AROUND THE KORNER WITH OIL AND GAS PRICING
World Oil Guards Gains As U.S. Crude Glut Eases
Oil prices clung to recent gains on Wednesday as the United States lightened its crude stock surplus and some oil producers said further output cuts were possible.
Global benchmark Brent blend crude edged up three cents to $14.52 a barrel by 1930 GMT, drawing breath after a rally worth nearly three dollars since mid-August.
Prices are still a quarter down from last year's $19.30 average, and the threat of global economic slowdown will overshadow any fledgling recovery.
But a sixth straight weekly crude stock draw in the key U.S. market enhanced producer hopes of extending the upward price incline.
American Petroleum Institute (API) figures showed that U.S. crude stocks shrank by over nine million barrels last week, as the Atlantic hurricane season imposed numerous supply interruptions.
The year-on-year U.S. stock overhang squashing any nascent recovery is now down to about 16.5 million barrels from a massive 30 million barrels earlier this summer.
Analysts cautioned that the API figures also showed sharp falls in refinery runs and a large rise in product stocks, implying that demand prospects may not be that bright.
Yet recent price gains have relieved some pressure on oil producers who have had to club together this year for some three million bpd of output cuts.
Oil ministers from Iran, Algeria, Kuwait, the UAE and Oman said after a short meeting on Wednesday they wanted to keep open the option of further production cuts.
Kuwaiti Oil Minister Sheikh Saud Nasser al-Sabah said after the gathering that producers might even agree on new cuts before a ministerial meeting of the Organisation of the Petroleum Exporting Countries on November 25.
Others appeared more cautious after the talks which ended with a statement that said the ministers would examine necessary measures including cuts to support prices.
The current vogue for top-level meetings in the oil business continued on Wednesday as news emerged that leaders of 20 of the world's biggest oil companies will gather for talks in Italy next month.
Executives emphasised that the meeting was not in any sense an emergency summit of companies seeking tie-ups to protect against low oil prices.
About 20 leading private and state companies are invited to the gathering, including Saudi Aramco, Russia's Gazprom (UK & Ireland: GAZPq.L), Norway's Statoil [STAT.CN], U.S. Chevron (CHV.NYSE), French Elf Aquitaine and Total and Italy's ENI as well as BP (UK & Ireland: BP.L) and Shell
NYSE Crude Ends Lower, Erasing Early Strong Gains
Crude oil futures prices edged down Wednesday on the New York Mercantile Exchange, erasing strong gains early in the trading session.
Crude topped $16 per barrel in the morning session, marking the first time since early May that it had reached that level.
Prices had risen this week as Hurricane Georges battered oil refineries in the Caribbean on its way toward the Gulf of Mexico. Similar storms in recent weeks have disrupted tanker schedules and offshore oil and gas production in the Gulf, forcing drawdowns in U.S. oil stocks.
That scenario was played out again Tuesday, when the American Petroleum Institute reported a sharp drop of 9.1 million barrels in the week ended September 18. Prices had surged on that news in early trading but dropped back as traders cashed in profits.
"Crude has been overbought and profit-takers took the cue early, but the day's news headlines were supportive, preventing any big slide late in the day," said one NYMEX floor trader.
The market remained on the alert over Hurricane Georges, which may pummel south Florida within days. The powerful storm has weakened on its approach to Cuba after raking the Virgin Islands, Puerto Rico, the Dominican Republic and Haiti.
Moreover, a group of oil producers met Wednesday in Kuwait and issued a statement saying further production cutbacks were possible. Attending the meeting were ministers from Algeria, Iran, Kuwait and the United Arab Emirates, all members of the Organization of Petroleum Exporting Countries. Oman, a non-OPEC member, also took part.
October unleaded gasoline fell .49 cent to 45.73 cents a gallon; and October heating oil fell .25 cent to 41.91 cents a gallon.
Canadian Heavy Oil Fortunes Improve for Now, Analysts Say
The discount Canadian heavy crude receives compared with light oil has been slashed over a summer of strong demand and tightening supply, but some analysts warn clouds that have darkened producer fortunes still linger.
Heavy oil, the tar-like crude that Canadian companies produce in abundance, has become more valuable in recent months-- thanks to strong demand from U.S. refiners for the manufacture of asphalt and less supply as producers opted to crank the valves closed on higher-cost wells.
"For Canadian producers, it's been a bit of a relief from a bad situation earlier in the year, but I think there will be seasonal effects once the asphalt season is beyond us," said Steve Kelly, crude oil markets analyst with Pervin & Gurtz in Calgary.
That would mean wider price spreads again after the autumn, although few analysts believe the industry was set for a return of last winter's deep discounts of more than US$7 a barrel under the price of light crude.
Heavy oil such as Lloydminster blend was recently fetching about US$4 a barrel below benchmark West Texas Intermediate crude in trade for October. That represented a US$2.75 a barrel improvement since May, when a host of producers were in the throes of shutting in production and postponing major heavy oil initiatives.
Today, the supply situation has tightened considerably and many traders and industry experts believe about 100,000 barrels a day of production is currently shut in as a corporate reaction to the erosion in returns.
But even with the reduced discounts, WTI prices, which hovered at not much more than US$13 a barrel all summer, meant heavy oil was still dirt cheap.
