MARKET ACTIVITY / TRADING NOTES FOR DAY ENDING TUESDAY JUNE 9 1998 (2)
OIL & GAS
No joy for oil producers as OPEC seeks more supply cuts
LONDON (AP) -- Things are looking pretty dismal in the oil market.
Crude prices have been sinking, even though OPEC surprised traders this spring by sticking with most of the cuts in oil production promised by its members.
Now, some of OPEC's big players are calling for deeper reductions in output, and analysts predicted Tuesday they'll probably miss any new targets. If that's correct, consumers could continue to enjoy a bargain while producers suffer.
"There's not much out there that looks bullish," said Victor Yu, who follows oil markets in New York for the commodity trader Refco Inc. "OPEC -- even though they said they were cutting back 'X' amount of barrels -- they aren't cutting that amount."
Ten of the 11 members of the Organization of Petroleum Exporting Countries agreed in an emergency meeting in March to reduce output by nearly 1.25 million barrels a day.
But the International Energy Agency in Paris reported Tuesday that the actual cuts came up short, at just over one million barrels, last month.
And OPEC member Iraq boosted output modestly. Iraq did not join the effort to cut production because it can only pump limited amounts of crude under United Nations sanctions imposed after it invaded Kuwait in 1990.
OPEC's dilemma enables North American motorists, who are among the world's biggest energy consumers, to enjoy the benefits of cheap fuel prices.
Retail gasoline in the United States was holding steady at about $1.14 US a gallon, according to a Lundberg Survey early this month that said the start of the traditional summer driving season had failed to push prices higher, thanks to a "more than ample supply."
In Canada, prices have been fluctuating recently but gasoline has been generally selling for between 53 and 63 cents a litre, depending on regional markets.
The energy agency report cast further gloom over the markets Tuesday by saying the demand for crude in Asia was being hit even harder than expected as a result of the lingering financial crisis in the region.
Prices tumbled on New York and London futures markets Tuesday, extending a sharp decline from Monday.
Light sweet crude oil to be delivered in July closed down 70 cents, at $13.85 US a barrel, on the New York Mercantile Exchange. Brent crude for July was off 73 cents, at $13.49 US a barrel, on London's International Petroleum Exchange.
OPEC's average oil price on Monday was $12.39 US a barrel -- not as bad as the low of $10.75 US on March 17, but still well off the group's official goal of $21 US.
Another oil analyst, Geoff Pyne at UBS Ltd. in London, said OPEC is doing better than expected and would be wise to phase in additional production cuts over time to let the market ease into a comfortable level.
"If they decrease half a million barrels in a second round of cuts, and it sticks in the market, prices could improve, but it won't be quick," Pyne said.
Saudi Arabia and Venezuela joined with non-OPEC member Mexico last week in pledging an additional 450,000 barrels in daily production cuts. Those three big exporters were behind the so-called "Riyadh agreement" that led to the first round of cuts.
Saudi oil minister Ali Naimi, trying to drum up support for additional cuts, visited the Kuwaiti oil minister, Sheik Saud Nasser al-Sabah, on Tuesday.
Naimi predicted afterward that more cuts will be forthcoming from others in OPEC, which meets later this month. Sheik Saud suggested a good target might be cuts of another one million barrels.
"The international markets are now drowning in oil," he told a joint news conference in Kuwait.
World oil demand, supply down in 2nd half 1998
WASHINGTON, June 8 - World oil demand and supply for crude is expected to shrink in the second half of this year from earlier estimates, the U.S. Energy Information Administration said Monday.
The EIA, which is the statistical agency of the Energy Department, estimates that world oil demand will average 74.0 million barrels per day (bpd) during the third quarter of this year and 77.1 million bpd in the fourth quarter.
That is down 200,000 bpd during each quarter from EIA's estimate last month.
At the same time, the EIA expects world oil supply to average 74.9 million bpd during the third quarter and 75.8 million bpd in the fourth quarter, down 500,000 bpd in each quarter from last month's estimate.
The EIA's latest projections were contained in the monthly update of its short-term energy outlook.
The agency said its forecast does not take into account the agreement reached last week by Saudi Arabia, Venezuela and Mexico to cut their oil production by 450,000 bpd.
The agency also said its forecast assumes that Iraq will export 1.6 million bpd for the rest of this year.
World oil tumbles under $14 amid brimming stocks
LONDON, June 9 - Oil prices fell below $14 on Tuesday, bogged down by bursting European stocks and bearish world demand despite Saudi Arabian shuttle diplomacy to clinch more output cut pledges.
Benchmark North Sea Brent skidded under the key $14 support level on Tuesday with prices dragged down by a wave of late selling by local and international speculators.
