AROUND THE KORNER WITH OIL & GAS PRICING
Firm oil rally must await Asia recovery-IEA
Weak oil prices will make lasting gains only when Asian economies recover and lift petroleum demand, the International Energy Agency said on Thursday.
Recent gains that countered a 30 percent price slump this year will likely prove temporary, the West's energy watchdog added in a gloomy edition of its Monthly Oil Market Report.
''A sustainable rise in oil prices is unlikely to occur until oil demand growth is reestablished in Asia,'' the report said.
''It has become increasingly clear that the economies of the Asian region have been far more badly affected by financial difficulties than expected.''
In recent years producers looked to Asia to drive world oil growth because energy consumption in its rapidly-developing ''tiger'' economies had increased faster than in any other region.
But the agency saw continuing major risks to developing world economies and therefore to the growth in their demand for oil following a year-old slump in Asian financial markets.
And even when Asian economic recovery was established, structural reforms could constrain oil consumption in the medium term and dampen the rate of recovery in oil demand, it said.
''The implications for oil demand (in Asia) have been far greater than anticipated a year ago,'' the IEA said.
World benchmark Brent crude was trading at $13.71 a barrel on Thursday, down more than $5 from last year's average but up more than $2 from 10-year lows touched earlier this year.
The IEA said Asian oil demand was expected to fall 210,000 barrels per day (bpd) or 1.1 percent this year to 19.627 million bpd. That is more than one million bpd down from IEA projections for Asian demand a year ago.
The agency also lowered its demand forecast for next year by 170,000 bpd to 20.08 million bpd, adding that this projection remained highly sensitive to downward revision.
Recent oil price gains were built on short-lived foundations that were likely to evaporate or be reversed shortly.
These included storms in the Gulf of Mexico, maintenance shutdowns at North Sea oilfields, civil disturbances that disrupted Nigerian loadings and strong U.S. gasoline markets.
Concerns about global deflation remained, and a move by investors into oil was likely to be a temporary adjustment by those moving away from equities and other financial assets.
In addition, higher than expected 98 percent compliance by the Organisation of the Petroleum Exporting Countries with agreed output cuts to support prices ''may or may not last.''
The IEA said OPEC cut output again in September to get within a whisker of agreed production cuts, but world oil supplies rose because non-OPEC nations pumped more.
Initial estimates were that crude supply from the 11-country producer club declined to 26.93 million barrels a day (bpd) in September, down 135,000 bpd on the month.
But world oil supplies in September were estimated to have risen by a net 380,000 bpd to 74.08 million, with non-OPEC pumping an extra 470,000 bpd after maintenance work in August.
Turning to stocks, the agency said world supply and demand in the third quarter were more closely matched.
''Tightening OPEC production controls, strong U.S. gasoline demand and a heavy North Sea maintenance season held supply to just 320,000 bpd more than world demand,'' it said.
The stock overhang had increasingly been concentrated in products rather than crude. Refinery run cuts in the fourth quarter were likely to mean crude stocks rising.
Assuming normal weather, a seasonal demand increase of 2.5-3.0 million bpd was projected, more than double the expected increase in supply. Industry stocks stood at 2.778 billion barrels at the end of August, 150 million above a year ago.
API Data Tempers Bullish Expectations
Some traders are concerned these markets are on the verge of erasing a bullish looking chart pattern. They warn that a close under the recent swing lows in November crude oil at $15.11, a move below 45.30 in November unleaded gasoline and a move through 41.15 in November heating oil could shift the tone of these markets.
Traders said that because the API numbers were basically in line with market expectations overall, the few negatives inside of the report could be a bearish influence in the near term because it raises questions whether supplies are actually coming down in response to this summer's oil producer output reductions. More important, traders said the report may indicate that OPEC and non-OPEC nations need to cut additional barrels of production.
But key oil producer Saudi Arabia has indicated that additional cuts would only encourage cheating by some producers if prices rise in response to new cuts. Traders said the odds of additional cuts seem remote for the moment.
