MARKET ACTIVITY / TRADING NOTES FOR DAY ENDING MONDAY, MAY 18 1998 (5)
MONDAY CLOSING UPDATE - OIL & GAS
Latam Producers Rule out Near-Term Oil Cuts
LA JOLLA, Calif., May 18 - Latin America's two biggest oil producers said Monday they have ruled out any further production cuts in the near term, despite still depressed crude prices.
Venezuela and Mexico said they have made their pledged cutbacks, and no further cuts are on the horizon.
''(Further cuts) are not on our current agenda, not even in the next month or month and a half,'' said Mexican Deputy Energy Minister Jorge Chavez at a Latin American energy conference here.
Venezuela echoed Mexico's reluctance to plan further cuts, saying another three or four months are needed to evaluate crude export prices.
''We have enough time to see how the market reacts in the next three or four months and then adjust,'' said David Escojido, corporate planning vice-president for Petroleos de Venezuela (PDVSA).
While both producers have said they were not yet planning cuts, Monday's comments were among their most bearish to date. Governments of both countries have been in close contact since the Riyadh pact.
Chavez added that Mexico could abstain from any second round of cuts. The country has traditionally held firm to its independent oil policy, and has vowed it will not join the Organization of Petroleum Exporting Countries (OPEC).
''Remember, we don't have the same interests as the other producers and would not be obligated to cutbacks even if all the other countries agreed to them,'' he told Reuters.
In March, Mexico and Venezuela agreed to join Saudi Arabia and other producers in cutting production by around 1.5 million barrels per day (bpd), or two percent of world output.
The agreement, dubbed the Riyadh pact, joined non-OPEC Mexico and Norway with OPEC nations in a bid to halt skidding oil prices due to world oversupply.
Venezuela will hold to its long-term production increases, Escojido assured.
''If the market is very low we probably will adjust a little bit the production capacity increase for 1999, but we will keep increasing, there's no doubt about it,'' he said.
Both countries said they would continue to monitor prices before discussing a second round of cuts. Venezuela pledged at Riyadh to cut output by 200,000 bpd to 3.2 million bpd, while Mexico agreed to cut its exports by 100,000 bpd to an average 1.74 million bpd for 1998.
''If you look at the cuts from other countries, I think we've done more than our share,'' Chavez said.
Mexico's average crude export price fell from a high of $18.90 per barrel in early October to a low of $8.20 in mid- March, according to oil monopoly Pemex chief Adrian Lajous. Mexico's average crude price was about $10.50 in the first quarter, while Venezuela's basket was $11.37 per barrel.
World Oil Prices Slip Lower on Supply and Stocks
LONDON, May 18 - World oil markets dropped a shade on Monday as plentiful supply, bulging storage tanks and sluggish demand outweighed the possibility of trimmed output later in the year.
Hints by producers that more oil might need to be taken from glutted markets and possibility of a temporary halt to Iraqi oil exports have done little to prop prices in recent days.
London futures for July Brent crude were down five cents a barrel to $14.36. This compares to a recent high of nearly $16 in the wake of a deal struck in Riyadh by oil producers to cut two percent from world supply.
The seasonal downturn in oil demand has already taken some of the shine off the Riyadh agreement and with storage tanks brimming again many oil traders are mostly in bearish moods.
''It will need a lot of help to go higher,'' said Nigel Saperia, managing director of the oil division at Bankers Trust International in London.
But despite the soft market sentiment Saudi Arabia, the world's largest oil exporter, signalled it was prepared to see even deeper cuts by oil producers if prices stay depressed.
Saudi Oil Minister Ali al-Naimi told the Middle East Economic Survey (MEES) in an interview that ''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 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.
''What we would like to see is OPEC moving towards becoming a professional organisation with a clear awareness of the market,'' he said.
The oil producers cartel is due to meet in June when there might be a gap in U.N.-monitored oil exports from Iraq.
Baghdad is expected to renew its oil-for-food exchange in early June but a request by Iraq to use some of the proceeds for telecommunications may meet resistance from the United States.
Any delay would help tighten supply ahead of the autumn and winter months when seasonal oil demand begins to recover.
''Under the new plan there is a big jump from nutrition, water and health to telecommunications. Obviously the Americans will see it as a security issue, that it has a dual purpose and can be used for other purposes. That might cause a delay,'' a diplomat said.
