MARKET ACTIVITY / TRADING NOTES FOR DAY ENDING FRIDAY., MAY 15 1998 (4)
WEEKEND SUMMARY - OIL & GAS
Saudi Sees 500,000 Bpd OPEC Cut if Oil Stays Low
NICOSIA, May 18 - Saudi Arabian Oil Minister Ali al-Naimi said in remarks published on Monday that if oil prices remained low another 500,000 barrels per day (bpd) of oil should be withdrawn from the crude market.
''The main issue now is how much oil needs to be taken out of the market if prices remain low. I think the right number should be approximately 500,000 bpd,'' Naimi told the Middle East Economic Survey (MEES) in an interview.
Asked if he anticipated more cuts at the June OPEC meeting, Naimi said: ''The issue is not only more production cuts. There is the issue of everyone being committed to the mechanism of achieving higher prices. Before we meet again, we need a better assessment of the commitment carried out so far.''
He said Saudi Arabia had cut output in line with the latest OPEC agreement reached in Vienna. ''The bottom line is: if there is a country that has honoured its commitment to the letter, it is Saudi Arabia.''
Naimi said the trend of OPEC output figures in April, the first month since the agreement to cut production, were ''all right'' and the figures were ''quite reasonable'' with one or two exceptions.
The minister of the world's biggest oil producer and exporter called the March Riyadh pact between Saudi Arabia, Venezuela and Mexico, ahead of the Vienna deal, a ''paradigm shift'' in oil producers' thinking.
Producers were now aiming for ''benign intervention, where neither the producers nor the consumers are harmed. This means carrying out our work in a business-like manner without collusion''.
''However, the idea of a small number of producers undertaking the cuts, while others do not, is over. Either we get a very high level of cooperation or we all suffer,'' MEES quoted him as saying.
''What we would like to see is OPEC moving towards becoming a professional organisation with a clear awareness of the market,'' Naimi said. NYMEX crude ends below $14.50/bbl;June expiry Tue.
Oil down as Swollen Stocks Foil Price Pickup
LONDON, May 15 - World oil markets stumbled lower on Friday as bulging stocks in western markets outweighed any hints that oil producers might decide on more output cuts.
London futures for July Brent blend closed 32 cents down at $14.40 a barrel.
Analysts said that with inventories on the rise again in the West, the recovery in oil prices engineered in March by producers who cut supplies had run out of steam.
''If Iraqi exports continue uninterrupted we see the stocks surplus growing,'' said Mike Barry at London-based Energy Market Consultancy.
A gap in U.N.-monitored exports from Iraq when it renews its oil-for-food exchange in early June could provide some relief before global demand picks up later in the year, according to Barry.
Otherwise oil producers will have to deliver a second round of output reductions to stop prices sinking again, some dealers said.
''With stocks where they are we don't see any improved demand for crude until July at the earliest,'' said a senior trader at a major European oil company.
Oil's climb since early March from below $12 a barrel for benchmark Brent blend peaked last week at $15.30. Brent has averaged just $14.50 so far this year compared to $19.30 in 1997.
Nine-year-low oil prices in March gave demand for petroleum products in Europe and the United States a welcome fillip, but the buying spree by end-users appears to have been short-lived.
Crude stocks in the United States, recently measured at 343 million barrels, have not been as high since late 1993, having risen nearly 40 million barrels since early January.
Stocks started building rapidly again in April, despite agreement among major OPEC and non-OPEC producers to withdraw 1.5 million barrels a day (bpd) from the world's 75 million bpd market.
Producers say they might make further output cuts of some 500-600,000 bpd but will wait a month or so to measure the full impact of the first round of reductions which started in April.
OPEC producers, contributing the lion's share of output cuts, meet in Vienna on June 24, a prospect that will help provide a floor for oil prices.
''With OPEC just round the corner and the possibility of a few weeks without Iraqi oil I don't think prices will go a great deal lower,'' said a senior European trading executive.
''But...fundamentals won't allow prices to go higher either -- we're looking at congestion at around current levels.''
European traders are already assuming a short break in Iraqi oil exports at the beginning of June when the U.N. oil-for-food exchange moves into a fourth six-month round.
