arms inspection agreement negotiated by Secretary Genreal Kofi Annan with Iraq. Both Britain and U.S. want to threaten force if Baghdad violated the agreement, according to diplomats.
Natural Gas
Natural Gas Ends Up
Natural gas futures, helped by a late flurry of short covering and cooler weather next week, ended up today in a delayed session, but Wednesday's weekly inventory report was seen as neutral to bearish, traders said.
March expired seven cents higher at $2.286 per million British thermal units after rallying late to $2.31. April settled 5.6 cents higher at $2.318, then eased slighty on ACCESS to $2.315 after the AGA report. Other months ended up by one to 4.9 cents.
"We saw some late short covering in March, and the funds are starting to buy April," said one East Coast trader, noting a cool front expected later next week for most of the nation helped fuel some buying despite overall bearish fundamentals.
Local phone problems today halted all NYMEX activity at 1350 EST. The exchange reopened natgas futures trade at 1700 EST for 25 minutes, then decided to run an abbreviated ACCESS session from 1815 to 1900 EST. Natural gas ACCESS trade normally runs from 1600 to 1900 EST.
Most agreed Wednesday's 77 bcf weekly AGA stock draw was neutral to bearish, noting the number was slightly below Reuter poll estimates in the 80-85 bcf range. Overall inventories are still 284 bcf, or 26.7 percent, above year-ago.
Eastern stocks a week ago fell 64 bcf and were 23.7 percent above last year. Consuming region west storage, which fell 10 bcf last week, slipped to eight percent over 1997 levels. Inventories in the producing region dropped three bcf for the week but climbed to 48.4 percent over year-ago.
Forecasts this week still call for mostly above normal U.S. temperatures, but cooler weather is expected to cover most of the nation next week, with levels expected to dip below normal.
With March now off the board, technical traders turned their attention to April, which also has been stuck in a range between $2.19 and $2.35 for the last two weeks. A close above the $2.35-2.355 gap should lead to a test of next resistance at the February high of $2.43. A break of $2.19 could drive prices to the $2.06 area, with major support seen at the January 13 prominent low of $2.00.
In the cash Wednesday, Gulf Coast swing quotes firmed four cents to the mid-to-high teens. Midcon pipes were up a similar amount to the $2.10-2.15 area. Chicago city gate gas also was four cents higher in the mid-$2.20s, while New York climbed to the low-$2.40s, up several cents on the day.
The NYMEX 12-month Henry Hub strip rallied four cents to $2.422. NYMEX said an estimated 60,643 Hub contracts traded in the shortened session, down from Tuesday's estimated tally of 74,272.
U.S. SPOT GAS
US Spot Gas Firms Ahead Of Cool Temperatures, March Expiry
U.S. spot natural gas prices for Thursday tacked on a few cents today, while March bidweek business followed closely behind, industry sources said.
Cooler weather is forecast to arrive this weekend in the Midwest and early next week in the East, Weather Services Corp (WSC) said.
Swing gas prices at Henry Hub were pegged mostly at $2.21-2.22, indicating a gain of two to three cents from Tuesday. March business at the hub clung to the expiring March futures contract around $2.24, traders said.
In the western Texas market, next-day Permian prices rose about four cents to $2.05-2.08, while San Juan values stepped up to $2.02-2.05. Southern California border prices were also a little higher in the low-to-mid $2.30s.
In the Midcontinent, next-day prices firmed four cents to about $2.12-2.13, with March quoted at the same level. Chicago city gate prices rose to about $2.25-2.26 for next-day business.
In the East, New York city gate prices followed Gulf values higher to the low-$2.40s, while Appalachian prices on Columbia were quoted at $2.30-2.31.
Separately, withdrawal estimates for today's American Gas Association storage report ranged mostly from 80 bcf to 85 bcf, according to a Reuters poll.
WSC forecasts throughout the month of March are calling for above normal temperatures in the Great Lakes, Northwest and California, and below-normal temperatures are expected to reach the Southeast, Florida and westward along the Gulf Coast through most of Texas. Normal weather is forecast elsewhere.
CANADA SPOT GAS
Canada Spot Gas Prices Unchanged In Sluggish Trade
Canadian spot natural gas prices failed to budge from last week's trading range on Monday amid continued warmer-than-normal weather and range-bound trade on NYMEX, industry sources said.
Spot gas at the AECO storage hub in Alberta was talked unchanged at C$1.62-1.63 per gigajoule (GJ), while March clung to about C$1.625. Summer business was quoted at C$1.64.
