MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY JULY 14, 1998 (2)
OIL & GAS
WORLD OIL
Oil Off The Floor As Saudi Cuts Deepen
LONDON, July 14 - Oil prices ticked higher on Tuesday as dealers started to take notice of evidence of cuts in supplies from major producers.
Bellwether Brent blend settled 31 cents higher at $13.02 a barrel but remains stranded more than $6 short of last year's average price.
Dealers said institutional investment funds might now be taking a fresh look at cheap oil.
Sentiment throughout the oil complex improved after traders in London and Singapore said that Saudi Arabia, OPEC's largest exporter, had informed customers of an increased eight to nine percent reduction in supplies in August.
''The (Saudi) reductions are larger in August than in July,'' said one European customer.
''We're beginning to see the funds taking an interest in oil again,'' said a trader in reference to the speculative investors who control large hedge funds.
Saudi Arabia is the biggest contributor to the 2.6 million barrel a day (bpd) package of output cuts put together by OPEC producers since oil prices hit a 10-year low in March.
Non-OPEC Mexico, Norway and Oman have also reduced supplies in a bid to shrink record inventory levels of crude and petroleum products on world markets.
Dealers were waiting for Tuesday's weekly U.S. oil inventory figures from the American Petroleum Institute to judge whether the wave of supplies already committed to refiners was beginning to wind down.
Doubts over producers' determination to meet pledged reductions have kept a lid on prices with particular worries that Iranian output remains well above OPEC strictures.
Analysts say that if producers maintain their current 75 percent cut compliance rate they should drag Brent prices back up to around $16 a barrel by the end of the year.
But they caution that the size of the stock surplus piled up
so far this year means that any infant recovery would be at the mercy of further economic downturn in Asia, or a slackening of cutback efforts.
Prices in dollars per barrel:
..............................................July 14.....July 13
..............................................(close).....(close)
IPE August Brent................... 3.02.......12.71
NYMEX August light crude...14.55.......13.91
NEW YORK
Oil Futures Surge On Hopes Of Lower Inventories
NEW YORK July 14 (AP) -- Oil futures rose sharply Tuesday on the New York Mercantile Exchange as investors anticipated industry figures released after the market would have shown a decline in crude inventories last week.
August crude rose 64 cents, or 4.6 percent, to $14.55 a barrel; August heating oil rose 1.20 cents to 38.86 cents a gallon; August unleaded gasoline rose 1.28 cents to 48 cents a gallon.
Crude prices rose as dealers bet that crude stocks were falling on fewer imports and heavier gasoline demand during the peak summer driving period.
A report late in the day by the American Petroleum Institute confirmed that U.S. crude oil stocks fell last week, a decline of 6.287 million barrels to 334.670 million barrels.
Gasoline stocks rose 2.763 million barrels to 221.443 million barrels, while refineries were operating at 100.2 percent of capacity, up from 98.1 percent the previous week.
Investors were betting members of the Organization of Petroleum Exporting Countries and other oil producers were sticking to pledges to slash daily output following a world oil glut that has driven prices sharply lower this year.
Analysts said, however, that actual declines in oil stocks weren't expected to take hold for weeks more since the latest round of OPEC cuts has only just begun.
Further supporting prices were expectations refiners have finally begun dipping into ample stockpiles for heated-up gasoline demand.
NYMEX NATURAL GAS
NYMEX Hub Natural Gas Ends Up After Late Short Covering
NEW YORK, July 1- NYMEX Hub natural gas futures ended higher Tuesday in moderate trade, as selling most of the day on bearish technicals and storage concerns gave way to a late round of short covering before the close, sources said.
August edged up 1.7 cents to close at $2.266 per million British thermal units after trading today between $2.21 and $2.275. September settled 1.1 cents higher at $2.291. Other deferreds finished flat to up one cent.
"We saw follow-through selling early, then short covering at the end held things up, but time is running out for the bulls. I think (high) storage will be the killer," said one Midwest trader, adding hot weather this week over much of the nation was expected to be short lived.
Some traders said the market was oversold and due for a bounce after three consecutive down days, particularly with weekly gas inventory data due out tomorrow.
Early injection estimates for Wednesday's weekly AGA storage report range from 60 bcf to 90 bcf. For the same week last year, stocks gained 87 bcf. Storage is still 430 bcf, or 26 percent over year-ago, a cushion not likely to be trimmed much in coming weeks with weekly injections averaging just 55-60 bcf for the same period last year.
WSC forecasts this week call for mostly above-normal temperatures in the Northeast and Mid-Atlantic, but levels are expected to cool to closer to seasonal norms by the weekend. The heat in Texas is expected to continue, with readings averaging three to eight degrees F above normal. In Florida and the Southeast, the mercury will range from normal to four degrees F above for the period. The Southwest will see temperatures two to six degrees above.
