MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING TUESDAY APRIL 28, 1998 (2)
OIL & GAS
OPEC Making Good on Output Cuts, but Picture Still Unclear
LONDON - OPEC producers are mostly making good on their promises to drain off some of the world's oil surplus but the full impact of the cuts won't be clear for a few weeks yet, oil experts said Tuesday.
Supply from the 10 OPEC members that agreed to the cuts at a March emergency meeting has fallen a full million barrels a day.
But oil markets are unimpressed. Crude oil hovered at $15.45 a barrel Tuesday on the New York Mercantile Exchange, up from the $13 level in March but still $5 less than last year's average price.
''By and large they're doing what they said they'd do, but so far at least it doesn't seem to be enough,'' said an oil company official.
OPEC ministers this week have indicated they would consider further cuts if prices failed to recover by their June meeting in Vienna.
The picture is complicated by Iraq, not included in OPEC's agreement to remove 1.245 million barrels a day, in an alliance with non-OPEC producers, beginning April 1.
Unfortunately for the rest of OPEC, extra United Nations-monitored exports have added 350,000 barrels a day to Iraqi supplies since February. Baghdad is expected to hit a post-Gulf War record of 2.1 million barrels daily in April.
Monitors say the net change for OPEC oil output so far in April is about 630,000 barrels a day less than than in February. OPEC's March output was little changed from February.
First half April production was estimated at about 28.1 million barrels a day vs. 28.73 million in February, according to a Reuters survey of industry monitors and officials.
'It's difficult to say for sure on the basis of two weeks data, but the numbers I've seen so far indicate that OPEC is on the way to coming through as promised,'' said an oil market economist.
''We've still to see the full impact because some countries are working things out with foreign partners and that can't happen immediately,'' an industry analyst said.
Monitors said Saudi Arabia, Kuwait, the United Arab Emirates, Venezuela and Nigeria have led the way in reducing output.
Early readings for Saudi output in April put Riyadh at about 8.44 million barrels.
Venezuela was pegged in line with the 3.17 million it has promised to stick to for the remainder of the year, a cut of 200,000 barrels a day.
Nigeria canceled some April exports and told its foreign partners to reduce sales.
Libya informed customers of lower supplies, but Mediterranean shipping data so far indicated that it and Algeria had yet to meet full reductions.
Iranian output for April so far was put a little under the 3.6 million level it has recorded in recent months, but not as low as the 3.48 million Tehran is earmarked for.
Oil Markets Extend Modest Rally on OPEC Hints
LONDON, April 28 - Oil markets crept higher on Tuesday, extending a gentle rally triggered by OPEC hints of further output cuts.
Benchmark Brent blend was trading at $14.34 a barrel by 1620 GMT, up 13 cents a barrel as traders slowly gained confidence in producers' resolve to cut back output.
Algerian Oil Minister Youssef Yousfi told a conference in London that the cuts agreed recently by OPEC and non-OPEC producers were not enough to lift prices and more were needed.
"The output cut was not sufficient. Definitely future actions are necessary for the short-term and particularly for the next six months," Yousfi said, echoing recent remarks by other OPEC ministers in recent days.
The market got a further lift on Tuesday after a UN sanctions review on Iraq give few signs that the seven-and-a-half- year trade embargo would end any time soon.
The fresh gains came despite comments from Venezuelan Oil Minister Erwin Arrieta clarifying that additional OPEC production cuts were still some way off.
Arrieta's Monday call for a further 500,000 barrels per day (bpd) of production cuts - on top of some 1.5 million bpd already pledged by OPEC and non-OPEC producers - triggered the initial rally which sent Brent prices above $14.
OPEC oil ministers from the UAE, Qatar and Kuwait have all signalled that further production cuts could be on the agenda. And an adviser to the Indonesian oil minister on Tuesday backed the calls for further cuts, despite his country's economic woes.
Further bullish signs came as oil experts said that Organisation of the Petroleum Exporting Countries producers were mostly abiding by their promises to curb output.
Supply from the 10 OPEC members that signed up to reductions at an end March emergency meeting has fallen a full million barrels a day (bpd) from February's benchmark for the cuts, industry monitors and officials said.
"It's difficult to say for sure on the basis of two weeks data but the numbers I've seen so far indicate that OPEC is on the way to coming through as promised," said an economist with one oil major.
