MARKET ACTIVITY/ WEEKEND EDITION OF TRADING NOTES JUNE 14, 1998 (4)
OIL & GAS,Con't
NYMEX Oil Prices Reverse Early Gains, Fall Further
NEW YORK (AP) Crude oil futures prices Friday reversed early gains and continued tumbling to their lowest levels in nearly a decade on the New York Mercantile Exchange.
Oil futures again posted their lowest prices since October 1988 on skepticism world oil producers will cooperate fully to end a supply glut.
After two rounds of cutbacks that have resulted in pledges to take about 2.35 million barrels a day of crude off the market, market participants say that still is not enough to reduce ample U.S. supplies in the face of sharply lower demand from Asia.
When 10 of the 11 members of the Organization of Petroleum Exporting Countries in late March announced a first round of cuts in cooperation with Norway and Russia, analysts predicted 3 million barrels of oil a day would need to be taken out of the market to reduce supplies.
Since then, that figure has gone higher because U.S. refiners have bought all the cheap supplies they need and the Asian situation has been worse than originally believed. Complicating the situation are growing fears that some countries have failed to adhere to their pledged cuts, resulting in the cheating and overproduction that helped bring about the problem of weak prices in the first place.
Light sweet crude oil for delivery in July settled at $12.59 a barrel, down 16 cents at the New York Mercantile Exchange.
Products edged higher. Unleaded gasoline for delivery in July settled at 46.30 cents a gallon, up .27 cent. Home heating oil for delivery in July settled at 38.12 cents a gallon, up .07 cent.
NYMEX Hub natural gas ends up on short covering
NEW YORK, June 12 - NYMEX Hub natural gas futures ended mostly higher Friday in a moderate session, with a stable cash market and a steady flow of short covering ahead of the weekend boosting the complex, industry sources said.
July climbed 6.5 cents to close at $2.035 per million British thermal units after trading today between $1.966 and $2.04. August settled 7.2 cents higher at $2.074. Other deferreds ended flat to up 6.1 cents.
"Storage (surplus) is a little scary, but the Gulf Coast has been pretty hot, and people are still concerned about the hurricane season," said one Texas-based trader, noting forecasts for more heat next week across the South.
Traders said concerns about high stocks, still 461 bcf or 36 percent above year-ago, should continue to temper rallies.
Slightly above-normal temperatures are forecast for the Northeast and Midwest into early next week, but cooler weather is expected to dominate the northern half of the nation for the remainder of the week. Hot weather from Texas to Florida is expected to continue through next week.
Chart traders said the technical picture improved today with July's second consecutive higher close. But most needed follow through next week to confirm a short-term reversal to the upside.
July resistance was now seen 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.
July support was still pegged at Wednesday's low of $1.915 and then at $1.77, a prominent spot continuation low from March, 1997.
In the cash Friday, Gulf Coast weekend quotes were little changed in the mid-$1.90s. Midwest pipes also held relatively steady at about $1.90. Chicago city gate gas firmed a couple of cents to about $2.05, while New York was still quoted in the mid-teens.
The NYMEX 12-month Henry Hub strip rose 4.4 cents to $2.329. NYMEX said an estimated 51,304 Hub contracts traded today, up from Thursday's revised tally of 48,941.
U.S. spot natural gas prices converge with futures
NEW YORK, June 12 - U.S. spot natural gas prices languished in recent ranges Friday as Henry Hub mimicked the July contract on NYMEX, industry sources said.
Traders blamed the lack of price movement on moderate weather forecasts for next week.
At the Henry Hub, gas prices were quoted at $1.98-2.03 per mmBtu, in line with July futures' trading at $1.966-2.04.
In the Midcontinent, prices were also unchanged at $1.87-1.91, while Chicago city-gate was quoted at $2.03-2.08, market sources said.
In West Texas, Permian Basin prices eased by about three cents to the low-to-mid $1.80s, while San Juan values fell to the low-$1.40s.
In the Northeast, New York city gate prices were quoted mostly at $2.15, while Appalachian prices climbed to about $2.10.
Next week's forecasts were indicating continued warm weather in Texas and stretching eastward to Florida. Above-normal temperatures are also expected to cover the Midwest through early next week, but cooler weather was forecast to follow. In the Southwest, well below-normal temperatures were expected to linger.
Canada gas holds in Alberta but softens at exports
NEW YORK, June 12 - Despite earlier forecasts for a softer market before the weekend, Canadian spot natural gas prices in Alberta remained steady Friday, industry sources said.
Supporting the market in the near-term, market sources said, was the absence of some supplies on NOVA's system. Linepack stood at 12.4 billion cubic feet per day (bcfd), still lagging the pipeline's target of 12.8 bcfd, according to a company report.
Spot gas at the AECO storage Hub in Alberta was discussed mostly at C$1.65 per gigajoule (GJ), indicating no change from Thursday.
