MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING WED., JULY 01, 1998 (3)
OIL & GAS
Iran Says Cutting Oil Output 10 Pct from Wednesday
TEHRAN, July 1 - Iran will lower its crude oil output for export by 10 percent from Wednesday as agreed with other OPEC members, a senior National Iranian Oil Company (NIOC) official said.
''National Iranian Oil Company will bring down its crude oil output for export by 10 percent as of July 1, 1998, in accordance with the recent OPEC decision, stated Hojjatollah Ghanimi-Fard, director of international affairs of NIOC,'' the official Iranian news agency said late on Tuesday.
Ghanimi-Fard said the decision to cut crude oil output was taken in a bid to bolster sagging international oil prices.
''Ghanimi-Fard hoped that with the lowering of the crude oil production by the OPEC-member countries, the measure would help stabilize the oil market in the world,'' IRNA said.
Members of the Organisation of the Petroleum Exporting Countries agreed in Vienna last month to cut 1.355 million barrels per day (bpd) of crude from July1, taking total cuts pledged this year to 2.6 million bpd.
Iran is the cartel's number two producer, after Saudi Arabia, and its willingness to trim production was seen as crucial to the latest OPEC agreement.
Pertamina Orders Foreign Contractors To Cut Output
JAKARTA, July 1 - Indonesian state oil company Pertamina said on Wednesday it would order 10 foreign contractors to cut production by an average of 3,000 barrels per day (bpd) each to honour a commitment to OPEC to cut production by 30,000 bpd.
Gatot Wiroyuddo, chief of Pertamina's directorate for foreign contractors, said firms affected would include Caltex Pacific Indonesia (TX; CHV), Unocal (UCL), Maxus (MXS) and Total (TOTF.PA).
He told reporters Indonesia's production was 1.31 million bpd in June and would be 1.28 million bpd from July.
''In the oil production cuts, we will focus on contractors producing more than 20,000 bpd. This is no problem,'' he said, adding that he expected oil demand would increase again within a year.
Pertamina, a state-owned monopoly, has contracts with a number of foreign companies to explore and drill for oil.
Pertamina Finance Director Hadi Sudibyo told reporters Pertamina would be purchasing ''an oil product'' with letters of credit (LCs) supported by 10 foreign banks. Among the banks were Bank of America, Chase (CMB), Standard Chartered (UK & Ireland: STAN.L) and Paribas (PARI.PA).
Several previous deals have fallen through because crude and oil product sellers were not willing to accept LCs from domestic
Indonesian banks. The company recently made one of its first imports supported by an international LC.
Another Pertamina official said a deal with Saudi Aramco announced last week to supply Arab light crude to Pertamina involved the supply of 113,000 bpd. The official said Pertamina would need to make further crude imports for its refineries.
''The Aramco deal was a long term contract to secure crude oil for Pertamina because we don't want to go to the market too often, that creates volatility,'' the official said.
WORLD CRUDE
Oil Prices Steady, Market Waits OPEC Cuts
LONDON, July 1 - World oil prices held steady on Wednesday as traders waited for production cuts agreed last week by OPEC to eat into oversupply.
OPEC members Nigeria, Iran and non-OPEC Oman confirmed their cuts on Wednesday, notifying buyers that exports would be curbed in line with the pact agreed in Vienna.
Confirmation of the cuts, effective from July 1, had little impact on oil prices.
Bellwether Brent blend crude climbed out of the red, settling up four cents at $13.42, but was off a session high of $13.47 hit shortly after the market opened.
Traders added the market was also keeping a wary eye on events in the Middle East after news of a U.S. missile attack on an Iraqi radar station on Tuesday led to a sharp jump in prices.
Iraqi state television on Wednesday showed remnants of a missile it said was fired by a U.S. F-16 warplane in the southern city of Basra and rejected as "lies" statements by U.S. officials that the incident was an act of self-defence.