Monitors said Saudi Arabia, Kuwait, the United Arab Emirates, Venezuela and Nigeria have led the way in reducing output to pledged levels.
But they cautioned that the full impact of the reductions won't be clear for a few weeks yet.
And the picture is complicated by Iraq, not included in OPEC's agreement. Extra UN-monitored exports have added 350,000 bpd to Iraqi supplies since February.
The oil-for-food exports are the only exception to the international embargo retained by the UN Security Council late on Monday in the first review for nearly a year.
But the decision to maintain sanctions was partly offset by the first U.S. acknowledgement that Iraq had made progress on shedding its nuclear weapons capability - part of the programme of weapons elimination Iraq needs to end the embargo.
China urged the Security Council to "gradually ease sanctions" on Iraq, while France called on the United Nations to make "a political gesture," in noting that Iraq has dismantled its nuclear arsenal.
NYMEX Crude/Products Up, Watching OPEC, API Data
NEW YORK, April 28 - A slew of supportive news plus short-covering in advance of weekly stock inventory data brought solid gains to NYMEX crude oil and refined products futures for the second day in a row Tuesday.
As crude rose on sustained OPEC talk on the need for further production cuts, gasoline futures jumped on headline-making reports of refinery outages as well as expectations of a stock draw in the API data.
Traders said fund buying since Monday has helped in the market advance.
June crude settled at $15.74 a barrel, up 42 cents, down from a high of $15.80, which was hit shortly before the close. The front-month contract opened 13 cents higher from Monday at $15.45 and dipped slightly at $15.37, the day's low, but bounced back quickly and was on the rise most of the day.
''OPEC wants the market to know some more (output) cuts are needed and they've come out to say so,'' said a NYMEX trader.
He echoed the sentiment of other market players who said that statements from OPEC oil ministers in the past few days on the need to make further production cuts was ''positive'' for crude.
Algeria is the latest OPEC member to cite the need for a new round of cuts. Algerian Oil Minister Yousef Yousfi said in London a further cut of 500,000 to 1.0 million barrels per day (bpd) was needed to improve prices.
Gasoline gained on continued problems besetting a number of U.S. refineries, sending the May contract up 1.25 sent at 52.19 cents a gallon.
Heating oil, riding on the market uptick, rose, with the May contract gaining 0.76 cent at 43.84 cents a gallon.
Traders and analysts surveyed by Reuters said they expect a draw of 1.375 million barrels in gasoline, a build in crude by 2.04 million barrels and an unchanged level for distillates in the API data.
On refinery problems, a brief power outage in the Los Angeles area knocked out refineries of Tosco, Texaco and Ultramar, but they were restarted after the outage, which company spokesmen said lasted about 15 minutes.
Later, state environmental regulators in Pennsylvania said Tosco shut its 100,000 bpd Trainer, Pa., cat cracker on Monday, following an emission from the unit.
''This kind of stuff has been going on for two weeks in refineries, yet the market always gets startled when you say a refinery is down, no matter how short,'' a NYMEX gasoline trader said.
On the closely-watched developments regarding Iraq, market players attached a bit of bullishness into a statement in New York by Iraqi Foreign Minister Mohammed al-Sahaf Tuesday regarding arms inspection.
At a news conference at the United Nations, al-Shahaf denied that the February 23 agreement between Iraq and U.N. Secretary General Kofi Annan permitted unlimited inspections of Iraqi presidential palaces.
He said the agreement referred to ''an initial visit, and subsequent visits,'' but was vague on precisely how many visits this meant.
NYMEX Hub Natural Gas Mostly Ends Higher On Late Buying
NEW YORK, April 28 - NYMEX Hub natural gas futures mostly ended higher Tuesday in an active session, with all but the expiring May contract helped by a late, technical buying spree, industry sources said.
May, the day's only loser, expired 0.4 cent lower at $2.262 per million British thermal units after trading between $2.23 and $2.315. June settled 2.6 cents higher at $2.311, while other deferreds finished up by 1.5 to 2.1 cents.
"People found value at the lower levels, so we saw some closing strength, but we could be range bound," said one Midwest trader, adding a 15-day forecast released this afternoon showed some much-above normal temperatures for the Midwest and Texas and may have triggered some buying.
But most still agreed growing inventories and fairly mild weather into next week should limit any rallies.
