MARKET ACTIVITY/ TRADING NOTES FOR DAY ENDING WED. JUNE 10 1998 (3)
OIL & GAS
Some OPEC Members Still Overproducing
TEHRAN, June 11 - A senior official at the National Iranian Oil Company (NIOC) was reported on Thursday as saying that overproduction by some members of the OPEC had hurt world prices.
Ghanimi Fard, NIOC's director of international affairs and crude marketing, told the English-language Iran News that Asia's economic crisis had also contributed to lower prices.
''He (Ghanimi Fard) maintained that by and large members of the Organisation of Petroleum Exporting Countries are complying with their production quotas, but added that overproduction by certain members leads to lower prices for OPEC as well as independent producers,'' Iran News said.
Iran News said its interview with Ghanimi Fard was on Monday.
OPEC states, excluding Iraq, agreed in March to cut their output by 1.245 million barrels per day (bpd) from April 1 to the end of the year. Iran's contribution was a pledge to cut its output by 140,000 bpd.
Supplies from the 10 OPEC states that signed up for reductions at the March ministerial meeting fell by about 900,000 bpd from February's benchmark for the cuts, according to a Reuters survey of OPEC output in May.
There has been no marked change in supply from OPEC states Qatar and Indonesia, according to the Reuters survey.
Iran on Wednesday said it would cut output by an additional 100,000 bpd from July 1 to support the so-called Amsterdam Pact of June 4 under which Saudi Arabia, Venezuela and Mexico agreed to cut their output by a further 450,000 bpd.
Ghanimi Fard said prices had been hit by Asia's economic downturn.
''We cannot blame OPEC alone for lower prices. Diminished demand caused by the southeast Asian financial crisis, has also played a significant role in bringing prices down,'' Ghanimi Fard was quoted as saying.
Demand outside China would fall by about one percent this year.
Oil prices have fallen to their lowest level in real terms for 25 years.
Saudi Minister Expects More Oil Output Cuts-Agency
DUBAI, June 10 - Saudi oil minister Ali Naimi expects more oil producing countries to announce output cuts in the next few days to bolster crude prices, the official Saudi Press Agency (SPA) said on Wednesday.
''His excellency disclosed that Iran has promised to cut production and exports by 100,000 barrels per day starting next month other than the previous cut...and expected that other oil producing countries would announce new cuts in production in the next few days,'' SPA said.
Oil Prices Fall in Asia as Fears Grow Over Demand
SINGAPORE, June 10 - Oil prices in Asia were sharply lower on Wednesday after the outlook for world demand took another downturn, spearheaded by fears that Asian consumption will barely grow in 1998, oil traders and analysts said.
The New York Mercantile Exchange (NYMEX) July futures contract fell in Asia to $13.61 per barrel, breaking below key support at $14.00. At 0540 GMT, July was last traded at $13.65.
The price was the lowest since March 18 and close to the nine and a half year low of $12.80 hit on March 17.
North Sea Brent July futures, trading on the Singapore International Monetary Exchange (SIMEX) dropped to $13.40 per barrel, nine cents below London on Tuesday and the lowest level since April 15 when prices were as low as $13.32.
''A lot of people are starting to talk about hitting the lows again,'' said Doug Stetzer, a broker with ED&F Man in New York, referring to the nine-and-a-half-year lows traded in March.
Sentiment dropped after expectations for oil demand growth fell, threatening to scupper oil producer plans to cut enough production to raise prices.
The closely watched International Energy Agency (IEA) said in a report on Tuesday it expected Asian oil demand to grow just 0.8 percent in 1998.
This compared with a previous forecast for robust growth of 4.8 percent.
The Paris-based organisation said it had also downgraded its 1998 forecast for world oil demand by 300,000 barrels per day (bpd) to growth of 1.2 million bpd.
Since October last year, the IEA has cut its forecasts for Asian oil growth in 1998 by 756,000 bpd. The IEA, like other analysts, said that it is only Chinese oil demand growth that is keeping Asian overall forecasts in the black.
