AN EYE ON THE MARKETS / Weekend Edition - Part 7
DAIILY REVIEW OF NATURAL GAS & CRUDE OIL PRICING / Part D
Article Index
11/14 03:09 US Crude Outlook - Imports soar, bears in control
11/14 03:14 US Products Outlook-Imports, restarts pound products
11/14 23:31 U.S. rejects Iraqi offer, stays "poised" to strike
11/15 01:16 Iraqi offer on arms inspectors splits U.N. Council
11/14 03:09 US Crude Outlook - Imports soar, bears in control
NEW YORK, - The U.S. crude market could be set for another bruising this week, as a stream of imports heading for an already saturated market looks likely to keep oil prices the defensive, traders said Monday.
Even rising tensions between Iraq and the United Nations appeared to take a back seat to worries about oversupply on Monday, as the front-month futures contract settled down almost 50 cents a barrel.
By the close of trade, the New York Mercantile Exchange contract stood at just $13.38 a barrel, the sixth consecutive session that the contract has finished lower.
"I think the flat price is going to test $13 pretty quickly," one cash crude trader said Monday. "There's just too much oil around." U.S. crude stocks have climbed steadily higher over the last month, and at 344 million barrels, stand some 31 million barrels above last year, according to the latest American Petroleum Institute (API) figures.
This week's API report could show another sharp rise in stocks, given the stream of imports heading into the U.S. Gulf Coast, traders said.
The explosion in imports includes crude cargoes steaming over from the North Sea and West Africa, attracted by the relatively wide spread between world benchmarks West Texas Intermediate/Cushing and North Sea Brent. By the close of trade Monday, WTI stood at a $1.48 a barrel premium to Brent, easily enough to make incremental shipments from Europe to the U.S. profitable.
On the Gulf Coast, December Brent is being offered at $1.05 a barrel under January WTI/Cushing prices, compared with offers at a 90-cent discount last week.
Colombia's Cusiana is also well supplied, after more than 2.5 million barrels of the light sweet crude was sold to U.S. companies last week. The four cargoes, scheduled to load between Dec. 8-22, were sold between $1.49 and $1.64 under WTI/Cushing by state oil company Ecopetrol. In the previous Ecopetrol sale, three early December loading cargoes were done at around minus $1.60-1.55 a barrel.
As competition to supply both sweet and sour crude intensifies, Saudi Arabia and Mexico have announced sharp cuts to their official selling prices over the last couple of days.
For the Americas, Pemex lowered its price on Maya heavy crude oil by 30 cents per barrel, while cutting its price on extra light Olmeca by 10 cents and Isthmus by 20 cents for December. The cuts, one trader said, came as yet another sign that "the market is looking bad."
Crude traders said the Saudi price cuts were no less steep, reporting a 25-cent decline in Arab Light and Arab Heavy prices, and a 35-cent drop in Arab Medium prices. They added that the Berri Extra Light price was cut 20 cents to $2.60 under WTI/Cushing.
Oversupply is also taking its toll on U.S. crude prices, particularly Light Louisiana Sweet/St. James, the grade most sensitive to competition from imports.
LLS/St. James was valued at a relatively cheap 45-40 cents under benchmark West Texas Intermediate/Cushing on Monday. Heavy Louisiana Sweet/Empire, which is less liquid than LLS, appears similarly weak at 67-62 cents under WTI/Cushing.
Also, an international major is said to be offering Cusiana out of the Louisiana Offshore Oil Port (LOOP) at parity to LLS/St. James.
Sycrude Canada, meanwhile, said Monday that its synthetic oil production was nearing its 230,000 barrels per day capacity once again after it had been cut in about half last week by mechanical problems at an upgrading plant. The supply interruption had provided some short-term support to sweet crude prices, but a company spokesman said repairs had been completed over the weekend.
11/14 03:14 US Products Outlook-Imports, restarts pound products
NEW YORK, Nov 2 - Bearish pressure from imports and from last week's return of two U.S. refineries from fall turnarounds should dominate oil products this week, traders said.
"You think gasoline is cheap here? The price is desperately cheap in Asia and Europe," said one Gulf trader about the situation cracking open the arbitrage window in the New York Harbor.
While traders said at least 12 cargoes of gasoline were in the water on their way to the New York Harbor, one Gulf trader said six cargoes were fixed to ports all over the U.S. on Monday alone.