The API reported crude oil stocks were down 3.924 million barrels to 319.1 million barrels after rising a larger than expected 6.273 million barrels to the prior week. This marks the seventh week out of the last eight weeks that crude oil supplies fell and now pushes the total stockpile of crude oil compared to a year ago to just a 10.9-million-barrel surplus. Four weeks ago there was a surplus of over 32 million barrels of crude oil compared to 1997 levels.
Traders were generally looking for crude oil stocks to fall 3 to 4 million barrels this past week.
Crude oil imports fell just over 2 million barrels this past week to 7.925 million barrels per day. But the real surprise was that refinery operations fell 7.5% to operate at just 88% this past week. That's the largest 1-week decline in operating rates since December 1989. Most were looking for a 1% to 2% drop in operations because of Hurricane Georges.
Traders said the fact that 3.7 million barrels of the draw on crude oil supplies came out of PADD 5 was a bearish influence with the Louisiana Offshore Oil Port (LOOP) closed four days last week. The LOOP feeds into PADD 3 and that region dropped by a scant 700,000 barrels, they noted. More important, with arbitrage with Europe wide open and ships lining up to unload crude, there could be a rapid expansion in oil stocks over the next several weeks.
Oil Cuts To Stay With $16-19 Brent - Venezuela
Current pledged cuts in world oil output of about three million barrels per day will be maintained for the whole of 1999 if the price of Brent crude oil climbs to $16-$19 per barrel, Venezuelan Energy and Mines Minister Erwin Arrieta said on Monday.
''We think that would be the level at which these cuts would be sustained, not additional ones, but those that have already been undertaken,'' Arrieta told journalists in the Miraflores presidential palace, in response to a question specifying the $16-$19 range for Brent crude oil.
It was Arrieta's first public appearance since he agreed with his Mexican and Saudi Arabian counterparts last Friday to recommend an extension of the worldwide output cuts to the end of 1999. The cuts had been due to expire at the end of June.
''In any case, the fundamental objective is not to go for more cuts, but to create conditions for more spaces in the market,'' Arrieta added.
Saudi Arabian Oil Minister Ali al-Naimi, in an interview published in a Saudi newspaper on Saturday, said members of the Organization of Petroleum Exporting Countries had two goals -- maintaining oil prices between $15 and $20 a barrel and extending their market share.
The three ministers met in Cancun, Mexico, against a backdrop of a recovery in oil prices from their summer lows, when Brent touched a low of $10.77 a barrel, its lowest real price since the early to mid-1970s.
World Oil Market Ignores Loss Of Nigerian Oil
Oil prices slumped on Wednesday as the market sent a message to producers that it had no fear of a supply crunch even with one fifth of OPEC producer Nigeria's crude oil output taken out by protesters.
November futures for world benchmark crude Brent blend settled 34 cents lower at $13.78 a barrel on London's International Petroleum Exchange while New York crude fell 44 cents to $15.06.
A series of attacks on oil companies late on Tuesday by Nigerian youths shut in 440,000 barrels per day (bpd) of crude oil from Nigeria, Africa's most prolific producer with output averaging two million bpd.
The disturbances led Italy's Agip to declare force majeure on the export of all 130,000 bpd of output of its Brass River crude.
Royal Dutch/Shell (quote from Yahoo! UK & Ireland: SHEL.L), the biggest operator in Nigeria, said 308,000 bpd of its gross production was shut in after youths forced the closure of 10 flowstations, gathering points for crude oil moving through the pipeline system. The impact on exports is not yet known.
A New York broker said that in a balanced to tight market, the news from Nigeria would have nudged prices higher. But the market's reaction on Wednesday showed supply was not a worry even after OPEC and non-OPEC producers pledged to remove three million bpd from the market so far this year.
''Producers do not realise that they are still overestimating the demand situation,'' the broker said. ''OPEC is complying with the cuts so it is not a question of credibility any more. There is 95 percent compliance and the market is not rallying.''
''The question is not of compliance but that the cut in production is not seen as sufficient by the market.''
