AN EYE ON THE MARKETS / Weekend Edition - Part 5
DAILY REVIEW OF NATURAL GAS & CRUDE OIL PRICING / Part B
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11/13 16:22 World Oil slides on sign of Iraqi flexibility
11/13 17:05 NYMEX crude slumps at end on Iraq's softer stance
11/13 17:12 North Sea Brent up three cents in late U.S. trade
11/13 17:29 U.S. foreign crude traders keep watch on Iraq
11/13 17:37 U.S. Cash Products-Gulf distillates recover a tad
11/13 17:47 U.S. cash crudes steady amid volatile futures
11/13 18:38 Mexico urges OPEC: Extend oil cuts
11/13 21:23 U.S West Coast crude diffs flat, traders sidelined
11/13 16:22 World Oil slides on sign of Iraqi flexibility
LONDON, Nov 13 - Oil prices ended sharply lower on Friday after Iraq sought to present a conciliatory approach to its impasse with the United Nations over arms inspectors.
Benchmark Brent crude for January delivery finished 38 cents down at $12.43 a barrel, not far off 10-year lows, after an Iraqi statement that Baghdad was ready to accept a just solution to the crisis.
Oil had traded to almost $13 earlier as the United States accelerated its military deployment in the Gulf and Washington issued a stern demand for Iraqi cooperation with arms inspectors.
The standoff raised the prospect that U.N.-monitored Iraqi crude exports of some two million barrels per day (bpd) might be halted or disrupted in the event of hostilities.
Despite the threat, the worst glut in a decade has kept oil at a 35 percent discount to last year's average price of more than $19 a barrel.
Prices came off sharply on Friday with word that Iraq told a Russian envoy that its decision to halt cooperation with U.N. weapons inspectors was not meant to manufacture a crisis with the U.N. Security Council.
Iraq President Saddam Hussein told the envoy that Iraq was ready to respond positively to any initiative which would meet its legitimate demands, the Iraqi News Agency INA reported on Friday.
The news agency said the Russian ambassador to Iraq, Nikoli Kartouzov, also delivered two letters to Saddam -- one from the Russian President Boris Yeltsin and the other from Foreign Minister Igor Ivanov.
"Iraq is willing to react positively to any initiative which meets Iraq's legitimate demand," INA added.
Oil futures markets in London and New York had closed before Iraq's UN ambassador Nizar Hamdoon said his government might stop oil exports under the a UN-monitored exchange for humanitarian aid if the import of goods under the programme were halted.
Imports of food and medicine under the deal were put in jeopardy when Lloyd's Register, the independent inspectors who certify arrival of goods, were evacuated from Iraq.
Dealers said oil prices could surge when markets reopen on Monday if the Lloyd's evacuation resulted in an interruption to the programme.
Meanwhile, oil export monitors from Dutch company Saybolt remained at their posts at Iraqi borders on Friday and crude exports were flowing as normal.
The United Nations says its policy is to maintain the oil-for-food arrangement under which sanctions-bound Iraq makes its oil salesN.
But Iraq has said it would have to stop the exports if the monitors weree withdrawn in the event of an attack.
Baghdad announced on October 31 that it was suspending all cooperation with U.N. weapons inspectors unless the Security Council reviewed trade sanctions and removed Richard Butler, chairman of the U.N. Special Commission overseeing the destruction of Iraq's prohibited weapons.
Washington piled on the pressure on Friday when U.S. Secretary of State Madeleine Albright said that Saddam must publicly rescind his decision to halt work by U.N. weapons inspectors.
Oversupplied petroleum markets found some support earlier on Friday on news that Saudi Arabia had cut Western crude exports for December by up to 15 percent below standard contract volumes.
"The Saudi cuts have helped. People are asking themselves what are the Saudis up to before OPEC," Nauman Barakat of Prudential Bache Securities in New York.
The move comes ahead of OPEC's ministerial meeting on November 25 to review the group's 2.6 million bpd of output cuts made this year in a attempt to bolster world oil prices.
Luis Tellez, the oil minister of non-OPEC Mexico, said on Friday that his country would extend its own export reduction until the end of 1999 and called on OPEC to match the effort.