Those six included cargoes from Europe, where the Rhine River, a major route to the Rotterdam refining hub, is flooded and partially closed to barges, and a cargo from St. Croix in the U.S. Virgin Islands.
Also adding pressure on products is the fact the scheduled maintenance season is over, with no more major turnarounds on the slate until the spring.
Last week Sun Co. <SUN.N> restarted its 177,000 barrel-per-day (bpd) crude distillation unit at its Philadelphia refinery which was just part of around 430,000 bpd of production to return from maintenance shutdowns that week.
The Sun turnaround came just Tosco's Bayway turnaround, and the two combined helped knock East Coast crude runs to their lowest level in five years.
The low level of crude runs caught some New York traders short last week after a small draw on gasoline brought about in part by short supplies of blending stocks. This week traders said prices should be beaten down.
"Gasoline has been unusually strong with a number of turnarounds in the northeast - i expect it will soften," said one New York trader with a major refining company.
"On the distillates, it is the same type of situation -- there will be a bit more pressure until the we see colder weather," he added.
Distillates in the northeast were supported last week as traders with storage took advantage of the contango in the market to buy the cheaper prompt supplies of the heating fuel, lifting outright prices by over a penny to around 38 cents per gallon.
Now Gulf traders say the additional storing of heating oil in the New York Habor leaves little room for Gulf gasoline to be sold to up North. In addition, adding further pressure, traders said that gasoline storage was high in the Midcontinent trading hub and the Caribbean.
"Nothing looks bullish here all week," said one Gulf trader.
In the Harbor, traders said jet fuel was the only thing looking up, still in short supply from refinery problems in the Gulf. "There is not a whole lot of jet around...there is a lot of demand but very low stocks," said a Northeast trader.
11/14 23:31 U.S. rejects Iraqi offer, stays "poised" to strike
WASHINGTON, Nov 14 - The United States on Saturday rejected as unacceptable an Iraqi offer to let U.N. arms inspections resume and warned it was poised to launch airstrikes to end the standoff.
U.S. officials said that U.S. bombers were sent toward Iraq on Saturday but called back after Iraq made its offer -- a development that suggests Washington is likely to act quickly if Baghdad does not comply unconditionally.
President Bill Clinton abruptly canceled plans to attend an economic summit in Malaysia because of the latest clash of wills with Iraqi President Saddam Hussein.
Iraqi Deputy Prime Minister Tareq Aziz sent a letter to U.N. Secretary-General Kofi Annan offering to end Baghdad's refusal to cooperate with U.N. Special Commission arms inspectors and representatives of the International Atomic Energy Agency.
U.S. officials examined the letter on Saturday and deemed it unacceptable because they felt it tried to set conditions for ending the economic sanctions imposed on Iraq since its invasion of Kuwait in 1990.
"The Iraqi letter sent today to Secretary-General Annan is neither unequivocal nor unconditional," White House National Security Adviser Sandy Berger said. "It is unacceptable."
Saying the United States wants unequivocal compliance from Iraq, Berger complained that "what we have instead is a letter and particularly an annex that's got more holes than Swiss cheese."
Iraq's U.N. Ambassador Nizar Hamdoon said the issues raised in an attachment to the letter were a "wish list" rather than a set of conditions. They involved ending the sanctions.
Late on Saturday, Hamdoon provided a second letter to the U.N. Security Council reassuring members that Iraq's offer to cooperate with arms inspectors was "clear and unconditional" and should not be seen as connected to Baghdad's demand for a comprehensive review of sanctions.
The White House had no immediate response to the second letter.
Berger, declining to comment on reports that Clinton had already approved launching military strikes on Iraqi targets, said, "We were poised to take military action, and we remain poised to take military action."
U.S. B-52 bombers had been headed for Iraq with cruise missiles on Saturday, but the raid was aborted after Baghdad made its offer to cooperate with U.N. arms inspections, a U.S. official said.
"It was close," said the official, confirming that the eight-engine bombers had been launched but were called back so Washington could consider Iraq's proposal.
The United States has set no precise deadline for Iraq to reverse its course, but officials have made it clear publicly and privately that time is running out.
Clinton spoke by telephone with British Prime Minister Tony Blair, who supported the hard-line U.S. approach. Britain is contributing to the military buildup in the Gulf.