OPEC heavyweights Saudi Arabia and Venezuela and non-OPEC producer Mexico orchestrated two rounds of cuts this year to rescue prices which had fallen to their lowest levels in a decade. Ten of OPEC's 11 members -- Iraq is excluded -- agreed to take on 2.6 million bpd of the total cut.
The three ministers met again in Cancun last week and appeared to rule out further output cuts by agreeing to push for an extension of the existing cuts.
''Unless we get a very cold winter or OPEC does something, the market will not rally,'' the broker said.
The market staged a modest recovery on Tuesday as traders covered positions in the belief that weekly U.S. stocks data this week would show a fall in crude oil stocks in the giant petrol-guzzling U.S. market .
The figures issued by the American Petroleum Institute (API) favoured the bears. They showed that Hurricane Georges did little to stem the flow of oil into the oil hub of the U.S. Gulf but caused a draw in West Coast inventories, which are discounted by the market anyway.
''The hurricane season is ending and the market is already weary of making all these adjustments in inventory levels,'' a New York trader said.
Closing NYMEX Energies - Sharp Losses, End Near Lows
Energy Futures posted sharp declines today, as the product markets led the complex lower--notably unleaded gasoline. Following early weakness, a renewed bout of selling pressure sent futures to fresh lows in late afternoon trade, leaving prices to settle near their lows.
No fresh fundamental news was seen behind the fres push to new lows, traders said. Instead, it was continuing disappointment over the recent American Petroleum Institute (API) and Department of Energy (DOE) figures.
Also, traders are beginning to price in expected increases in inventories over the next few weeks, as import levels are expected to rise from the North Sea.
Richard Redash, energy analyst at Prudential Securities, pointed to the recent inventory figures and said "both reports don't show much impact from Hurricane Georges." In the product categories, he noted "lackluster draws and a lot of people were expecting bullish numbers."
In the latest week, the DOE reported crude oil stocks up 2.7 million barrels, which contradicted the decline of almost 4 million barrels reported by the American Petroleum Institute (API) Tuesday afternoon. Traders noted that the API crude draw was largely West Coast- driven.
The DOE data for gasoline revealed a 400,000 barrel drop in stocks compared with the API's 1.8 million barrel drop. In the distillate category, API reported a 148,000 barrel draw, versus the DOE's 500,000 barrel draw.
Despite a large reduction in refinery action in the latest period, product inventory draws remained mild. API reported refinery operating capacity down 7.5% at 88% in the latest reporting period.
In other news, traders said the energy markets are "shrugging" off news of production problems in Nigeria due to protests. Shell and Ajip, the Italian state oil company, have reported reduced production in Nigeria.
Redash noted the production disruptions in Nigeria are "not much of an issue" for the crude and product markets currently. "Supplies do seem rather ample, so 400,000 to 500,000 barrels lost from Nigeria just seems to be a drop in the bucket," he said.
"It's not that tight of a market right now," he added.
On the charts, November crude oil futures are flirting with major psychological support at the $15.00 level, traders said. Sustained declines below there could reopen the door for a test of the $14.51 zone, the Sept. 15 low on the daily chart, one technician said. On the upside, resistance now lies at the $15.40/15.50 area.
November unleaded gasoline futures posted the heaviest losses today, touching an intraday low at 44.70. That low will act as support, with additional support at 44.15. On the upside, resistance lies at 46.00 and then 46.55.
November heating oil futures stalled just shy of filling an old gap on the pit-session-only chart today from Sept. 9-10. Support now lies at 40.60, the Sept. 9 low and gap bottom. Strong resistance near term lies at 42.50.
Ahead of the settlement, November crude oil futures were down 44 cents at $15.06, November heating oil was down 127 points at 41.10 cents and November unleaded gasoline was 187 points lower at 45.50 cents.
NYMEX Natural Gas Ends Up With Cash, ACCESS Slips On AGAs
NYMEX Hub natgas futures, helped by reports of firmer physical prices, ended up Wednesday in extremely light trade, then lost ground on ACCESS after slightly bearish weekly inventory data, industry sources said.