11/13 17:05 NYMEX crude slumps at end on Iraq's softer stance
NEW YORK, Nov 13 - Crude oil prices tumbled near the close Friday after a selloff intensified as Iraqi President Saddam Hussein appeared seeking a way out of the latest confrontation with the United Nations over arms inspection, traders said.
Saddam said Iraq was willing to "react positively to any initiative that meets Iraq's legitimate demands," according to the official Iraqi news agency, INA.
The U.S., however, continued with its military buildup of forces in the Gulf and U.S. Secretary of State Madeleine Albright warned: "Iraq has a simple choice: reverse course or face the consequences."
A New York oil trader summed up the Iraq crisis this way: "The ball is in Saddam's court and the market interpreted his word as a softening sign."
NYMEX December settled at $13.57 a barrel, off 27 cents from Thursday, but sharply off 65 cents from the day's revised high of $14.22. The contract traded as low as $13.45 towards the finish line but some late pre-weekend shortcovering added a few more cents.
Heating oil and gasoline futures suffered big losses.
December heating oil settled at 37.86 cents a gallon, down 0.84 cent, up a bit from its session low of 37.70 cents. The contract touched 39.40 cents, its session high, earlier.
December gasoline finished at 41.05 cents a gallon, tacking a few points to its session low of 40.80 cents. In the morning trade, the contract peaked at 42.60 cents.
When the news of Iraq's apparently conciliatory position hit at around noontime, the front-month crude contract was trading at $14.16. The selloff did not subside until it had slumped to $13.60 -- 56 cents down, but 24 cents lower from Thursday's close. The contract then rebounded to around $13.75, but toward the close, it sank to $13.45.
Due to the downturn, many players who had extended their long positions earlier as they were expecting that a possible U.S. military strike against Iraq was imminent, do not plan to go back to the market, noted Cresavale International analyst Tom Bentz.
"They've been burned, they're not coming back...," he said. But Bentz said the market does not have any reason to drop lower to $13 a barrel "because the crisis is still in place."
"There is also the possibility that Iraq's oil exports under the 'oil-for-food' program may be interrupted and that could be supportive of the market," he said.
On Friday, Iraq's Ambassador to the U.N., Nizar Hamdoon, said his government may stop oil exports under the deal if imports of goods under the program are halted.
The imports were put at peril when independent inspectors who certify arrival of goods, Lloyds Register, ordered staff on Friday to leave Iraq because of the possible U.S. military strike. But Baghdad has not yet made a final decision.
Iraq sparked the current crisis when it decided on Oct. 31 to end cooperation with U.N. arms inspectors, whose job is to destroy Iraq's chemical and biological weapons. The inspectors' certification that Iraq has rid itself of those weapons is key to the U.N. lifting sanctions imposed against Iraq for its invasion of Kuwait in 1990.
The sanctions exclude the oil-for-food program under which the U.N. allows Iraq to export about 1.9 million barrels per day (bpd) of oil, proceeds of which are used to buy food, medicines and other humanitarian needs of Iraqi citizens.
Meanwhile, Mexico's Energy Minister Luis Tellez confirmed on Friday that Mexico would extend through the end of 1999 export cuts it agreed to earlier this year and urged members of the Organization of Petroleum Exporting Countries (OPEC) to do the same.
Mexico, a non-OPEC producer, agreed to cut its crude exports by 200,000 bpd under supply-reduction agreements this year. It initially agreed to make the reductions until the end of 1998 and later agreed to extend to mid-1999.
"It remains to be seen whether OPEC will follow suit," said a NYMEX trader, who added that "the market has more problems now than just extending the production cuts."
In other news, Saudi Arabia, OPEC's biggest exporter, has notified its U.S. and European customers that it would cut supplies for December between 11 percent and 15 percent below standard contract volumes, the biggest shortfall in three months. But the news created little stir in the market.
"On any ordinary day, without the possibility of war in the Gulf, the Saudi move could have been highly supportive," a trader said.
11/13 17:12 North Sea Brent up three cents in late U.S. trade
NEW YORK, Nov 13 - North Sea Brent gained three cents in late trading in the U.S. on Friday, traders said.
January Brent was valued at $12.35 a barrel, up from its close on the International Petroleum Exchange at $12.32.
One full cargo of January cash Brent traded at $12.30 in Friday's aftermarket. Other deals included 200 lots of Brent cash partial cargoes at $12.32 and 500 lots of cash partials at $12.40.
