MARKET ACTIVITY/ WEEKEND EDITION OF TRADING NOTES JULY 5, 1998 (6)
OIL & GAS
WORLD CRUDE
Sideways Oil Market Waits For Cuts To Show
LONDON, July 3 - Oil prices edged sideways at lowly levels as dealers waited for evidence that OPEC oil producers would keep their word and further slice crude supplies.
Benchmark Brent blend closed down two cents at $13.55 a barrel, still nearly $6 a barrel lower than last year's average.
Analysts say traders still need convincing that OPEC members will follow up on pledges to remove another 1.35 million barrels a day (bpd) from the market for a full 2.6 million of reductions since February.
Early evidence will come in July cargo cancellations to refinery buyers.
Massive stock levels in the United States and Europe so far have prevented any significant recovery in prices which remain only a $1.50 above 10-year lows.
Most analysts say the impact of the cuts, effective from July 1, will only be felt in the fourth quarter of the year.
Mehdi Varzi at Dresdner Kleinwort Benson said on Friday he was expecting full OPEC output cuts in the region of 1.7 million bpd from February's benchmark for the cuts, well short of the 2.6 million bpd pledged.
That would be enough, he said, to end the build in stocks and could push Brent to $15 later this year.
''OPEC will face a difficult period over the next few months as the market waits for real evidence that cutbacks are taking place,'' said Varzi.
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.
Traders were also waiting for news of a possible Venezuelan oil workers strike planned from Monday if there is no settlement of a pay dispute.
Venezuelan oil workers last staged a strike in November. It lasted just 12 hours and involved between 30 percent and 40 percent of PDVSA staff.
oilworld.com
Closing Prices:
............................................Jul 3.......Jul 2
IPE August Brent................13.55.....13.57
NYMEX August light crude... -- ......14.50
NYMEX CRUDE - NYMEX ACCESS - NYMEX NATURAL GAS
NYMEX was closed on July 3rd for extended holiday weekend
oilworld.com
oilworld.com
NORTH AMERICAN SPOT NATURAL GAS
U.S. report unavailable
Canadian Natural Gas Prices Unchanged In Slow Trade
Canadian spot natural gas prices were unchanged in extremely light trade on Friday with NYMEX closed and most Canadian traders out of the office because of the Calgary Stampede parade, which dominated activity in the city's core.
"It's really dead today. There's five of us sitting around staring at our screens," a Calgary-based marketer said.
NYMEX, a key price-setter for Canadian natural gas trade, was closed for the U.S. Independence Day holiday.
Canadian gas prices remained unexpectedly strong as field receipts on the TransCanada PipeLines Ltd. owned intra-Alberta pipeline system (formerly NOVA) were still lower than expected, the marketer said.
"I don't think there's been as much gas tied in this summer as everyone thought there would be. We probably won't see strong field receipts until next summer."
Spot gas at the AECO storage hub in Alberta was quoted flat with Thursday at C$1.93/1.98 per gigajoule. No term contract deals were reported, although August AECO business was pegged at C$1.86/1.88 per GJ.
At the borders, gas at Sumas, Washington on the west coast was talked at US$1.42/1.47 per million British thermal units, again unchanged from Thursday in meager trade.
COMPARISON - SPOT PRICES
oilworld.com
JULY THRU SEPTEMBER FORECAST
glja.com
NORTH AMERICAN RIG COUNT
Rig Count In Canada Falls 23 From The Previous Week To 200 vs. 335 A Year Ago
The number of rigs exploring for oil and natural gas in the United States stood at 812 as of Thursday, July 2, down 11 from the previous week, and down from 965 a year ago, oil services firm Baker Hughes Inc. said Thursday.
The number of rigs drilling on land fell 15 to 663, while rigs working offshore rose three to 125. The number of rigs active in inland waters rose one to 24.
Among individual states, the biggest changes occurred in New Mexico and Pennsylvania, each down by seven. The Gulf of Mexico rig count rose two to 123.
The number of rigs searching for gas dropped eight to 552, the number of rigs searching for oil fell three to 258, and the number of miscellaneous drilling projects remained at two.
There were 206 rigs drilling directionally, 37 drilling horizontally and 569 drilling vertically.
In Canada, the number of working rigs fell 23 from the previous week, to 200 vs. 335 a year ago.
The weekly rig count reflects the number of rigs exploring for oil and gas, not those producing oil and gas.
bakerhughes.com
COUNTRIES IN THE NEWS
Vietnam PM Khai To Meet With Foreign Oil/Gas Reps
HANOI, July 3 - Vietnam Prime Minister Phan Van Khai is scheduled to meet representatives from foreign oil and gas companies next week for talks expected to focus on difficulties trying to tap thcountry's energy potential.
Officials from state oil monopoly Petrovietnam would also attend the half-day meeting on Tuesday, which some industry executives said would provide an opportunity to air complaints about problems in the sector.
