MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING TUESDAY, MARCH 31, 1998 (2)
NYMEX Hub Natural Gas Ends Near New Contract Highs
NEW YORK, March 31 - NYMEX Hub natural gas futures ended up sharply Tuesday in an unexpectedly active session, with firmer physical prices and more technical buying driving the complex to new contract highs, industry sources said.
In the day session, May rallied 11.3 cents to close at $2.522 per million British thermal units after climbing late to a new high of $2.53. On ACCESS, May climbed to another new high of $2.539. June, which earlier hit a new benchmark of $2.56, settled 10.8 cents higher at $2.557, then climbed to $2.573 in after-hours trade. Other months ended up by 5.5 to 11 cents.
''Fundamentally, we shouldn't be up here, but technically, it looks great, and longer-term, it's still bullish,'' said one Texas based trader, noting activity was surprisingly brisk today for a post bidweek session.
While forecasts this week for mild weather were not viewed as supportive, traders said expectations for a hot summer and concerns about dwindling coal supplies from rail shipping delays should limit pullbacks.
Forecasts call for cooler weather by Wednesday for most of the nation, with the East expected to slip to seasonal or slightly-below seasonal levels by the weekend. The Midwest at midweek is expected to dip to about normal, then warm to several degrees F above by the weekend. Texas temperatures are forecast to range from normal to eight degrees above for the period.
Technical traders said May's strong close today should mean more upside, possibly a measured move to the mid-$2.60s, but most agreed the market was overbought and due for a profit taking pullback. Resistance was now seen at the new high of $2.539. Further selling was expected at $2.57 and $2.812, prominent spot continuation highs from December.
May support was seen at the previous contract high of $2.46 and then at the $2.33 double bottom. Next support was pegged at $2.30, the fifty percent retracement point. Major buying was expected at the $2.135 recent low.
Withdrawal estimates for Wednesday's weekly AGA storage report range from a 20 bcf build to a 40 bcf draw. For the same week last year, stocks declined one bcf.
In the cash Monday, Gulf Coast swing quotes firmed almost a nickel to $2.30 or better. Midcon pipes were more than five cents higher in the mid-$2.20s. Chicago city gate gas was talked in the mid-$2.40s, while New York was flat to up slightly in the mid-to-high $2.50s.
The NYMEX 12-month Henry Hub strip jumped 9.9 cents to $2.615. NYMEX estimated Henry Hub volumes were not available at 1715 EST.
Late Buyers Push U.S. Spot Natural Gas Prices Higher
NEW YORK, March 31 - U.S. spot natural gas prices moved higher Tuesday as buyers scraped up additional supplies for the first day of the month, industry sources said.
''People were short. There was a frenzy of buying at the end,'' one gas trader said.
Henry Hub swing cash prices were quoted mostly at $2.31-2.35 per mmBtu, though baseload business was reported done as high as $2.38.
In the Midcontinent, swing April trading was quoted at $2.23-2.28, up about six cents from Monday, with Northern at Demarcation seen done as high as $2.40 in late trading.
At the Chicago city-gate, where temperatures were expected to reach highs of 53 and 49 degrees on Wednesday and Thursday, respectively, prices climbed eight cents to about $2.46.
In western Texas, Permian Basin prices were also quoted firmer at $2.12-2.16, while San Juan prices were talked mostly at $2.09-2.10.
In the Northeast, New York city-gate prices hovered in the mid-to-high $2.50s, while Appalachian values on Columbia were quoted at $2.47-2.49.
Meanwhile, forecasts are calling for cooler weather Wednesday throughout most of the U.S., with the Northeast expected to ease to 11-15 degrees above normal and the Chicago area seen falling to about four to eight degrees above normal. Southwest temperatures are expected to average three to eight degrees below normal Thursday and five to 10 degrees below normal Friday and through the weekend.
Separately, estimates for Wednesday's American Gas Association storage report have ranged from an injection of 10 bcf to a withdrawal of 40 bcf. This is compared with a one bcf draw a year ago.
Canadian Spot Natural Gas Prices Extend Gains On Shortfalls
NEW YORK, March 31 - Canadian spot natural gas prices tacked on additional gains on Tuesday amid a continuing supply shortfall in the west, traders said.
Spot April gas at the AECO storage hub in Alberta was quoted at C$1.96-1.97 per gigajoule (GJ), up about five cents from Monday.