''The feeling is that we won't see any Iraqi crude for between two and four weeks once this export phase ends,'' said one Iraqi oil buyer.
Iraq's proposed aid distribution plan for the new round, worked out with the United Nations in Baghdad, is already on its way to U.N. headquarters in New York. But negotiations with Security Council members over the details may prove time consuming.
Clouding the issue is discussion over a resolution allowing Iraq $300 million of spare parts which would allow Baghdad to increase capacity from its dilapidated export system.
Some diplomats think arguments over that resolution could spill over into the early June transition from one phase of the export programme to the next.
NYMEX Crude Oil Falls To Less Tan $15.00 In A Big Way
NEW YORK, May 15 - NYMEX crude futures fell below $14.50 a barrel on Friday as sell-offs began ahead of the expiration of the June contract on Tuesday, traders said.
John Saucer, an analyst for Salomon Smith Barney, said crude's movement on the day has been largely due to trading by locals.
''It's been largely featureless with little volume,'' he said, adding there has been a lack of news that could affect the market fundamentally.
June crude settled at $14.47 a barrel, down 61 cents on the day and down 66 cents from Friday last week. It dropped to a low of $14.33 on the day and never traded above its Thursday close of $15.08.
The July contract, meanwhile, closed at $15.32, down 49 cents on the day and up 25 cents from a week ago as some June positions were rolled over to July, traders said.
The June heating contract finished at 41.64 cents a gallon, off 0.99 cent on the day and down 1.37 cents from the previous week.
June gasoline ended at 50.75 cents a gallon, down 1.04 cents from Thursday and off 1.27 cents from a week ago.
Tim Evans, analyst for Pegasus Econometric Group, sees the day's decline as mostly related to liquidations ahead of the the front-month contract's expiry next week.
''Usually, when the expiry falls on a day early in the week, book-squaring takes place on the previous Friday,'' he noted.
June gasoline's drop was apparently linked to crude's slide, he said, as ''some people long with the June crack spread were looking to get out at that point.''
The June crude managed to stay above $15 on Monday and Tuesday, although signs of retesting areas below that level became apparent on Monday, when it dipped to $14.90, breaking the $14.95 low of April 27.
On Wednesday, the whole complex dropped due to stock builds in weekly inventory reports.
Crude dropped below the psychologically significant $15-a-barrel level -- with some market players looking nervous a week ahead of the June contract's expiry.
Crude futures rebounded on Thursday, closing at $15.13, but not before dipping at $14.77. News from OPEC that Qatar, Saudi Arabia and the United Arab Emirates had reached a consensus on the need for further oil output cuts helped strengthen crude.
On the week ahead, Evans says there is still likely to be price erosion before crude recovers.
''Wherever the June contract ends up going, there may be a tendency for July to follow,'' but an improvement in the cash market could influence the upcoming contract to rally, he said.
NYMEX Hub Natural Gas Ends Lower But Still In Range
NEW YORK, May 15 - NYMEX Hub natural gas futures, lightly pressured by slightly softer weekend quotes, ended lower across the board Friday, but trade was extremely thin and prices held recent technical ranges, market sources said.
June slipped 2.2 cents to close at $2.178 per million British thermal units after trading in a narrow band today between $2.17 and $2.215. July settled two cents lower at $2.223. Other deferreds ended down by 0.1 to 1.7 cents.
''We couldn't break to the upside, so the locals pressured it, but everytime we get below $2.19 (basis June), the buyers come right back in,'' said one Midwest trader, noting the market was still range bound but could slip later next week if the heat dissipates.
While concerns persist about high stocks, now 407 bcf or 42 percent over year-ago, traders said forecasts for some hot weather early next week should keep prices supported near-term.
Temperatures for the eastern two-thirds of the nation are expected to stay above to much-above normal into early next week, with only the Gulf Coast and central plains expected to stay hot through the week. The Chicago area and the East Coast should cool to more seasonal levels late next week. Mostly below-normal western temps are forecast through the week.
Technical traders agreed June was still stuck in a range. They pegged interim support at yesterday's low of $2.151, with key support seen at $2.105-2.11, a spot continuation chart low and last week's low, respectively. Major buying was expected at the $2.05 double bottom from January and then at $2.