Brent closed 75 cents weaker at $13.47 a barrel, after shedding over 20 cents in the last few minutes of trading.
Oil markets remain oversupplied despite the best efforts of producers to cut output.
The International Energy Agency on Tuesday said Asia's financial crisis was hitting world demand harder and longer than expected, spoiling producers' efforts to rescue prices.
''The anticipated growth rate for the region of 4.8 percent has been adjusted downwards to 0.8 percent,'' the Paris-based Western world's energy watchdog said.
The IEA projected Asian demand for this year to be running 750,000 barrels per day (bpd) lower than first estimated. It said South Korean and Indonesian oil consumption had been particularly hard hit and that only Chinese growth was keeping regional energy demand out of the red.
IEA said global oil demand would still rise to 75 million barrels this year, but revised down projected growth by 300,000 bpd to 1.2 million.
''We just don't see the light at the end of the tunnel,'' said a trader with an oil major. ''The fundamentals are ugly. It seems like an ever falling market.''
''First we had the IEA figures which did not help, then we were hit by the European stock figures,'' said one IPE trader.
European crude oil and petroleum products stocks jumped sharply in May, rising 25.94 million barrels to 1.122 billion barrels, Stichting Euroilstock said in a monthly report.
The market was also expecting crude stock inventories in the United States, to be released late on Tuesday by the American Petroleum Institute, to show a strong build.
''We're now looking to OPEC. If they can pull off the cuts, we might see some recovery,'' one oil trader said.
Saudi Arabian Oil Minister Ali al-Naimi, who held secret talks with Venezuela and Mexico last week agreeing to reduce production by 450,000 bpd, held two hours of talks in Kuwait with his counterpart and emerged with some results.
Kuwait said it was willing to cut output by 50,000-100,000 bpd but the actual volume would be announced after government consultations.
Before Naimi left Kuwait for Iran on Tuesday, he said he was confident that more crude production cuts would be made when ministers of the Organisation of Petroleum Exporting Countries (OPEC) meet in Vienna on June 24.
The market is waiting for signals that at least one million bpd would be cut out from global supplies.
On Naimi's whirlwind trip to some Gulf states, only Qatar has given a firm pledge to reduce production by 20,000 bpd.
NYMEX Crude Oil Futures Plunge
Crude oil futures prices fell sharply Tuesday, threatening to topple 9 1/2-year lows on the New York Mercantile Exchange, as world demand remains the weakest in years with no sign that producer output cuts are reducing a supply glut.
On other markets, sugar futures plunged to seven-year lows, while cotton futures fell sharply. The losses pushed the Bridge-Commodity Research Bureau's index of 17 commodities down to five-year lows.
Crude plunged after the International Energy Agency cut its estimate for 1998 world oil demand because of the Asian economic crisis. Daily demand was estimated at 75 million barrels a day, down 100,000 barrels from earlier estimates.
Demand in Asian countries, excluding Japan and China, has fallen some 750,000 barrels a day since October, according to the Paris-based group's figures.
Asia, with its once booming regional economy, had been an important area for absorbing heavy crude output by most of the 11 members of the Organization of Petroleum Exporting Countries and non-OPEC members such as Russia and Norway. When some of those economies went from boom to bust, supplies quickly backed up and producers began to compete for shipments to the United States and Europe.
When storage tanks in those areas began to virtually overflow, producers got together to pull some 1.72 million barrels a day off the market -- a figure considered too low to ratchet up prices. Saudi Arabia, Venezuela and Mexico recently announcedBadditional cuts totaling 450,000 barrels a day and said others would join in the second round, but market participants remainBskeptical.
Many pointed to the International Energy Agency's estimate that only 1.017 million barrels of the 1.245 million pledged byBOPEC countries in the first round of cuts were taken out of the market in May.
And Iraq, the only OPEC member not taking part in the cutbacks, increased exports under an oil-for-food program sponsoredBby the United Nations as an exception to an embargo imposed after that country's 1990 invasion of Kuwait.
Making matters worse, demand for crude products -- unleaded gasoline and heating oil -- have been weaker than expected forVmonths. A mild winter across most of the United States and Europe dimmed heating oil demand, while the start of the summer driving season has yet to jump start gasoline demand.
Crude for July delivery fell 70 cents to $13.85 a barrel; July heating oil fell .53 cent to 38.57 cents a gallon; July unleaded gasoline fell 1.21 cents to 47.04 cents a gallon; July natural gas fell 7.3 cents to $1.349 for each 1,000 cubic feet.
Late U.S. oil futures extend losses on ACCESS
LOS ANGELES, June 9 - U.S. crude oil prices continued falling in overnight ACCESS trade Tuesday, following the release of weekly data that showed higher gasoline stockpiles at U.S. refineries.