B-52 bombers and radar-avoiding F-117A stealth fighters have been ordered to the Gulf. Twelve B-52s were moving from bases in Louisiana and North Dakota to the island of Diego Garcia in the Indian Ocean, and the same number of F-117s were flying from a base in New Mexico to be based in Kuwait.
The additional aircraft are among a total of 139 U.S. combat and support planes being sent to join about 170 already in the region. There are now 23 U.S. combat ships in the Gulf.
Clinton, who had planned to depart on Saturday, asked Vice President Al Gore to substitute for him at the Asia Pacific Economic Cooperation summit in Kuala Lumpur, which begins on Monday.
White House press secretary Joe Lockhart said, however, that Clinton was expected to visit Japan, South Korea and Guam, the other destinations originally planned for the 10-day trip.
The decision to remain in Washington followed a lengthy meeting at the White House of Clinton's national security advisers, including Berger, Defense Secretary William Cohen and CIA Director George Tenet.
Deputy Secretary of State Strobe Talbott took part in the review because Secretary of State Madeleine Albright was already heading for the Asia Pacific summit in Malaysia.
Baghdad announced on Oct. 31 it was halting cooperation with the arms inspections, a requirement of the accords ending the 1991 Gulf War. It complained that the economic sanctions imposed because of its invasion of Kuwait had not been lifted.
11/15 01:16 Iraqi offer on arms inspectors splits U.N. Council
UNITED NATIONS, Nov 15 (Reuters) - A divided Security Council was unable to reach a decision over Iraq's offer to resume cooperation with U.N. weapons inspectors, suspending a marathon session until Sunday afternoon.
"We will all be working to see whether we can find agreement by consensus," British Ambassador Jeremy Greenstock said after six hours of closed-door council consultations with the potential for U.S. air strikes on Baghdad still looming.
"There are serious issues at stake and it's not surprising that we need consultations in capitals and elsewhere."
But unity was still elusive with the United States having rejected Iraq's Saturday announcement that arms inspectors could carry out their work, and Russia, China and France and other council members welcoming Baghdad's decision.
Washington was seeking a clear statement that Iraq had rescinded its Aug. 3 and Oct. 31 decisions to ban all inspections by the U.N. Special Commission (UNSCOM) in charge of Iraqi disarmament. Baghdad had demanded progress be made towards lifting eight-year old U.N. trade sanctions.
All U.N. arms teams were withdrawn to Bahrain earlier this week after Iraq halted cooperation with UNSCOM.
During Saturday's council session, Iraq's U.N. ambassador Nizar Hamdoon submitted three drafts of a letter on approval from his government that said previous decisions restricting cooperation with the inspectors "have become void." His letters are being considered by council members overnight.
Ambassador Peter Burleigh, the U.S. charge d'affaires, told reporters: "We will obviously be reporting the statement and comments made by our colleagues to Washington for consideration as well as the elaboration or clarifications of the permanent representative of Iraq in the course of the evening."
But he said the U.S. position was stated "clearly and forcefully" by national security adviser Sandy Berger who said the Iraqi document was "neither unequivocal nor unconditional" but "unacceptable."
Berger told a White House briefing the United States had been "poised to take military action, and we remain poised to take military action."
Instead of getting an unequivocal response from Iraq, "what we have instead is a letter and particularly an annex that's got more holes than Swiss cheese," he said.
As the Security Council met, a U.S. official in Washington said B-52 bombers had been headed for Iraq with cruise missiles but the raid had been aborted when Baghdad offered to cooperate with U.N. arms
inspections.
The council session focused on a controversial annex to the letter that Iraqi Deputy Prime Minister Tareq Aziz sent to Secretary-General Kofi Annan announcing Baghdad's policy switch in response to a late Friday night appeal by the U.N. chief.
Russia's U.N. Ambassador Sergei Lavrov said Iraq, both in Baghdad and in New York, had clearly said the annex stated Iraq's views and was not meant to list new conditions.
"And the additional clarifications requested by a couple of delegations in the council from Iraq have been provided to the full satisfaction, from the point of the substance of the questions raised," he said. Hamdoon told reporters that "the majority of the council members do appreciate Iraq's cooperation and appreciate the Iraqi flexibility in trying to find a way out of this crisis."
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