MARKET ACTIVITY/ TRADING NOTES FOR DAY ENDING WED., JUNE 17 1998 (3)
OIL & GAS
Mexico seeks further efforts by oil nations
MEXICO CITY, June 17 - Mexican Energy Minister Luiz Tellez said on Wednesday oil producers need to make further efforts to raise prices and that he is confident other nations will join Mexico, Venezuela and Saudi Arabia in export cuts.
''A further effort by oil producing countries is required in order to stabilise the market at higher price levels,'' Tellez said in a statement.
Tellez reiterated Mexican assertions it was complying with export cuts it vowed to undertake in Riyadh, a pact which took effect April 1, and said it would comply with further cuts agreed more recently in Amsterdam.
''It is clear that additional supply reductions are guaranteed. We are confident that oil exporting countries, both members and non-members of OPEC (Organization of Petroleum Exporting Countries), will join Mexico, Saudi Arabia and Venezuela in our effort to stabilise the market,'' he added.
''Mexico has scrupulously complied with its commitment to reduce crude oil exports assumed in Riyadh on March 22 and is preparing itself to a rigorous implementation of the additional cuts agreed to in Amsterdam on June 4,'' the minister said.
When international oil markets reacted with scepticism to the original Riyadh pact cutting some 1.5 million barrels per day from world oil supply, Mexico, Saudi Arabia and Venezuela agreed to further cuts in a bid to raise flagging prices.
Markets have again reacted with suspicion and this week drove crude prices down to 12-year lows.
On Tuesday, Venezuela's PDVSA president Luis Giusti said one of its Riyadh Pact partners appeared to be cheating on the agreement.
Venezuela Energy and Mines Minister Erwin Arrieta on Wednesday said Giusti's comments were misconstrued and said there was no evidence of any cheating.
In the same statement as Tellez's comments, Adrian Lajous, head of oil monopoly Petroleos Mexicanos (Pemex), noted that Mexico had never agreed to cut output but just to slow exports, because of the ''relative size of its domestic market.''
Lajous said the amount of exports were the crucial variable as far as international crude markets were concerned.
''During the first half of 1998, Mexico's domestic demand for oil products and natural gas has grown at an exceptional pace. Its dynamism results from high rates of economic growth and abnormal climatic conditions,'' Lajous said.
He said prolonged drought had cut hydroelectric power output and therefore increased demand for fuel-generated electricity.
''The expansion of domestic fuel demand explains the fact that crude exports have been cut to a greater extent than output,'' Lajous added.
The Energy Ministry statement said current price lows were ''severely affecting the short-term revenues of oil exporting countries and their capacity to meet the long-term future demand requirements of consuming countries.''
It said current price levels reflected ''a deeper supply imbalance than was originally perceived.''
Tellez said he welcomed an announcement by Gulf Cooperation Countries to help stabilise prices and said he looked forward to additional supply cut announcements at an OPEC conference in Vienna next week.
''Mexico will work together with other producers -- both members and non-members of OPEC -- in this cooperative effort,'' Tellez said.
Oil on the Rebound as Inventory Rise Eases
LONDON, June 17 - Oil prices stricken by a deluge of supply flickered back to life on Wednesday following a fall in crude stocks in the United States, the world's biggest petroleum market.
Benchmark North Sea Brent closed 38 cents firmer at $13.10 a barrel, after slipping from a high of $13.49 touched in late afternoon.
Producers bewailing shrunken revenues cheered news from the American Petroleum Institute (API) that U.S. crude oil stocks fell for the third week in a row as of June 12.
Dealers said the statistics had helped trigger heavy buying of crude futures prices to a 12-year low.
''I think we've seen the bottom of this market for the time being, and if the output cuts stick, possibly for a long time,'' said a London-based oil trader.
Bloated global stocks this year have helped push oil prices down $6 a barrel, or a third lower than the 1997 average, slicing $15 billion off OPEC oil revenues in the first half of 1998.
U.S. petroleum inventories near five-year highs strangled a modest market recovery engineered in March by producers who cut supplies under a landmark global pact.
Analysts said the 1.1 million-barrel drop in U.S. stocks last week should ease the squeeze on storage there.