In the day session, November climbed 4.7 cents to close at $2.393 per million British thermal units after trading between $2.335 and $2.40. On ACCESS, November slipped to $2.34 shortly after the weekly AGA inventory report, then recovered to the $2.36-2.37 area by 1630 EDT. December settled 4.6 cents higher at $2.596. Other deferreds ended up one to 4.5 cents.
''It's (the AGA number) a little bigger than expected. Obviously, it's a little negative judging from the ACCESS reaction,'' said one East Coast trader.
AGA said Wednesday U.S. gas stocks rose last week by 41 bcf to 91 percent of capacity, just above Reuter poll estimates in the 30-40 bcf range. Overall stocks slipped to 268 bcf, or 10 percent, over a year ago.
Eastern inventories rose 27 bcf and were four percent above last year. Consuming region west storage, which climbed 12 bcf for the week, was up 14 percent from 1997 levels. Stocks in the producing region rose two bcf and stood 27 percent over year-ago.
While the year-on-year stock surplus has been steadily shrinking, possibly improving the winter outlook, traders said typically-soft October demand was likely to keep cash at a steep discount to paper and make any NYMEX rally difficult to sustain near-term.
In the news, Dynegy said its Venice plant in southeast Louisiana, shut more than a week ago by Hurricane Georges, was back in service, but its Yscloskey plant, also in Louisiana, remained down. Venice processes about 900 mmcfd. Traders said most of the 1.3 bcfd of gas that normally flows into Yscloskey had been rerouted.
Chevron also said about 30,000 bpd of crude and 200 mmcfd of gas remained shut in due to lingering problems from Georges.
WSC expects normal to slightly above normal temperatures through Sunday for the East and Midwest. Readings in Texas will range from near normal to six degrees F above normal for the period. The mercury in the Southwest should remain several degrees below normal through Sunday.
The NWS six- to- 10-day forecast released late Wednesday calls for normal or below normal temperatures for the eastern two thirds of the nation, while readings in the West are expected to range from normal to above normal.
While chart traders said November broke $2.35 support yesterday, they noted prices rebounded today, leaving the market stuck in a technical range. Next support was pegged at the $2.27 double bottom, with further buying expected in the $2.22-2.23 area and then around $2.10. Interim resistance was seen at last week's high of $2.53, and then at the recent $2.57 and $2.605 highs.
In the cash Wednesday, Gulf Coast quotes firmed two cents to about the $2.00 level. Midwest pipes were up about a nickel to the low-to-mid $1.90s. Gas at the Chicago city gate was up three cents to near the $2.10 level, while New York was several cents higher in the low-to-mid $2.20s despite mild weather and little demand in the region. In the West, El Paso Permian climbed more than a nickel to the mid-to-high $1.80s.
The NYMEX 12-month Henry Hub strip gained 3.6 cents to $2.325. NYMEX said an estimated 31,412 Hub contracts traded today, down from Tuesday's revised tally of 40,497.
US Spot Natural Gas Recovers With NYMEX, Heating Demand
U.S. spot natural gas prices recovered slightly Wednesday as some heating demand surfaced and the natural gas futures market stabilized, industry sources said.
Dynegy said its 900 million cubic feet per day (mmcfd) Venice, La., gas-processing plant, shut more than a week ago by Hurricane Georges, was back in service.
The 1.3 billion cubic feet per day (bcfd) Yscloskey plant was still closed, but most of the gas has been re-routed. It is expected to be back by the end of this week.
Swing gas prices at Henry Hub rose to $2.02-2.07 per mmBtu, up about four cents from Tuesday.
Midcontinent pipes scored slightly larger gains, with deals reported done around $1.92-1.94.
Quotes at the Chicago city gate were also higher near $2.10, compared with about $2.05-2.06 on Tuesday.
In west Texas, El Paso Permian jumped seven cents to the mid-$1.80s, while the San Juan market climbed to about $1.74-1.78. Prices at the Southern California border similarly rose to $2.08-2.10.
