MARKET ACTIVITY / TRADING NOTES FOR DAY ENDING THURS., JUNE 4 1998 (2)
OIL & GAS MARKETS
Key oil producers agree to crude oil cut
AMSTERDAM, Netherlands - Three key oil producers including OPEC heavyweight Saudi Arabia agreed to cut their production by 450,000 barrels per day (bpd) after secret talks on Thursday.
A joint statement issued by Organization of Petroleum Exporting Countries producers Saudi Arabia and Venezuela and non-OPEC Mexico said their ministers met and agreed that "excessive stocks need to be reduced to bring the market to balance and prices to acceptable levels ..."
The statement said that effective July 1, Saudi Arabia would cut 225,000 bpd, Venezuela 125,000 bpd and Mexico 100,000 bpd. They would seek more cuts from other producers, including OPEC and non-OPEC members.
The three countries were architects of the March Riyadh Pact when OPEC and non-OPEC producers agreed to cut 1.5 million bpd from an oversupplied market and rescue prices languishing about $5 below last year's average.
According to a recent Reuters survey, OPEC members produced 28 million barrels of oil a day in April. The International Energy Association, based in Paris, estimated non-OPEC production at 44.8 million barrels a day in April.
The statement referred to the March agreement and said that "despite efforts by their countries and other exporters to restrain production along the previously agreed pledges of reductions, the market is still unbalanced and crude and product stocks are high by historical standards."
The statement said the three would consult with other oil exporters, both OPEC and non-OPEC, ahead of the upcoming meetings of the oil ministers of the Gulf Cooperation Council on June 16 and the OPEC ministerial meeting on June 24 to contribute additional production reductions.
Oil ministers to begin quest for further cuts
AMSTERDAM, June 5 - The oil ministers of giant producers Saudi Arabia, Venezuela and Mexico prepared on Friday to drum up support among other oil nations for their plan to remove more crude oil from a saturated market.
Saudi Arabia's Ali al-Naimi was due to leave Amsterdam shortly following secret talks with his Venezuelan and Mexican counterparts which resulted in agreement late on Thursday to cut 450,000 barrels per day (bpd) collectively from July 1.
In a joint statement, they also called on producers inside and outside the Organisation of the Petroleum Exporting Countries to join the cuts, which come two months after reductions orchestrated by the trio in March in the so-called Riyadh pact.
''Despite efforts to restrain production along the previously agreed pledges...the market is still unbalanced,'' the producers said.
''Excessive stocks need to be reduced to bring the market to balance and prices acceptable levels.''
Saudi Arabia, the world's largest producer, said it would remove 225,000 barrels daily while Venezuela agreed to cut by 125,000 barrels and Mexico 100,000 barrels.
''The three countries are confident that other producers will join in the effort to stabilise the market,'' the statement said.
Mexican Oil Minister Luis Tellez was due in Oslo on Friday to meet Norwegian Oil Minister Marit Arnstad. But Norwegian radio early on Friday quoted Arnstad as saying Norway, the world's second largest oil exporter after Saudi Arabia, had no plans so far to make a further cut to its 3.1 million bpd production.
A Saudi official said Saudi Arabia expected other OPEC states to pledge cuts before the OPEC meeting ministerial meeting in Vienna on June 24.
''The sooner others in OPEC and non-OPEC react the better the effect will be on the market,'' a senior Saudi official said from Riyadh.
The early reaction from Saudi ally Kuwait was that the emirate would make only a token cut to support the deal, a source familiar with Kuwaiti thinking said late on Thursday.
The Riyadh deal, named after the Saudi Arabian capital where the producers cooked up the first cuts, eventually saw some 15 countries, mostly OPEC members, agree to slice 1.5 million bpd or about 2.5 percent from the 75 million barrel-a-day market.
But the recovery of oil prices from nine-year lows of below $12 for North Sea Brent has been stunted by falling Asian demand, high petroleum stocks and the failure of some exporters to honour pledges to cut.
The market's reaction reflected traders' views that the cuts were not enough to lift prices too high given the current glut. World benchmark Brent blend futures soared on the initial news but then fell back to close 44 cents up at $14.48 a barrel.
''It's not enough. They need to make some decent cuts and the market is sending that signal loud and clear. The world is awash with crude oil and cannot sustain these levels (of production) for much longer. It is a start but more needs to be done,'' one broker said.
Prices are still $5 below last year's average, slicing deeply into producers' vital export revenues while hitting the share prices of major oil companies and forcing them to reduce spending plans.
''Everybody has already factored in half a million,'' said Nigel Saperia, head of the energy desk at Bankers Trust International in London.
Others said the plan would provide a floor for prices and might nudge them higher depending on the additional volume of cuts coming from fellow suppliers.