"The American officials know that they are telling their people and the world public opinion lies because they know that the missile landed in a demilitarised zone near the city of Umm Qasir in which there were no Iraqi radars or military units," an Iraqi information ministry spokesman said on Wednesday.
While Brent has recovered from recent lows, it is still a dollar weaker than when details emerged of OPEC's plans to trim crude production by an additional 1.355 million barrels a day.
Iran, OPEC's second largest producer after Saudi Arabia, said it would lower output by 10 percent from Wednesday after agreeing to trim production by 305,000 bpd.
Nigeria has ordered multinational firms to cut output by 100,000 bpd, while Oman has cut July crude sales to Japan by 2.4 percent.
The market is watching the export curbs carefully as many traders are not convinced all producers will honour the pact.
"In the second half of July we will have a better idea of the cancellations," said Christopher Bellew, director of Prudential-Bache International.
He added the market would scrutinise OPEC July production figures, due out in early August, to see how many countries were meeting their commitments.
The latest deal brought total OPEC cuts this year to 2.6 million bpd as producers try and mitigate the six month price depression which has slashed income.
Saudi Arabian Oil Minister Ali al-Naimi surprised markets recently by acknowledging some producers were likely to cheat on the deal.
"After what the Saudis said, no-one is expecting one hundred percent compliance, but I am cautiously optimistic," said Bellew.
Analysts have said the OPEC action should secure higher prices by the fourth quarter of the year.
Overnight stock figures from the United States, eagerly anticipated by the markets, were neutral and failed to give the market any fresh direction.
The data from the American Petroleum Institute showed a sharp drop in gasoline stocks last week, while crude inventories were slightly lower when a revision of the previous week's figures is taken into account.
Crude stocks rose by 1.8 million barrels a day, but in reality stocks dropped a little as the institute revised down its figures for the previous week by around two million barrels.
"The figures were slightly constructive and may be better than people were expecting," said one trader.
On the negative side, crude imports into the United States rose to 10.2 million barrels, the highest level seen in years, said traders.
Dealers took a cautious view of the figures, saying they were still waiting to see whether members of the OPEC cartel would abide by the group's pledge to cut output.
Massive stocks amassed this year in the United States and Europe are shackling OPEC's hopes that the reduction would lead to a rapid improvement in prices.
Prices in dollars per barrel:
......................................................Jul 1.....Jun 30
IPE August Brent.........................13.42.......13.37
NYMEX August light crude.........14.37.......14.18
NYMEX CRUDE
ACCESS
Late U.S Energy Prices Edge Up Amid Light Buying
LOS ANGELES, July 1 - Technical buying pushed up U.S. energy futures on ACCESS Wednesday, amid thin trade, dealers said.
August crude oil prices rose four cents to $14.41 a barrel on volume of 253 lots, traders said at 1630 PDT.
''It's a continuation of what we saw (Wednesday),'' an ACCESS trader said.
Meanwhile, reaction to supply data from the American Petroleum Institute (API) and Wednesday's U.S. government figures was largely neutral and failed to spark any movement on ACCESS, traders said.
Many traders were sidelined Wednesday ahead of the U.S. Fourth of July holiday weekend. U.S. oil futures will not trade Friday in observance of the holiday.
NYMEX August crude oil settled up 19 cents to $14.37 a barrel, amid technical buying which boosted the contract after a quiet morning.
By 1630 PDT on ACCESS, August unleaded gasoline rose 0.10 cent a gallon to 48.25 cents a gallon. Volume for unleaded gasoline reached a moderate 100 lots for all months and 95 for August.
August heating oil rose 0.11 cent a gallon to 39.50 cents by 1630 PDT. Total volume was 89 lots traded, while 55 lots traded in August.
On the NYMEX, August unleaded gasoline settled up 0.73 cent a gallon to 48.15, while heating oil rose 0.24 cent to 39.39 cents.
