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Gold/Mining/Energy : KERM'S KORNER -- Ignore unavailable to you. Want to Upgrade?

To: Kerm Yerman who wrote (12879)	10/18/1998 4:07:00 PM
From: Kerm Yerman	Read Replies (2) \| Respond to of 15196

MISC INVESTMENT INFORMATION PART 1 - SUNDAY 10/18/98 How important to buy at the bottom? The bear has taken down a lot of good stocks. But before you snap them up, look at the effect price and timing have on projected returns for Dell, Johnson & Johnson and Exxon By Jim Jubak - Microsoft Investor Dell Computer (DELL) sure looks appetizing. At $52.50 a share, the stock's price on Oct. 13, Dell was down about 30% from its high of $69 a share on Sept. 28. But wait a minute. I can think of plenty of stocks that looked cheap when they were down 30% a few weeks ago -- and that look even cheaper today. Merrill Lynch (MER), for example, looked like a screaming buy when it was at $75 a share, down from $109. Remember? But the stock just kept on falling. Right now it trades at about $48 a share, almost 60% below its high. And that's after a rally off its low of $35.75. Buying on the dip used to be easy. You plunked down your money the day after a 500-point drop in the Dow Industrials and a week later you were in the black. But this time it's different. Investors who have snapped up stocks on a dip have seen shares dip even lower. The market hasn't bounced off a bottom -- it's not even clear that the market has made a bottom. Even after Thursday's rally, I'd argue we're still stuck in a trading range at the moment. There's enough bad news ahead that it could send the market down below recent lows. And we can't tell how far off the upturn is. But even knowing all that, I still find myself tempted. Some stocks that I've wanted to own for the last two or three years suddenly look very affordable. So instead of either making a trade I might regret or just fretting about passing up these prices, I decided to take a look at exactly how much it matters to catch the absolute bottom for a stock. Does overpaying by 10% or more doom me to mediocre returns forever? Does being anywhere from six months to a year early insure that I'll never match the returns on 30-year Treasury bonds? And I got a bonus for my work. Not only did I discover the answers to these questions, I learned I wasn't even asking the most important question of all in this market. Charting the different scenarios My study was pretty simple. I picked three stocks: A fast-growing, volatile stock, Dell; a solid growth stock that is about as volatile as the market as a whole, Johnson & Johnson (JNJ); and a solid performer that is less volatile than the market as a whole, Exxon (XON). (I used beta, a measure that compares a stock's volatility to that of the market as a whole, to pick. Dell has a beta of 1.6. That means it's about 60% more volatile than the market as a whole. Johnson & Johnson has a beta of 1. Exxon's beta is 0.7. Then I built 24 different scenarios for each of the three stocks using Excel. I based my first set of 12 scenarios for each stock on its historical rate of appreciation during the last five years -- that's 69.47% annually for Dell, 23.08% annually for Johnson & Johnson, and 19.08% annually for Exxon. In Scenario 1, I assumed that the stock would climb from the current price at the historical rate for the next five years. Needless to say, those base cases were all pretty rosy. An investment in Dell, for example, under these conditions would grow by a cumulative 1,298% over five years, from $52.50 a share to nearly $734 a share. Johnson & Johnson would appreciate 182%, to $219 a share from $77.50, and Exxon 139% to $175 a share from $73. Then I built scenarios that got progressively nastier. First, I asked what would happen if, instead of hitting the bottom, the stock fell another 10%, 20% or 30% before starting to appreciate. Then I asked to see the results if you got the price right, but the stock stagnated for a year or two years. And then, worst of all, I combined a continued decline of 10% to 30% with stagnation for either one or two years. Of course, all those scenarios assumed that the future would mirror the past, in that stock returns would continue to far outstrip the long-term historical returns from owning equities. So I next rebuilt all these 12 scenarios for each stock with a lower rate of appreciation. I assumed that prices in the overall market would appreciate at about 10.6% a year -- roughly the long-term rate of appreciation for large-company stocks since 1926, according to Ibbotson Associates. Then I used the betas for each stock to calculate a new rate of appreciation for my three sample stocks. That gave me 16.96% annually for Dell, 10.6% (the market rate) for Johnson & Johnson, and 7.42% for Exxon. (Please don't read these, or the historical numbers I used above, as predictions for specific stocks. I'm not making predictions here.) I plugged those lower rates of appreciation into each of my 12 scenarios. Finally, I calculated a rough benchmark by assuming that I would be able to get 5% a year in interest and appreciation if I bought long-term Treasury bonds. That gave me a kind of minimal risk appreciation of 27.6% over five years to use as a comparison to my stock scenarios. The results? As you might have guessed, if a 69.47% growth rate continues to be the norm for Dell, it really doesn't matter how badly you misjudge the bottom. Buy Dell and have it fall another 30%, and the five-year appreciation sinks to a meager 678%. Profiting from Dell is timing issue Your profit in Dell is much more sensitive to time -- hitting the entry price right, but having the stock stagnate for two years before the historical appreciation kicks in drives the five-year gain down to 386.7%. At