MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING TUESDAY, MAY 5, 1998 (2)
OIL & GAS
We'll begin coverage today with the "Quote Of The Day."
Commenting on the possibility of further OPEC cuts, Adrian Lajous, the head of Mexico's state oil company Pemex, was reported on Tuesday as saying it was too early for further reductions.
"It is not on the table to make any further production cuts now," Lajous said.
I thought the comment was interesting since I had published extensive commentary the day of the initial cutback announcement as to why I thought OPEC had left chips on the table. I still am of the opinion that cutbacks initiated by OPEC will be in a 2-step process.
Saudi, Mexico, Venezuela Might Hold Oil Meeting
KUWAIT, May 5 The oil ministers of Saudi Arabia, Venezuela and Mexico have been in contact since they brokered a key production cutting accord in March and could meet again in a couple of weeks, a Gulf source said on Tuesday.
They "want to keep the momentum and contacts are ongoing which could lead to another meeting in a couple of weeks," the source told Reuters by telephone.
The three men reached an accord in Riyadh in March which led to a pledge for a 1.25 million barrel per day (bpd) OPEC cut as of April 1 and until the end of the year, with an additional reduction of 250,000 bpd coming from non-OPEC exporters.
The Gulf source confirmed that OPEC members Saudi Arabia and Venezuela and non-OPEC Mexico were in contact but that there had been no face-to-face talks between their three ministers in recent days.
Saudi Arabia's Ali al-Naimi, who is on an official visit to the United States, is expected to meet fellow Arab oil ministers in Syria on May 10 to discuss market conditions and whether further cuts were needed to help boost world oil prices.
Syria is due to host a meeting by the Organisation of Arab Petroleum Exporting Countries (OAPEC) which groups several key OPEC members along with independent producers like Oman, Egypt and Syria.
The OAPEC meeting "could be a good opportunity for (Naimi) to meet with some of the Arab ministers to speak about the market and if anything further is needed," a source said of recent statements by several Gulf oil exporters expressing readiness to take further production cuts.
Key OPEC members like Kuwait, Qatar, United Arab Emirates and non-Arab Iran have all said they would back further cuts by the 11-nation group to help prices which had dropped to nine-year lows in recent weeks.
Brent was valued just short of $15 a barrel on Tuesday, comfortably above its sub-$12 low of early March but still $4.50 short average prices last year.
Industry sources earlier told Reuters in London that oil producers were contemplating a new round of output cuts for as short a period as three months if crude prices sag again.
They said discussions had gone some way to planning a reduction of 500-600,000 bpd before OPEC's next ministerial meeting in Vienna on June 24.
But they said producers faced a difficult balancing act in deciding whether or not to trim more supplies from a bulging market.
Mexico's Energy Minister Luis Tellez said on Monday: "Prices are recovering and we are not contemplating additional cutbacks at this moment."
Kuwait's deputy prime minister and Foreign Minister Sheikh Sabah al-Ahmad al-Sabah, who also heads the country's Supreme Petroleum Council, told Reuters on Monday:
"We have supported and will support a further cut...Kuwait will not be the obstacle in (OPEC) cutting production."
Oil Producers Keep Extra Output Cuts on Ice
LONDON, May 5 - Oil producers are contemplating a second round of output cuts for as short a period as three months if crude prices sag again, industry sources said on Tuesday.
The sources said discussions had gone some to way to planning a reduction of 500-600,000 barrels a day (bpd) before OPEC's June 24 meeting in Vienna.
But they said producers faced a difficult balancing act in deciding whether or not to trim more supplies from a bulging market.
Informal contacts between the ministers and top officials of OPEC's Saudi Arabia and Venezuela and non-OPEC Mexico have decided it is too early to decide yet on extra cuts.
"Prices are recovering and we are not contemplating additional cutbacks at this moment," Mexico's Energy Minister Luis Tellez said on Monday.
The ministers want to see production returns for April to see the results of the March 22 Riyadh pact they orchestrated.
The pact resulted in pledges to withdraw some 1.5 million bpd, including 1.25 million from the Organisation of the Petroleum Exporting Countries, until the end of the year.
If prices warrant it, any decision on extra short-term cuts is not likely until after a meeting of Arab energy ministers, including Saudi Arabia's Ali al-Naimi, in Syria on May 10, some sources said.