NYMEX NATURAL GAS
Natural Gas Mostly Ends Down
NEW YORK, July 1 - NYMEX Hub natural gas futures, pressured Wednesday by technical selling after an early move up stalled despite firmer cash, mostly ended lower in moderate trade, then slipped on ACCESS after a weekly stock report.
August slipped 1.9 cents to close at $2.45 per million British thermal units, then on ACCESS traded down to $2.394 following AGA inventory data. September settled 2.1 cents lower at $2.471. Most other deferreds ended flat to down 1.8 cents though some 2000 and 2001 contracts gained slightly.
"It's (the AGA number) a little higher than some people were hoping for, but it's probably a nothing number," said one East Coast trader.
AGA said late Wednesday U.S. gas stocks rose last week by 72 bcf, in line with Reuter poll estimates in the 65-75 bcf range. Overall stocks slipped to 452 bcf, or 29 percent, above year-ago.
Eastern stocks last week rose 46 bcf and were still 31 percent above last year. Consuming region west storage, which climbed 12 bcf for the week, remained 10 percent over 1997 levels. Inventories in the producing region gained 14 bcf and were 37 percent above year-ago.
Traders said long liquidation, or profit taking, hit the market today after August failed to get through its early high at $2.52.
But with hot weather still in the South and concerns about storms brewing in the Gulf, few expected much downside tomorrow ahead of the extended holiday weekend.
"I don't think anyone wants to go home short for the long holiday weekend, especially with storms in the Gulf," another eastern trader said.
NYMEX will be closed Friday for the Independence Day holiday.
Temperatures through Sunday in the Northeast, Mid-Atlantic and Midwest are expected to range from normal to several degrees F above normal. Readings in the Southeast and Florida should average three to 10 degrees F above normal. In Texas, the mercury will remain four to 12 degrees above, while the Southwest will vary on either side of normal.
While chart traders agreed the technical picture recently had improved, they said the bulls had to be disappointed after today's soft close. August resistance was now pegged at today's high of $2.52, with next resistance seen at the $2.655 double top from April. Major support was expected at last week's low of $2.32, with further buying likely in the low-$2.20s, the 50 percent retracement of the recent climb to $2.52.
In the cash Wednesday, Gulf Coast quotes firmed more than a nickel to the low-$2.40s. Midwest pipes were up the same amount to the mid-$2.30s. Chicago city gate gas was up slightly to the high-$2.40s, while New York was about five cents higher in the mid-$2.60s. In the West, El Paso Permian jumped more than a dime to the mid-$2.30s.
The NYMEX 12-month Henry Hub strip slipped 1.2 cents to $2.508. NYMEX estimated Hub volumes were not available at 1630 EDT.
NORTH AMERICAN SPOT NATURAL GAS
U.S. Spot Natural Gas Prices Rise Again On Heat
NEW YORK, July 1 - U.S. spot natural gas prices moved higher again on Wednesday as lingering heat sustained demand in the South and another uptick surfaced early on NYMEX, industry sources said.
Forecasts are still calling for above-normal temperatures across the South, with highs expected to hover near 100 degrees in parts of Texas and Florida. However, near-normal temperatures are still forecast for the upper Midwest and Northeast into the long holiday weekend.
Swing Henry Hub gas traded about seven cents higher at $2.43-2.48 per mmBtu, in line with August's trading range of $2.44-2.52 on NYMEX.
In the Midcontinent, swing prices were also a few cents higher at $2.32-2.38, with Chicago city gate business reported done in the high-$2.40s.
In West Texas, Permian Basin prices jumped 13 cents to $2.30-2.38, while San Juan prices were also up sharply at$1.90-2.04 due to a shortage of supply in the basin.
Tightening supply in the basin were unplanned outages at El Paso Natural Gas Co.'s Belen 2 and Roswell 3 compressor units in New Mexico. The pipeline is reducing capacity on the San Juan Crossover by about 20 mmcfd today and Thursday. The company will also perform scheduled maintenance starting Sunday at its White Rock station, which is expected to reduce San Juan Basin capacity by 160 mmcfd through July 25.