''I think this is the fulcrum to lever for further cuts,'' said Peter Gignoux, head of the energy desk at Salomon Smith Barney. ''This keeps the ball rolling.''
Traders are expecting about an extra 250,000 barrels a day to the thrown into the hat from the cartel.
Oil Prices Limp Higher in Asia, Seeking More Cuts
SINGAPORE, June 5 - Crude prices limped higher in Asia on Friday, unconvinced the latest announced output cuts would do much to get buyers back into the market, traders said.
Saudi Arabia, Venezuela and Mexico announced overnight they would cut their combined supply by 450,000 barrels per day (bpd) from July 1 to bolster weak oil prices.
The announcement was to fortify the so-called Riyadh Pact in March, which led to global pledges from the Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC producers to cut 1.5 million bpd but which did little to lift oil prices.
Overnight, crude oil prices rose but failed to hold their intraday highs on disappointment that the three oil producers did not announce bigger or wider ranging cuts.
Benchmark July Brent on the International Petroleum Exchange (IPE) settled in London at $14.48 per barrel, for a gain on the day of 44 cents. But the close was well off the intraday high of $14.76.
New York Mercantile Exchange (NYMEX) July crude futures rose as high as $15.57 per barrel, but closed at $15.12 for net gain of 31 cents.
In Asia on Friday, the NYMEX July contract was last traded at 0615 GMT at $15.21, just nine cents above the New York close overnight.
''OPEC needs to reduce output by 1.0 to 1.2 million bpd to reduce stocks by the year end so that NYMEX can re-establish a range of $16 to $20 per barrel,'' said James Brown, Sydney-based energy analyst with Merrill Lynch. He said the reduction should be in addition to the cuts agreed in March.
With OPEC members Saudi Arabia and Venezuela overnight agreeing to cut 350,000 bpd between them, ''there is still additional cuts that need to be implemented,'' he said.
Tom James, regional commodity derivatives head for Credit Lyonnais Rouse, said the new cuts would support the oil price but was not likely to boost it significantly higher.
''There is some scepticism that OPEC has been able to keep to its original agreement to cut back in March. As this is the case, this new cutback may only give support to prices,'' he said in a daily briefing.
Analysts said the key now was how the rest of OPEC might react to the news.
The 11-member oil group meets on June 24 in Vienna, where bolstering the stubbornly low oil prices will top the agenda.
But analysts said the oil market would expect OPEC to make further cuts when it meets in Vienna.
''OPEC appears to be in the mood to cut production,'' Brown said.
However, OPEC will now have to factor in expectations of rising production from Iraq as it rebuilds and improves its oil production, with the possibility that United Nations sanctions might be lifted later in the year.
''The shadow of Iraqi export controls being lifted possibly later this year still hangs over the fourth quarter (Oct-Dec) market,'' Rouse's James said.
Weapons inspection chief Richard Butler said on Thursday he had drawn up a road map for Iraq to follow to complete the scrapping of its weapons of mass destruction and which could lead the U.N. to lift sanctions.
Iraq currently exports around 1.6 million bpd and plans to raise that to 1.7 million bpd to raise $3 billion under the latest six-monthly oil-for-aid deal with the U.N.
But Iraq has the leeway to raise more than $5 billion per round under a U.N. mandate.
Oil prices end off highs after crude cut pledges
LONDON, June 4 - World oil markets rallied on news that three of the world's largest producers, led by OPEC heavyweight Saudi Arabia, agreed to cut their daily output by a collective 450,000 barrels to boost flagging prices.
In a statement issued after a one-day meeting in Amsterdam, ministers from Saudi Arabia, the world's largest oil producer, Mexico and Venezuela said that ''excessive stocks need to be reduced to bring the market to balance and prices to acceptable levels.''
They said they would canvass producers inside and outside the Organisation of Petroleum Exporting Countries (OPEC) to join in the cuts.
The International Energy Agency (IEA) estimated that world oil supplies outstripped demand by 1.5 million barrels a day at the end of March. Daily world oil output in the first quarter averaged 76.5 million barrels while demand averaged 75.1 million. OPEC output in April was nearly 28 million barrels daily, the IEA said.
Benchmark North Sea Brent crude blend for July loading ended Thursday 44 cents a barrel higher at $14.48 a barrel after briefing touching the day's high of $14.76 on the cut news.
But oil traders said oversupplied markets needed larger cuts - as much as one million barrels daily -- to reverse the trend which sent oil prices in March to their lowest levels in nine years.
''It's not enough - they need to make some decent cuts and the market is sending that signal loud and clear. The world is awash with crude oil and cannot sustain these levels (of production) for much longer. It is a start but more needs to be done,'' one trader said.