worst, however, you simply can't do badly in Dell as long as this rate of appreciation holds up. If the stock falls another 30% from your purchase price and doesn't move up for two years, you'd still more than triple your money over five years. For Johnson & Johnson, the stock in the middle, price and timing work out to be about equally important. Buy 30% too high or two years too early, and the five-year gains -- 79.2% and 86.5%, respectively -- are about the same. And again, as long as the historical rate of appreciation holds up, you simply can't lose with Johnson & Johnson. Even buying 30% too high and two years too early still produces a gain of 30.5%, better than the 27.6% from bonds. Exxon, the stock with the lowest rate of appreciation historically, is the mirror image of Dell. The investor who overpays for Exxon suffers more than does the investor who is too early. Returns in the two cases are 54.2% and 68.9% respectively. And you can actually do worse in Exxon than in the benchmark bond scenario. If you buy 30% too high and two years too early, the five-year gain is just 18.2%. From this half of my study, I've reached a couple of conclusions. First, stock selection is more important than calling the bottom in price or time. These scenarios do so well because I picked stocks with solid or superlative rates of appreciation. If you get the stock right, timing and price matter relatively little. And second, timing and price matter less for higher-growth stocks. You could have bought at the worst possible time and you still would have made a lot of money over the last five years. Bull markets that produce gains about twice the historical average are mighty forgiving of mistakes in when you buy. When the market is less forgiving It's a very different story if you assume that rates of appreciation are going to be closer to the historical mean for the next five years. (Please note that I'm still talking about very solid positive returns.) The market is clearly far less forgiving of mistakes when prices are advancing more modestly. For example, at this rate of appreciation, if you buy Dell at the current price and it tumbles another 30% before recovering, the gain over five years dips to just 42%. If you over pay by 30% and the stock stagnates for a year, the five-year gain is just 31%. If you buy 30% too high and the stock stagnates for two years, the five-year gain is just 12% -- way below my Treasury benchmark. Johnson & Johnson dips below the Treasury benchmark even if you make a much smaller mistake. Overpay by 20% and see the stock only sluggishly recover for the first year, and your five-year gain falls to 26.1%. In the worst-case scenario -- pay 30% too much and see no appreciation for the first two years -- and you actually wind up with a 5.3% loss over the five years. And Exxon, as you'd expect, dips into negative territory much more quickly. Pay 30% too much and see no growth for a year and you're already looking at a five-year loss of 6.8%, for example. Don't leap to the conclusion that this makes Dell the superior investment, however. Some of the worst scenarios for low-beta Exxon, for example, are extremely unlikely -- a stock that's less volatile than the market as a whole isn't likely to fall 30% from its current price. Will the future resemble the past? To compare these outcomes, I think you have to discard the extremely unlikely scenarios for each stock and concentrate on the possible worst-case scenarios. For example, I can see a 30% fall from current prices for Dell and a one-year period of stagnation in price if the PC market continues to show anemic growth. So for Dell, a realistic worst case to worry about would be a five-year gain of 31%. For Exxon, I could see a further 10% decline from the current price and a two-year stagnation if oil demand stays depressed. That gives me a realistic worst-case five-year gain of 11.6%. But the most important conclusion I've drawn from all these case studies is that purchase price and timing aren't the most important things to worry about. The real question is: To what degree will the future resemble the past? If we're looking at a resumption of the gains of the last five years after this economic mess has worked itself out, then timing and pricing aren't terribly important. But if you think that the world economy will grow more slowly even after the current crisis passes, and that the amazing returns on capital of the last five years will come back to earth, you need to buy carefully. That's only when you see evidence that a stock has formed a price bottom and that sales are headed back up. Frankly, I think the latter outlook is more likely. So be careful out there. Interviews These stocks are down, but not out. While others see gloom, contrarian value investor Elaine Hahn is happily pursuing discounted stocks like Union Pacific and Jacobs Engineering By Eneida Guzman Benjamin Graham and David Dodd, the legendary value investors, left Wall Street an investment legacy that may be perfect for the current market environment. Contrarian value investing -- buying solid but unloved businesses that are trading at marked-down prices -- is giving its disciples an opportunity not seen since the early '90s. Elaine Hahn, founder and president of San Francisco-based Hahn Capital Management, is one practitioner. She uses the $65 million her firm manages for high net-worth investors (minimum account balance: $500,000) to buy out-of-favor companies that have improving fundamentals and catalysts in place that can move stock prices higher. Her favorite indicator is pretax cash flow -- the amount of money a company takes to the bank. "A company's real value can be found above the bottom line, and pretax cash flow is the purest way of determining that," Hahn says. Amidst