Temperatures in Calgary are expected to reach highs in the low-40s Fahrenheit (F) through Wednesday.
Export trading at Sumas, Wash., was also static at US$1.13-1.15 per million British thermal units (mmBtu).
In the eastern export market, Niagara gas prices remained in the low-to-mid US$2.30s per mmBtu amid temperature highs around 40 degrees F.
STATISTICS
Canada 1997 Crude, Natural Gas Production Rises
biz.yahoo.com
OIL & GAS REFERENCES
Charts
oilworld.com
oilworld.com
NYMEX
quotewatch.com
MARKET ACTIVITY
The oil's joined the market rally on Wednesday. The influence of a rallying market overcame the obstacle of low oil prices. Natural gas leveraged issues performed strongly. The top three O&G volume leaders on the TSE were Poco Petroleums (POC/TSE) up $0.10 to $14.25 on 2,054,800 shares, Archer Resources (ARC/TSE) up $0.10 to $7.60 on 1,477,600 shares and Petromet Resources (PNT/TSE) up $0.40 to $3.70 on 1,309,400 shares.
MAJOR INDEXES
The Toronto Stock Exchange 300 Composite Index finished up 0.8% or 53.85 to 7002.10.
In comparison, the Oil & Gas Composite climbed 1.2% or 74.48 to 6292.59. Among the sub-components, the Integrated Oils gained 0.6% or 49.83 to 8820.06. The Oil & Gas Producers rose 1.6% or 86.00 to 5538.33. The Oil & Gas Services gained 0.4% or 10.15 to 2556.10.
INDEX CHARTS
TSE 300.......... canoe.quote.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
NEW PHLX OIL SERVICE SECTOR
bigcharts.com.
lonestar.texas.net
HOT STOCKS
Prudential Steel closed up $0.70 to $13.70 after announcement of a robust earnings report. Genesis Exploration (GEX/TSE) gained $0.40 to $7.00 after issuing a report showing a 3X increase in reserves. Carmanah Resources (CKM/TSE) climbed $0.50 to $6.35 after they had announced earlier in the week that rigs were contracted for 1998 drilling in Indonesia
MOST ACTIVES
Excellent summaries of most actives covering, all four of the Canadian Stock Exchanges can be found at canoe.ca or quote.yahoo.com
REVIEWS - FORECASTS - BUY - HOLD - SELL
Long Term Outlook
T-Chek Systems LLC
I have recently received several Internet emails, faxes and phone calls inquiring about long-term outlook on petroleum markets and oil prices. Thanks for all of your correspondence. Let me admit the focus of my market analysis is for near/short term speculators, but given the interest in long-term positioning and price forecasting, I'll share my future vision of market direction and price volatility; at least through the 1998 year.
Long Term Out-Look: In relative terms, I surmise oil markets will hold their current day trend throughout 1998. Historical analysis leads me to forecast various spikes in underlying markets relative to seasonality and other market moving fundamentals (e.g. Driving season will promote bullish gasoline markets, Fall season will promote bullish heating oil and diesel markets, etc.). Such volatility throughout the year will advocate windows of buying and selling opportunities, but markets should not match trends experienced over the last 3-5 years.
Market values are likely to remain steady relative to low cost crude oil and an abundant world supply. Domestic and international markets are producing and managing healthy inventories, where the "shortage of product supply fear" is non-existent. Global oil values are hit hard as OPEC (Organization of Petroleum Exporting Countries) raised its production level to 27.5 million barrels per day; an increase of almost ten percent from 1997. News of extensions in OPEC quota's has dispirited oil prices around the world, leaving IPE Brent Crude and NYMEX Crude at rates not seen in years.
An excellent long-term price indicator might be the NYMEX heating oil contract. Near-month HEAT futures are available today in the 45 cents per gallon range, supported by low cost crude oil obtainable in the $16.25 bbl range. Long term, the November 1998 heating oil contract is being quoted in the 51.50 cents per gallon range; this compared to an average 57.50 cents per gallon for November heating oil in 1997; a substantial difference in future commodity value. Several analysts forecast extended bearish commodity values, with more confidence in price declines, than concern with upward volatility.
What to watch in the long-term? Supply-side economics. At some point, the abundance of supply, foreign countries selling low cost crude oil, and high domestic refining output will go away. When this happens, prices will move in an upward, "correcting" trend. Also, it might take an act of government (e.g. Gulf War, past implementation of LS diesel fuel, past tax increase, etc.) to move prices higher. Look at the situation in the Middle-East. If the U.S. diverts a military attack on Iraq, prices are expected to experience further declines. If the U.S. hits Iraq with a military attack, politics and supply concerns may recover some of today's lost values. As long as world production levels remain high and political (or governmental) influences are tame, petroleum prices should remain steady-to-lower.
