MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY, JUNE 22, 1998 (5)
OIL & GAS
Saudi, Iran In Telephone Talks On Oil Prices-Irna
TEHRAN, June 22 (Reuters) - Iran's president and Saudi Arabia's crown prince have held telephone discussions about OPEC's policies on oil prices, Iran's official news agency IRNA said on Monday.
"In a telephone conversation with the Crown Prince of Saudi Arabia Prince Abdullah Sunday, Iran's President Mohammad Khatami discussed OPEC policies for controlling prices," IRNA said.
"The Saudi crown prince stressed the urgency for arriving at common points and for keeping production within OPEC quotas," IRNA said.
Iran and Saudi Arabia, heavyweights in the Organisation of the Petroleum Exporting Countries, join other OPEC members in Vienna on Wednesday for their regular ministerial meeting.
OPEC's meeting will seek to approve an estimated 800,000 barrels per day (bpd) of additional oil cuts from member states in a bid to shore up weak crude prices.
OPEC previously agreed to chop 1.245 million bpd of oil from the international markets.
North Sea Brent crude futures for August delivery were last quoted on Friday at $12.85 a barrel, well below the average for 1997 of about $19.
World Oil Stocks High
LONDON (June 22) - Industry stocks of crude oil and refined products are rising sharply in the second quarter this year, Center for Global Energy Studies (CGES) announced here Monday.
It quoted Euroilstock statistics as saying "an average increase of 1.6 mbpd over the past two months in the U.S. and Europe."
Crude runs remain high, as refiners take advantage of cheap crude to maximize throughputs, and middle distillate stocks are starting to look exorbitantly high as demand for heating oil drops seasonally, CGES said.
Distillate stocks in the U.S. and Europe were 53 billion bbls up on a year ago at the end of May, the center added.
As a result, the contango in the heating oil futures markets has continued to widen and has reached record proportions in Europe, where a flood of Russian gas/oil exports is putting additional downward pressure on prices.
Gasoline also remains in an unseasonal contango, high runs having removed any threat of a shortage this summer, CGES said.
U.S. stocks were 16 million bbls up on a year ago at the end of May and European stocks rose last month, leaving inventories 7 million bbls up on last May, it added.
OPEC Urged to Make Big Cuts to Oil Output
VIENNA, June 22 - OPEC oil producers alarmed by a revenue collapse were urged on Monday to administer shock therapy to sickly prices by agreeing larger expected production cuts at a gathering this week.
Cartel member states assembling for a summer conference hope a planned second round of supply restraint in the space of three months will puncture swollen supply and raise prices from 10-year lows.
But Gulf Arab member Kuwait called on the 11-country producer club th supplies 40 percent of global output to surprise markets by agreeing bigger than proposed sacrifices.
''A shock is what the market might need, because the situation is very bad,'' Kuwaiti Oil Minister Sheikh Saud Nasser al-Sabah said before leaving for Vienna.
''The cuts announced so far did not have the impact that we had expected. That is why we should reconsider the amount already pledged.''
At previous OPEC meetings, analysts have said similar prior calls for extra restraint could rebound on the group by raising market expectations that producers would struggle to fulfil.
If the market is not satisfied with any eventual extra reductions, the price could slump yet again, they say.
The Kuwaitis are part of a trio of OPEC's core Gulf Arab elite including Saudi Arabia and the United Arab Emirates due to arrive on Monday evening to map out a common strategy.
Some OPEC-watchers saw summer storm clouds gathering over the Austrian capital as harbingers of recriminations within the cartel over the wreckage of earlier output cuts.
The gathering of the Organisation of the Petroleum Exporting Countries seeks to approve a fresh package of output cuts after a first round of reductions in March proved too small to drain bulging world crude stocks.
On the table in Vienna will be cuts of about 800,000 barrels a day, some three percent of the cartel's output, on top of the 1.245 million OPEC promised to chop in March.
Analysts say that may not be enough to turn the tide in OPEC's favour given slowing global oil demand growth.
Benchmark Brent crude now is worth $13 a barrel, six dollars below last year's price and in real terms no higher than it was 25 years ago.
