MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING MONDAY, MARCH 30, 1998 (1)
OIL & GAS
Oil Slips On Doubts Over OPEC Pact Strength
LONDON, March 30 - World oil prices slipped further on Monday as OPEC ministers met in Vienna to ratify a bold pact with other oil producers to remove unwanted oil from glutted markets.
But the landmark accord which aims to trim more two percent from global supply was being judged as not tough enough by sceptical oil futures brokers, who knocked more than half a dollar off values.
World benchmark Brent blend crude lost 60 cents to stand at $14.80 a barrel at 1720 gmt on fear by the markets that OPEC could not do enough to hold prices.
The 11 members of the Organisation of Petroleum Exporting Countries have gathered to ratify their individual contribution to an agenda of cuts first outlined eight days ago in Riyadh.
As the meeting began Kuwaiti oil minister Sheikh Saud Nasser al-Sabah said he thought OPEC would agree cuts of between 1.25 and 1.3 million barrels per day, in line with expectations.
Norway, the world's second largest exporter, added weight to the deal by pledging on Monday to cut 100,000 bpd, taking the non-OPEC contribution to 270,000 bpd.
And Iran removed some of the shadow over the deal by pledging to make a real cut from current output rather than a fictitious trim from its notional OPEC ordained output level.
But total commitments of 1.5 million bpd were at the lower end of the 1.5 to 2.0 million bpd oversupply pressuring markets.
''It's not going to stick,'' said Gundi Royle, oil analyst at Deutsche Morgan Grenfell. ''They (OPEC) are just trying to stabilise the market.''
''The problem is the jury is still out on whether the Riyadh pact will actually change market sentiment,'' said Peter Gignoux of Salomon Smith Barney. ''We probably won't have an answer for two to three weeks.''
Brent prices jumped $2 a barrel when the accord between 11 OPEC and five non-OPEC countries came to light and are $3.00 above nine-years lows seen two weeks ago.
But despite recent gains it remains well below last year's average price of $19.32 and analysts say there is no inflationary threat to Western economies.
A Saudi oil source said the kingdom had already informed its crude oil customers that it would be implementing production cuts as of April 1, when the deal finalised in Riyadh a week ago should take effect.
And Venezuela cheered delegates gathering in hotel lobbies by confirming it had already tightened taps to help correct the glut.
Pre-meeting talk that Gulf producer Kuwait was pressing for larger reductions by some producers buzzed momentarily among delegates.
But the suggestion drew no immediate sign of support from OPEC kingpin Saudi Arabia, the world's largest producer and exporter.
A Gulf source said the conference was very unlikely to attempt to add to the cuts. ''If you have 1.5 million bpd from OPEC and non-OPEC then I think that is sufficient,'' he said.
This year's 40 percent price slump was caused by weak demand in cash-strapped Asian countries, a mis-timed decision to raise OPEC's production ceiling, a mild northern hemisphere winter and increased Iraqi exports.
Robert Priddle, the International Energy Agency's (IEA) executive director, told Reuters Financial Television last week that prices would tend to drift downwards due to the surplus even if the agreement held.
''The market overall in the second quarter in our calculations is going to be very amply oversupplied even if this cut takes place,'' he said.
Delegates to the OPEC meeting expect it would conclude late on Monday to avoid giving the impression of disarray.
''I expect them (OPEC) to conclude fairly quickly in order to project an image of decisiveness to the market,'' said Mehdi Varzi, oil analyst at Dresdner Kleinwort Benson.
NYMEX Crude Ends Off, Traders Wary Of OPEC Cuts
NEW YORK, March 30 - NYMEX May crude oil settled down 55 cents at $16.21 a barrel on Monday amid uncertainty among traders over exactly how much OPEC will cut production in its emergency meeting.
Early indications OPEC will cut between 1.25 million to 1.3 million barrels per day (bpd) are seen by traders as inadequate to lift oil prices.
Refined products, meanwhile, closed lower, with heating oil for April delivery off 1.27 cent at 44.18 cents a gallon. Front-month gasoline was down 1.61 at 51.97 cents a gallon.
''The market was quiet all day, with volume very thin,'' said a NYMEX floor trader. ''We're just waiting for word from OPEC.''