June resistance was expected first at this week's $2.285 high, with next resistance seen at $2.355-2.37. Major selling should emerge at the $2.63 double top from April.
In the cash Friday, Gulf Coast weekend quotes were flat to down slightly in the mid-teens. Midwest pipes also were little changed at $2.05-2.10. Chicago city gate gas firmed a couple of cents to about $2.30, while New York was steady to modestly lower in the low-$2.40s.
The NYMEX 12-month Henry Hub strip fell 1.1 cents to $2.393. NYMEX said an estimated 29,897 contracts traded, down sharply from Thursday's revised tally of 58,060.
U.S. Spot Natural Gas Prices Stable Ahead Of Weekend
NEW YORK, May 15 - U.S. spot natural gas prices stabilized Friday as lingering heat continued to support prices through the weekend, industry sources said.
Above to much-above normal temperatures are still forecast for the eastern two-thirds of the U.S. into next week, with the Northeast expected to average eight to 12 degrees F above normal through Wednesday. In Texas, temperatures are expected to hover two to six degrees above normal for the period, while cool weather is expected to linger in the West.
Also triggering a greater usage of air conditioning, traders said, was the poor air quality in the southern U.S. due to the forest fires in Mexico and Central America. The smog, which was forecast to drift as far north as Washington, D.C., was expected to last for at least another six days.
Cash prices at Henry Hub were quoted mostly again at $2.16-2.19 per mmBtu, in line with June's contract at $2.19 as of 1347 EDT.
In the Midcontinent, prices were also stable around $2.07, with deals reported done anywhere from $2.05 to $2.10. Chicago city gate was reported hovering in the high-$2.20s.
In west Texas, Permian prices slipped about three cents to $1.96-2.02, while San Juan values remained firm at $1.90-1.96. Most San Juan business was quoted at $1.94-1.95.
In maintenance news, Sonat Inc's Sea Robin Pipeline Co will perform maintenance at its Vermilion Block 149 gas compressor station offshore Louisiana today through the end of the month, affecting about 70-75 million cubic feet per day (mmcfd) of gas. The pipeline also said the system's East Leg could experience reductions in available interruptible capacity during the shutdown.
Sonat also reported that it will take a portion of its 20-inch Main Pass-Franklinton Line out of service on Monday. The outage, which is expected to last for about three to five days, will reduce IT capacity by about 40 mmcfd. Maintenance will also be performed on a section of its 16-inch Main Pass-Franklinton Line beginning next Wednesday and lasting for about two to three days.
Also, Northern's Keystone gas plant in western Texas is still scheduled to return to service today following unplanned maintenance.
As part of an ongoing expansion project, Transcontinental Gas Pipe Line Corp.'s Mobile Bay Lateral from Compressor Station 82 to the Transco main line will be out of service today and Saturday. During the outage, a new compressor unit will be added at Compressor Station 82, near Coden, Ala., and a new Compressor Station 83 will be constructed near Citronelle, Ala.
In the Northeast, gas at the New York city gate traded mostly again at $2.42-2.43 as forecasters called for temperatures in the 80s F through early next week.
Canadian Spot Natural Gas Prices Slide In Alberta
CALGARY, May 15 (Reuters) - Volatility that characterized Canadian spot natural gas trading all week continued on Friday when Alberta prices slid nearly 13 percent in the morning amid a drop in border pipeline capacity in province's east.
Spot gas at the AECO storage hub fell to about C$1.50 per gigajoule after opening the day at about C$1.72.
The fall came after NOVA Gas Transmission said allowable interruptible transport at Empress and McNeill on Alberta's eastern border would be just 23 percent of nominated volumes, or a cut of more than 1.5
billion cubic feet a day.
The move came as TransCanada's system was undergoing maintenance, which was to limit capacity in northern Ontario to 882 million cubic feet per day on Friday.
June AECO, meanwhile, stayed relatively flat on the day at C$1.80/1.85 per GJ.
At the borders, gas at Sumas, Wash. was talked at US$1.42-1.45 per million British thermal units, up about a penny from Tuesday.
Gas prices at Dawn and Niagara in eastern Canada were also little changed on the day at US$2.30/2.305, sources said.
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