Oil export revenues are running a third lower than last year, putting unbearable pressure on oil-dependent national budgets already sliced to the bone.
Already there is scepticism that OPEC may lack the political will to give up enough of its 40 percent share of world output to sustain a higher oil price in the long run.
''OPEC is still trapped between the fear of total price collapse and fear of losing market share,'' said Washington consultancy Petroleum Finance. ''Given this dilemma, short term fixes are all they can muster.''
Apart from Kuwait, Iran and Algeria are also believed to be among those likely to push for larger reductions, but Saudi Arabia's lead is vital.
Saudi Arabia's critics say the cartel's largest producer must take some blame for the wreckage of an oil market which in 1996 and 1997 provided exporters with windfall revenues.
''The people who should show leadership now are the Saudis,'' said a senior Kuwaiti official. ''They engineered Jakarta and there are real problems as a result of that.''
The kingdom late last year decided to take the risk of commandeering some extra market share and at November OPEC talks in Jakarta pushed reluctant fellow members to raise oil output by 10 percent.
The meeting blithely ignored early signs of the downturn in Asia's economic fortunes.
The region which accounts for more than a quarter of global oil consumption is now expected to see demand stagnate, or even contract, for the first time in decades.
OPEC Hopes to Rescue Oil Marke by Cutting Production
VIENNA, Austria (AP) After failing to rescue the depressed oil market by slashing production this spring, OPEC now hopes a new round of cuts might do the trick.
But analysts and traders are skeptical, saying that even if oil producers find the will power to follow through on new promises about restraining output, it might not be enough to push prices higher any time soon.
The cuts are a key issue at an OPEC meeting opening in Vienna on Wednesday.
OPEC's average crude price plunged to $10.11 per barrel early last week, less than half the group's official target of $21. Prices have not been so low since 1986, a year that brought disaster to the global oil industry, from the palaces of the wealthy Persian Gulf sheiks to the small mom-and-pop producers who had to shut down their wells in the United States.
The current cheap oil prices have been a bargain for consumers, including gas-hungry Americans getting ready to drive off on summer vacations, but they are devastating to OPEC and other producers.
The biggest OPEC exporters, including Saudi Arabia, Venezuela and Iran, have teamed up with smaller OPEC countries with pledges to cut some 620,000 barrels of production daily, out of current output of about 28.2 million barrels. Non-OPEC producers Mexico, Russia and Oman are trying to help out with promises to remove another 203,000 barrels a day from the glutted market.
But even if all those cuts are made and sustained and experts have big doubts about this traders say more than 1 million barrels a day need to be removed.
"When you look at the numbers, it doesn't add up," said Peter Bogin, an analyst at Cambridge Energy Research Associates in Paris. "There's too much supply going out for the next 18 to 24 months."
Three producers, Nigeria, Algeria and Libya, had not announced any new cuts ahead of the meeting.
Experts believe these producers soon will chime in with cuts, and that some of the small players will clamor for bigger cuts from Saudi Arabia. The world's top oil producer and exporter has pledged the biggest cuts, 225,000 barrels per day but with more than 8 million barrels a day of production it has far more oil than anybody else.
Indonesia, hit by the double whammy of its own economic collapse and low oil prices, has said it has no plans to cut back.
Volatility and oil prices have often gone hand in hand, but the Organization of the Petroleum Exporting Countries created its own crisis this time with the ill-judged decision to raise output last winter. OPEC was blindsided by the magnitude of the Asian economic crisis, which began choking off demand for crude oil just as the market became oversaturated.
By the time OPEC started scaling back output, in an emergency meeting in March, the damage was done. Repairing it won't be easy, because any production cuts are unlikely to push prices quickly higher.
As always, OPEC will be haunted by the specter of Iraq's eventual full-scale return to the market. Iraq can only sell limited amounts of oil under U.N. sanctions imposed after its 1990 invasion of Kuwait, but there have been indications that a settlement between Iraq and U.N. weapons inspectors could be drawing closer.
OPEC members are Algeria, Indonesia, Iran, Iraq, Libya, Kuwait, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.