The December-January Brent spread traded at minus 28 cents in the aftermarket, traders said.
11/13 17:29 U.S. foreign crude traders keep watch on Iraq
NEW YORK, Nov 13 - Crude traders remained firmly focused on the standoff between the U.S. and Iraq on Friday, keeping the brakes on activity in the foreign crude market.
WEST AFRICAN, NORTH SEA
-- The latest conflict sent crude futures on a roller-coaster ride before the front-month contract finally closed the session down 27 cents at $13.57 a barrel.
December North Sea Brent crude futures fared better, closing up three cents to $12.43 a barrel. That left the December spread between the two benchmarks at just under $1.10 a barrel, a level well below Thursday's $1.42.
For the most part, traders shrugged off the narrow spread and said the market remains awash with offers for crude produced in the North Sea and West Africa. "One day is not going to affect it," one trader said.
December Brent expired on the International Petroleum Exchange on Friday, and traders are already looking ahead to the January trans-Atlantic arbitrage, which settled at a wide $1.47 a barrel.
-- Indeed, crude traders said that North Sea Brent was still on offer in the Gulf Coast at about $1.00 under January West Texas Intermediate, about where it has been seen throughout the week.
They added that as much as two or three million barrels of North Sea Brent could be targeted for the market, in addition to a slew of Bonny Light, Forcados and Cabinda.
"For December, there's still enough crude around that differentials aren't about to go up," one trader predicted.
LATAM - VENEZUELA, COLOMBIA, ECUADOR, CHILE, MEXICO
-- Crude traders speculated that Colombia's December Vasconia cargo would be awarded around $2.80 under WTI, but there were still no details about which company won Friday's tender for the medium heavy crude.
-- Colombia's Ecopetrol also issued a tender earlier this week for four cargoes of Cusiana, its main light crude, loading December 29-January 4.
The deadline for bids for the Cusiana, currently valued around $1.50 or $1.60 beneath WTI, is November 17.
-- The market is meanwhile awaiting news on PetroEcuador's 1999 contracts for its Oriente cargo, with a number of current contracts set to expire over the coming weeks.
IRAQ
-- While there is no shortage of sour crude in the Gulf Coast, crude traders are keeping close tabs on the latest developments in the crisis between the U.S. and Iraq. Late Friday, Iraq's Ambassador to the United Nations said that his government may stop oil exports under the "oil-for-food" deal if imports of goods under the program are halted.
11/13 17:37 U.S. Cash Products-Gulf distillates recover a tad
NEW YORK, Nov 13 -U.S. Gulf cash distillate differentials found some support late Friday despite the Colonial Pipeline freeze on prompt nominations as some buyers with pipeline space emerged, traders said.
"They are up from lower levels because of some buyers still with line space," a trader said.
Chicago gasoline however was pulled down by the rerouting of Gulf Coast supplies to the Explorer Pipeline and eventually to the Midwest markets.
In the Northeast, the tone was still soft on both the distillates and gasoline with only prompt jet fuel holding firm on local pipeline problems.
The cash markets's reaction was muted to Iraq's Ambassador to the United Nations, Nizar Hamdoon's statement that his government may stop oil exports under the "oil-for-food" deal if imports of goods under the program are halted.
The imports were put in jeopardy when the independent inspectors who certify arrival of goods, Lloyds Register, on Friday ordered their staff to leave Iraq because of the impending possible U.S. military action. But Baghdad has not yet made a final decision.
The bullish news broke after the NYMEX oil futures settled down sharply as a selloff intensified after Iraqi President Saddam Hussein appeared seeking a way out of the latest confrontation with the United Nations over arms inspection.
Hussein said Iraq was willing to "react positively to any initiative that meets Iraq's legitimate demand," according to the official Iraqi news agency, INA.
December crude settled at $13.45 a barrel, off 39 cents from Thursday's close, but down 80 cents from the day's high of $14.25.
December heating oil last traded at 37.70 cents a gallon, 1.00 cent below its Thursday settlement, and gasoline closed at 40.80 cents a gallon, down 0.83 cent.
GULF COAST
Distillate differentials recovered by 0.60-0.80 cent as a few buyers with pipeline space emerged but as trade was very thin, some traders were skeptical on the longevity of the rebound.
