MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING THURSDAY, MARCH 19, 1998 (2)
Oil Wipes Out Gains After Venezuela Catalyst
LONDON, March 19 - World oil prices ran out of steam on Thursday, wiping out earlier gains after an upward assault from nine-year lows on Venezuelan calls for an agreement among all oil producers to cut output.
The world benchmark grade, Brent blend crude opened nine cents higher in London at $13.20 a barrel, surged to a high of $13.52, but slumped by the close of trading as dealers liquidated positions despite positive headlines.
Iraqi Oil Minister Amir Muhammed Rasheed's remarks that Baghdad would act with other OPEC and non-OPEC producers in the coming weeks to stabilise oil prices pushed Brent up to mid $13.40s before the sell off began.
''There are intentions to discuss actions,'' Rasheed said without elaborating.
At 2030 GMT, May Brent settled at $13.11, unchanged from Wednesday's floor settlement.
''Venezuela's comments acted as a catalyst for the market's run up,'' said Tony Machacek, a broker at Credit Lyonnais Rouse.
Venezuela, a member of the oil cartel the Organisation of the Petroleum Exporting Countries (OPEC), said it was seeking agreement between OPEC and non-OPEC producers to withdraw up to two million barrels per day (bpd) from the world market to boost prices.
Luis Giusti, the head of Venezuela's state oil company, said on Tuesday that his country had contacted oil producers both inside and outside OPEC to discuss the proposal.
But Venezuela's move was treated with some scepticism by oil market players.
Venezuela, which has dismissed OPEC's quota system as outdated, said it would only cut from its current production level. The country produces well above its long-ignored OPEC quota.
''Venezuela doesn't recognise OPEC quotas, why all of a sudden should they bother about production levels?'' asked one Brent dealer. ''This won't be easily achieved, these countries do not have a track record in co-operation.''
Non-OPEC producer Norway said it had not had any contact with OPEC regarding a meeting, but Oman said it would be prepared to cut if OPEC members did the same.
''Venezuela is serious about this and there have been some private contacts but there is no formal agenda or proposal at this point,'' one OPEC insider said.
Reports by Mexico's local media that Mexico's Energy Minister Luis Tellez would be visiting Europe for talks with international oil figures to discuss the price slump were denied on Thursday.
''I spoke with the minister on the phone just now and he told me that he left for Europe yesterday like any ordinary citizen with no plans to meet with anyone about oil,'' ministry spokesman Octavio Mayen told Reuters.
But the chief of Mexico's oil monopoly, Petroleos Mexicanos (Pemex), joined the lobby for oil cutbacks when he said oil producing countries should temper output in the face of plummeting prices.
''It is time for producers, all producers, to modulate supply,'' Pemex Director Adrian Lajous told an audience in the southern state of Tabasco.
The proposed cut-backs could have a rejuvenating affect on what has been a weak market since October.
''If two million barrels were cut-back, it would have a stabilising affect. We could see Brent hitting the $15-16 range. It would lead to a reasonable recovery,'' said Machacek.
The calls for a reduction in production had stabilised prices in the short-term, dealers said.
''There has been some stabilising effect, which could continue for the coming week. But it is still a question whether Brent can sustain levels above $13.50,'' he said.
Analysts earlier predicted oil prices below $10 a barrel due to the oversupply of between one and two million bpd.
OPEC alone pumped 1.2 million bpd above its self-imposed quota in February according to a Reuters survey, while non-OPEC members have also seen growing output.
OPEC has rarely looked in more disarray and last week announced a two-week delay in a market review meeting.
Venezuelan oil minister Erwin Arrieta said on Wednesday that he would attend the rescheduled market monitoring committee on March 30.
OPEC had issued invitations to all of the group's oil ministers to attend the meeting before its postponement from March 16.
That had momentarily raised market expectation that a full OPEC meeting may have been on the cards to thrash out a strategy to combat the fall in prices.
But an OPEC official on Thursday said that no other OPEC oil minister other than those on the committee had said they would attend.
By late Thursday, Iraq's Rasheed, in Monaco for a conference, said he hoped to attend OPEC's March 30 meeting but if he did not go, then some other senior Iraqi official would attend.