At the export points, however, prices turned a little lower due to a lighter weekend demand and cooler weather.
Spot prices at Sumas, Wash., slipped four cents to about US$1.22 per million British thermal units (mmBtu), while Station 2 business was reported done at US$1.69 per mmBtu.
A scheduled weekend outage on Viking Gas Transmission Co. kept trading at Emerson, Manitoba, limited, though the discussion of prices centered around US$1.36-1.37 per mmBtu.
The outage is expected to reduce throughput on the system by 70 percent to 130 mmcfd. The pipeline takes gas at Emerson and ships it through the U.S. Upper Midwest.
In the East, Niagara pricing fell to about US$1.99-2.00 per mmBtu, traders said.
Misc.
Gas Prices down Nearly 3 Cents in Past Two Weeks
LOS ANGELES (AP) An oversupply of crude oil has helped push gasoline prices down about 3 cents a gallon nationwide over the past two weeks.
The overall average of all grades and services was just over $1.11 a gallon Friday, down 2.93 cents since May 29, the Lundberg Survey reported Sunday.
The overall average was 16 cents lower than a year ago. "Oil refiners are getting good deals on crude oil and giving good deals on gasoline to wholesalers and retailers," said industry analyst Trilby Lundberg.
At self-service pumps, the average price for regular gasoline was about $1.06 per gallon, mid-grade was about $1.16 and premium $1.24.
At full-service pumps, regular was about $1.50, mid-grade was about $1.58 and premium was about $1.66.
Lundberg surveys 10,000 gas stations nationwide for its report.
TOP STORIES
Unique rig star of GeoTriad '98
Calgary Herald
An oil field firm is drilling in Calgary, but they don't expect to strike paydirt.
Simmons Drilling Corp. erected a shallow oil and gas drilling rig just west of the University of Calgary Thursday. Several firms have invested hundreds of thousands of dollars to set up the innovative operation, but they intend on hitting only mud.
"This is strictly for demonstration," said Lyle Cuthbert, vice-president and general manager of the Lacombe company.
The drill is being set up for Geo-Triad '98, a four-day conference for petroleum geologists and geophysicists being hosted by the U of C. The highly technical conference comes on the heels of the National Petroleum show which ended Thursday. About 4,000 people are expected to attend.
"This is the culmination of five years of attempts to do something like this here," the U of C's Robert Stewart said of the rig and seismic operations. "It's a real technical set of dreams come true."
The Simmons rig uses common technology in a new way that makes the system unique, Cuthbert said.
Similar machinery has been used for mineral operations, but had never before been modified for oil and gas. The first of a series of rigs were constructed and field tested last winter.
The new rig revolutionizes shallow oil and gas drilling operations, the company says. It is self-contained and can be set up and operational in less than three hours. It can be moved in five to six loads as opposed to the 10 to 15 loads required for conventional rigs. It can drill to a depth of 1,200 metres but will stop at 250 metres at the U of C.
The design gives the rig potential for conventional, directional or horizontal drilling. It uses top drive and pipe arm technology, stripping the rig of equipment that some oil field workers might consider excessive or dangerous.
The self-elevating substructure raises the entire unit off the ground using a hydraulic ram. The rig's hydraulic system simplifies drilling operations and reduces downtime.
"The reason we want to showcase the rig is that it's a new concept that when you describe it to old drilling hands, they have to see it to believe it," Cuthbert said.
Pipeline work means inconvenience for Abasand residents
Fort McMurray Today
A company building part of the new pipeline through Fort McMurray this summer is asking Abasand Heights residents to watch out for them as they haul heavy loads up through the neighborhood.
BFC Pipeline expects to move the heavy goods -- three loads of bridging equipment, 17 loads of pipe and other materials -- up Abasand Drive and then proceed down the old Abasand bitumen plant road to the Horse River.
At the river, the company will install a temporary bridge which will allow access the directional drilling site at the Athabasca River. (The drilling itself begins across the north side of the Athabasca by the water treatment plant. The directional drill tunnels a pipeline area underneath the Athabasca; the pipe is then pulled through to complete the crossing.)
BFC Pipelines is expected to begin hauling its pipeline equipment via Abasand Drive later this month.
Speaking to an open house Wednesday night at Father Beauregard school, BFC Pipelines superintendent Dean Drager said his company is very safety-oriented.
The tractor and trailer units will proceed at a slow speed, he said, adding escort cars will be used and the traffic will be monitored closely.
To avoid peak traffic periods, transporting the heavy loads will take place between 9 a.m. and 3:30 p.m.
Residents can expect to see notices of when the hauling will begin, he told Today.
The transportation of equipment and pipe is expected to occur between mid-June and mid-July.
The completion date for the Abasand pipeline work is slated for late-August.
The pipeline is being constructed for Wild Rose Pipe Line Inc., a wholly-owned subsidiary of Calgary-based IPL Energy.