Summer AECO prices were also higher at C$1.96-1.98, while one-year business was quoted at C$2.32-2.34. Winter prices were also seen firmer at C$2.50-2.55.
''Field receipts aren't materializing. Producers are coming out to buy. They're adding to the flurry,'' one Calgary based trader said, noting producers may have prematurely sold their supplies and are now turning to the spot market.
Meanwhile, temperatures in southern Alberta were forecast to reach highs in the low-50s degrees Fahrenheit over the next couple of days, sources said.
The Sumas, Wash., export market was also boosted by a supply shortage and firmer U.S. prices in California, traders said. Prices jumped an average of 13 cents to the high-US$1.50s per million British thermal units (mmBtu).
Cooler-than-normal weather in the Southwest and stretching into the Northwest pushed prices at the southern California border about five cents higher to US$2.42-2.44 per mmBtu.
In the east, April gas at Niagara sold at US$2.52-2.55 per mmBtu, market sources said, indicating a gain of about eight cents.
TOP STORIES
US Energy Secretary Doesn't See Big Jump In Oil Prices
WASHINGTON, March 31 - U.S. Energy Secretary Federico Pena said late Tuesday that an agreement by a coalition of major world oil producers to reduce their daily crude output should not result in significantly higher oil prices.
OPEC has agreed to cut its oil output by 1.25 million barrels a day, and several non-OPEC producers led by Mexico and Norway are also cutting their production by 270,000 barrels a day.
''While the agreement has caused prices to rebound from their recent lows, we do not anticipate a major price increase'' in oil prices, Pena said. ''Accordingly, the (Clinton) Administration's forecast for continued strong economic growth and low inflation remains unchanged,'' he said.
Pena said the agreement's impact will depend on the willingness of key oil producing nations to stick to the new lower crude oil output levels.
Traders at the New York Mercantile Exchange doubted whether the 1.5 million barrel a day cut would be enough to remove the world's current oversupply of oil. NYMEX oil futures for May delivery fell 60 cents to close at $15.61 a barrel.
Some traders said they had expected OPEC to announce a bigger cut. They noted that when Saudi Arabia, Venezuela and Mexico, a non-OPEC member, announced their agreement on March 22 to cut output, the three countries said they were aiming for between 1.6 million to 2.0 million barrels a day in total reductions from OPEC and non-OPEC producers.
The oversupply in oil is due to lower demand from Asian nations that are having economic troubles, a warmer winter in the Northern Hemisphere and OPEC nations producing beyond their quota levels.
Market Overplaying OPEC Pessimisim??
NEW YORK - Oil prices fell Tuesday as the market turned thumbs down on a landmark OPEC agreement to cut production for the first time in a decade to boost prices.
The Organization of Petroleum Exporting Countries responded to a plunge in oil prices to 10-year lows by removing 1.245 million barrels per day of surplus oil, part of a global agreement to skim off 2 percent of the world's output.
But the cuts failed to produce the intended results. Oil sank 60 cents to $15.61 a barrel , holding above the 1988 low of about $13 set this month on the New York Mercantile Exchange.
The cartel that pumps 40 percent of world output put a brave face on the market's no confidence vote by predicting a recovery when less oil finds its way to the marketplace. OPEC's oil barons said they were playing a long game.
"The market should judge the OPEC decision in two months," Saudi Arabian Oil Minister Ali al-Naimi said.
He said the oil club could take further action to support prices if necessary in what he called its new spirit of pragmatism.
"OPEC is like a tea bag. It works best in hot water," Michael Mayer, an analyst for Schroder & Co., said.
The other output reductions will come from non-OPEC Norway, Mexico, Egypt, Oman and Yemen, which pledged cuts of 270,000 barrels per day for a total of 1.5 million bpd.
"The fall is hopefully a short-term blip. I think the market is overplaying the pessimism," said a top executive at a Gulf Arab oil company, noting OPEC was making its first reduction in output since the mid-1980s.
"The market may have had too great expectations of two million barrels and you cannot remove the supply overhang we have had overnight," said Eugene Nowak, an analyst at ABN AMRO Inc.
But traders want deeper cuts because of concerns that glutted markets could remain awash with oil.
"To make a difference they have to do more than that," Nigel Saperia, managing director of oil trading at Bankers Trust International in London, said.
Traders said there are still a lot of unwanted oil products in the market and prices will fall until that overhang is mopped up.