''China is the one thing propping up the whole region,'' said James Brown, regional energy analyst for Merrill Lynch.
Brown said Merrill had cut its forecast for Asian growth to 1.5 percent in 1998 -- representing a rise of 280,000 bpd -- from a previous forecast made in January of 1.9 percent.
The downturn in expected demand will make Saudi oil minister Ali Naimi's job more difficult as he travels the Middle East Gulf to raise support for a second wave of production cuts.
In March OPEC and non-OPEC producers pledged to cut production by 1.5 million bpd to bolster prices. But some analysts believe only 850,000 bpd have been delivered.
Last week Saudi Arabia, Venezuela and Mexico said they would add a further 450,000 bpd to the cuts and urged other producers to join them.
But many producers plan to wait to see the outcome of a Gulf Cooperation Council meeting in Riyadh on June 16 and an OPEC meeting in Vienna on June 24 before making any commitments.
Man's Stetzer said the market was sceptical oil producers could deliver big enough cuts to support oil prices. Many analysts have said cuts of as much as one million bpd need to be added to the current reductions.
Traders said the oil market was clearly locked in a bearish mood, which would take very bullish news to turn.
Overnight American Petroleum Institute oil data showed a surprising fall in crude stocks, but still left them 22 million barrels higher than a year earlier and with storage in the U.S. Midwest close to tank tops.
''The data were not particularly horrible, but they were not supportive enough, so the market came off,'' Stetzer said.
Feeble Oil Takes Sceptical View of New Cuts
LONDON, June 10 - Drooping world oil markets were back in the bargain basement on Wednesday as dealers took a sceptical view of producers' latest efforts to shore up prices.
London July futures for benchmark Brent blend closed $13.32, down a further 17 cents, after a heavy 75 cent slump on Tuesday. Oil now is worth some $6 a barrel less than on average last year.
Dealers said volumes of crude being withdrawn as a result of the pact between OPEC and non-OPEC producers to cut supplies so far had proved too small to reverse the stockbuilding trend on world markets.
''The market still looks very weak. There is no sign of inventories contracting,'' said economist Geoff Pyne at finance house UBS.
OPEC members Saudi Arabia and Venezuela and non-OPEC Mexico last week agreed to withdraw 450,000 barrels a day (bpd) of crude oil from July 1.
Iran on Wednesday lent its support to the initiative when Tehran said it would slice a further 100,000 bpd from its supply.
The announcement came in the wake of a visit by Saudi Oil Minister Ali al-Naimi at the end of a whirlwind tour of Gulf oil nations the United Arab Emirates, Qatar, Oman and Kuwait.
Other producers inside and outside the Organisation of the Petroleum Exporting Countries are expected to trim extra supply, just two months after cementing 1.5 million barrels daily of reductions under a pact agreed in the Saudi capital Riyadh.
Oil recovered from nine-year lows under $12 for Brent but have since gone into reverse.
Analysts said actual reductions as a result of the pact probably had proved smaller, at about one million bpd, including some 900,000 bpd from OPEC members.
Saudi Arabia's Naimi said on Tuesday he expected pledges of further cuts when OPEC ministers meet in Vienna on June 24. Gulf Arab oil ministers gather in Riyadh on June 16.
Dealers took fright on Tuesday at the latest evidence that the growth in world oil demand this year was proving much slower than expected.
The International Energy Agency (IEA) said in a monthly report it expected demand growth this year to slow to 1.6 percent from 2.9 percent in 1997.
Global demand would rise by 1.2 million bpd to 75 million slowing from a rise of 2.1 million bpd last year, the agency said.
Asia's financial crisis has hit oil consumption harder than expected, spoiling producers' efforts to rescue prices, the Paris-based think-tank added.
It said that Asian demand outside China would fall this year by about one percent. It downgraded its forecast for the region as a whole to growth of 0.8 percent, including a lower 7.7 percent for China.
''Asia seems to be worse every time you look at it,'' said Pyne at UBS. ''Japan is weak, China is weakening and the rest are worse than expected.