In particular, industry sources said they hoped attention would focus on a stalled project between British Petroleum and Norway's Statoil 1/8STAT.CN 3/8 to exploit the country's largest gas reserves.
More than four years after the reserves were found off Vietnam's southeastern coast, the BP and Statoil Alliance has been deadlocked with Petrovietnam over pricing the gas.
"The question of progress on the gas project is of course very important but I'm not sure if this conference would be the place for such a discussion," said one foreign oil executive.
"Obviously it's a big problem for the partners in the project and for Vietnam if it doesn't go ahead. To move on the project would send a good message that would cheer up a lot of people in the international community here."
One executive said even if the BP-Statoil deal was not raised, the overall issue of pricing gas reserves needed to be discussed before other projects reached the price stage.
A Petrovietnam official declined to give details, but said the oil firm would give a brief presentation, while Planning and Investment Minister Tran Xuan Gia would also attend.
Oil executives said the presence of the reform-minded Khai indicated that he could be concerned about industry progress.
Some businessmen say the oil industry is plagued by similar problems that affect other sectors in Vietnam, such as complicated licensing procedures and other red tape.
As communist-ruled Vietnam began to open its doors in the late 1980s it was seen as a new energy frontier. But by the mid-1990s oil exploration and licensing had sagged, with some foreign firms pulling out.
"The bubble that is Vietnam's upstream sector is slowly deflating," British-based energy consultants Wood Mackenzie wrote in a report earlier this year.
"Foreign companies are indicating a growing disenchantment with Vietnam as an E & P (exploration and production) province, given lower than expected success rates, the inability to commercialise discoveries and to sign contracts and the high cost of exploring in Vietnam's waters."
In the first six months of the year Vietnam exported an estimated 5.56 million tonnes of crude oil, up from 4.60 million tonnes in the same period last year.
Vietnam has no refinery and exports most of its crude. It plans to pump 12 million tonnes for the full year, figures that make it a minor world energy player.
However, one bright spot should be the country's gas potential, industry sources said.
The BP and Statoil Alliance want to tap gas reserves officially estimated at 58 billion cubic metres.
The gas lies 370 km (231 miles) off Vietnam's southeast coast in the Nam Con Son Basin in the Lan Tay and Lan Do fields and is planned to be used for state-owned gas-fired power stations and an integrated power and urea fertiliser plant.
In addition, a consortium led by the Korea Petroleum Development Corp (PEDCO) last March announced another gas find in the Nam Con Son Basin of 34 billion cubic metres.
Figures for Vietnam's estimated recoverable gas reserves were not immediately available.
Venezuela Cuts Oil Output
CARACAS (July 3) XINHUA - Venezuela is reducing gradually its production and export of crude oil and byproducts, President of Petroleos de Venezuela Luis Giusti said Thursday.
Speaking at an oil forum, Giusti said the national production has been reduced to 3.45 million barrels a day since July 1, which is 870,000 above its quota of 2.58 million barrels allotted by the Organization of Petroleum Exporting Countries (OPEC) last November.
Venezuela has promised to cut 525,000 barrels a day in its oil output.
Iraq And Jordan Start Talks On Oil Pipeline
BAGHDAD, July 4 - Iraq and Jordan began talks on Saturday on the construction of a $350-million oil pipeline to carry Iraqi crude to the Jordanian Zarga oil refinery, Iraqi and Jordanian officials said.
They said the two sides would also discuss an agreement between both countries signed earlier this year to supply Jordan with 4.5 million tonnes of Iraqi crude and by-products.
The talks, led by Iraqi Oil Minister Amir Muhammed Rasheed and visiting Jordanian Energy Minister Mohammad al-Hourani, would also discuss some gas projects.
''We are about to start the construction of the first phase of the pipeline between Jordan and Iraq to al-Zarqa oil refinery,'' Hourani told a news conference.
He said the 750-km (450-mile) pipeline would be extended from the Iraqi oil refinery in Haditha, 260 km (156 mile) northwest of Baghdad, to Zarqa refinery.
It was not immediately clear how the project would be funded, given that Iraq is under a U.N. trade embargo and proceeds from its limited oil sales under U.N. supervision are earmarked for humanitarian supplies.
The pipeline project dates back to 1995, when the two sides signed an agreement to guarantee the flow of Iraqi crude oil to Jordan by pipeline to replace the costly transport of crude and products by tanker trucks.
Jordanian energy officials said Hourani will negotiate extra crude and petroleum supplies to be stored in new tanks scheduled for completion this year, which add an extra 230,000 tonnes capacity -- or nearly 20 days consumption.
Jordan, dependent on Baghdad for most of its energy needs, contracted with Iraq this year for around 4.8 million tonnes of crude and varied petroleum products like fuel oil and diesel.
Amman feared, at the height of this year's standoff between Baghdad and the United Nations over arms inspections, a rupture in its cheap oil supplies in the event of a flareup of military hostilities.