On the East Coast, New York city gate prices edged up into the low-to-mid $2.20s, while Appalachian quotes were heard at $2.20-2.24.
Meanwhile, estimates for today's American Gas Association storage report were mostly injections of 30-40 bcfd, according to a Reuters poll. This contrasts to an 87 bcf gain a year ago.
Canadian Spot Gas Prices Up On supply Shortfall
Canadian spot natural gas prices traded up slightly in light volumes on Wednesday amid supply constraints and a moderate increase in NYMEX
pricing, industry sources said.
''Things are really slow today, but field receipts are down, so that's keeping the day market up,'' one Calgary-based marketer said.
Markets were also sluggish in anticipation of the upcoming Canadian Thanksgiving long weekend, traders said.
Day prices at Alberta's AECO storage hub were quoted at C$2.26/2.30 per gigajoule, about five cents higher than Tuesday trade. The November contract was discussed at C$2.62 per GJ.
At Westcoast Energy's Station 2 compressor, prices crept up by three cents to C$2.27/2.29 per GJ.
Prices at export points were more volatile, with trade at Sumas / Huntingdon ranging from as low as US$1.60 per million British thermal units early to as high as US$1.78 per mmBtu later in the day. Overall, pricing settled in at US$1.65/1.70 per mmBtu, about 10 cents higher than Tuesday.
Kingsgate was talked at US$1.66/1.71 per mmBtu, up about eight cents on the day.
To the east, trade at Emerson was flat at US$1.74 per mmBtu and up slightly at the Niagara export point, to US$2.12/2.17 per mmBtu.
NYMEX Natural Gas Comments - Firm Wednesday Close May Be Reversed Thursday
NYMEX Natural gas futures finished making new daily highs here this afternoon, but most of those gains have already been erased on ACCESS in response to the weekly American Gas Association (AGA) Report.
As expected, there was just a minimal injection of gas in the major producing regions this past week, according to the weekly AGA data. Total injections this past week were 41 billion cubic feet (bcf). This was at the top end of trade forecasts that slipped lower as the week progressed.
At the start of the week, trade was talking mostly about a 35 bcf to 60 bcf refill. But by today, most traders were looking for something between 20 bcf to 40 bcf in new injections. Some were calling for a draw on stocks this past week because of the shut-ins caused by Hurricane George last week.
"I'd have to call this report neutral to bearish," one broker said, adding that the injection rate was at the top end of estimates and there still remains "ample supplies in storage."
Total stocks of gas were estimated at 2,911 bcf, or 91.2% of estimated capacity. The average working gas in storage the last four years for this week is 2,752 bcf. A year ago, stocks rose 87 bcf to total 2,643 bcf.
While the surplus compared to a year ago continues to contract, some brokers said the market remains well supplied. Gas stocks appear poised to eventually reach up over 3,000 bcf this season, likely falling just short of the record pre-heating season stocks level of 3,099 reached in November 1994.
Traders said the onerous may be more on the bears than the bulls Thursday after this afternoon's AGA report. That's because the market has carved out a solid base of support in the $2.270 to $2.350 range, basis November, over the last two weeks.
"I'm a little surprised they didn't hit the market harder this afternoon," one broker said. But he emphasized that the market may simply wait to test the key double bottom support at $2.270 in November until Thursday's pit trading session.
After gaining 4.7 cents during today's pit trading session to close at $2.393, November futures are currently trading at $2.345 on ACCESS after hitting a low of $2.340 this afternoon.
Cash prices were mixed today, traders said. But most pipelines were generally firmer just in case there was a surprise withdrawal on stocks this past week.
One cash trader said the premium futures continue to trade to cash makes him nervous about the next trend in futures. He said a move below $2.270 is likely to illicit a drive by November futures back down to the $2.000 to $2.050 support zone.
He noted that weather remains a non factor for the market. Current loads are subdued but traders are hesitant to be short bought going into the heating season after the last couple of weeks of very strong cold fronts moving down out of Canada.