a lot of gloom in the market, Investor found contrarian Hahn excited about the opportunities at hand. Picking stocks in this market must be like trying to catch a falling knife. Tell us about your approach. Our investment philosophy is driven by a value contrarian orientation. In other words, we like to look for companies that have depressed valuations relative to the market, to their peers and to the industry that they're in. But we're not just looking for cheap stocks. We're looking for stocks that have something intrinsic that reflects the future value of that company's assets. So what we try to do is look beyond fundamental earnings and identify the specific intrinsic value characteristics of the company. That might be assets on the balance sheet or it might even be the value that the company might represent to a buyer. Once we've found companies that meet our valuation criteria, we try to identify catalysts that we call "value creators," which are going to ultimately improve the depressed valuations as well as the investor psychology that may be keeping the stock at those low levels. What's a 'Value Creator'? What would be some of these 'value creators' that you're looking for? They include things like the restructuring of a company, changes in the management team, industry consolidation, new legislation that might stimulate revenues -- that sort of thing. As contrarians, we tend to step in when we sense either that the consensus is misguided or that a sell-off is overdone. Stocks tend to move in groups, so you typically get kind of an extension of whatever the consensus is. Ultimately, what we're trying to figure out is whether or not a sell-off or depressed valuation is really justified given the fundamentals of the industry or the company. The Dow has been off as much as about 1,900 points from its high this year. Is this sell-off exaggerated or justified? It's justified in some areas and exaggerated in others. Realistically, at the peak of the market back in July, most stocks in most sectors were excessively valued relative to forward earnings and cash flows. That sort of excessive valuation needed to be addressed and corrected. At that point, the bull market was extended way beyond the historical valuations seen in 1987 and 1973. At the peak of the market on July 17, the S&P 500 index price/earnings multiple was about 30. S&P earnings in 1998 were projected to grow at 6% over 1997's earnings. So you had a 30 multiple vs. a 6% growth rate -- effectively five times what you should be paying for that growth. Never before in our market history has the P/E to growth rate been that high. It seems ludicrous that you would expect investors to pay 500% more for a company's earnings than those earnings are really worth. So that said to us something here is way out of whack. There were sectors and industries that clearly were not particularly overvalued. That was certainly true in the small and mid-cap sector. Especially in mid-caps, we saw continuing solid earnings growth. We continue to see very sound fundamentals in the area, but the broad sell-off literally took the baby out with the bath water. You believe that a company's real values are most often found above the bottom line in their pretax operating cash flow. What specifically are you looking for there? Our definition of pretax cash flow is earnings before interest, taxes, depreciation and amortization, or EBITDA. I specifically look for the amount of money the companies are taking to the bank, and that's pretax operating cash flow as opposed to earnings per share or net income, which will often include charges and other non-cash accounting earnings. Another ratio that we use is return on capital investment. If you build a plant that's state-of-the-art, and it replaces an older plant, normally the new plant will generate a higher return on its investment than the one that it displaced. Here we're looking for constant, improving profitability of the assets which translate into growing cash flow -- cash flow being the net result of whatever is produced from those assets. On track for profits Ultimately, your goal is to find companies that are trading at a discount to their private market value. Given the market's dramatic sell-off over the past three months, are there some names that are getting your attention? Yes, there are. In our entire universe of stocks, the favorite is Union Pacific (UNP). They are the largest railroad company in the country. Since acquiring Southern Pacific, they now have about 36,000 miles of track. The industry has gone through a lot of consolidation. The leading players have merged with each other over the years to take advantage of geographic synergies. The mergers were also designed to make the industry more efficient. That was the expectation. The reality was that they underestimated the complexity of combining large rail systems. That was Union Pacific's mistake, as well. Somewhere in midsummer, the Surface Transportation Board, a division of the Department of Transportation, stepped in and required the company to give up some of its business to other carriers in order to get the traffic moving again. That set the stage for Union Pacific to recognize that it needed to go through a restructuring of its own. They've recently gone through decentralization where they have created three regions with three separate operating systems and three separate teams of managers to basically work within their region to improve operations and serve customer needs. Union Pacific's stock has suffered some disappointing setbacks this year. Is there light at the end of the tunnel? We think the company is well on its way to getting back on track. No pun intended. They've added 282 new locomotives; they've added another 4,500 workers