Chart traders agreed the technicals turned bearish after Friday's break of support and Monday's follow-through. While August this morning dipped below the 40-day moving average and the 50 percent retracement point, both in the $2.23 area, most needed a close below that level to predict further downside. Support was now seen at today's low of $2.21, with next support pegged at $2.09 and then $2. Interim resistance was pegged at Tuesday's high of $2.275 and then in the $2.42-2.43 area, which was last week's highs. Better selling should emerge at the $2.52 high from July 1, with next resistance seen at the $2.655 double top from April.
In the cash Tuesday, Gulf Coast swing quotes slipped about a nickel to the $2.20 area. Midwest pipes were down two cents to the mid-to-high teens. Chicago city gate gas slumped more than five cents to $2.27, while New York was near $2.50, also more than a nickel lower. In the West, rising temperatures helped boost El Paso Permian a penny or two to the low-$2.20s.
The NYMEX 12-month Henry Hub strip rose 0.8 cent to $2.409.
NYMEX said an estimated 53,327 Hub contracts traded today, up from Monday's revised tally of 45,090.
In the news, Amoco said it expected its Hugoton natural gas processing plant in southwest Kansas to be back in service by mid-August. The plant was shut Thursday by an explosion in a heat exchanger, cutting about 400 mmcfd of supply from the Hugoton field that flows mostly into the Williams system. A spokesman said as much as 60 mmcfd of production from the field may be restored by later this week.
NORTH AMERICAN SPOT NATURAL GAS PRICES
U.S. Spot Gas Prices Mostly Lower
NEW YORK, July 14 - Most U.S. spot natural gas prices, consistent with the price movement on NYMEX, drifted lower Tuesday as most traders turned their attention to the western market, where the arrival of heat was spurring additional demand.
Forecasts called for highs in the 90s in southern California over the next couple of days. Above-normal temperatures were also expected to continue in the South and now in the upper Midwest. However, cooler weather is expected to return to the Northeast and upper Midwest late this week, according to Weather Services Corp.
As a result of the heat, prices at the southern California border gained another eight cents to the high-$2.50s to low-$2.60s. San Juan Basin prices also tacked on more strength to $2.00-2.05.
Prices in the Permian Basin and at Waha, however, remained fairly steady in the low-$2.20s.
El Paso Natural Gas Co.'s scheduled maintenance outage at its White Rock station is reducing San Juan Basin capacity by 160 million cubic feet per day (mmcfd) through July 25.
Swing Henry Hub cash, clinging to August futures' trading range of $2.21-2.275, was transacted at $2.21-2.25 per mmBtu, down an average of six to seven cents from Monday.
Separately, Amoco said its gas processing plant in southwest Kansas will likely return to service in mid-August after shutting last Thursday because of an explosion in a heat exchanger. The outage cut about 400 mmcfd of supply from the Hugoton field that flows mostly into the Williams system.
The discount in the Gulf filtered into the eastern city-gate markets despite warmer than normal weather in the Northeast. Prices at the New York city-gate slid a few cents to the high-$2.40s to low-$2.50s.
In the Midcontinent, swing prices were down about two cents to about $2.17. In Chicago, despite forecasts calling for a high of 90 degrees F, prices slid 10 cents to the high-$2.20s.
Separately, injection estimates for Wednesday's weekly AGA storage report range from 65 bcf to 90 bcf. For the same week last year, stocks gained 87 bcf.
Tightening Supply Firms Western Canada Gas Prices
NEW YORK, July 14 - Canadian spot natural gas prices recovered in Alberta on Tuesday as less supply became available in the market due to restrictions at the border, industry sources said.
Spot gas prices at the AECO storage hub in Alberta were quoted higher today at C$1.86 per gigajoule (GJ) after Monday's 19-cent slide to about C$1.82-1.83.
August prices were equally higher, also at C$1.86 per GJ. One-year business at AECO was reported done at C$2.55-2.56.
Field receipts in Alberta slipped to 12.475 billion cubic feet per day (bcfd) from the previous 12.666 bcfd.
Storage injection was also waning, with 605 million cubic feet per day (mmcfd) seen put into storage yesterday, down from about 797 mmcfd the previous day.
In the export markets, prices at Sumas, Wash., were steady to lower at US$1.42-1.43 per million British thermal units (mmBtu), with the heat in California lending support to the market.
Maintenance at Northwest Pipeline's Chehalis compressor station in Washington, which has been cutting up to 14 percent of gas flows, is still scheduled to continue through Sunday.
In the east, gas traded at Niagara mostly at US$2.15 per mmBtu, slipping about seven cents from Monday with a slightly weaker August NYMEX contract.
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