Many organizations are locking in percentages of over-all fuel expenditures for future months to limit exposure to upside risk and volatility. On the other hand, several organizations are holding out on fixed-price applications to follow future market trends. Anticipated lower values will limit any downside risk detectable in the market. Future oil prices are under siege by high levels of production and are most likely to remain at lowly levels, capped by massive global petroleum stocks.
Gordan Capital
Encal Energy Ltd. (ENL-T:$5.25) BUY
Reported fully diluted CFPS for the year ended December 31, 1997 of $0.77 vs. $0.62 - in line with expectations. On a proven plus probable basis, Encal added 28.9 million boe's of reserves (3.5X annual production) at a finding and development cost of $5.46/boe ($6.92/boe proven only.) Based on the new reserve data we currently estimate Encal's NAVPS to be $4.45. Natural gas production was up 23% year-over-year to 130 mmcf/d, while oil and liquids production increased by 28% to 9,416 bbls/d. We are forecasting 1998 average production of 28,000 boe/d (gas 155 mmcf/d and oil and liquids 12,500 bbls/d). Encal achieved a 1997 year-end exit rate of over 26,000 boe/d. Our fully diluted CFPS forecast is $0.90 in 1998 and $1.10 in 1999 --based on a 1998 WTI forecast of US$18.50 in 1998 and US$19.00
in 1999. Each US$1.00 decline in WTI reduces fully diluted CFPS by approximately $0.05 in both 1998 and 1999. We maintain our BUY recommendation on Encal Energy with a 12-month stock price target of $6.00.
Goepel Shields Research
Encal Energy Ltd (ENL - $5.30)
Recommendation: HOLD 12 Month Target Price: $5.75 (BUY under $4.75)
1997 Q4 Results - CF Slightly Lower Than Expected;
Better Than Expected F&D Costs ($6.92/BOE Proven)
Encal Energy released its 1997 Q4 results Tuesday. The results for the fourth quarter of 1997 were slightly lower than expected at $0.22 f.d. cash flow per share compared to our estimate of $0.26. This was primarily due to receiving a gas price of only $2.01/Mcf compared to our expectations of $2.10/Mcf and slightly lower gas production due to problems with Westcoast. Nevertheless, the Company did deliver financial and production results were fairly close to our expectations for 1997.
Encal also reported excellent F&D costs of $6.92/BOE proven ($6.20/BOE proven & 50% probable) resulting in a 44% increase in total reserves. The 1997 proven F&D cost is a 12% improvement over the results of $7.85/BOE achieved in 1996. To date, Encal's F&D cost performance is amongst the best for producers that have reported. The next best F&D cost was AEC with a proven F&D cost of $7.60/BOE. Encal's F&D cost performance enabled the Company to increase its 1997 after-tax NAV by 17% to $4.66 ($19 WTI) per share on a fully diluted basis compared to $4.00 in 1996. This is very good growth in a year characterised by high costs.
Other highlights for the 1997-year include:
G&A costs down 15% to $1.07/BOE compared to $1.26/BOE in 1996. Operating costs were held constant at about $4.28/BOE in 1997. Production increased by 26% to 22,436 BOE's/D compared to 17,803 BOE's/D in 1996.
The balance sheet remains strong as the Company's year-end 1998 debt/cash flow is expected to be only 1.6x given an expected $100 million capital program. Our f.d. cash flow estimate for 1998 is $0.88 per share ($18 WTI oil price, $1.75/Mcf gas price) compared to $0.77 per share in 1997. Encal is able to show cash flow growth in 1998 due to hedging 20% of its liquids production at $20 WTI and rising production (27,500 BOE's/D in 1998).
As the stock has approached our target price of $5.75, our current recommendation is a HOLD. We would be buyers of the stock near the $4.75 level. We continue to like the fundamentals of the Company with:
60% of total production is leveraged towards natural gas (including NGL's).
1998 should be another year of growth with production increasing by 20% compared to 1997 production levels.
Its production profile emphasises light oil with some medium gravity production. There is no heavy oil production.
The Company enjoys competitive operating costs, which are to be about $4.25/BOE in 1997 in conjunction with G&A costs approaching $1.00/BOE.
Encal has delivered consistent F&D costs. The Company's 3-year average is $7.07/BOE proven. |