Naimi's six-day visit to the United States, ending on Wednesday, had stoked speculation that a further agreement was in the offing.
Key to any decision will be oil price levels over the next few weeks.
"With prices where they are now they may decide not to do anything more," said one source familiar with discussions so far. "But if they fall again they'll act."
Prices much below $14 for North Sea Brent could be the trigger for further action.
Brent was valued just short of $15 a barrel on Tuesday, comfortably above its sub-$12 low of early March but still $4.50 short average prices last year.
Less hawkish ministers are wary about stoking the market too high for fear of handing a quick bonus to some of the high-cost producers which have been forced to cut output by this year's price slide.
Lower supplies from major producers like China, Russia, the United States and Canada can all be attributed to poor oilfield economics at low prices.
In addition, producers are concerned not to further harm demand in the fragile Asian market where a collapse in currencies has wiped out the advantage of cheap crude.
Several OPEC ministers are already on the record in support of further reductions if necessary.
If oil prices do fall again further agreement on more cuts is likely to be wrapped up ahead of OPEC's June 24 conference in Vienna leaving the meeting to rubber stamp the decision.
OPEC Should Be Pronounced Dead
DUBAI, May 6 - The Organisation of the Petroleum Exporting Countries should pronounce the cartel dead and replace it with a stronger group capable of controlling prices and defending producer states' interests, a prominent Saudi consultant said in remarks published on Wednesday.
''The only solution is to pronounce the current OPEC dead and form a new organisation under Saudi leadership,'' Abdul-Aziz al-Dukheil, chairman of the Riyadh-based Consulting Centre for Finance and Investment said.
Dukheil, a former Saudi deputy finance minister, was interviewed by the Saudi-owned Arabic daily al-Hayat.
Founders of the ''new OPEC'' should call on all producers to limit their production or alternatively instigate an oil glut that would bring prices down to $6 a barrel, he was reported as saying.
North Sea Brent crude for delivery in June was trading in Asia on Wednesday at $14.65.
Flooding the market with ''new OPEC'' crude would paralyse production in the United States and the North Sea and in other places where production costs were high.
''All this needs is strong political will and the ability to limit spending during the price war period which would not exceed six months,'' Dukheil said.
OPEC could not control prices because it lacked leadership and the ability to take action, the former minister said.
''The real flaw in the market is in the transformation of leadership from producer countries to the industrial consumer states,'' Dukheil was quoted as saying.
''This cannot be remedied by production cuts of 100,000 barrels per day (bpd) here and there,'' he added.
OPEC made its first output cut in a decade in March as part of an attempt, together with some major producers outside the group, to lift world oil prices from their lowest level in nine years.
Saudi Arabia is the world's leading oil producer and exporter and has a powerful influence over OPEC decisions.
Oil In Reverse With More Output Cuts On Ice
LONDON, May 5 - World oil prices suffered a setback on Tuesday as speculation that major producers were meeting to make more output cuts proved wide of the mark.
London June futures for benchmark Brent blend shed 37 cents by 1525 GMT to $14.76 a barrel.
Brent jumped 64 cents on Friday amid rumours that the oil ministers of Saudi Arabia, Venezuela and Mexico would meet over the weekend in a repeat of the March Riyadh pact which took 1.5 million barrels a day (bpd) out of the glutted market.
''The market got somewhat overheated going into the weekend and now it's cooling off,'' said an oil trader in London.
''The talk of more cuts had shored up prices when they would otherwise have dropped but the market will soon start discounting these conversations in the absence of concrete news,'' said Leslie Nicholas of brokers GNI.
Venezuela has already suggested another 500,000 bpd be removed from the market to help prices which are still running $4.50 lower than on average last year.
The six-day visit of Saudi Oil Minister Ali al-Naimi to the United States, ending on Wednesday, had stoked false speculation that further output cuts were in the offing.
But Gulf sources said on Tuesday a meeting of the three oil producers could still be arranged in a ''couple'' of weeks time.
Attention will now turn to a meeting of the Organisation of the Arab Petroleum Exporting Countries in Damascus on May 10.
Saudi's Naimi will attend with OPEC President Obeid al-Nasseri of the United Arab Emirates.