''China is the one thing propping up the whole region,'' added analyst James Brown at Merrill Lynch.
The low pulse of demand meant global stocks have built by more than a million barrels daily in the first half of the year, the IEA said.
Meanwhile Iraqi supplies are putting added pressure on the swamped market with only a short gap between the third and fourth round of Iraq's oil-for-food exchange with the United Nations.
Iraq resumed exports earlier this week under an expanded deal and has moved quickly to sign contracts with oil traders.
June 10 June 9 (close) (close) IPE July Brent $13.32 $13.49 NYMEX July crude $13.45 $13.85
Thursday Morning World Oil Update
Oil Prices Stem Slide after Heavy Losses
LONDON, June 11 - Bedraggled world oil prices staged a fight back on Thursday as key producers sought to convince markets that they have the stomach for further output cuts.
International benchmark Brent was trading at $13.57 in early Thursday trade, up 24 cents, but still leaving producer revenues some $6 a barrel adrift from last year's average.
Traders are now debating whether the current round of producer cuts, set to add up to some 800,000 barrels per day (bpd), will at last be enough to dry out drenched world oil markets.
Prices have fallen heavily in recent days despite energetic recent efforts from Saudi Arabia, the world's biggest oil producer, to assemble a package of cuts ahead of the full June 24 OPEC (Organisation of Petroleum Exporting Countries) meeting.
Returning from a whirlwind tour of fellow Gulf producers, Saudi oil minister Ali al-Naimi declared late on Wednesday that more countries would announce cutbacks in the next few days.
Naimi secured a promise from Iran to trim 100,000 bpd from next month, on top of Saudi Arabia's own joint 450,000 bpd cut agreed last week in
Amsterdam with Venezuela and Mexico.
OPEC and non-OPEC producers already thrashed out some 1.5 million bpd of reduction pledges in March.
But analysts have berated producers for failing to live up to promised cuts, saying that barely a million bpd had been taken off markets since the March pact.
They have called for as much as one million bpd more to be slashed from global supply to start eating into the huge petroleum stock surplus that has built up in recent months.
Stocks have ballooned by more than a million barrels daily so far this year, said the International Energy Agency (IEA) in its latest market report.
The energy watchdog compounded its gloomy outlook by predicting that global demand growth this year would slow to 1.6 percent from 2.9 percent last year as the Asian recession bites.
And any producer hopes that wilting prices might again get a lifeline from disruptions to Iraqi oil-for-aid exports have proved forlorn.
Iraq has already resumed exports for a further six months with none of the tribulations that have dogged past negotiations over humanitarian sales.
NYMEX Crude Oil Falls Further
Crude oil futures continued their sharp descent Wednesday on the New York Mercantile Exchange, closing on 9 1/2-year lows amid sentiment world oil producers' efforts to cut daily production have done little to reduce a supply glut.
Crude fell as investors appeared to be preparing to test a March 18 low of $12.80 a barrel on sentiment two rounds of production cutbacks by the Organization of Petroleum Exporting Countries and other major oil producers will do little to ease a world supply glut, particularly in the United States.
The Asian economic crisis has led to a sharp drop-off in demand there, and investors noted several estimates that a plan agreed upon in late March to cut a total 1.72 million barrels of daily output fell short of that goal in May. They therefore have greeted with skepticism new calls by Saudi Arabia, Venezuela and Mexico for a second round of cuts.
Investors also are holding out little hope that an upcoming meeting of OPEC member nations will result in cuts sharp enough to reduce the glut or that any cuts would be adhered to.
Market participants ignored a report released late Tuesday by industry group the American Petroleum Institute that showed an unexpected decline in U.S. crude inventories last week. Stocks fell 1.937 million barrels to 345.6 million barrels, amid expectations for a rise of as much as 2 million barrels.
Brokers said the impact of the decline was offset by continued-rising import levels and a rise in stocks in the middle of the country. Crude stocks now stand 21.646 million barrels above levels of a year ago, while gasoline and heating oil stocks also are sharply higher than year-ago levels.