The $475-million line will run south of Suncor Energy to Hardisty, a major pipeline hub. The crude oil link is being built to accommodate this region's increased oilsands production. Suncor will be the line's first shipper. In an interview, Wild Rose Pipe Line spokesman Doug Ford said the company wants all Abasand residents, especially parents, to be aware of the transportation and construction activity.
"With any construction equipment, the first and foremost thing is that BFC and Wild Rose will go to extraordinary lengths on safety and we just ask parents to be aware that there will be movement of these loads and some of the heavy equipment," said Ford.
Access to the Horse River, which is a popular hiking area for some residents, won't be fenced off during pipeline construction, said Drager.
"The access will be controlled on our point, on speed and we are all radio-equipped," he said.
The temporary bridge on the Horse River won't be fenced off either. Drager said he visited the area recently and found many people crossing the shallow river on all-terrain vehicles as well as on foot.
Speed down the old plant road is a "major concern" for safely moving equipment, he said, adding that because of that they'll be proceeding slowly.
As well, part of the rough road will be smoothed out to accommodate the traffic. The roadway, however, won't be widened.
Canada Rig Count Rises 33 to 254 Versus 336 A Year Ago
U.S. Rig Count Rises 6 to 868
NEW YORK, June 12 - The number of rigs exploring for oil and natural gas in the United States stood at 868 as of Friday, up six from the previous week, and down from 982 a year ago, oil services firm Baker Hughes Inc. said Friday.
The number of rigs drilling on land rose 10 to 710, while rigs working offshore fell four to 129. The number of rigs active in inland waters remained at 29.
Among individual states, the biggest changes occurred in Louisiana, down eight; in New Mexico, up four; and six states were either up or down two rigs. The Gulf of Mexico rig count fell five to 127.
The number of rigs searching for gas rose nine to 599, the number of rigs searching for oil fell three to 270, and the number of miscellaneous drilling projects remained at two.
There were 230 rigs drilling directionally, 41 drilling horizontally and 597 drilling vertically.
In Canada, the number of working rigs rose 33 from the previous week, to 254 vs. 336 a year ago. The weekly rig count reflects the number of rigs exploring for oil and gas, not those producing oil and gas.
U.S. Gulf Rig Count Rises 1 to 167
NEW YORK, June 12 - - There were 167 rigs under contract in the U.S. Gulf as of June 12, up one from the previous week, Offshore Data Services said.
The utilization rate for rigs working in the Gulf, based on a total fleet of 174, was 96 percent.
The number of working rigs in the European/Mediterranean area rose one to 109 rigs under contract out of a total fleet of 113, a utilization rate of 96.5 percent.
The worldwide rig count remained at 578 out of a total fleet of 609, with a utilization rate of 94.9 percent.
Deutsche Securities Cuts 17 Oil Service Stocks
NEW YORK, June 12 - Deutsche Bank Securities said Friday it has trimmed its earnings estimates for 17 oil services companies because the outlook for crude prices looked bleak.
''We believe that the past week has ushered in a sea change in the oil price outlook,'' said Wesley Maat, Deutsche Bank Securities' oil services analyst.
On Thursday, crude traded on the New York Mercantile Exchange plunged to $12.70 per barrel, its lowest level in almost 10 years as the market dismissed attempts by three key producers to initiate a round of output cuts.
''We believe producers will sharply curtail their non-ultra deepwater drilling budgets in response to the prospects of $12 to $15 per barrel oil prices in the second half of 1998 and a $16 average oil price next year,'' Maat said in a report.
Deutsche has trimmed its 1998 and 1999 earnings per share forecasts for the 17 oil services companies by an average of 9.0 to 11 percent, respectively.
The reduced EPS forecasts assumes that natural gas prices do not go below $2.25 per million British thermal units in 1998 and $2.50 per MMbtu in 1999.
Deutsche cut the stock rating to hold from a buy on BJ Services Co. (BJS), Cliffs Drilling Co. (CDG), Cooper Cameron Corp. (RON), Dresser Industries Inc. (DI), ENSCO International Inc. (ESV), Global Marine Inc. (GLM), Halliburton Co. (HAL), Marine Drilling (MDCO), R&B Falcon Corp. (FLC), Rowan Companies Inc. (RDC), Santa Fe International (SDC), and Schlumberger Ltd. (SLB).
Noble Drilling (NE) and Smith International Inc. (SII) were cut to hold from accumulate.
Deutsche said it has a buy rating on Diamond Offshore Drilling Inc. (DO), Transocean Offshore (RIG), Varco International Inc. (VRC), and Petroleum Geo-Services (PGSO.OL).
Deustche said its Energy Research Group is lowering its oil price forecast to $15 per barrel for 1998, down from $16, and lowering its 1999 forecast to $16 from $17.
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