"It doesn't change overnight. The market is still sloppy on the front end but who knows what will happen in the next two months," Jim McLaren, oil trader at Alimar BV in Rotterdam, Holland, said.
Western markets have been swamped by a tidal wave of oil from Asia as cash-strapped buyers in that economically weak region trimmed purchases and sold from storage tanks.
Warm winter weather, growing Iraqi oil exports, a mistimed OPEC move in November to hike output 10 percent and burgeoning oil storage tanks sent prices skidding.
Iraq is still a wild card. Baghdad's output has risen recently and is due to increase again under an expanded United Nations program that allows oil exports to pay for food and medicine.
In addition to the months required to remove the supply overhang, the large oil companies face a dismal time in the short term, Nowak said.
"In three weeks we will see first-quarter earnings come in 40 percent below year-ago levels, and we are in the transition between the winter heating season and the summer driving season, and OPEC is now behind us," he said.
Mayer said the oil companies' first-quarter earnings will be 45 percent below a year ago due to the $6.65 per barrel drop in oil prices and weak natural gas prices.
He is forecasting average spot West Texas Intermediate prices of $15 to $17 per barrel for the remainder of the year if production cuts stick, but if producers fail to deliver, prices could fall back to a range of $13 to $14.
Canada Not Planning Oil Production Cuts
St Johns Evening Telegram
Ten of 11 Organization of Petroleum Exporting Countries (OPEC) have agreed to cut oil production by 1.245 million barrels a day to stave off a free fall in world prices. Five non-members, including No. 2 producer Norway and Mexico, have chopped another 260,000 barrels a day.
But the world's 11th largest oil producing nation has no intention of cutting oil production unless market conditions dictate it.
Canada, which will likely move into the top 10 when East Coast offshore production takes off, doesn't even have the authority to cut production, says the senior director of Natural Resources Canada's oil division.
"In the first instance, the jurisdiction over conservation and management rests with the provinces," Robert Lyman said in an interview from Calgary.
Furthermore, the federal government does not want provinces - namely Alberta, which produces 85 per cent of Canada's 2.1 million barrels a day - to meddle with markets.
"We'd probably discourage that type of activity," Lyman said.
Offshore projects such as Hibernia are managed jointly, but with Hibernia producing just 15,000 barrels a day until injector wells are complete this summer, a decrease isn't going to make a difference.
A spokeswoman from Natural Resources Minister Ralph Goodale's offices said the federal government has not and would not interfere with production.
The Canadian Association of Petroleum Producers (CAPP), which represents the vast majority of large producers in the country, also isn't interested in controlling production levels.
"I don't know who's going to decide, it's certainly not CAPP," said CAPP spokesman Stephen Rodrigues.
It's not the Alberta governent either.
"Alberta energy does not control energy prices, so independent companies driven by market pressures indicate energy production levels," said Cheryl MacKenzie, spokeswoman for Alberta Energy. "When the market dictates reducing production, that's what companies will do."
It is much easier for governments such as Norway's - which owns 100 per cent of Statoil, the country's largest oil company, and 51 per cent of industry giant Norsk Hydro - to cut production. Norway's coalition government announced it is cutting usual daily production of 3.2 million to 3.6 million barrels by 100,000 to 150,000 barrels.
Markets in western Canada have reacted independently to oil prices that dipped to a nine-year low of $12.80 a barrel March 17 - a rate that, if sustained, puts Hibernia in the red. PanCanadian Petroleum, Gulf Canada Resources and Husky Oil have reduced heavy oil production budgets and PanCanadian axed 200 jobs this year due to sliding world prices.
But oil production levels have not been affected and major players such as Syncrude, which produces the equivalent of 240,000 barrels a day, are continuing with expansion plans. Syncrude has not changed its plans to spend $6 billion on development and expansion over the next 10 years.
The world, however, remains awash in oil.
According to the International Energy Agency, global output, of which 37 per cent comes from OPEC Countries, exceeds consumption by 3.7 million barrels a day.
Oil prices slipped Monday when 15 top oil producers contributed a total 1.5 million barrel reduction because analysts had been expecting cuts of 2 billion barrels, Bloomberg Energy reported Tuesday.
OPEC leaders held all-night meetings in Vienna Monday but emerged Tuesday morning to the news that prices had fallen a further 60 cents.
In addition to being No. 11 in oil production, Canada is the world's third largest producer of natural gas. |