''We are forecasting the rise in stocks to flatten out from June and these figures appear to confirm that,'' said Mike Barry at Energy Market Consultants in London.
The U.S. stocks figures were released following an announcement of pledges of output cuts by Gulf producers trying to protect shrunken revenues.
OPEC members Kuwait and the United Arab Emirates said they had each agreed to cut output by 75,000 barrels per day (bpd) from July 1. In addition, Oman would cut by 20,000 bpd, said an announcement at the end of a meeting of oil ministers of the six-nation Gulf Cooperation Council.
Trader reaction was mixed. ''We think they are serious this time around. The compliance is likely to be much better than after Riyadh,'' said Bob Finch, head of trading at Vitol SA in London.
But many analysts say the cuts, even if implemented, may prove too small to provide a long-term solution to a glut that has been building for many months.
They say slackening Asian demand and rising Iraqi exports could maintain the world's stocks of unwanted oil.
Others believe prices will remain low but markets should be on the mend later in the year.
''At least OPEC's laying the foundations for a recovery, but we might not see much evidence of it until the fourth quarter,'' said Leo Drollas at London's Centre for Global Energy Studies.
Whether that happens will depend on whether OPEC can resist the perennial temptation to overproduce.
Core Gulf producers have appealed to fellow OPEC members Nigeria, Algeria, Libya and Indonesia to make matching cuts.
But Washington's Petroleum Finance Company said it was unlikely that OPEC production would show enough restraint to trigger a global stock draw.
The latest round of reductions is expected to be approved by the Organisation of the Petroleum Exporting Countries at its meeting in Vienna next week.
Doubts over OPEC's cohesion strengthened on Tuesday when Venezuela accused an unnamed fellow producer of cheating on cuts pledged under a first round of reductions drawn up by Saudi Arabia, Venezuela and Mexico in March.
The March agreement was for 1.5 million barrels daily of cuts from OPEC and non-OPEC states, including 1.245 million from OPEC.
The second round was mapped out at a secret Amsterdam meeting earlier in June by Saudi Arabia, Venezuela and non-OPEC Mexico.
Given the size of the Saudi and Venezuelan cuts, the combined reductions at OPEC's June 24 meeting in Vienna are expected to reach about 800,000 bpd.
June 17 June 16 (close) (close)
London IPE August Brent $13.10 - $12.72
NYMEX July crude $12.57 - $11.98
NYMEX Crude Up Sharply on Stocks Data
New York June 17, - Crude futures posted their largest gain in months Wednesday on the New York Mercantile Exchange after industry data showed a sharp decline in U.S. inventories, just as Persian Gulf countries agreed to cut output to ease a world supply glut.
Crude saw heavy buying in the wake of the American Petroleum Institute's report late Tuesday that inventories fell an unexpectedly heavy 1.135 million barrels last week to 344.469 million barrels. Unleaded gasoline inventories also fell, down 41,000 barrels to 217.736 million barrels -- an indication that the crude decline did not come from the production of gasoline.
The U.S. Energy Department reported Wednesday that crude stocks fell a sharper 2.7 million barrels. The inventory data came on the heels of signals that world oil producers -- seeing prices near 10-year lows and 25-year lows without adding in inflation -- are prepared to take the necessary measures to take more crude off the market and boost prices.
Kuwait, the United Arab Emirates and Oman, members of the Gulf Cooperation Council, on Tuesday announced cuts that raised total reductions pledged by members of the Organization of Petroleum Exporting Countries and other producers to 640,000 barrels a day.
Still, analysts and market participants said petroleum futures prices are not out of the woods yet. There is still widespread skepticism that oil producers who pledged in March to cut a total 1.72 million barrels a day from the market actually met that target.
And there is concern that Iraq by the end of the year will be able to freely export oil without having to first go through the United Nations, something it has had to do for eight years because of its invasion of neighboring Kuwait.
Those realizations pushed the market off the day's high of $13.10 a barrel.
Investors say the next important litmus of world oil producers' resolve will come next week, at OPEC's meeting in Vienna.