Trade was heavy on overnight ACCESS, with July crude down 15 cents a barrel to $13.70 at 1520 Pacific Daylight Time.
That followed a day of trade in which July NYMEX crude futures broke through contract lows.
After the market closed, a weekly report by the American Petroleum Institute (API) showed unleaded gasoline stocks rising 963,000 barrels.
At the same time, crude oil inventories fell by 1.94 million barrels but remained 22 million barrels above year-ago levels.
The market appeared to focus on a 935,000 barrel build in PADD II, which brought stocks to 82.8 million barrels, just below the estimated storage capacity of 85 million in that region.
"It's putting pressure on storage there," a trader said.
Volume of crude traded for July reached 1,121 lots at 1520 PDT and 3,024 lots for all futures months.
Unleaded gasoline for July traded at 46.85 cents a gallon, or 0.19 cent below the daytime settle. Volume was 116 lots traded for all months and 76 for July.
Heating oil traded 38.30 cents a gallon at 1520 PDT, down 0.27 cent, with volume at 183 lots for all months and 113 for July.
NYMEX Hub natural gas ends mixed
NEW YORK, June 9 - NYMEX Hub natural gas futures ended mixed Tuesday in an active session, with front months pressured by a late wave of technical and fund selling after an early rally attempt stalled, market sources said.
July slipped 3.8 cents to close at $1.938 per million British thermal units after trading today between $1.935 and $2.03. August settled 4.7 cents lower at $1.973. Other deferreds ended mixed, with some 1999 contracts up slightly.
"The cash had some legs (strength) today, so we saw some early short covering, but when crude sold off hard, the funds came in and nailed (sold) it," said one Midwest trader, noting lingering concerns about ample storage and mild weather heading into summer.
Injection estimates for Wednesday's weekly AGA storage report range from 70-110 bcf. For the same week last year, stocks gained 91 bcf. Overall stocks are 466 bcf, or 39 percent, over year-ago.
Below-normal Northeast and Mid-Atlantic temperatures are expected to climb to normal or slightly above by the weekend. The Midwest should climb to above normal at midweek and remain warm into the weekend. Temperatures in Texas, Florida and the Southeast are expected to average several degrees F above normal for the period. In the Southwest, readings should stay a few degrees below normal.
Technical traders noted July this week twice settled below the $2 level, the lowest closes for a spot contract since April, 1997. Support was now pegged at $1.935, which is today's low and a measurement objective after the last leg up. Further buying should surface at $1.92 and then at $1.77, a prominent spot continuation low from March, 1997.
Minor July resistance was now seen at today's $2.03 high and then in the $2.08-2.09 area, the fifty percent retracement point of the recent move down. Next resistance should be at $2.15, then at last week's high of $2.235. Further selling should surface in the $2.255 area and at $2.33.
In the cash Tuesday, Gulf Coast swing quotes were flat to up slightly in the mid-to-high $1.90s. Midwest pipes again held fairly steady at about $1.90. Chicago city gate gas was down slightly to the $2.02-2.04 area, while New York also was slightly lower in the low-teens.
The NYMEX 12-month Henry Hub strip fell 1.9 cents to $2.256. NYMEX said an estimated 85,886 Hub contracts traded today, more than double Monday's revised tally of 41,852.
US spot natural gas prices mostly steady, strength seen late
NEW YORK, June 9 - U.S. spot natural gas prices were mostly unchanged Tuesday, though some more buying interest emerged in late trading in tandem with an uptick on NYMEX, industry sources said.
At the Henry Hub, gas prices were quoted early at $1.96-1.99, but by late morning gas was selling at $2.05 as June futures ticked up to a high of $2.03.
In the Midcontinent, prices remained at $1.87-1.91, while Chicago city-gate slipped to about $2.00-2.04, market sources said.
''There's just no interest. There are some storage opportunities, but not a lot is getting done,'' one Midwest trader said, who noted cash prices were fairly flat from yesterday's levels.
In West Texas, Permian Basin prices gained another four cents to a wide range of $1.65-1.76, with the higher-priced deals surfacing late. San Juan prices were equally firmer at $1.45-1.55.
At the Southern California border, prices tacked on one cent to about $1.88.
In the Northeast, gas at the New York city gate traded mostly at $2.10-2.15, compared with $2.13-2.15 on Monday.
Separately, injection estimates for tomorrow's American Gas Association storage report ranged from 80 to 110 bcf, versus a 91 bcf gain a year ago.
Canada natural gas firms in Alberta on early NYMEX rise
NEW YORK, June 9 - Sparser supplies and an early uptick on NYMEX pushed Canadian spot natural gas prices higher Tuesday in Alberta, traders said.