because they were enormously understaffed. We've spent a lot of time talking with the management of the company. Rather than rely on Wall Street research, that's one way we try to get our arms around a company. What is management saying? Traffic levels are up and car loadings are rising. And although the company is not expected to end the year with positive earnings, they are poised to earn $2.35 a share in 1999. The company has an enterprise value of $75 a share. And a few analysts have recently raised their rating on the stock to "buy" from "hold." Any other picks with solid 'value creators' in place? We also like Jacobs Engineering (JEC). It's a small engineering and construction firm. They specialize in constructing on a cost-plus basis as opposed to a fixed-cost basis, meaning that they're able to keep their costs as low as possible; and if those costs go up, they pass them through to their customers. They primarily build manufacturing facilities for pharmaceutical, biotechnology and environmental remediation customers. The key here is the particular niche that they have, working on a continuing basis with existing customers and keeping a fairly well-defined business strategy that focuses on the U.S. market. They've been able to limit their exposure in the foreign area, unlike some of the other, bigger players such as Fluor (FLR) and Foster Wheeler (FWC). The company has historically grown at 13% a year and it trades at 13 times earnings. Where is the value? In the past year the company's sales have increased at a 19% annualized rate. Earnings and return on equity have increased 16% and 15% respectively. Their fiscal year just ended Sept. 30, and we think earnings will come in at $2.08, and next year we expect them to hit $2.36. Another reason we're attracted to the stock is because it is under-followed. Few analysts track the company. What's the catalyst that will get the stock to trade higher? Jacobs is in an industry that will continue to consolidate over the next few years in order to achieve greater efficiency. We believe Jacobs will be an attractive acquisition candidate to a larger player because of its niche in specific markets and its efficient cost structure. An energy sector fan I hear you like the energy business these days -- the ultimate contrarian play. Why? The prices of oil and gas have come down quite substantially over the last several months and we haven't yet seen a recovery from the lost business precipitated by a drop in crude and gas prices in the last few years. But as we look ahead over the next couple of years, we see a substantial contraction in supply and a resumption of the growth of demand worldwide as the Asian countries begin to pull out of their recessions. So the overall price of crude will begin to rise. It's likely that it has already bottomed out. Crude oil went to about $11 and it's now up to about $15.50. We see it getting to about $18. Which stocks do you like in that sector? The two stocks that we own in this sector are both oil service companies. The first is Weatherford International (WFT). The other is Halliburton (HAL). Both have recently merged with other companies in their business, so they clearly have value creators in place to help them achieve certain economies of scale by combining businesses in similar areas. Weatherford is trading at six times cash flow and nine times 1999 earnings estimates. That represents the lowest cash flow and P/E multiples for the company since 1992. Halliburton is also trading at historically low cash flow and P/E multiples. So they are both very compelling from a valuation standpoint and we continue to add to our positions in both stocks. We'll take one more. Another group that's sold off even though many of the sector's fundamentals are quite good is the real estate investment trust group. One of the companies we think is really outstanding in this area is Chelsea GCA Realty (CCG). It is the largest developer of upscale factory-outlet shopping malls in the country. They build these facilities in areas that get a lot of tourist traffic. The company is now paying a dividend yield from cash flow of 8.2% and, is also growing earnings by about 12% annually. So if you were to assume that you'd get somewhere in the range of a 10% to 15% price appreciation and you added in that 8.2% of dividends, you'd have a 20% total return, with very stable earnings growth. A stock like this is interesting to people who want more stability and dividend income in their portfolio. In anticipation of a global recession, you focused on domesticating your portfolio this year. Has that helped your performance? In the beginning of the year, as we began to see foreign markets -- and the emerging markets in particular -- deteriorate, we began to look at our portfolio and figure out if we could increase the domestic orientation. That in and of itself has contributed enormously to the stability and consistency of our returns for the past three quarters, and we think that has been a good strategy to employ as the market continued to worry about foreign sales, particularly with respect to the multinationals. So if you look at the companies we've given you as names, the common denominator is that their businesses are almost entirely domestic. We think that's one of the reasons why the profitability of these companies will hold up going forward. Opportunity for value investors As a contrarian value investor, your outlook is quite hopeful for the overall market at this point. But consensus views are proving you wrong so far. I think that we are now seeing some of the best opportunities as value investors that we have seen, probably, in the last two to three years. Even though we expect that profits will continue to be under pressure, when we are looking for