The group's linchpin producer Saudi Arabia is locked in a dispute with Venezuela and has hinted that it will not support holding emergency talks while others cheat on their quotas -- a remark aimed at chief violator Venezuela.
But Venezuela has refused to cut a single barrel as part of an OPEC-only deal.
The oil glut this winter has coincided with faltering demand from cash-strapped Asian buyers, warm winter weather in the West and brimming oil storage tanks.
Further agony is in prospect later in the year when a United Nations plan to more than double the value of its oil-for-food deal with Iraq will see several hundred thousand barrels of extra oil inundating markets.
NYMEX Crude Ends A Bit Lower, Trades Mostly Upside
NEW YORK, March 19 - NYMEX April crude contract finished at $14.31 a barrel Thursday, off three cents on the day, as the market gave ground slightly after a big rebound Wednesday.
April heating oil settled at at 40.75 a gallon, down .30 cent. April gasoline finished off .10 cent at at 48.55 cents a gallon.
April crude peaked at $14.66, better than Wednesday's high of $14.50, and the market was on the upside most of the session, seeking to break up to new highs.
The May contract closed up one cent at $14.60 a barrel, after hitting a high of $14.99.
News from OPEC continued to boost trading. Short-coverings ahead of the Friday expiration of the April contract persisted, traders said.
Traders said the market gained on Venezuela's plan to seek OPEC and non-OPEC oil producers to withdraw up to two million barrels of oil per day to boost prices.
Market watchers said the plan was difficult to carry out and said concrete steps were needed to be taken to reduce oil output.
A meeting of the OPEC market monitoring committee is scheduled for March 30 in Vienna and some analysts said it could be the launching pad for discussions on cutting oil production.
Venezuela's Energy and Mines Minister, Erwin Arrietta, has said he would attend the meeting if other ministers were going.
But an OPEC official said that only ministers of the MMC would attend the meeting, again dashing hopes that a full OPEC meeting could be held to address the oil situation.
OPEC ministers from Kuwait, Nigeria and Iran, which chairs the committee, make up the MMC.
Other developments on the oil front were supportive.
From Monaco, Iraqi Oil Minister Amir Muhammad Rasheed said on Thursday Iraq would act with other OPEC and non-OPEC producers in coming weeks in order to stabilize the oil market.
Earlier, Mexican Energy Minister Luis Tellez flew to Zurich to discuss oil prices with European and Arab nations.
The news came after Adrian Lajous, chief of Petroleos Mexicanos (Pemex) on Wednesday urged all oil producing countries to temper their output in the face of plummeting prices.
Mexico is currently producing 3.2 million barrels per day (BPD), up from 3.06 million BPD in December, according to Lajous.
Rasheed's statement is ''certainly positive,'' said a NYMEX floor trader. He quickly added, however, that, ''It's rhetoric at this point, but it gives hope to the market.''
Iraq produced 1.893 million barrels per day (BPD) in February, up from 632,000 barrels above its January output, according to OPEC.
Iraq, which has a notional allocation of 1.312 million BPD from the OPEC, resumed exporting oil in January under the third phase of its food-for-oil deal with the United Nations.
The U.N. last month approved an increase in the amount that Iraq can export under the deal to $5.26 billion every six months from $2 billion currently. The revenues from the scheme are given to Iraq citizens to meet their humanitarian needs.
A U.N. team is currently in Baghdad to determine Iraq's export capacity. Iraq has maintained it can only export about $4 billion every six months because of the current state of its oil facilities.
The U.N. team is expected to report on the U.N. Security Council in the first few days of April on how much repairs will be needed to adjust Iraq's export capacity to meet the new monetary target.
The U.N. raised the oil-for-food monetary target shortly before for U.N. Secretary General Kofi Annan went to Baghdad in February to negotiate an arms-inspection agreement with Iraqi President Saddam Hussein.
He clinched the deal on February 23 guaranteeing unfettered access by U.N. teams to suspected sites of weapons for mass destruction in Iraq, including eight presidential sites.