Prompt low sulphur diesel pared its earlier losses and ended the day O.25 cent firmer at a 2.00 cents discount, while heating oil rose 0.80 cents from Thursday to around 3.00 cents under the print.
Gulf 54-jet fuel last traded on the front 33 cycle at 0.30 cent with traders saying it should be firmer on the back of the gains on heating oil. But no quotes were heard, and they were reluctant to peg levels on the volatile distillate.
On the gasolines, only talk was heard on the regular conventional M5-grade with front 33 cycle holding earlier 0.20 cent losses at a 6.80/6.50 cents discount. The anys, or back 33 was at 6.50 cents under the print.
MIDCONTINENT
Chicago gasoline took a thrashing after a brief recovery in the morning, ending around 0.25 cent weaker amid an expected increase in supplies from the Gulf Coast as barrels head for the Explorer Pipeline, instead of the frozen Colonial.
"With the Colonial freeze, there will be plenty of oil," a trader said.
Regular gasoline in Chicago was last traded at a 4.75 cents discount after a brief rise in the morning at 4.50 and 4.00 cents under the print. The anys were at 5.25/5.00 cents under.
Low sulphur diesel in Chicago was pegged a quarter to half a cent lower at a 0.25/0.50 cent premium after it dropped 2.00 cents on Thursday to trade several at a 0.50 cents premium on the prompt cycle.
In the Group, gasoline and diesel differentials were steady to a shade firmer with regular gasoline pegged up a quarter cent at 5.25/4.75 cents under the print and low sulphur diesel was pegged steady at a 0.25 cent discount.
NEW YORK HARBOR
New York gasoline and low sulphur diesel weakened on the back of the Gulf and amid growing stocks of products amid the recent full return of large East Coast refineries, traders said.
While heating oil was steady with differentials pegged at 0.75/0.50 cent discount, low sulphur differentials dropped 0.20 cent to sit at either side of flat to the screen. "Normally the spread between high and low sulphur diesel gets pretty wide in November, December and January," said one trader accounting for the low sulphur dive. But other players said increased production from recently returned East Coast refineries was putting bearish pressure in market.
Prompt gasoline differentials slipped to 3.00/2.50 cents under for prompt material while 3.50 under traded for material by November 20.
Jet fuel 54-grade was pegged at 5.50/5.80 but was cheaper for any months at about 4.00/4.25 cents while 55-grade was pegged at 6.50/7.00 cents over the screen on tight supply.
Regular RFG A5 grade was steady at a 0.35/0.50 cent premium, A9 at a 1.50 cents premium, and premium grade D5 at a 2.25/2.50 cents premium.
11/13 17:47 U.S. cash crudes steady amid volatile futures
NEW YORK, Nov 13 - The U.S. cash crude market remained mostly steady, on Friday, overshadowed by volatile crude oil futures on the New York Mercantile Exchange.
Front-month December crude on the NYMEX settled 27 cents weaker at $13.57 a barrel, after a late sell-off sparked by what traders interpreted as signs of a softening by Saddam Hussein's regime.
Shortly after the market closed, the Iraqi Ambassador to the United Nations said that his government may stop oil exports under the "oil-for-food" deal if imports of humanitarian goods under the program are halted.
But cash traders said they were not yet concerned about an interruption of the oil-for-food plan, under which Iraq exports about 1.8 million barrels a day on average.
December cash West Texas Intermediate/Cushing was valued at $13.50-13.55 a barrel, as traders said exchange for physicals (EFPs) are talked at plus four cents.
Light Louisiana Sweet/St. James was little changed during Friday's trading, and remained talked at 38/32 cents under WTI/Cushing. No deals were heard done on LLS on Friday.
Heavy Louisiana Sweet/Empire traded at minus 41 cents on Friday, and remained valued at minus 40/30 cents under WTI/Cushing, traders said.
Both LLS and HLS gained about 10 cents in Thursday's trading, but market watchers attributed the sharp gains to buying interest, after several lackadaisical days of trading earlier this week.
WTI/Midland was reported sold at 41 cents under benchmark WTI/Cushing, but remained within its range of minus 42-39 cents.
West Texas Sour/Midland was also little changed, with a deal reported done at minus $1.77. WTS remained in its range of $1.79-1.76 all day Friday.