real intrinsic value we try to look at other variables that tell us if a company is undervalued. A telling sign about valuations in the market today is the fact that so many companies have been sold with little regard to their underlying intrinsic values. As we look at the companies' operating cash flows, we can often determine if the market is pricing those cash flows on a multiple basis correctly. How do you determine that? One way is by looking at historical multiples of cash flow for the industry as a whole and for the company. It's much better to look at the company's profitability today relative to its profitability in prior periods of prosperity than it is to look at the company's prosperity relative to the market as a whole. If we see substantial difference between the current price and the ratios that we are looking at comparatively and historically, we can often identify great investment opportunities. And that's what we're finding today. One company that we like as it relates to historical cash flow and comparative multiples is the timber company Rayonier (RYN). It's only trading at 6.1 times cash flow, which is 60% of the industry average. And the company's EBITDA margin is now 23% compared with its historical average of 19%. That is a significant improvement. For investors who are discouraged and unsettled by the degree to which stock prices have dropped, it's helpful to know, or at least interesting to know, that this kind of environment presents them with an opportunity to find hidden treasures in the market. Only they have to do a little homework to look for them rather than listen to the market strategists tell you whether we're going up or down. Are you saying that the market going forward will discount earnings momentum and reward stock pickers? It's going to be a value investor's market, more so than a growth investor's market. Many companies today have seen a drop in their earnings per share but not a drop in their operating cash flows. Basically, that says that the fundamental businesses are in very good shape, and they're able to offset some of the decline in sales that they may be experiencing as a function of lower economic growth with changes in their operating expenses. So you have to get into the financial analysis of businesses in order to know whether or not a company is undervalued. It seems you are not too concerned with the impact of the domestic political situation on our equity markets. If you're talking about Clinton and the probability of an impeachment proceeding, I think that if it has any impact at all it will be a very temporary one, and again probably represent an opportunity to buy if the market were to sell off. I don't think that it has a structural impact on corporate profitability, and ultimately that's what you're buying. You're buying a piece of a business, not a piece of a political system. Learn more about Elaine Hahn on the Hahn Capital Management Web site. hahncap.com

To: Kerm Yerman who wrote (12879)	10/20/1998 12:09:00 PM
From: Kerm Yerman	Read Replies (4) \| Respond to of 15196

OIL AND NATURAL GAS PRICING SCENE - PART 1 TUESDAY AM 10/20/98 10/19 16:45 FOCUS-Oil plunges despite Nigeria strife LONDON, Oct 19 - Oil prices plunged on Monday, wiping out recent gains despite continued strife and disruption in the key oil producing region of Nigeria. London Brent crude oil futures for December loading reversed earlier gains on Monday to settle 74 cents lower at $12.39 a barrel. "It's been a bit of a washout today. We've seen almost a $1 move down since this morning. New York's been leading most of the time...The (investment) funds selling reversed the picture," said one trader on London's International Petroleum Exchange. December Brent's 23 cent gain earlier on Monday, which came atop a 12 cent rise on Friday, provided a brief reprieve from a price slide which has depressed crude for most of this year. The upward move was supported by disruptions in Nigeria, where ethnic Ijaw youths have stopped the flow of around one third of oil exports of more than two million barrels per day (bpd) to back demands for a greater political say for the country's fourth-largest ethnic group and more amenities for their communities. Some output was restored in Nigeria on Monday when Italy's Agip said its Brass River oil terminal had resumed operations, releasing 130,000 barrels per day in exports which had been shut in for two weeks by Ijaw protestors. Further output run by Shell and Chevron remained affected. Also, at the weekend at least 500 people died in an inferno which engulfed hundreds of people scavenging for petrol from a burst pipeline in the south of the country. Officials of state-run marketing company PPMC, which fed petrol from the refinery in Warri through the pipeline to the northern city of Kaduna, have blamed the disaster on sabotage. Reports of sabotage have been growing since oil-producing Nigeria fell into the grip of frequent fuel shortages with the failure of its poorly maintained refineries to meet demand. Bullishness over Nigeria's mishaps were quickly wiped out in the afternoon. Selling began soon after crude oil futures on the New York Mercantile Exchange (NYMEX) opened amid reports that maintenance at Tosco Corp's Bayway refinery in New Jersey had been completed ahead of schedule and it had returned as a seller. Bears also sold off more oil on some reports that Venezuela may not extend an oil output cut beyond June 1999. Venezuelan Energy and Mines Minister Erwin Arrieta said he was in principle against cutting production because of his growth policy, but that the oversupplied market had required short-term action. The market appeared to interpret his remarks as meaning Venezuela would not want the current agreement to cut global production to go