''It's up on the back of NYMEX and low field receipts,'' one Calgary based trader said at the time June futures was near its session high of $2.03.
Field receipts were about 11.8-11.9 billion cubic feet per day (bcfd), he noted. Meanwhile, linepack on NOVA's system slipped a little to 12.8 bcfd from 13.2 bcfd.
''But we're expecting some gas to come back over the next couple of days,'' he added, which sent some late softness back into the market.
Spot natgas at the AECO storage hub in Alberta was quoted early at C$1.61-1.63 per gigajoule (GJ), but later deals were reported done at C$1.58-1.59, indicating an average gain of two cents from Monday.
Prices for the remainder of the month at AECO were talked at C$1.60, up from about C$1.57-1.59 on Monday.
In British Columbia, Sumas prices remained steady at US$1.25 per million British thermal units (mmBtu), while Station 2 prices tacked on about one cent to US$1.65.
Energy Commentary For June 9, 1998
By John Moore
Energy prices retreated further on Monday when markets failed to rally on announced production cuts last Thursday. July gas broke major support at 4910 on Monday, setting up for a test just below 4700.
Another negative on Monday was that first shipments of Iraqi oil was moving out of Turkish ports yesterday. Many traders also fear the weakening Japanese yen will lead to another round of currency devaluations in Asia and delay the regions economic recovery.
For today, expect prices to remain on the defensive. July crude will probably test the $14.02 level in the next couple of day
Oil slips as OPEC trips
Traders dismayed by new cuts, rising stocks; crude dips to $13.41 a barrel
June 10, 1998: 9:29 a.m. ET
CNNfn
Crude-oil futures took another battering Wednesday as dealers signaled their dismay at the latest efforts by leading oil producers to cut bloated supplies by curtailing output.
July crude future prices slumped early Wednesday to $13.41 a barrel in London, the lowest contract settlement since May 19, when prices slid to a 9-1/2 year low of $12.50.
Oil contracts have lost more than 8 percent of their value since Monday. They traded Wednesday at an average $6 a barrel less than a year ago.
The latest plunge came less than a week after three leading oil producing countries pledged to cut output by 450,000 barrels a day from July 1 through the end of the year.
In a joint pact signed in Amsterdam, the Netherlands, June 4, Organization of Petroleum Exporting Countries members Saudi Arabia and Venezuela, and non-OPEC member Mexico, vowed to pare production by 225,000, 125,000 and 100,000 barrels a day respectively. The countries said they hoped to persuade other oil producers to make additional cuts in their own output of as much as 300,000 barrels a day.
Such measures are intended to supplement the 1.25 million barrels in daily reductions agreed to in March by a host of countries inside and outside OPEC.
Fears over cutback commitment
Edgy dealers fear that unless the obstreperous alliance of oil producers adheres to its pledge to cut supplies, prices will continue on their downward spiral as stocks rise, spurred by lowered demand from crisis-racked Asia. One industry survey has forecast that oil demand from Asia will fall by 250,000 barrels a day in the second quarter.
An industry report Tuesday, showing that OPEC had missed its output-cut target by a substantial margin, dealt a further blow to market morale. In its monthly survey, Euro Oil Stock, an industry trend tracker, reported that May oil stocks rose by more than 150,000 barrels to 26 million barrels, as OPEC managed to cut about 800,000 barrels a day, nearly 450,000 short of the target level.
Other estimates pegged the reductions at about 1 million barrels a day, including 900,000 bpd by OPEC members.
Analysts say it is common for oil stocks to rise in the spring and summer seasons. But May's report came at a particularly inauspicious moment, when stocks already had been building up for months, according to Leo Drollas, the deputy director of Global Energy Studies, a London-based organization.
Drollas said the May report had chagrined dealers looking to regain a sense of equilibrium in oil prices.
"They need to have a million barrels in total [cuts] or probably a little bit more; they need another 550,000 [barrels] just to stabilize the situation," Drollas said of the oil-producing nations. "This is damage limitation."
Analysts already had lowered expectations in the oil market and driven down prices by lowering forecasts for total global oil demand by more than half a million barrels. The International Energy Agency, according to one report, said in its monthly report that demand growth would slow in 1998 to 1.6 percent, down from 2.9 percent in 1997.
In their joint statement, Venezuela, Saudi Arabia and Mexico lamented that despite efforts at restraint, "the market is still unbalanced and crude and product stocks are high by historical standards."
Saudi Arabia's Oil Minister Ali al-Naimi said Tuesday he expected OPEC members to pledge further cuts when they meet in Vienna June 24.
Meanwhile, Iraq, which has shirked the oil-producing alliance, has resumed exports under an expanded oil-for-food exchange with the United Nations.
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