Below-normal temperatures early this week in the East, Midwest and Texas are expected to warm to above normal levels later in the week. Most of the nation is expected to remain at normal or above-normal levels well into next week.
Expectations for Wednesday's weekly AGA storage report range from a build of 30 to 60 bcf. For the same week last year, stocks rose 25 bcf, meaning a gain tomorrow in the expected range would again increase the year-on-year surplus.
Technically, June support was now seen at the trendline in the $2.24 area. Major support was expected at the March 16 low of $2.16. June resistance was expected first at $2.44, the 50 percent retracement point, and then at the $2.63 double top.
In the cash Tuesday, Gulf Coast prices again eased slightly to the low-to-mid $2.20s, off several cents from April indices. May gas on the same pipes was quoted in a range from two cents over the NYMEX screen to eight cents under, or just a penny or so above current spot levels.
Midwest spot values held fairly steady in the mid-teens, two to three cents under April 1 levels. May Midcon quotes were still slightly over April in the mid-to-high teens. Spot gas at the Chicago city gate was flat in the low-$2.30s, while May gas in Chicago was talked at six to seven cents over the screen.
Milder New York weather pressured prices several cents lower to the low-to-mid $2.50s, with May quoted at about the same level.
The NYMEX 12-month Henry Hub strip rose 1.6 cents to $2.439. NYMEX total estimated volumes were not available at 1645 EDT but 82,217 contracts had traded by 1430 EDT versus Monday's revised tally of 94,940.
U.S. Spot Natural Gas Prices Flat To Lower
NEW YORK, April 28 - U.S. spot natural gas prices were unchanged to down slightly Tuesday, with ample inventories and milder weather forecasts for this week and next still undermining sentiment, industry sources said.
"We're pretty far ahead on storage, and stocks are likely to continue to grow on a year-on-year basis, which should take the wind out of the sails of the market until the (hot) weather shows up," said one East Coast trader, noting a 37 percent stock surplus to last year, with another gain likely after tomorrow's weekly inventory report.
Gulf Coast spot prices again eased slightly to the low-to-mid $2.20s per mmBtu, off several cents from April indices. May gas on the same pipes was quoted in a range from two cents over the NYMEX screen to eight cents under, or just a penny or so above current spot levels.
Expectations for Wednesday's weekly AGA gas storage report look for a build of 32-60 bcf. For the same week last year, stocks rose 25 bcf.
Below-normal temperatures early this week in the East, Midwest and Texas are expected to warm to above-normal levels later in the week, according to Weather Services Corp.
In the Midcontinent, milder forecasts later this week continued to keep buyers relaxed but spot values held fairly steady in the mid-teens, two to three cents under April 1 levels. May Midcon quotes were still slightly over April in the mid-to-high teens.
Spot gas at the Chicago city gate remained pegged in the low-$2.30s, or about five cents below the April index. May gas in Chicago was talked at six to seven cents over the screen.
South Texas spot prices held at about $2.20, flat to down slightly from April 1 levels.
In west Texas, Permian gas quotes were unchanged at about $2.10, while San Juan values gained another couple of cents to the mid-$1.90s.
Prices at the southern California border held steady in the low-to-mid $2.30s.
In the Northeast, forecasts for milder midweek weather pressured New York city gate prices a few cents lower to the low-to-mid $2.50s, while Appalachian gas on Columbia was flat to down slightly in the low-$2.40s.
Canada Spot Gas Prices Decline Further In Alberta
NEW YORK, April 28 - Canadian spot natural gas prices turned a little softer again in Alberta on Tuesday amid light storage injections and limited demand, traders said.
Spot gas at the AECO storage hub in Alberta was quoted mostly at C$2.04 per gigajoule (GJ) from about C$2.06 on Monday.
May prices tacked on a few cents to converge with April at C$2.045, while summer business was reported done at C$1.93-1.95.
"It's very quiet, and it's not following NYMEX," one Calgary-based trader said, adding he anticipated storage injections to escalate over the next day.
Injections in the west totaled 119 million cubic feet per day (mmcfd) on Monday, compared with 322 mmcfd on Saturday and 168 mmcfd on Sunday.
At the export points, Sumas prices were talked a little higher at US$1.65-1.71 per million British thermal units (mmBtu).
Meanwhile, eastern export prices at Niagara ticked about two cents higher to about US$2.40 per mmBtu, in line with the mild gains in May futures.
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