Crude for July delivery rose 62 cents to $12.60 a barrel; July unleaded gasoline rose .58 cent to 46.51 cents a gallon; July heating oil rose .35 cent to 37.32 cents a gallon. Natural gas prices rose, with July contracts finishing 18.5 cents higher at $2.174 per 1,000 cubic feet.
In London on the International Petroleum Exchange, August deliveries of North Sea Brent blend rose 34 cents to $13.06 per barrel.
NYMEX crude prices ease on lightly traded ACCESS
LOS ANGELES, June 17 - After rising sharply in daytime trade, crude oil futures eased Wednesday in a lightly traded after-hours market, driven down by dwindling interest from speculators.
The decline began in the last hour of NYMEX trade, with July crude oil losing nearly half its earlier gains. The contract settled up 62 cents a gallon to $12.60. Earlier the contract gained more than $1 a barrel.
But ACCESS trade saw crude fall to $12.50 by 1530 Pacific Daylight Time. Volume was light, with 840 lots exchanged early in the session, and 471 traded for July.
''We've drifted on light volume. There's no news,'' a trader in New York said.
The daytime rally followed a weekly supply report on Tuesday which showed crude oil stocks in the United States dropping for the third week in a row on June 12..
The bullish news sparked short covering early on Wednesday, as the market digested the report's data.
On ACCESS, refined products also fell.
July gasoline traded 46.50 cents a gallon, down 0.01 cent from the settle, while heating oil fell roughly 0.12 cent to 37.20 cents by 1530 PDT. Volume for heating oil was 360 lots traded, while gasoline saw volume of 27 lots.
NYMEX natural gas ends up on short cover
NEW YORK, June 17 - NYMEX Hub natural gas futures, driven by a flood of technical buying and short covering, ended up sharply Wednesday in active trade, then tumbled on ACCESS after a bearish weekly inventory report, sources said.
In the day session, July rallied 18.5 cents to close at $2.174 per million British thermal units, then skidded on ACCESS to $2.09 shortly after weekly AGA stock data. By 1635 EDT, the spot contract had recovered to the $2.125 area. Earlier, August settled 17.6 cents higher at $2.197. Other deferreds ended up by two to 15 cents.
"I think 471 bcf is too high, so I expect to see July move toward $2.07, but then I think it's a buy. I think the cash will stay relatively strong this week because of the heat in Texas and Florida," said one Midwest trader, referring to the 471 bcf, or 34 percent, year-on-year stock surplus.
AGA said Wednesday U.S. gas stocks rose last week by 104 bcf, well above Reuter poll estimates in the 85-95 bcf range.
Eastern stocks gained 59 bcf and were still 39 percent above last year. Consuming region west storage, which climbed 19 bcf, was up 10 percent from 1997 levels. Inventories in the producing region rose 26 bcf and remained 40 percent over year-ago.
While steady heat down South and warmer forecasts for some other regions have helped buoy prices, traders said without a broader, more extreme heat wave, rallies will be tempered by comfortable storage.
Temperatures this week in the Northeast and Mid-Atlantic are expected to average several degrees F above normal, with the Midwest mostly forecast at normal or slightly above. Texas readings are expected to remain hot, climbing to as much as 14 degrees F above normal by the weekend. Florida will average about six degrees F above for the period. In the Southwest, temperatures are expected to warm to several degrees above normal later this week.
Technical traders said July's close today above the trendline in the $2.15 area was constructive. Next resistance was seen at the June 1 high of $2.235 and then at $2.255 and at $2.33. Key July support was pegged at last Wednesday's low of $1.915 and then at $1.77, a prominent spot continuation low from March, 1997.
In the cash Wednesday, Gulf Coast swing quotes on average fell about a nickel to the high-$1.90s. Midwest pipes slipped two cents to the mid-$1.90s. Chicago city gate gas was about five cents lower in the $2.06-$2.09 area, while New York was quoted five cents lower at about $2.20. In the West, El Paso Permian was talked on either side of $1.90, off three cents from Tuesday's levels.
The NYMEX 12-month Henry Hub strip surged 11.2 cents to $2.407. NYMEX said an estimated 100,600 Hub contracts traded today, up sharply from Tuesday's revised tally of 77,369.