Eugene Island crude and Bonito Sour, both offshore sour crudes, were also mostly range-bound. Eugene was talked at $1.28-1.20 under WTI/Cushing, while Bonito was valued at minus $1.00-90 cents.
Postings-related WTI/Cushing wobbled a couple of cents on Friday, as traders said the volatility of outright prices affected postings. Nonetheless, postings ended the day at $2.32-2.35, little changed from its early values. Traders said postings were sold at $2.30, $2.32 and $2.35 during the day.
11/13 18:38 Mexico urges OPEC: Extend oil cuts
MEXICO CITY, Nov 13 - Mexico sent a message to fellow oil exporters on Friday, pleading with them to maintain supply cutbacks through the end of 1999 and vowing it would be the first to throw its hat in the ring.
Energy Minister Luis Tellez said Mexico would continue its bid to boost prices by restricting its oil exports by 200,000 barrels per day (bpd) until the end of 1999, instead of a previously pledged June 1999.
The move was a signal to the Organization of Petroleum Exporting Countries (OPEC) before a scheduled Nov. 25 meeting, he added, and would depend on OPEC also prolonging the cutbacks.
"Mexico is extending its cuts through the end of 1999. The idea is we hope OPEC will follow suit," Tellez told Reuters.
In the Finance Ministry's 1999 budget proposal, released on Friday, the government forecast 1999 crude exports at an annual average of 1.65 million bpd, which corresponds to oil monopoly Pemex's 200,000 bpd in export cuts.
Tellez later told reporters that Mexico would not extend the cuts alone, but was counting on OPEC members to also continue with deals agreed earlier this year.
Although not a member of the cartel, Mexico -- with Venezuela and Saudi Arabia -- spearheaded oil-supply cuts earlier this year in a move to prop slumping oil prices.
Venezuela and Saudi Arabia agreed in an Oct. 2 meeting of the trio in Cancun, Mexico, to consider extending their oil cuts through the end of next year. They pledged to lobby fellow OPEC members to also keep the cuts through the end of 1999.
While Tellez said Mexico believed the cutbacks were working and should continue, the country wasn't planning on going solo.
"Mexico will (extend cutbacks) to the extent that the others do," Pemex chief Adrian Lajous told reporters.
Meanwhile, benchmark crude prices slipped even amid a U.S. face-off with Iraq, and markets appeared to ignore Mexico's pledge to extend its cuts.
"I think this is something way out in the future that doesn't have any bearing on what's happening now," said Ken Miller, senior principal in Purvin & Gertz, a Houston-based consulting firm, referring to Mexico's action.
While he said the move hinted at further oil producer cooperation, Miller said prices looked unlikely to recover unless producers actually make deeper cuts.
Benchmark Brent crude for January delivery finished down 38 cents on Friday at $12.43 per barrel, not far off 10-year lows.
"What the situation looks like is that if (OPEC) decides to extend through 1999 and Mexico does the same thing, that's all fine and dandy, but it doesn't mean much," Miller said.
He added prices would probably dip after the winter if oil producers did not agree to further reduce world supply.
Mexico's average crude price was about $10.29 per barrel on Friday, about $6 below prices in November 1997.
11/13 21:23 U.S West Coast crude diffs flat, traders sidelined
LOS ANGELES, Nov 13 - Differentials for U.S. West Coast waterborne crude oil were steady in thin trade Friday, with no Alaska cargoes sold and pure prices down, traders said.
Trade for California grades should remain thin until the new year, with traders hoping to trim inventories which would otherwise lead to larger tax liability.
Alaska North Slope (ANS) bids were reported much wider than the previous deal of $1.37 a barrel below November West Texas Intermediate (WTI) crude.
Dealers heard bids of $1.75 a barrel under WTI.
Other dealers heard ANS was offered in San Francisco at $1.50 a barrel under WTI but the sale was turned down.
Dealers said it might take some time for refineries to assess their supply needs for rest of the year and that could dampen trade.
In foreign trade, there was talk that a distressed cargo of Oriente was offered to the West Coast by a trade house at a $2.80 discount to December WTI,
The discount of ANS crude for delivery on the West Coast remains at $1.37 a barrel, so the notional spot price for ANS fell to $12.11/12.28 a barrel, a fall of nearly 50 cents.
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