beyond mid-1999, traders said. A producer/consumer summit in Cape Town, South Africa, at the end of October has become the immediate focus for market speculation. While three million barrels per day (bpd) of producer cuts this year have helped reduce a vast stockpile, analysts say the threat of worldwide economic slowdown means more sacrifices may be needed. Some envisioned a scenario in which the current wave of global economic turmoil deflates oil demand and delays price recovery until 2000. "Since there is still a great deal of uncertainty over the health of the world economy in 1999, it is possible that oil demand growth will be no stronger than the one percent expected for 1998," said the latest Monthly Oil Report by London based thinktank Centre for Global Energy Studies. "This would seriously undermine any hopes of an improvement in oil prices next year and would require further output cuts to prevent prices from falling below this year's levels," the report said. 10/19 16:46 Canadian oil price spreads tight on pipeline fears CALGARY, Oct 19 - Nervousness among refiners over the rate at which a Canadian pipeline expansion will complete its line fill and shut-in production volumes kept discounts narrow for November trade in Canadian crude, industry sources said on Monday. The Canadian industry has been waiting for a clear indication from Enbridge Pipelines Inc. -- formerly Interprovincial Pipe Line Inc. -- of how quickly it will fill its 95,000 barrel-a-day expansion of the first phase of the "Terrace Project," which will ultimately add 170,000 barrels a day of capacity to its export pipeline system, marketers said. Given that Canadian heavy oil supply remains tight due to an estimated 100,000 barrels a day of productive capacity that has been shut-in as producers wait out the slump in world oil prices, the 3.1 million barrels of heavy, sour crude required by Terrace for line fill is keeping demand unusually high, marketers said. "I think Terrace put a lot of fear into folks in terms of holding on to volume, and dampened interest in getting out of crude inventories this time of year," the marketer said. But with indications the expansion capacity will be filled over several months, the issue is expected to fade, suggesting Canadian crude discounts will widen prior to the end of 1998, marketers said. The lack of supply is expected to make November the fourth consecutive month free of pipeline space restrictions for volumes being shipped to the U.S. midwest. Light sweet crudes at Edmonton were assessed at US$0.75-US$1.00 a barrel under WTI, slightly wider than October trade. Light sour blends were talked at US$1.00-US$1.25 under, about the same as last month. In the heavier grades, Bow River Blend tightened about 25 cents from October to US$3.00-US$3.50 a barrel under WTI, while Lloydminster Blend garnered US$4.00-US$4.25 under, widening by about 25 cents on the month. Shipper nominations for November pipeline space on Enbridge Inc.'s <ENB.TO> system were due for submission by 0700 Mountain time (0900 Eastern time) on Tuesday, October 20. 10/19 16:58 NYMEX oil, products slump at close on tech sales NEW YORK, Oct 19 - Crude oil and refined product futures slumped on the New York Mercantile Exchange on Monday, settling sharply lower on a big technical selloff that left market players scratching their heads over its severity, traders said. "Today's market fall was amazing; it was very unanticipated," said a NYMEX floor trader, who, like most of his colleagues, pinned the blame on technical factors, but noted a widespread bearish sentiment. They also said liquidations ahead of the November contract's expiration on Tuesday added to the day's volatility. "A lot of sell-stops were triggered when we broke support in the morning at around $13.80 and then later at $13.50/13.55." said another trader, who added that the selling binge was led by big investment funds. November crude settled at $13.35 a barrel, its lowest since Aug. 31, when it ended at $13.34. The contract managed to touch $14.30, its session high, in early trading, before falling at midday and then ending down 80 cents from last Friday's close. November gasoline lost 2.10 cents to settle at 42.08 cents a gallon, barely above its session low of 42.00 cents. The contract peaked early during the session at 44.25 cents. November heating oil dropped to 37.72 cents a gallon, off 1.40 cents. It traded between 37.50/39.50 cents. Traders said the day's slide began with the softening of gasoline futures, which was triggered by news that Tosco Corp. had restarted its Bayway Refinery in Linden, N.J., on Sunday, bringing it back from its scheduled shutdown. Its return on Monday as a seller depressed both cash and oil futures prices, they added. In August, Tosco said that 110,000 barrels per day (bpd) of capacity would be cut from Sept. 14 for 35 days, due to maintenance at the 240,000-bpd Bayway plant. One New York trader said the market believed the current high refinery runs would continue for some time because the gas-to-crude crack spread has remained high -- about $4.30 on Monday and up more than $1.00 from early September. His view was supported by another trader who said "perhaps the market now believes that we're not going to see fourth-quarter stock draws." Added to this was still another market player's lament that the market was anticipating a likely build in U.S. crude inventories in the weekly status report, expected late Tuesday from the American Petroleum Institute. "Last week we saw a build of 8.2 million barrels, and I see that it may also happen again this week," he said. Market talk that Venezuela would resist extending its production cuts beyond mid-1999 added fuel to the selling, traders said. Meanwhile, in Nigeria, Agip of Italy said it had