The agreement aborted a U.S.-led coalition's air strikes against Iraq, a move the U.S. had threatened in the face of Iraq's blocking of inspection of the suspected weapons sites in violation of U.N. sanctions as an aftermath of the 1990 Gulf war.
The expected increase in Iraq oil exports in the summer is deemed bearish for the market in the face of a current global glut.
NYMEX Natural Gas Ends Up On Technicals, Firmer Cash
NEW YORK, March 19 - NYMEX Hub natural gas futures ended higher across the board Thursday in a fairly active session, driven by reports of a firmer physical market and more technical buying after yesterday's break to the upside.
April climbed 6.1 cents to close at $2.30 per million British thermal units after trading today between $2.215 and $2.305. May settled 5.8 cents higher at $2.316. Other months ended up one-half to 5.9 cents.
''They tried to break it down this morning, but when the sell pressure dried up, everyone jumped on it. The AGAs lent some support, and there's some colder weather coming,'' said one Midwest trader, adding some buy stops were hit above $2.29 (basis April).
Most agreed bullish weekly inventory data and forecasts for colder weekend weather helped fuel the buying spree, but with stocks still 218 bcf over year ago and milder spring temperatures just around the corner, some expect further upside to be difficult.
Temperatures across much of the nation are expected to dip to below normal Friday and continue into early next week, but a return to normal or above is forecast for later in the week.
Technical traders said April's close Wednesday above key resistance at $2.205 was bullish and could lead to a test of next resistance in the $2.35 area. Interim support was now seen in the $2.20 area, with major support still pegged at the recent low and double bottom at $2.105. Further buying was expected at $2.06 and $2.00.
In the cash Thursday, Gulf Coast quotes firmed several cents to about the $2.20 level. Midcon pipes gained a similar amount to the high-teens. Chicago city gate gas climbed almost a nickel to the low-$2.30s, while New York was five cents higher at about $2.50.
The NYMEX 12-month Henry Hub strip gained 3.8 cents to $2.421. NYMEX said an estimated 72,113 Hub contracts traded, up from Wednesday's revised tally of 69,918.
U.S. Spot Natural Gas Prices Follow Futures Higher
NEW YORK, March 19 - U.S. spot natural gas prices chased futures higher Thursday as colder weather swept across the U.S., spurring additional short-term demand, industry sources said. Henry Hub cash prices were quoted at $2.22-2.28 per mmBtu from about $2.20-2.22 on Wednesday. Meanwhile, April futures rose to a high of $2.29 before settling back to about $2.27-2.28 this afternoon.
Similarly in the Midcontinent, prices were quoted three cents higher at $2.16-2.18, while Chicago city-gate recovered about five cents to $2.32-2.35.
In the western Texas market, Permian Basin prices tacked on three cents to $2.07-2.10, and San Juan prices were quoted mostly at $2.04.
In the Northeast, where temperatures were near to slightly above normal, New York city-gate prices stepped up to the high-$2.40s to about $2.50 from Wednesday's quotes in the mid-$2.40s. Appalachian prices on Columbia were also firmer at $2.36-2.37.
Canada Spot Natural Gas Prices Extend Gains In Alberta
NEW YORK, March 19 - Canadian spot natural gas prices in Alberta edged higher Thursday amid fairly tight supplies, industry sources said.
Spot gas at the AECO storage hub in Alberta was quoted at C$1.78-1.79 per gigajoule, up about two to three cents from Wednesday.
April AECO also firmed to C$1.76-1.77, while summer business tacked on additional gains to C$1.77-1.78.
''People are starting to feel like the field receipts are not going to show up this summer,'' one Calgary-based trader said.
Short-term forecasts in southern Alberta are calling for highs of about three degrees Celsius through the
weekend.
Meanwhile, withdrawals in the west totalled 589 million cubic feet per day on Thursday, a trader said.
At the export market, prices at Sumas, Wash., were talked at US$1.38-1.42 per million British thermal units (mmBtu), up about two cents from Wednesday.
In the east, Niagara prices were quoted at US$2.38-2.42 per mmBtu, indicating a gain of about two cents from Wednesday, in tandem with a mild uptick on NYMEX.
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