OPEC Assembles To Trim Supply,Boost Market
VIENNA, June 22 - OPEC producers hit by low oil prices were assembling on Monday to approve their second output cuts in three months to try to hike markets crippled by surplus crude.
The OPEC Gulf Arab elite of Saudi Arabia, Kuwait and the United Arab Emirates were the first into Vienna, with Kuwait seeking bigger cuts than planned to shock prices back to life.
''A shock is what the market might need, because the situation is very bad,'' said Kuwaiti oil minister Sheikh Saudi Nasser al-Sabah.
But his concern drew only a lukewarm response from Latin American heavyweight Venezuela, which suggested the Organisation of the Petroleum Exporting Countries wait and see if the proposed cuts were sufficient to revive the market.
Asked in Oslo about Kuwait's idea, Venezuelan Oil Minister Erwin Arrieta said after talks with Norwegian Oil and Energy Minister Marit Arnstad:
''We'd have to wait so see how much is necessary if that is the case. We have to wait for July 1 to see how the Amsterdam agreement is implemented.''
An Amsterdam meeting of Saudi Arabia, Venezuela and Mexico drew up plans for fresh cuts of 800,000 barrels per day (bpd) after a first round of reductions in March proved too small to rescue prices.
The fresh cuts, equivalent to three percent of OPEC output, would be on top of the 1.245 million bpd OPEC promised to chop in March in its first significant reduction in a decade.
Non-members Mexico and Oman have backed the new proposed cuts by offering 120,000 bpd in their own reductions.
But analysts say that may not be enough to turn the tide in OPEC's favour given slowing global oil demand growth.
There was no comment from Ali al-Naimi, oil minister of Saudi Arabia, the world's biggest producer and exporter.
But UAE Petroleum and Resources Minister Obaid bin Said al-Nasseri said the extent of any price rise would depend on how much OPEC would agree to cut.
Omani Oil Minister Mohammed bin Hamad bin Seif al-Ramhi, whose country will attend as an observer, told Omani television prices would rise if OPEC agreed to cut 2.5 million bpd -- some three times the proposed amount.
But most eyes were on OPEC kingpin Saudi Arabia.
''The people who should show leadership now are the Saudis,'' said a senior Kuwaiti official. ''They engineered Jakarta and there are real problems as a result of that.''
The kingdom late last year decided to take the risk of commandeering some extra market share and at November OPEC talks in Jakarta pushed reluctant fellow members to raise oil output by 10 percent.
Now oil prices are in real terms little better than those prevailing when a handful of Third World producers formed the organisation in 1960 to get a better deal for sellers.
North Sea marker crude Brent settled at $13.24 on Monday, almost six dollars below last year's average price, but up 39 cents on the day helped by Sheikh Saud's comments.
OPEC oil export revenues are running a third lower than last year, reducing further already shrunken national budgets.
Dwindling prices are also bruising oil company share values and slowing exploration efforts in the world's remoter regions.
Already there is scepticism that OPEC has the political will to give up enough of its 40 percent share of world output to sustain a higher oil price in the long run.
''OPEC is still trapped between the fear of total price collapse and fear of losing market share,'' said Washington consultancy Petroleum Finance. ''Given this dilemma, short term fixes are all they can muster.''
Kuwait's Sheikh Saud will be part of a meeting of OPEC's production monitoring committee on Tuesday along with Iran, Nigeria and OPEC Secretary-General Rilwanu Lukman.
OPEC Oil Price Down
VIENNA (June 22) - The price of oil from the Organization of Petroleum Exporting Countries (OPEC) dropped by 1.37 U.S. dollars a barrel last week, the OPEC secretariat said on Monday.
The average price of OPEC's basket of seven crudes dropped to 10.55 dollars a barrel from the 11.92 dollars a barrel the week before.
The annual average price stands at 13.20 dollars per barrel as of the beginning of this year.
The average price last month was 13.16 dollars a barrel, a little more than April's 12.76 dollars per barrel, but far less than the benchmark price of 21 dollars per barrel set by OPEC.