As of Monday, a total of 1.5 million bpd in production cuts has been pledged by OPEC and non-OPEC producers, with OPEC members carrying the brunt at 1.25 million bpd.
Mexico had earlier pledged 100,000 bpd and Norway added another 100,000 bpd for a total of 270,000 for non-OPEC producers.
Shortly before the opening of the OPEC emergency meeting in Vienna earlier Monday, the oil ministers of Kuwait and Libya said they believed OPEC's oil output reduction would be between 1.25 and 1.3 million bpd.
Jim Ritterbusch, a trader for Sweeney Oil in Chicago, said a 1.5 million bpd cut ''will not be enough to offset excess supply, but it will ease the situation for the present time.''
He said an oil production cut of about 2.0 million bpd is needed to offset the current oversupply picture.
But, 1.2 million bpd to 1.3 million bpd in total was ''better than nothing,'' said Ritterbusch, adding a cut of 1.3 million bpd should support crude oil prices around the $14 to $15 a barrel level.
Meanwhile, the International Energy Agency on Monday called Norway's joining the pact to cut oil production ''regrettable,'' because it was against the grain of free markets.
Robert Priddel, executive director of the oil industry watchdog group, said in a statement that as an IEA member Norway was committed to the agency's shared goals including establishing free and open markets.
Norway is the second largest exporter after Saudi Arabia and its promised cut of 100,000 bpd represents about 3.0 percent of its output.
It's oil minister last week recommended a cut of from 3.0 to 6.0 percent, but the proposal was shot down by opposition in the Norwegian parliament. Norway's minority government eventually got the backing of the Labour Party and won a majority to push the oil-output cut plan through.
Brent crude's end at more than 60 cents below Friday's settlement confirmed views that the proposed cuts would prove to be inadequate, traders noted.
Front-month Brent May closed 61 cents lower at $14.79 a barrel, just three cents off the session low.
NYMEX Hub Natural Gas Mostly Ends Higher, Cash Steady
NEW YORK, March 30 - NYMEX Hub natural gas futures mostly ended higher Monday in a fairly quiet session, still supported by a steady to firmer physical market despite the very mild weather covering the nation, industry sources said.
May climbed 5.7 cents to close at $2.409 per million British thermal units after trading today between $2.345 and $2.415. June settled 6.4 cents higher at $2.449. Most other months ended up by 0.2 to six cents, but some year 2000 contracts finished down slightly.
''There's no real fundamental support. Cash really didn't come along for the ride, and the weather isn't very bullish, but the funds were still buying today,'' said one Midwest trader, noting the market was technically overbought and due for a pullback. While many felt the market was overvalued, particularly with little or no weather-related demand expected in the spring shoulder period, few expected prices to crater any time soon, noting decent buying on dips. Forecasts early this week still call for East and Midwest temperatures of 20-30 degrees F above-normal, with cooler but still above normal levels expected later in the week. Texas is expected to drift on either side of normal for the period.
Chart traders said activity was likely to stay relatively quiet tomorrow until clearer signs from the cash emerge Wednesday with the onset of April flows.
They pegged May resistance at $2.435, with better selling likely at Monday's contract high of $2.46. Support was seen first at the $2.33 double bottom, with next support pegged at $2.30, the fifty percent retracement point. Major buying was expected at the $2.135 recent low.
In the cash Monday, Gulf Coast April quotes were flat to up slightly in high-$2.20s. April Midcon was little changed at about $2.20. Chicago city gate gas for April was a couple of cents firmer in the high-$2.30s, while April in New York was little changed in the mid-$2.50s.
The NYMEX 12-month Henry Hub strip firmed 4.5 cents to $2.516. NYMEX said an estimated 44,635 Hub contracts traded, down from Friday's revised tally of 79,154.
U.S. Spot Gas Prices Rebound Despite Mild Weather
NEW YORK, March 25 - U.S. spot natural gas prices defied warmer than normal weather forecasts Wednesday, as most prices tacked on about five cents from previous levels, industry sources said. Traders said most of the gas was moving westward.