Jordan's sole refinery in Zarqa, with annual processing capacity to reach 4.6 million tonnes by year-end, will complete in less than a month construction of three new storage tanks with a capacity of 80,000 tonnes of crude and products.
Storage tanks, which have cost $30 million to construct at Jordan's Red Sea port of Aqaba, will add another 150,000 tonnes of crude and products capacity once they are completed later this year by Romania's Industrial Export firm, officials said.
Since the Gulf War over Kuwait -- during which Amman sympathised with Baghdad -- Iraq has been exporting more than 75,000 barrels of oil per day to Jordan, part of which is charged at market prices and the rest at undisclosed concessionary terms.
Jordan's oil purchases from Iraq are exempt from U.N. sanctions which ban Baghdad from exporting oil as punishment for its 1990 invasion of Kuwait. But the United Nations has allowed Iraq since December 1996 to sell certain quantities of oil to buy food and medicines for Iraqis under a so-called oil-for-food deal.
The Iraqi Minister told the news conference that Baghdad ''was committed to fulfilling Jordan's full requirements of Iraqi crude and oil products, both according to their joint agreement or parts of the agreement.''
The agreement, which is being renewed every year, envisages the supply of 4.5 million tonnes of crude and oil products to Jordan this year at preferential prices, in addition to $300 million worth of Iraqi crude President Saddam Hussein decided to give Jordan free of charge.
''From now until the end of the year Jordan needs 1.7 million tons of crude and 800,000 tons of by-products,'' Hourani said.
Kazakhstan Says China Oil Projects Are A Priority
ALMATY, July 4 - Kazakhstan and China pledged support on
Saturday for multi-billion dollar deals signed last year but the projects look set to be driven forward by political will rather than economic viability.
Kazakh President Nursultan Nazarbayev said after meeting Chinese leader Jiang Zemin on Saturday both sides recognised the importance of the projects, worth $9.5 billion in total.
"The biggest contract between Kazakhstan and China was signed by the oil company of the Chinese republic," Nazarbayev told reporters after signing a border agreement with Jiang in Almaty.
"This was called the project of the century. Today I confirmed with President Zemin its importance for China."
China's state-owned China National Petroleum Corp won tenders to acquire 60 percent of Kazakh oil producer Aktobemunaigaz and to develop the huge onshore Uzen deposit.
It also committed to constructing a 3,000-km (2,000-mile) pipeline linking Kazakh oilfields with western China.
Western oil executives in the Central Asian state's financial capital of Almaty have said that China's proposals were not economically viable, and some have questioned whether the pipeline would ever be built.
Nurlan Kapparov, head of Kazakhstan's increasingly powerful state oil company Kazakhoil, appeared to confirm the alternative view that politics play as big a part in the deal as cash.
"Everything is going according to schedule. The pipeline will be built by 2005," he told reporters. The pipeline will carry a minimum of 20 million tonnes (400,000 barrels per day), he said.
Kazakhstan desperately wants the link to be built. The resource-rich former Soviet republic has limited access to world markets, and wants an alternative option to the planned pipeline linking its onshore Tengiz oilfield with Russia's Black Sea oil export outlet of Novorossiisk.
Nazarbayev does not want to rely only on Russia to get growing volumes of oil to hard currency customers.
China's main aim in striking the agreements was to secure long-term energy supply for the world's most populous nation.
China and Kazakhstan have yet to seal the Uzen agreement. Western oil companies say that the delays suggest negotiations between the two sides have not been easy.
"The Uzen contract is being worked on," Kapparov said. Nazarbayev said that long term economic plans discussed by the neighbouring states could include a gas pipeline.
Listing projects envisaged under the 15-year programme, he referred to "the construction not only of an oil pipeline, but a gas pipeline through Turkmenistan, Uzbekistan, Kazakhstan and China."
Kapparov said later that the gas pipeline was only an idea at this stage rather than a concrete project.
The oil agreements have allowed Nazarbayev to strengthen relations with his mighty eastern neighbour since Kazakhstan won independence in 1991.
He has also succeeded in attracting some of the world's biggest multinational energy companies which are producing and exploring onshore and offshore.
The vast state, with a population of just 16 million, plans to become a major oil producer in the next century. It has set itself the ambitious target of producing 170 million tonnes (3.4 bpd) by 2010 from 27 million (540,000 bpd) in 1997.
Brazil ends oil monopoly
The National Petroleum Agency in Brazil has ended forty-five years of monopoly on exploration and production of oil by Petrobras, the state-controlled oil company, with a decision to open up some of its fields for exploitation by foreign companies.
The agency chief, David Zylbersztajn, said the move would provide an immediate boost to Brazil's domestic production.
Correspondents say the government hopes the introduction of foreign capital will lead to an increase in the production of oil and a reduction of imports.
At least seventy foreign companies have approached Petrobras in search of joint ventures.
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