Secret talks between Saudi Arabia, Venezuela and Mexico in Riyadh, Saudi Arabia in March orchestrated a combined reduction between OPEC and non-OPEC nations of 1.5 million bpd.
Although the first round of cuts, lifted oil prices from below $12 for Brent, the price recovery has been stunted by falling Asian demand and high stocks.
Brent remains $5 below last year's average, hitting oil producers' export revenues while knocking the share price of major oil companies and forcing them to reduce spending plans.
Producers, too, seem divided on whether this next round of cuts will be enough. Arab producers like Algeria and Kuwait think at least a million barrels daily needs to be cut to turn the market around.
But the Latin American camp is wary about slicing too much in case prices rise too high, too fast and further damage demand from fragile Asian economies.
NYMEX Crude, Products Rise on Further Oil Output Cuts
Crude oil futures rose modestly Thursday on the New York Mercantile Exchange after Mexico, Saudi Arabia and Venezuela unexpectedly announced another round of production cuts in a bid to boost world crude prices.
Unleaded gasoline and heating oil futures also advanced. Crude futures initially rose sharply after the three countries that earlier this year precipitated an agreement to slash some 1.52 million barrels a day of oil from the market said they were cutting an additional 450,000 barrels a day between them.
Saudi Arabia, the world's largest producer and a key member of the Organization of Petroleum Exporting Countries, said it would cut about 225,000 barrels a day on top of sharp cuts made in March. Venezuela pledged to cut 125,000 barrels a day, and Mexico 100,000 barrels.
The nations' oil ministers, who met in Amsterdam, Netherlands, said in a statement they agreed on the cutbacks because "the market remains in a state of imbalance." The statement was released in the Saudi capital of Riyadh.
The ministers said they would continue to consult with both OPEC and non-OPEC members to try to secure further cuts. Saudi Arabia and Venezuela are members of the 11-nation OPEC, which will meet June 24. The ultimate range was expected to be between 800,000 and 1 million barrels a day, with hopes that prices would rise as much as $3 a barrel.
That statement, paradoxically, helped bring the sharp rally down. Analysts and market participants have said time and again that producers need to cut about 3 million barrels a day from the market to realize a noticeable appreciation in stocks.
Many of the world's oil producers are dependent on oil revenues to meet budget needs and have been hurt by rapidly falling prices, but further production cuts hold no promise of seeing new gains and could in fact lead to even less revenue. Without additional pledges of cuts from other countries, the new voluntary output cuts from the three producers would fail to do the job, analysts said.
Oil prices recently tumbled close to 10-year lows because of increasing U.S. and European inventories. The economic slowdown in Southeast Asia sharply reduced demand to that region, forcing producers to direct their attention elsewhere. That has led to overflowing storage tanks in parts of the United States.
Crude for July delivery rose 31 cents to $15.12 a barrel; July heating oil rose .78 cent to 39.50 cents a gallon; July unleaded gasoline rose .14 cent to 49.89 cents a gallon. July natural gas fell 8.6 cents as cool weather dimmed air conditioning demand, leaving prices at $2.020 for each 1,000 cubic feet.
Late U.S oil futures edge up amid lack of news
LOS ANGELES, June 4 - U.S. crude oil futures rose in the ACCESS market Thursday, with a lack of fresh news keeping prices relatively flat.
After a sharp rise early Thursday, July crude settled 31 cents a barrel higher in daytime trade. Prices rose on news that Venezuela, Mexico and Saudi Arabia, agreed to cut production by 450,000 barrels per day, slightly below expectations.
After-hours, crude for July delivery rose nine cents by 1700 PDT, to trade at $15.21.
Trade was heavy at nearly 2,400 lots, with about 1,011 lots exchanged in July contracts, traders said.
Prices have been under pressure since the American Petroleum Institute (API) on Tuesday reported that U.S. supplies of crude rose 1.8 million barrels for the week ended May 29.
July unleaded gasoline rose to 50.40 cents a gallon by 1700 PDT, or 0.41 cent a gallon higher than the daytime settle.
Volume was more than 73 lots, with roughly 55 lots traded for July.
Heating oil for July traded at 39.70 cents a gallon, or 0.20 cent more than settlement, traders said, with over 128 lots traded for all months.
NYMEX Hub natgas ends down with cash, stock data
NEW YORK, June 4 - NYMEX Hub natgas futures ended lower across the board Thursday in an active session, with bearish weekly inventory data and a soft cash market in the face of mild weather pressuring the complex, sources said.
July tumbled 8.6 cents to close at $2.02 per million British thermal units after trading today between $2.005 and $2.105. August settled 8.6 cents lower at $2.068. Other deferreds ended down by 0.7 to eight cents.
''Storage drove a stake through the heart of any bull market. Summer's not over yet, but if spot futures close below $1.96, it may be,'' said one Midwest trader, adding mild weather this week helped undermine the cash as June flows began.