Enron Corp [NYSE:ENE]'s Houston Pipe Line Co reported today it expected two of three gas compressors at its Bammel station in Texas, shut yesterday due to an operational problem, to be returned to service later today.
Henry Hub cash prices were quoted mostly at $2.33-2.34 per mmBtu, up from about $2.27-2.30 on Tuesday.
In the Midcontinent, prices regained three cents to the low-$2.20s, while Chicago city-gate prices were talked at $2.35-2.39.
Continuing warming trends across the U.S. showed temperatures in the Chicago area and southern plains about 12-22 degrees above normal, according to Weather Services Corp.
In western Texas, where temperatures were seen rising to about 80 degrees F this week, Permian Basin prices rose six cents to $2.11-2.15. San Juan prices jumped a similar amount to about $2.06.
In the Northeast, New York city-gate prices were talked at $2.53-2.57 as temperatures were expected to rise to 10-15 degrees above normal Friday through Sunday.
Meanwhile, withdrawal estimates for today's American Gas Association storage report have ranged mostly from 65 bcf to 75
Canada Natural Gas Prices Turn Stronger In Tight Supply
NEW YORK, March 30 - A shortage of supply and a heftier demand in the West pushed Canadian spot natural gas prices higher on Monday, traders said.
Spot gas at the AECO storage hub in Alberta was quoted at C$1.92-1.93 per gigajoule (GJ), up about eight cents from Friday, while April business was also reported done higher at C$1.91-1.92 per GJ.
Summer AECO prices followed suit, rising to about C$1.92, while one-year business was quoted about six cents higher at C$2.31. Winter prices were also seen higher at C$2.49-2.52.
''There's just not enough supply out there. Storage injections are still going on, Empress border was up 200 million (cubic feet per day), and there was no increase in field receipts,'' one Calgary based trader said.
Triggering additional demand from the U.S. Northwest were below-normal temperatures in California and the Rockies. However, forecasts are calling for milder weather in the Rockies as the week progresses and in California by Friday.
Meanwhile, temperatures in southern Alberta were forecast to reach a high of about 50 degrees Fahrenheit over the next few days, sources said.
In the export markets, prices at Sumas, Wash., for April delivery remained firm in the mid-US$1.40s per million British thermal units (mmBtu), also supported by some early spring heating demand.
In the east, April and next-day gas at Niagara sold mostly in the mid-US$2.40s per mmBtu, market sources said.
TOP STORIES
OPEC Conference Backs Landmark Oil Output Cuts
Reuters
OPEC oil producers Tuesday approved their first output cuts in years under a milestone pact to lower supply and raise prices in alliance with non-cartel petroleum powers.
An emergency meeting of the Organization of the Petroleum Exporting Countries backed the cuts as part of an agreement with non-OPEC exporters aimed at shaving about 2 percent off world production, oil ministers said.
"It is enough," Saudi Arabian Oil Minister Ali al-Naimi said after a seven-hour session sealed the 1.245 million barrel-per-day (bpd) OPEC contribution to the cuts.
"There is a general feeling that what we have is good, simple and logical in terms of supply and demand," said a senior Persian Gulf OPEC official.
The wide-ranging accord reached by Saudi Arabia, Venezuela and non-OPEC Mexico in the Saudi capital, Riyadh, on March 22 has garnered support from 10 of OPEC's 11 members plus non-OPEC Oman, Egypt, Yemen and Norway.
Non-OPEC countries have pledged cuts of 270,000 bpd, making a total of 1.5 million bpd in overall promised cuts as part of a package of reductions to lift prices after a long slump.
Oil markets' initial reaction to the accord was a firm thumbs down.
Nigel Saperia, managing director of oil trading at Bankers' Trust International, said: "To make a difference they have to do more than that, but it will take a month or two" before the results of any cuts would be felt.
"I still find it hard to believe that we have seen the low of the year."
U.S. light crude was around 10 cents down in overnight trade, and benchmark Brent crude earlier slumped 63 cents to close at $14.77 as the talks dragged on.
Other dealers had said before the accord was sealed that they would be looking for solid evidence of implementation in the weeks ahead.
A price fall of 40 percent from October to mid-March sliced billions of dollars off OPEC revenues, pummeled company stock values and sowed doubts about the viability of exploration in remote regions.