Host Syria, a non-OPEC oil producer, has been approached as a possible candidate to reduce output.
Producers face a difficult balancing act in deciding whether or not to trim more supplies from a bulging market. Key to any decision will be oil price levels over the next few weeks.
''With prices where they are now they may decide not to do anything more,'' said one source familiar with discussions so far. ''But if they fall again they'll act.''
Prices much below $14 for North Sea Brent could be the trigger for further action.
Less hawkish ministers are wary about stoking the market too high for fear of handing a quick bonus to some of the high-cost producers which have been forced to cut output by this year's price slide.
Lower supplies from major producers like China, Russia, the United States and Canada can all be attributed to poor oilfield economics at low prices.
In addition, producers are concerned not to further harm demand in the fragile Asian market where a collapse in currencies has wiped out the advantage of cheap crude.
NYMEX Crude Retreats As Output Cut Hopes Wane
NEW YORK, May 5 - Crude oil futures retreated on the New York Mercantile Exchange (NYMEX) Tuesday as market hopes that top producers were planning further output cuts waned, traders said.
The hopes of any quick action by the Riyadh Pact group -- Saudi Arabia, Venezuela and Mexico --- were dashed when Mexico said its Energy Minister, Luis Tellez, would not meet with Saudi Oil Minister Ali al-Naimi this week and that no production cuts were under consideration.
''The market is drifting, because what it hoped for did not happen,'' said Kevin Riordan, analyst at Chicago based Fox Investments.
NYMEX June crude settled at $15.47 a barrel, down 48 cents, climbing from the day's low of $15.23. The contract broke minor support in the $15.60-$15.74 range shortly after the opening, after hitting a high of $15.83.
Refined products also fell, dragged down by crude's performance. June heating oil settled at 44.30 cents a gallon, down 1.12 cents while gasoline ended at 53.33 cents a gallon, off 0.71 cent.
Speculation that the Saudi, Venezuelan and Mexican oil chiefs were going to meet last weekend propelled June crude to more than $16 on Friday. No such meeting took place and NYMEX crude and refined products tumbled Monday and then extended loses Tuesday.
The presence of al-Naimi in the U.S. to attend a Saudi Aramco meeting in Houston and confer with U.S. Energy Secretary Federico Pena Monday fueled the speculations.
A Gulf source has told Reuters in Kuwait, however, that contacts between the Saudi, Venezuelan and Mexican oil chiefs were continuing and that there could be a meeting in a couple of weeks.
''I consider that potentially positive for the market,'' said a NYMEX trader, but in the meantime, he said, those who bought on rumors of a possible meeting ''may be fidgeting right now.''
Al-Naimi, Venezuela's Erwin Arrieta and non-OPEC Mexico's Tellez crafted the Riyadh agreement of March 22 calling for a 1.5 million barrel per day (bpd) cut in oil output between OPEC and non-OPEC producers.
OPEC members pledged cuts of about 1.245 million bpd while non-OPEC members led by Mexico pledged about 270,000 bpd. China and Russia later said were cutting production by 150,000 and 61,000 in support of the agreement.
From a peak of $17.50 after the Riyadh pact was announced, crude prices have slipped as concerns over a global glut reemerged. The prices are currently down about $4.50 from their average in 1997.
On April 27, Venezuela said the market needed further output cuts of 500,000 bpd to lift prices. And a number of OPEC oil ministers have said they will support moves to cut output.
But some analysts noted that OPEC still had to get an initial reading of how participants to the Riyadh pact carried out their pledges before any more steps are taken to bolster prices.
In the meantime, al-Naimi is expected to meet fellow Arab oil ministers at a conference of the Organization of Arab Petroleum Exporting Countries (OPEC) in Syria on May 10 to discuss market conditions and whether further cuts were needed to lift oil prices.
In the meantime, traders were awaiting release of weekly stocks inventory data by the American Petroleum Institute, which is considered a short-term market weather vane.
NYMEX Hub Natural Gas Ends Down
NEW YORK, May 5 - NYMEX Hub natural gas futures ended lower across the board Tuesday in a sluggish session, with mild weather and growing storage still weighing on sentiment though prices remained in recent technical ranges, sources said.