Traders said Wednesday's AGA report showing an unexpected 106 bcf weekly stock build helped set the stage for today's selloff. A Reuters poll showed most expected a gain in the 85-95 bcf range. Overall stocks now stand 466 bcf, or 39 percent, above year-ago.
Normal to below-normal temperatures are forecast for the Northeast and Mid-Atlantic into next week. In the Midwest, below- to much-below normal readings are expected into next week, with cooler weather forecast for Texas and Florida by the weekend though temperatures there will remain above normal.
Technical traders still pegged psychological support in July at $2.00 even though spot futures dipped on ACCESS tonight to $1.996. Further buying was likely at spot continuation lows from May at $1.99 and from January at $1.96-1.97. Next support was seen at $1.92 and then at $1.77, another prominent spot continuation low from March, 1997.
Interim July resistance was seen at $2.15, with more important resistance expected at Monday's high of $2.235, then in the $2.255 area and at $2.33.
In the cash Thursday, Gulf Coast swing gas tumbled eight cents to near the $2.00 level, with Hub quotes mostly in the $2.03-05 range. Midwest pipes were down a similar amount to the mid-$1.90s. Chicago city gate prices were almost 10 cents lower at about $2.10, while New York also was down about a dime to the $2.20 area.
The NYMEX 12-month Henry Hub strip fell 4.6 cents to $2.303. NYMEX said an estimated 69,434 Hub contracts traded today, up sharply from Wednesday's revised tally of 41,457.
US spot natgas prices stretch lower on cooler forecast
NEW YORK, June 4 - U.S. spot natural gas prices dropped another several cents Thursday as temperatures ticked lower in the South and remained well below-normal in the Northeast, Midwest and West, industry sources said.
Cash prices at Henry Hub were quoted at $2.03-2.05 per mmBtu, off about nine cents from Wednesday's levels but mirroring July futures.
In the Midcontinent, gas similarly traded lower in the mid-$1.90s, while Chicago city-gate slipped to about $2.09-2.11.
The spread between east and west continued to widen today as an absence of buyers in California and Rockies pushed prices more than 10 cents lower in the Permian and San Juan basins. Permian gas sold at $1.69-1.76, while San Juan business was reported done at $1.48-1.65.
At Waha, lingering heat in Texas prevented prices from falling as sharply again today, with deals done at $1.90-1.96.
At Malin (northern California border), prices were also quoted lower around $1.62.
However, temperatures are gradually cooling in Texas, with a high of 92 and 89 degrees F forecast for Dallas on Friday and Saturday, respectively.
''This weekend could be frightening. Tomorrow should be a lot of panic selling. It's going to be cool in California, and it's supposed to drop into the 80s this weekend in Texas. It has the potential to get very ugly tomorrow,'' one Texas-based trader said, referring to the west Texas markets.
In the Northeast, gas at the New York city gate traded several cents lower again to $2.20-2.30.
In maintenance news, Transwestern's Keystone gas plant in western Texas will remain shut until June 19 for scheduled maintenance, affecting about 30 million cubic feet per day.
Canadian spot natgas prices soften in light demand
NEW YORK, June 4 - Canadian spot natural gas prices moved lower in both the Alberta and export markets Thursday as demand waned amid cooler weather, traders said.
Spot gas at the AECO storage hub in Alberta was quoted at C$1.68-1.71 per gigajoule (GJ), off about six cents from Wednesday.
A continued outage on NOVA kept field receipts low at 11.6 billion cubic feet per day (bcfd), but storage injections in Alberta were only 248 million cubic feet per day on Wednesday.
The scheduled maintenance work on the western Alberta portion of NOVA's system is expected to continue until about June 15.
At the export points, Sumas gas traded anywhere from US$1.28 to US$1.38 per million British thermal units (mmBtu), with most business reported done in the low-US$1.30s, indicating a daily loss of five cents.
At Niagara, prices were also quoted lower at US$2.09-2.12, down another eight cents from Wednesday.
Commentary
For June 5, 1998 By John Moore
Energy prices fell to session lows on the close Thursday despite news of new production cuts totaling 450,000 barrels per day from Saudi Arabia, Venezuela, and Mexico.
Most agree that 450,000 is not enough to curtail the downtrend. Additionally, traders remain skeptical about OPEC's ability to garner additional cuts from non-OPEC producers.
Many maintain the major problem ahead lies on the demand side of the equation. Implied demand for gasoline has been falling indicating what some believe to be a slowing economy. Add this to the general deflationary tone in commodity prices and deflation in Asia and Russia and the bears still have the fundamentals in their favor.
For today, expect prices to be up early in the day possibly testing the $15.40 area. Expect prices to sell off later in the day.
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