The slump was caused by weak demand in cash-strapped Asian countries, a 10 percent rise in OPEC's 1998 production ceiling, a mild Northern Hemisphere winter and increased Iraqi exports.
A communique delivered by an OPEC spokesman confirmed the group would cut 1.245 million bpd from recent output of 26.99 million bpd until the end of 1998.
The deal, excluding OPEC member Iraq, left the 10 remaining members of the cartel pledged to restrict supply to 25.74 million bpd.
The communique said an appeal was made to other non-OPEC oil exporters which have not yet offered reductions to support the market by moderating output.
Iran lent weight to the accord after the meeting when Oil Minister Bijan Zanganeh said his planned reductions would definitely remove Iranian oil from the market.
Its approach to the pact's detailed implementation had until then been unclear.
OPEC Fails To Wow Markets With Promises To Cut Production
Associated Press
OPEC is trying to push oil prices higher with promises to slash output, but emergency talks on reviving the weakest oil market in years appear at first glance to have backfired. Oil prices fell about 60 cents US a barrel on futures markets while oil ministers were plotting their response to the crisis - a far cry from the days when many traders were afraid to sell crude with OPEC in session.
Ministers looked glum and said little as they emerged early today from all - night negotiations. Oil inched even lower in after-hours computer dealings following the meeting. Light sweet crude oil to be delivered in May shed another 14 cents to trade at $16.07 a barrel on the New York Mercantile Exchange screens, adding to a drop of 55 cents during regular trading.
After years of failing to honor its production agreements, OPEC may have raised expectations too high by calling an emergency meeting right after announcing a round of production cuts, said Michael Rothman, an oil analyst from Merrill Lynch in New York.
OPEC came up with nothing new, and did nothing to ease concerns in the market that it might not even deliver on its original promises last week to cut output.
"There's still going to be a lot of oil around," Rothman said. But OPEC has succeeded in getting prices off the floor, at least for the short term. Oil futures prices rallied by around $2 per barrel last week and Monday's losses only partially erased those gains.
The real test will come in the next month or so, when independent analysts begin releasing estimates of how much oil OPEC is actually selling. OPEC was forced into action after prices plunged to a nine-year low following the group's ill-timed decision in November to raise production just as demand was eroding because of the Asian economic crisis and a mild winter.
The resulting cheap prices have been a windfall for oil consumers. Since peaking last September, prices at the gas pump in the United States have plunged an average of 25 cents a gallon.
But OPEC has lost some $15 billion through lower revenues, and other oil producers, from the North Sea to rural Oklahoma and Texas, are feeling the pinch as well.
OPEC got one thing right this time, gaining support from non-OPEC producers who traditionally have been reluctant to join any output agreements.
Non-OPEC producer Mexico joined a deal announced last week in Riyadh, under which Saudi Arabia pledged to cut 300,000 barrels a day and Venezuela pledged to cut 200,000 barrels a day. The Mexicans said they would withhold 100,000 barrels from the market, and No. 2 global oil exporter Norway got onboard Monday with an equal promise. Oman and
Yemen also joined the effort.
All told, promised cuts from OPEC and non-OPEC producers come to around 1.5 million barrels a day, but analysts say the oil exporters need to take at least 2 million barrels off the glutted market if they really want to boost prices.
OPEC's share of the cuts comes to 1.245 million barrels a day.
Saudi Arabia's oil minister, Ali Naimi, tried early today to talk the price up, predicting more cuts from non-OPEC producers. Naimi declined, however, to offer any specifics.
OPEC ministers were divided on whether even deeper cuts should come now, but those taking a wait-and-see attitude prevailed.
Kuwait's new oil minister, Sheik Saud Nasser al-Sabah, and Algeria's Yousef Yousfi were among those clamoring for more restraint.
OPEC's secretary general, Rilwanu Lukman of Nigeria, insisted OPEC now plans to deliver on its promised cuts. But pressed about the group's numerous failures to abide by its own agreements, Lukman acknowledged in a news conference: "No system is foolproof."
Members of the Organization of the Petroleum Exporting Countries are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.
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