June slipped 4.2 cents to close at $2.215 per million British thermal units, very near the day's low of $2.21. July settled 3.5 cents lower at $2.271. Other deferreds ended down by one-half to 2.9 cents.
"Around the country, there's not much demand anywhere, and without any news or some weather, I don't think people want to own too much here," said one Texas trader, adding he expected weak fundamentals to lead spot futures back to the $2 level.
Many traders agreed the growing year-on-year stock surplus and fairly mild weather this month will likely keep the market on the defensive near-term.
Injection estimates for Wednesday's weekly AGA storage report range from 40 bcf to 70 bcf. For the same week last year, stocks gained 46 bcf.
Temperatures for much of the U.S. are expected to hold several degrees above normal this week, with the Northeast and Mid-Atlantic climbing to 7-15 degrees F above later in the week. A cooling trend is forecast for the Midwest by the weekend and for the South by next week.
Technical traders said June's soft close today negated yesterday's upside reversal. Support was pegged first in the $2.20 area and then at $2.105-2.11, a spot continuation chart low and Monday's low, respectively. Major buying was expected at the $2.05 double bottom from January and then at $2.
June resistance was now pegged at last week's high of $2.355. Further resistance was seen at $2.37, which is the 50 percent retracement point of the recent selloff. Major selling was expected at the $2.63 double top.
In the cash Tuesday, Gulf Coast swing prices were talked almost a dime higher in the low-to-mid teens, still almost 10 cents below May indices. Midwest values were up 10 cents to the $2.10-15 area, five cents under May 1 levels. Gas at the Chicago city gate was almost 10 cents higher in the low-$2.30s, while New York gained eight or nine cents to the high-$2.30s.
The NYMEX 12-month Henry Hub strip fell 2.5 cents $2.398. NYMEX said an estimated 39,705 contracts traded, down sharply from Monday's revised tally of 66,826.
US Spot Natural Gas Prices Tack On New Gains With Heat
NEW YORK, May 5 - U.S. spot natural gas prices rose several cents Tuesday as hot, humid weather in the South triggered some additional cooling demand, industry sources said.
Cash prices at Henry Hub were quoted at $2.17-2.20 per mmBtu, indicating a gain of about nine cents.
South Texas prices were equally firmer at $2.10-2.14 as temperature highs in Houston hovered near 90 degrees F.
In the Midcontinent, prices also jumped an average of nine cents to about $2.12-2.13, with Chicago city gate pegged at $2.30.
In west Texas, Permian prices rose 10 cents to the low-$2 area, while San Juan values moved into the low-$1.90s. Southern California border quotes were up 11 cents to about $2.20.
In the Northeast, gas at the New York city gate traded mostly in the high-$2.30s to low-$2.40s, and Appalachian prices on Columbia hovered around $2.34, market sources said.
Cooler weather is forecast to return to the central U.S. late this week, while temperatures in the Northeast were expected to remain about four to nine degrees above normal.
Canada Natural Gas Sparked Higher By Fire-Related Outages
NEW YORK, May 5 - Canadian spot natural gas prices surged higher early Tuesday amid fire-related pipeline cuts in western Canada, traders said.
NOVA Gas Transmission said it was forced to cut about 700 million cubic feet per day (mmcfd) in gas transport on its system. The pipeline also shut in its Mitsue lateral and lateral loop pipeline near the northern town of Slave Lake.
Spot gas at the AECO storage hub in Alberta was quoted early as high as C$2.20 per gigajoule (GJ), but most deals were reported done at C$2.06-2.10 per GJ, up about 16 cents from Monday.
AECO prices for June-October were quoted at C$1.88-1.90 per GJ.
The cuts also pushed prices at Sumas, Wash., about 20 cents higher to about US$1.65 per million British thermal units (mmBtu).
A similar increase was evident at Kingsgate, British Columbia, traders said, where prices were quoted in the US$1.60s per mmBtu.
Meanwhile, the 700 mmcfd McMahon gas plant in northeastern BC, owned and operated by Westcoast Energy (W/TSE), is scheduled to shut May 17 for 19 days of maintenance. Capacity will drop to 580 mmcfd on May 17 and then to as low as 260 mmcfd on May 18-May 19. By June 5 capacity is expected to rise to about 680 mmcfd.
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