Crude for July delivery fell 37 cents to $13.48 a barrel, after falling earlier in the session as low as $13.12 a barrel. July heating oil rose .26 cent to 38.83 cents a gallon, while July unleaded gasoline fell .88 cent to 46.16 cents a gallon. July natural gas fell .8 cent to $1.930 for each 1,000 cubic feet
U.S. energy futures turn flat on ACCESS
LOS ANGELES, June 10 - U.S. energy futures were flat in overnight ACCESS trade Wednesday, with no fresh news to stir the market, traders said.
Trade volume was small and dealers saw none of the selling pressure that lowered prices the previous two ACCESS sessions.
After falling 37 cents a barrel in daytime trade, July crude oil rose one cent on ACCESS to $13.49 a barrel.
Earlier crude markets fell on doubts that oil producers would follow up on pledges to cut output, especially Iran, which announced reductions starting in July.
The followed pledges by Mexico, Venezuela, and Saudi Arabia last week to trim production by 700,000 bpd.
Meanwhile, U.S. crude oil stockpiles remained high, particularly in PADD II, a key refinery region, which saw stocks rise to 82.8 million barrels last week, just below the estimated storage capacity of 85 million in that region.
July trade reached 315 lots by 1530 Pacific Daylight Time. Around 555 lots traded for all futures months.
Unleaded gasoline for July traded at 46.10 cents a gallon, or 0.06 cent below the daytime settle. Volume was 52 lots traded for all months and 24 for July.
Heating oil traded 38.80 cents a gallon at 1530 PDT, down 0.03 cent, with volume at 76 lots for all months and 62 for July.
NYMEX natural gas ends mixed
NEW YORK, June 10 - NYMEX natural gas futures ended mixed Wednesday in sluggish trade, with front months slipping early on moderate weather and a softer cash, then gaining on ACCESS after a slightly bullish weekly inventory report.
July eased 0.8 cent to close at $1.93 per million British thermal units after trading today between $1.915 and $1.965. On ACCESS, July traded up to $1.96 shortly after the AGA report. August settled 0.9 cent lower at $1.964. Other deferreds ended narrowly mixed, with some 1999 contracts up slightly.
"It (the AGA number) might be a little on the low side, but it was close to expectations. You had some real heat last week (in the South), so it's not out of line," said one East Coast trader, adding the market may be poised for a technical rally after being "pounded""lower this month.
AGA said Wednesday U.S. gas stocks rose last week by 86 bcf, just below Reuter poll estimates in the 90-100 bcf range. Overall stocks are still 461 bcf, or 36 percent, above year-ago.
Eastern stocks last week rose 54 bcf, still 44 percent above last year. Consuming region west storage, which climbed 15 bcf for the week, was up 7.5 percent from 1997 levels. Inventories in the producing region gained 17 bcf and stood 40 percent over year-ago.
While the market may be due for a technical rebound after a 14 percent slide this month, some said any move up will be difficult to sustain in the face of a hefty storage cushion and no broad heat on,the horizon.
Northeast and Mid-Atlantic temperatures are expected to climb to several degrees F above normal by the weekend. Warm weather is forecast for Texas and the South through the week though readings will be well below the record highs seen last week. Mostly above normal temperatures are predicted for the Midwest this week, while the Southwest should remain below to much-below normal.
Technical traders agreed the bears seemed to take control this week after July twice settled below the $2 level. Support was now pegged at today's low of $1.915 and then at $1.77, a prominent spot continuation low from March, 1997.
Minor July resistance was seen at $2.00 and then at Tuesday's $2.03 high. Next resistance should lie in the $2.08 area, the fifty percent retracement point of the recent move down, with more selling likely at $2.15 and then at last week's high of $2.235. Further resistance should surface in the $2.255 area and at $2.33.
In the cash Wednesday, Gulf Coast swing quotes slipped three cents to the mid-$1.90s. Midwest pipes were a couple of cents lower in the high-$1.80s. Chicago city gate gas was down two cents at about $2.01, while New York was three cents lower at $2.10.