The market continues a major tug of war between the bearish fundamental traders and the more bullish technical traders looking for fresh seasonal buying to develop, traders and analysts said.
Trading is likely to be choppy the remainder of the week until traders see how the market finishes the week from a technical perspective. But traders said the widely differing opinions about market direction should keep prices rather choppy.
Last Night
U.S ACCESS Prices Eased On Increased Sales
U.S. energy futures prices eased late Wednesday on increased selling in the after-hours market, traders said.
Prices on ACCESS, the overnight energy market, slipped after gasoline, crude oil, and heating oil futures dropped below certain key price levels in the daytime session.
November crude oil futures in New York oil slipped 44 cents a barrel to settle at $15.06 a barrel Wednesday, just below $15.10, a milestone for traders who follow price charts.
On ACCESS, November crude oil prices slipped another 9 cents a barrel to $14.97 amid volume of 1,841 lots.
By 1700 PDT,ACCESS trade was moderately busy, with crude November volume at 887.
November unleaded gasoline was 45.15 cents a gallon on ACCESS, down 0.21 cent.
Total volume reached a heavy 62 lots exchanged for all months, and 44 for November. Earlier, unleaded for November slid 2.01 cents a gallon to 45.36 cents.
Heating oil for November shed 0.14 cent a gallon to 40.80 cents on ACCESS, after falling 1.43 cent in the NYMEX session.
Total heating oil volume was 183 lots in after-hours business.
This Morning
Brent Climbing But Is In Short Term Downtrend
Brent Crude has regained some of Wednesday's losses this morning at the IPE, but is still trading below the important 20-day moving average of $14.05, which puts it in downward channel, analysts reported today.
The front month contract opened 7 cents down this morning at $13.71 after shedding 34 cents on the day Wednesday. It has so far traded between $13.69 and $13.79 and is currently changing hands at $13.77.
Analysts at GNI Research put support for the November contract at $13.45 and $13.60 with resistance at $14.05.
Traders on the IPE floor reported the volume of trade to be light with sentiment slightly bearish on the back of Wednesday's Department of Energy (DOE) statistics.
These figures showed a rise in crude stocks of 2.9 million barrels according to a Prudential Securities report.
"The DOE data was clearly influential and certainly a concern for the bulls as crude stocks actually rose," said Leslie Nicholas, analyst at GNI Research.
He added: "The market has virtually ignored the news that civil unrest had shut in 300,000 barrels per day of Nigerian production, largely because exports are not yet affected."
NYMEX Hub Natural Gas Called Lower After Weaker ACCESS
NYMEX Hub natgas futures were expected to open lower Thursday as typical shoulder month fundamentals continued to weigh on the market and storage remained ample for the upcoming winter, industry sources said.
November over-the-counter trade ranged from $2.325 to $2.335 per mmBtu this morning after settling Wednesday at $2.393 and easing to a low of $2.333 on ACCESS.
Early cash prices at Henry Hub were quoted at $2.03 per mmBtu, compared with yesterday's trading at $2.02-2.07.
''People are still reluctant to sell winter,'' one trader said, noting this was providing support for the market.
Traders were now looking at the $2.27 double bottom at next support, with further support seen at $2.195. Resistance was pegged near $2.40, and then at last week's high of $2.53 and $2.57.
AGA said U.S. gas stocks rose last week by 41 bcf to 91 percent of capacity, pushing the year-ago surplus to 268 bcf, or 10 percent.
Eastern inventories rose 27 bcf and were four percent above last year. Consuming region west storage, which climbed 12 bcf for the week, was up 14 percent from 1997 levels. Stocks in the producing region rose two bcf and stood 27 percent over year-ago.
Next week's forecast shows below-normal temperatures across most of the eastern half of the U.S., excluding the northern Great Lakes states and the upper Northeast but including eastern and southern Texas. Warmer-than-normal weather is expected to cover the West, while the mid-section is forecast to see mostly normal weather.
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