resumed operations at its 125,000 bpd Brass River terminal. Royal Dutch/Shell also expected to resume exports on Monday, even as a force majeure was still in place, technically. One trader said the news was bearish for the market. In other news, officials of Colombia's 599-mile-long Ocensa pipeline, the largest in that country, said the explosion along the pipeline on Sunday was caused by a dynamite. About 24 feet of the 30-inch-diameter tube, which is protected by a one-inch thick steel casing, was wrecked by what Ocensa officials described as a "huge charge" of dynamite. The explosion killed at least 48 people and injured more than 80. Colombian authorities are blaming National Liberation Army (ELN) guerrillas for the blast, which hit two gold mining villages in northwest Antioquia province. The pipeline is owned and operated by a British, French and Canadian consortium. It had been pumping about 400,000 barrels per day of crude and serves the Cusiana-Cupiagua complex in the eastern plains region of Colombia. British Petroleum Co. Plc said production at the Cusiana-Cupiagua field was not affected "for the moment." On other fronts, Iraq's total scheduled crude oil loading for October has incrased to 1.89 million barrels per day (bpd), according to shipping sources on Monday. The increase, contrary to signs last month that Iraq was cutting back contracts, came from three new cargo liftings and an extra pipeline transfer to Turkey, which more than countered a deferral of one parcel of Kirkuk crude to the next month, the sources said. 10/19 17:18 North Sea December Brent slips five cents in U.S. NEW YORK, Oct 19 - North Sea Brent slid by five cents in late U.S. trading on Monday, traders said. December Brent was valued at $12.34 a barrel, down from its close at $12.39 earlier Monday on the International Petroleum Exchange. Two full cargoes of December cash Brent traded in Monday's aftermarket, one at $12.35 and the other at $12.32. Activity also included 400 lots of December cash partial cargoes at $12.35 and 800 lots of December cash partials at $12.33. The Brent November-December spread traded at minus 47 and minus 45 cents, traders said late Monday. 10/19 17:23 U.S. cash crude price slide linked to futures fall NEW YORK, Oct 19 - U.S. cash crude prices fell in relation to the 80-cent drop in the futures New York Mercantile Exchange, traders said. But for the two Louisiana grades, the dip wasn't as dramatic as both gained about 25 cents in differential-to-benchmark terms. The cash crude benchmark, West Texas Intermediate/Cushing, was down about 85 cents on the day. It was done at one cent and two cents under the settlement of WTI on the NYMEX. WTI on the NYMEX settled at $13.35 per barrel on Monday, down 80 cents. Light Louisiana Sweet/St. James, and its sister grade, Heave Louisiana Sweet/Empire, were the only major U.S. cash crudes to gain strength in differentials on Monday. Some traders said that an explosion on the Colombian pipeline that carries Cusiana grade was a cause of the stronger differentials. But another trader pointed out that the supply of Cusiana into the United States is not expected to be affected. He said that LLS and HLS were sold so much last week, in turn losing differentials, out of whack with their true value. He said that some of the LLS and HLS strengthening on Monday was therefore technically related. LLS began the day at a 50-cent discount to WTI/Cushing, and was done as strong as -30 cents. LLS was pegged at the end of the day at -29/-27 cents. It was done on Monday in the morning at minus 50 cents to WTI/Cushing and then was done at minus 40 and minus 30 cents. HLS gained similar amounts, but in a notional sense. There were no deals for HLS reported on Monday. The November NYMEX contract will expire at the close of trade Tuesday. The cash crudes will continue to use the November NYMEX, with adjustments, as a standard until next Monday. 10/19 18:30 U.S. foreign crude - Cusiana at WTI -$1.40/1.35 NEW YORK, Oct 19 - The U.S. market for imported crudes was quiet on Monday, as details of last week's tender for Cusiana began surfacing. LATAM - COLOMBIA, VENEZUELA, ECUADOR -- Some reports said the cargo of Cusiana scheduled to load November 25-29 was awarded at West Texas Intermediate minus $1.40. But others said they knew of bids as low as minus $1.39 that were not awarded, and speculated that the cargo must have been awarded slightly stronger, around $1.37 under WTI. Last week, traders had valued Cusiana in a wide range of $1.30 and $1.55 under WTI. Previous deals for the light, sweet Colombian crude were around $1.29-1.25 under WTI, but sweet crudes have been under pressure from talk that a U.S. trader is bringing over several large ships carrying North Sea Brent. -- Traders are not yet worried about Cusiana production, after BP announced that Sunday's bombing of the Ocensa pipeline had not affected production at the giant Cusiana-Cupiagua field. Rebels dynamited the 400,000 barrels per day (bpd) pipeline on Sunday, and repairs are expected to take at least three days. This only the second time that the 500 mile long line has been bombed since it became operational last year. -- Venezuela's sour crude Mesa/Furrial around $2.35-2.20 under WTI, after a deal was done last week at minus $2.32, regional traders said. -- Traders said that November arrival barrels of Ecuador's sour crude, Oriente were being offered into the U.S. Gulf at $2.60 under WTI. NORTH SEA, WEST AFRICAN -- Despite some talk that less Brent may be heading to the U.S., a U.S. trader said on Monday that his company is bringing three Ultra Large Crude Carriers (ULCCs) and a couple of smaller vessels of Brent to U.S. markets in October and November. Each ULCC carries over two million barrels of crude, and the talk has