The official Iraqi News Agency quoted an official spokesman as saying that the U.S. was blocking contracts under the current ''oil-for-food'' deal because of its animosity to Baghdad.
The new plan, presented by Iraq to the Security Council on Thursday, also includes an Iraqi request for $300 million for urgent repairs to equipment for its oil industry to allow the country to increase its output.
The U.N. Security Council has agreed to increase the value of the deal from $2 billion to $5.25 billion every six months so that Baghdad can buy food, medicine and other humanitarian supplies to help offset sanctions imposed after its August 1990 invasion of Kuwait.
But Baghdad has repeatedly said it lacks the technical capacity to export more than $4 billion of oil over a six-month period given the current state of its infrastructure, badly damaged by more than seven years of sanctions.
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.
Stocks started building rapidly again in April, despite the Riyadh pact to withdraw 1.5 million barrels a day (bpd) from the world's 75 million bpd market.
In April OPEC producers excluding Iraq cut a million bpd from February production, the benchmark for the cuts, according to the International Energy Agency.
This was roughly 80 percent of the 1.25 mln bpd target but extra Iraqi exports took some of the shine off the cartel's efforts.
A lack of demand from Asia due to the currency crisis in the region has also undermined confidence.
In recent years Asia has seen faster growth in oil demand than the West.
Saperia said Asian demand had relapsed into a ''bad phase'' again after recently showing tentative signs of recovery. But what was ''most worrying'' were signs that economic growth was slowing in Europe and the U.S., he said.
NYMEX June Crude Ends Above $14 Ahead Of Expiry
NEW YORK, May 18 - NYMEX front month crude recovered slightly from the day's lows Monday, but still closed lower than Friday's finish as sell-offs ahead of the June contract's expiry on Tuesday weakened the market.
''We've been lower all day and we just bounced a little at the end and this may continue tomorrow,'' said a NYMEX floor trader.
The June contract settled at $14.07 a barrel, down 40 cents from Friday. The front dipped briefly to a low of $13.95 toward midday, but recovered on some short-covering.
The July contract ended at $15.11 a barrel, down 21 cents, after trading as low as $14.98. The contract managed to rise in early trading to $15.35, from an opening of $15.29.
Traders noted rolling of June shorts to forward positions in view of the attractive contango. There were book-squaring ahead of the expiry ''and more action is possible tomorrow,'' one trader said.
''There was no news that could lick the bears today,'' another floor trader said, adding, ''fundamentally the oversupply situation still exists,''
The market shrugged off a statement by Saudi Oil Minister Ali al-Naimi that a further cut of about 500,000 barrels per day was needed to be taken out of the market if prices remain low.
''Talk is cheap...what we need to see is further production cuts,'' said a trader.
Meanwhile, IPE Brent futures rose in a late bounce Monday. The July contract closed at $14.43 a barrel, up three cents but off
from a high of $14.49. It earlier traded near a session low of $14.24.
Traders noted that the oversupply situation continue to bother the market, notwithstanding the Riyadh Pact.
The pact between OPEC and some non-OPEC producers aimed to cut oil output by about 1.5 million barrels per day (bpd). It was drawn up after oil prices dropped to nine-year lows in March.
Some of the latest troubling signs emanate from Iran, a major producer, which pumped 3.781 million barrels per day (bpd) in
April, some 300,000 bpd higher than the limit it pledged in March, according to OPEC on Monday.
Iran's April output is slightly lower than its official March output of 3.925 million bpd. The March level surprised many OPEC watchers who expected a decline.
Algeria, Indonesia, Kuwait, Qatar and the United Arab Emirates announced lower April output, in line with their pledged cutbacks under the Riyadh Pact in March.
Saudi Arabia and Venezuela, which along with Mexico crafted the agreement, have both yet to make an official report of their April output.
Iraq, which is not a participant to the agreement, said it produced 2.261 million bpd in April, more than 1.0 million bpd higher than its official March submission. But independent estimates put Iraq's March output nearer 1.9 million bpd.
Following crude's lead, oil products also fell. June gasoline closed 0.70 cent a gallon lower at 50.05 cents and June heating oil 0.65 cent a gallon lower at 40.99 cents.