In the Northeast, New York city gate quotes were anywhere from $2.60 to $2.70, while Appalachian prices on Columbia climbed to the mid-to-high $2.50s.
According to a Reuters survey, most injection estimates for today's American Gas Association storage report were 65-75 bcf, versus a 76 bcf gain a year ago.
Canada Natural Gas Rises In East In Slow Holiday Trade
NEW YORK, July 1 - Canadian spot natural gas prices tacked on modest gains in the East on Wednesday as the Niagara market followed NYMEX's August contract higher, industry sources said.
But trading was fairly non-existent elsewhere due to the Canada Day holiday.
Niagara prices rose four cents to about US$2.45-2.49 per million British thermal units (mmBtu) as August futures climbed to a high of $2.52.
In Alberta, supplies were increasing. Total field receipts yesterday rose to 12.3 billion cubic feet per day (bcfd) from the previous level of 12.2 bcfd.
Linepack on NOVA yesterday was at 12.7 bcfd, compared with about 12.6 bcfd on Monday and the pipeline target of 12.8 bcfd.
Storage injections tailed off a bit to 369 million cubic feet per day (mmcfd) into AECO from 376 mmcfd.
Spot gas at the AECO storage hub in Alberta slipped two cents to about C$1.98-1.99 per gigajoule (GJ), while Sumas, Wash., prices were still notionally quoted at US$1.45 per mmBtu.
MORNING UPDATE
Oil Prices Edge Up, Market Waits For News
LONDON, July 2 - World oil prices edged higher on Thursday as players looked for direction amid hopes OPEC's decision to cut output would soon siphon surplus crude from the oversupplied market.
Traders said prices were bolstered overnight by concerns about renewed tension in the Middle East and a possible strike by Venezuelan oil workers from Monday.
Benchmark Brent blend was trading 18 cents higher at $13.60 at 1127 gmt. While Brent has risen from recent lows, it is still around six dollars a barrel lower than last year's average price.
Traders added the market was apathetic ahead of the long Independence Day holiday weekend in the United States with New York markets shut on Friday. In London, the International Petroleum Exchange will close early on Friday.
''The market's placid, pre-holiday and post World Cup. I see very little motivation for direction,'' said Peter Gignoux, head of the energy desk at Salomon Smith Barney.
Activity is likely to be limited with speculators covering their positions ahead of the weekend.
Players were keeping a watchful eye on the Middle East after Iraqi press stepped up criticism on Thursday of a U.S. missile attack on Tuesday against an Iraqi radar site.
The Babel daily, owned by President Saddam Hussein's eldest son Uday, said the incident was a ''deliberate attack which aims at mnaufacturing tension.''
U.S. officials said an F-16 warplane fired at an air defence missile battery after Iraqi radar locked onto an accompanying British fighter patrolling a no-fly zone in southern Iraq.
The other factor helping support prices was news Venezuelan oil sector workers planned to go on strike from Monday if there was no settlement of a pay dispute involving petrochemical workers at state oil company Petroleos de Venezuela (PDVSA).
Oil workers last staged a strike in November. It lasted just 12 hours and involved between 30 percent and 40 percent of PDVSA staff.
Longer term the big issue concentrating traders' minds was when OPEC's decision to cut output by 1.355 million barrels a day would start to push prices higher.
Massive stock levels in the United States and Europe has meant a turnaround in prices has been much slower than many OPEC members had been hoping.
Most analysts say the impact of the cuts, effective July 1, will only be be felt in the fourth quarter of the year.
OPEC members Nigeria and Iran and non-OPEC Oman confirmed their cuts on Wednesday, notifying buyers of a curb in exports in line with the pact.
Prices in dollars per barrel:
..................................................Jul 2...........Jul 1
.......................................... 1127 GMT.......close
IPE August Brent......................13.60.........13.42
NYMEX August light crude.......XXX.........14.37
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