been pressuring sweet crudes in the U.S. October arriving Brent has mostly been sold, and the trader is offering second-half November arrivals around 75 cents under December WTI. -- West African barrels were getting little support from the continued disruptions in Nigeria, Africa's largest producer of crude. About one-third of Nigeria's average two million bpd exports have been shut after community protests. On Monday, Agip said it had resumed exports from its Brass River terminal, where 130,000 bpd had been shut in for two weeks. Some traders in the U.S. market said that buyers are wary of medium-heavy Forcados, whose loadings have been delayed by at least 10 days and up to 20 days. Nigerian Bonny Light was valued at five cents over Dated Brent, as was Qua Iboe. Traders valued Escravos around 10 cents under Dated Brent. At least 500 people died in the Niger Delta over the weekend after petrol from a ruptured pipeline ignited. Tension has been growing in the Delta, which produces most of Nigeria's crude, and last week three people died in riots in the oil town of Warri. ASIAN - BRUNEI LIGHT, CHAMPION -- A U.S. refiner is offering early December barrels of Brunei Light at Dated Brent plus $1.70 and another light sweet Brunei grade, Champion at $1.50 over Dated. IRAQ -- Basrah Light is on offer at $2.25/2.30 under WTI in the U.S. Gulf, traders said. 10/19 18:42 U.S. spot products-Mogas soft, heating oil firm NEW YORK, Oct 19 - U.S Gulf Coast gasoline differentials held onto its early day losses of around half a penny per gallon as oversupply fears crept back as refiners return from turnarounds, traders said late Monday. Heating oil on the Gulf Coast pared its earlier losses amid scheduling and rose in the northeast as traders with storage sought the cheaper prompt supplies to trade on the steep contango on the NYMEX. Most trade was stymied amid the sharp drops on NYMEX oil futures which slumped on a big technical sell-off. November crude settled 80 cents per barrel lower at $13.35, its lowest since Aug. 31, while November gasoline lost 2.10 cents per gallon at 42.08 cents and heating oil dropped to 37.72 cents, off 1.40 cents. "There is virtually no activity in the Gulf," said a trader on the cash market. "But gasoline is not going to fall out of bed," he added. "It's still supported by refineries having problems in the Gulf," he added, referring Chevron's <CHV.N> 295,000 barrel per day flood-damaged Pascagoula, Miss. refinery and two other refineries. But sentiment was soft amid the return of Tosco Corp. <TOS.N> as a seller with the restart of its Bayway Refinery, New Jersey from scheduled shutdown, traders said. The independent refiner said in late August that an 110,000 barrel-per-day (bpd) of capacity would be cut from September 14 for 35 days due to maintenance works at the Bayway plant which has a total capacity of 240,000 bpd. GULF COAST Differentials softened on Tosco's return to the market amid thin trading as players were slow to return to the market Monday amid stormy weather, traders said. Back 30 cycle M4 gasoline softened about a half-cent on Tosco's Bayway returning to the market as a seller. Back 30 was pegged at 3.10/2.90 under the screen. Front 31 cycle was pegged about 3.25/3.00 under the screen. Prompt heating oil pared its slight losses from the morning as players sought barrels ahead of the scheduling deadline later in the day. Front month heat firmed about 0.20 points from the morning andwas pegged at 0.75/0.50 cent and traded at 0.50 cent under. Low sulphur diesel gained back about 0.25 cent, while traders pegged it around 2.25/2.50 cent over the screen. Jet fuel 54-grade's back 30 cycle lost about 0.15 points and was pegged at 3.10/3.35 premium. Reformulated A-grade was pegged at 2.00/1.50 cent regrade to the M-grade, while premium RFGs were offered at 2.25 cents over the print. Premium conventional V-grades were bid at 1.50 over the print. NEW YORK HARBOR Heating oil differentials ended the day around half a penny firmer, extending its firmer tone on the back of last week's gains in the Gulf Coast as northeast traders sought barrels as there was still storage available in the steeply contangoed market. Prompt heating oil traded up by half a penny at a 0.85-0.65 cent discount. "There is a strong differential even with a lot of inventory. People are still finding storage and playing the spreads on the screen," a trader said. Low sulphur diesel was pegged steady with offers at 2.75/3.00 cents premium amid very lackluster talk. "It is very very slow," said one trader. Prompt M4 Harbor gasoline was steady with offers at 1.25 cent under the November screen, reformulated A4 pegged at 0.20/0.50 cents over the print and A8 at 1.85/2.00 cents over. On the premium grades, conventional V4 was pegged at 2.50 cents premium and D4 RFG was pegged at a 4.75 cents premium. Jet fuel 54-grade was steady to firm, trading at a 5.25-5.50 cents premium, and the 55-grade was pegged around 6.00 cents. MIDCONTINENT Midco gasoline softened on the back of the Gulf Coast, while Group Three firmed on refiner buying, traders said. Midco regular gasoline send about a half-cent and was pegged at 3.10/2.85 cent under the screen, while Group traded at 1.50 cent under the screen, about 0.30 cent firmer. Traders said Conoco emerging as buyer in the Group firmed up gasoline there. Low sulphur diesel rose in both hubs on lack of refiner selling sources said. Low sulphur diesel in the Group was pegged up to a quarter cent firmer at 3.75/4.00 cents premium. Chicago was assessed also a quarter-cent firmer at 2.65/2.90 cents premium. Premium grades in Chicago were pegged at a 3.25/3.50 cent regrade, Group at 3.10/3.35 cents premium. Jet fuel in the Group was at 4.75/5.00 cents over the print, Chicago at 5.75/6.00 cents over.