NYMEX Natural Gas Ends Down, June Holds Technical Range
NEW YORK, May 18 - NYMEX Hub natural gas futures, pressured by technical selling after an early rally attempt stalled, ended lower Monday in moderate trade, but firmer cash and power quotes kept June above key support, sources said.
June skidded 4.4 cents to close at $2.134 per million British thermal units after trading today between $2.125 and $2.20. July settled 4.9 cents lower at $2.174. Other deferreds ended down by one to 4.5 cents.
''We had all the reasons to go up this morning and couldn't, so people started liquidating, but the market is still in a range,'' said one Midwest trader, noting firmer electricity and spot gas prices this morning had some expecting a rally.
Traders said technical selling kicked in early when June stalled at $2.20, just ahead of resistance. But with more heat expected early in the week, few saw prices cratering near-term.
Forecasts still call for warmer-than-normal temperatures in the East and central U.S. early this week, with the Northeast and Mid-Atlantic expected to cool to below-normal later in the week. Texas is expected to remain four to eight degrees F above normal for the period.
Technical traders said June remained range bound, with key support still at $2.105-2.11, a spot continuation chart low and the low two weeks ago. Major buying also was expected at the $2.05 double bottom from January and then at $2.
Resistance was pegged first at $2.215, then at last week's $2.285 high and in the $2.355-2.37 area. Major selling should emerge at the $2.63 double top from April.
In the cash Monday, Gulf Coast swing quotes firmed one to two cents to the mid-to-high teens. Midwest pipes were up about a nickel to the $2.10-2.15 range. Chicago city gate gas was little changed at about $2.30, while New York was two to three cents higher in the mid-$2.40s on warm weather in the region.
The NYMEX 12-month Henry Hub strip fell 2.7 cents to $2.366. NYMEX said an estimated 59,660 contracts traded, up sharply from Friday's revised tally of 29,820.
Sustained Heat Drives U.S. Spot Gas Prices Higher
NEW YORK, May 18 - U.S. spot natural gas prices turned stronger Monday, sparked early by talk of a heat-driven rally in the electricity market, industry sources said. Warmer-than-normal weather was expected to continue across the East and central U.S. this week, with temperatures forecast to reach 14-19 degrees above normal in the Chicago area today and five to 10 degrees above normal in the southern plains through Friday. Cooler weather is expected to set in this weekend.
Early next-day peak electricity business in the Midwest was reported done over $200 per megawatt hour.
Physical gas prices at Henry Hub were quoted mostly at $2.18-2.20 per mmBtu, up one to two cents, with the lower-priced deals surfacing in late morning trade.
In the Midcontinent, prices were also firmer at $2.12-2.13, while Chicago city gate was reported done at $2.28-2.33.
In west Texas, Permian prices jumped to about $2.08-2.10, indicating a gain of 12 cents from Friday's levels. San Juan values were similarly higher at $2.00-2.09, with most business reported done at $2.02-
2.05.
In maintenance news, Sonat Inc's Sea Robin Pipeline Co will perform maintenance at its Vermilion Block 149 gas compressor station offshore Louisiana 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 will also perform maintenance on a portion of its 20-inch Main Pass-Franklinton Line today. 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 done on a section of its 16-inch Main Pass-Franklinton Line beginning Wednesday for about two to three days.
In the Northeast, gas at the New York city gate traded mostly at $2.45-2.46, up about three cents from Friday, as temperatures in the region climbed into the 80s F.
Canadian Spot NatGas Prices Hold With Holiday
NEW YORK, May 18 - Canadian spot natural gas prices remained notionally unchanged Monday as traders were absent from their offices in observance of Victoria Day.
Spot gas at the AECO storage hub traded Friday at C$1.50 per gigajoule (GJ), while June hovered in the C$1.80-1.85 area.
NOVA Gas Transmission said that allowable interruptible transport at Empress and McNeill on Alberta's eastern border would be just 24 percent of nominated volumes today, or a cut of about 1.6 billion cubic feet per day (bcfd).
NOVA's linepack was on the rise over the weekend, standing at 13 bcfd as of Saturday evening. Field receipts that day totalled 12.54 bcfd.
At the borders, gas prices at Sumas, Wash., were quoted Friday at US$1.42-1.45 per million British thermal units (mmBtu).
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