Recent moves by companies aiming to cut costs that are often higher than returns include PanCanadian Petroleum Ltd.'s plans to spin its smaller-reserve heavy oil production off into a wholly owned subsidiary and Gulf Canada Canada Resources Ltd.'s efforts to market some heavy crude properties after postponing indefinitely a planned initial public offering of its heavy oil division.
Other factors cited for the recent narrower spread include less Venezuelan and Mexican heavy crude available in the U.S. after this year's "Riyadh Pact" production cuts and IPL Energy Inc.'s upcoming need for 3.1 million barrels of Canadian oil as line fill for its new "Terrace" expansion pipeline into the Midwest market.
The better conditions have led some Canadian producers to take a few tentative steps toward boosting heavy output again. PanCanadian spokesman Alan Boras said his company planned to restart up to 2,500 barrels a day of lower-cost production over the next few months, representing about half of what is currently shut in.
Ranger Oil Ltd. , which earlier this year reduced its heavy oil production to about 15,000 barrels a day from 20,000, is also bringing more output back into service.
"With the improved differentials, we are starting up a few wells. I wouldn't say we're going to do much more than maintain our production levels," Ranger Vice President Mike Langley said. "We had been allowing our production to decline by not servicing wells, but now we're servicing wells."
One analyst with a Canadian brokerage said he believed the tide had turned for heavy production, saying now was the time to buy.
"I think that people will be scrambling for heavy oil all winter and differentials are likely to remain a lot narrower than what you might think," Scott Inglis of Calgary-based FirstEnergy Capital Corp. said.
Inglis said the demand for line fill on the new IPL pipeline, plus the increased access to U.S. markets after it comes into service in January, will play major roles keeping discounts low, even after autumn.
U.S. Spot Natural Gas Prices Dragged Lower By NYMEX
U.S. spot natural gas market erased yesterday's price gains on Wednesday as October futures retreated and cool, seasonal weather in much of the U.S. kept demand to a minimum, industry sources said.
The cash market at Henry Hub, La., shadowed futures today, with prices quoted widely at $2.13-2.25 per mmBtu and most business reported done at $2.17-2.19. NYMEX's October contract similarly traded at $2.11-2.25.
In the Midcontinent, swing prices dropped 11 cents to about $2.06, with Chicago city-gate pegged mostly in the low-$2.20s.
Western Texas prices also reacted to the softer futures market, with Permian Basin gas seen trading at $1.98-2.05 and San Juan gas prices quoted mostly near $1.90.
On the East Coast, New York swing prices also followed Gulf values lower to the high-$2.20s to mid-$2.40s as most area temperatures failed to break out of the 60s and 70s.
Warmer weather is forecast later this week, but temperature highs will still likely not lead to any air conditioning demand, sources said.
Meanwhile, most injection estimates for today's American Gas Association storage report were 60-70 bcf, versus a 73-bcf gain a year ago.
Also, the 1,250-megawatt South Texas 2 nuclear unit was preparing to reconnect to the electricity grid this morning following yesterday's unplanned outage.
Hurricane Georges as of 1400 EDT was 50 miles southeast of Guantanamo Bay, Cuba, moving west at 15 mph. A gradual turn to the west-northwest is anticipated over the next 24 hours.
Canada Spot Natural Gas weakens On NYMEX
Canadian spot natural gas prices fell back on Wednesday, tracking downward pressure on NYMEX and stable supply in Alberta, industry sources said.
Prices at Alberta's AECO storage hub were discussed at C$2.12/2.20 per gigajoule on the day, down an average 14 cents from Tuesday. The October contract was quoted at C$2.22 per GJ.
Prices are expected to trade in a similar range until the end of the month, when several plants will go down for scheduled maintenance, removing 300 million to 350 million cubic feet a day of processing capacity from the market, one Calgary-based marketer said.
Meanwhile, trade at Westcoast Energy Station 2 compressor saw prices fall to C$2.13/2.18 per GJ, off about 15 cents per GJ.
At the Sumas/Huntingdon export point, prices fell to US$1.57/1.58 per million British thermal units, erasing any gains made on Tuesday.
Kingsgate pricing was reported at US$1.58/1.63 per mmBtu, off about seven cents from Tuesday trade.
To the east, prices dropped to US$2.22/2.25 per mmBtu at the Niagara export point, down an average of 12 cents from yesterday.
U.S. ACCESS Energy Prices Ease On Profit Taking
Energy futures prices eased in after-hours trade on Wednesday, extending a bout of profit-taking that softened the daytime market, traders said.
By 1630 PDT on ACCESS, the after-hours session, November crude oil futures fell six cents a barrel to $15.75 on volume of 2,138 lots, with 1,091 lots changing hands for November contracts.
''It's a technical move down,'' an ACCESS trader said.
Crude oil prices earlier had stalled and fallen after matching contract highs. November crude oil ended at $15.81 a barrel, down three cents, on the New York Mercantile Exchange (NYMEX).
The drop was the result of an overbought market, traders said. Buying picked up late Tuesday and continued today after a report showed crude oil inventories down a sharp 9.1 million barrels to 316.8 million barrels last week.
With crude oil futures stalled late Wednesday, refined products also failed to make gains, traders said.
ACCESS unleaded gasoline tracked crude lower with the October contract price hitting 45.73 cents a gallon, off 0.23 cent a gallon from the NYMEX settlement
Volume hit 54 total lots, with 28 traded for October.
Heating oil futures fell 0.16 cent a gallon to 41.75 cents, with volume at 42 lots for all months.
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