US spot gas prices rebound from lows, still down
NEW YORK, June 17 - U.S. spot natural gas prices, helped by an early NYMEX rally and warmer weather forecasts, rebounded from early lows, but most were still down several cents on the day, industry sources said.
While steady heat from Texas to Florida and forecasts for seasonal to slightly above seasonal temperatures in other regions helped trigger some buying, few expected the bulls to take complete control with storage still well above year-ago.
''Storage is still a concern, but the heat in Texas has been oppressive and I don't see any relief from it. And it's supposed to get warmer in the Northeast and Midwest, so I'm cautiously bullish right now,'' said one Texas-based trader.
Swing gas at Henry Hub dipped early to just above $2.00 per million British thermal units, then rebounded later to $2.08. Most Hub deals were reported in the $2.03-2.06 range, down about five cents on the day but still up slightly from index.
A Reuters poll showed most expected a weekly gas stock build in the 85-95 bcf range when the AGA storage report is released later today. For the same week last year, inventories gained 94 bcf, meaning a build today in the expected range would not significantly change the year-on-year surplus of 461 bcf.
South Texas prices slipped three cents to the high-$1.90s, but traders said near-record heat and forecasts for more hot weather next week should limit declines.
In the Midcontinent, prices were two cents lower in the mid-$1.90s, down slightly from June 1 levels. Gas at the Chicago city gate was quoted mostly in the $2.06-2.09 area, about five cents lower on the day.
In West Texas, Permian Basin quotes eased two cents to about the $1.90 level, while San Juan firmed almost a nickel to about $1.60.
The prospects for more seasonal West Coast weather helped hold prices at the Southern California border in the low-$2s.
In the Northeast, New York city gate prices were talked on either side of $2.20, off about a nickel on the day.
Temperatures this week in the Northeast and Mid-Atlantic are expected to average several degrees F above normal, with the Midwest mostly forecast at normal or slightly above. Texas readings are expected to remain hot, climbing to as much as 14 degrees F above normal by the weekend. Florida will average about six degrees F above for the period. In the Southwest, temperatures are expected to warm to several degrees above normal later this week.
Canadian spot gas still strong amid tight supply
CALGARY, June 17 - Canadian spot natural gas prices in Alberta remained strong Wednesday as supply constraints continued amid increased demand from the United States, industry sources said.
''We're still not seeing a lot of field receipts. There are still a lot of plants down for maintenance (in Alberta),'' a Calgary-based trader said.
To offset the tight supply, 260 million cubic feet of natgas was drawn from storage yesterday to maintain NOVA Gas Transmission Ltd.'s linepack, marketers said.
The upswing in U.S. demand had the Empress, Alberta delivery point near capacity at 6.4 billion cubic feet a day.
Spot gas at Alberta's AECO-C hub was talked at C$1.82/1.84 per gigajoule, down slightly from C$1.82/1.87 on Tuesday.
July AECO traded in a range of C$1.71/1.73, while the one-year AECO contract was up slightly to C$2.60 per GJ.
Spot prices in British Columbia tracked Alberta, with Huntingdon/Sumas fetching US$1.40/1.42 per million British thermal units.
In the east, Niagara was discussed at US$2.09/2.14 per mmBtu, flat on the day.
Oil & Gas Commentary
By John Moore
Energy prices rebounded on Tuesday viewed by many as short-covering, or profit-taking. News that the six oil ministers from the GCC had agreed on further production cuts helped prices rally. Later, however, when the number was released at 450,000 the market gave back some of its gains.
The bearish sentiment is clearly at extremes from an historical perspective, suggesting a bottom is near. Some may consider entry points for getting long this market. Traders are beginning to factor the growing probability that political actions will be forthcoming which could very easily get crude prices back up to $15.00.
API data had crude stocks down 1,135,000 barrels on the week. Gasoline inventories were down 41,000 barrels, and distillates were up 2,714,000 on the week. Refinery runs were reported up 1.4% at 99.4% In the near-term, expect volatility to remain high in this complex. Crude could rally to the $12.94 level and still remain in its downtrend.
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