The oil ministers of OPEC will meet in Vienna on Wednesday to discuss reducing the ceiling of daily oil production set by the organization as well as stablizing and boosting crude oil prices.
Some members of OPEC and non-OPEC oil producers have recently decided to cut their daily oil production.
The meeting of OPEC's oil ministers at the end of March decided to reduce the ceiling by 1.245 million barrels, but the decision has not been well implemented by all members of the organization and has not been effective in stabilizing oil prices.
The oil market is being over supplied. The members of OPEC and non-OPEC producers must continue to cut their production in order to maintain the stability of oil prices.
OPEC May Need Deeper Production Cuts To Save Market
VIENNA (AP) - OPEC is confronting an oil price crisis by pledging new production cuts, and Kuwait gave markets a bit of optimism by suggesting the exporters might need to slash output even more than romised.
But the Kuwaiti oil minister, Sheik Saud Nasser al-Sabah, would not say whether the biggest OPEC producer, Saudi Arabia, will face pressure from the others to reduce its production by more than the 225,000 barrels a day already pledged.
"I'm not naming anybody," Sheik Saud said late Monday for the OPEC meeting that formally opens Wednesday.
The Saudis have promised the biggest total amount of cuts, but they are by far the biggest producers, pumping some 8.5 million barrels a day out of OPEC's total daily production of 28.2 million barrels.
Others in the group can't help but notice that the promised Saudi cuts are proportionately smaller than those being made by others who agreed to withhold oil from the market.
Sheik Saud said earlier that if the latest round of production cuts fails to lift the market, then more cuts must be considered. His comments pushed crude oil futures prices higher on Monday.
Saudi oil minister Ali Naimi's huge production makes him the most influential player in OPEC, but his influence left the oil producers in trouble after the Saudis pushed through a plan late last year to raise production in the winter.
OPEC started pumping more crude just as the Asian economic crisis began choking off the growth in world demand, and prices have plunged to their lowest levels in 12 years.
It's been a bargain for consumers but a nightmare for the producers who will have severe problems meeting their national budget targets if prices don't pick up quickly.
"We hope to get a fair price for our crude - something like $18 to $20," said the United Arab Emirates oil minister, Obaid bin Saif al-Nasseri.
OPEC tried to solve the problem in March by agreeing some 1.245 million barrels of production cuts, but the ministers delivered a little less than a million barrels that they had promised. Now, the new cuts being pledged come to just 620,000 barrels a day.
Even though non-OPEC producers Mexico, Russia, Oman and Egypt have tried to help with promises to take another 223,000 barrels off the market, analysts say the latest effort will come up short.
Traders are looking for cuts of 1 million barrels a day or more.
It remains to be seen whether OPEC can do more this week, or whether it will take the pain of continued weak prices to force stronger action.
Members of the Organization of the Petroleum Exporting Countries are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.
Qatar Says 2.5 Mbpd Oil Glut, Willing To Cut
DOHA, June 23 - Qatari Oil Minister Abdullah bin Hamad al-Attiyah said on Tuesday the oil market was oversupplied by 2.5 million barrels per day (bpd), which needed to be drained to restore flagging prices.
Attiyah told reporters before leaving for a meeting of the Organisation of Petroleum Exporting Countries (OPEC) in Vienna that Qatar was willing to make further output cuts if other crude producers did the same.
The Gulf Arab state is a small producer in OPEC, but relies on oil revenues for around three-quarters of state income.
''The market has excess of 2.5 million barrels a day. It has to be drained out to achieve a reasonable and fair price,'' Attiyah said at the inauguration of an industrial plant in Qatar. ''We support every effort to stabilise the market.''
Asked whether Qatar would cut production further, Attiyah said: ''We are willing to cut if other OPEC and non-OPEC (producers) agree to do also.''
Attiyah was expected to leave at about 0900 GMT for Vienna where OPEC ministers are scheduled to start discussions on Wednesday on withdrawing around another 800,000 bpd from the market. In March OPEC promised to chop 1.245 million bpd from the oversupplied market.
World oil prices are currently trading around 25-year lows in real terms, pushing OPEC oil export revenues a third lower than last year.
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