The NYMEX 12-month Henry Hub strip was unchanged at $2.256. NYMEX said an estimated 47,000 Hub contracts traded today, down sharply from Tuesday's revised tally of 86,209.
Southern heat lifts some U.S. spot natural gas prices
NEW YORK, June 10 - U.S. spot natural gas prices were boosted Wednesday in the Texas markets by the arrival of warmer weather, industry sources said.
The divergence between east and west prices began to widen again today as more heat arrived in the South. Current warmer-than-normal temperatures are expected to continue into next week, with highs anticipated to hover in the 90s. However, the Southwest is expected to see more below-normal temperatures, while the Northeast and Midwest are forecast to average slightly above normal, Weather Services said.
In West Texas, Permian Basin prices gained another nine cents to a wide range of $1.70-1.84. Pressuring Permian cash prices late, sources said, was the completion of maintenance on NGPL's system between the Midcontinent and Permian pools.
San Juan prices remained fairly constant at $1.46-1.53, while prices at the southern California border rose nine cents to $1.90-2.00.
A more moderate gain was seen in the Waha and south Texas markets, where deals were reported done at $1.87-1.93 and $1.90-1.95, respectively.
Conversely at the Henry Hub, gas prices were quoted at $1.95-2.00 per mmBtu, indicating a loss of about three to four cents from Tuesday.
In the Midcontinent, prices also eased by about two cents to $1.87-1.89, while Chicago city-gate slipped to about $2.01-2.02, market sources said.
In the Northeast, where temperatures were still averaging below-normal, gas at the New York city gate traded mostly at $2.10, while Appalachian deals were reported done at $2.03-2.07. Slightly warmer weather is forecast to seep into the region this weekend.
Forecasts for next week show a continuation of below- to much below-normal temperatures over the western U.S. and northern plains, while above-normal temperatures are forecast for Florida, Georgia, Alabama and stretching into south Texas. Near-normal temperatures are forecast for the remainder of the U.S.
Separately, injection estimates for today's American Gas Association storage report ranged mostly from 90 to 100 bcf, versus a 91 bcf gain a year ago.
Canada spot natural gas stronger on tight supply
CALGARY, June 10 - Canadian spot natural gas prices rose on Wednesday as supply remained tight in the last stages of a scheduled pipeline maintenance outage on the NOVA intra-Alberta network, traders said.
NOVA field receipts were about 11.8 billion cubic feet a day, about even with Tuesday, said one Calgary-based marketer.
Supply was expected to increase by the weekend, however, when the company was slated to wrap up its two weeks of work on sectors 1-4 in northwestern Alberta.
Spot gas at the AECO storage Hub in Alberta was discussed at C$1.64 per gigajoule, up four to five cents from Tuesday. July AECO was talked at C$1.615 per GJ, up about two cents on the day.
Traders also said AECO prices for the weekend could ease as a result of a scheduled maintenance outage on the Viking Gas Transmission Co. pipeline which takes gas at Emerson, Manitoba and ships it through the U.S. Upper Midwest.
At the borders, gas for export at Sumas, Washington was quoted in the high US$1.20s per million British thermal units, up about four cents from Tuesday along with most pricing points in the U.S. Rockies, Pacific Northwest and California.
In the east, gas at Niagara was talked at US$2.00 per mmBtu, down about three cents from Tuesday.
Energy Commentary
For June 10, 1998 By John Moore
Energy prices fell to new lows on Tuesday amid growing bearish sentiment. Gasoline fell to a new low closing price after taking out major support on Monday.
Talk of cutting 700,000 bpd from production is simply not enough to balance the market. The IEA revised lower its forecast of demand for total world oil. Total demand forecasts have been cut 750,000 bpd since last October.
API data had crude stocks down 1.9 million barrels, gasoline up 963,000, and distillates up 678,000 on the week. Refinery runs were down 1.4% at 98%. The data appears that drude stocks are shifting to products. It is doubtful the markets will trade off these numbers.
For today, expect prices to remain on the defensive. July crude will probably test the $12.80 level before going off the board this month.
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