CRUDE OIL & NATURAL GAS SCENARIO / Monday's Closing Comments
11/16 16:18 World Oil hit after U.S. calls off Iraq strike
LONDON, Nov 16 - World oil prices came dangerously close to 10-year lows on Monday after Iraq stepped back from the brink of military confrontation with the United States and worries over overflowing global supplies took centre stage.
The United States halted a big military buildup in the Gulf on Sunday after accepting an unconditional Iraqi offer to resume U.N. weapons inspections.
On London's International Petroleum Exchange, Brent crude for January delivery last traded 57 cents off at $11.75 a barrel at 2015 GMT after plunging through the psychologically-important level of $12.00 a barrel as the market drew to a close.
Monday's close was within 20 cents of a 10-year low of $11.55 reached on August 11. U.S. light crude for December delivery closed down 77 cents at $12.80 a barrel on the New York Mercantile Exchange.
"We have been been bearish all day; the standoff (between Iraq and the United Nations) is over, the tension is gone, they called off the strike and they got the (U.N. arms) inspectors back in and the physical market is weak, so the fundamentals are re-asserting themselves," a London trader said.
"The market has given up the increases in price from early last week when the crisis was intensifying," John Russel, managing director of Bangkok-based Petroleum Economics Ltd.
But traders noted Washington remained ready to strike Iraq if Baghdad failed to keep its word and allow unhindered access for arms inspections dismantling Iraqi weapons of mass destruction.
In London, Prime Minister Tony Blair said on Monday that Britain and the United States would have no hesitation in attacking Iraq without warning if Baghdad again defied United Nations weapons inspectors.
"No warnings, no wrangling, no negotiations, no last minute letters. The next withdrawal of cooperation and he will be hit," Blair told parliament in a statement about events at the weekend that left Iraq within two hours of air strikes.
U.S. Defense Secretary William Cohen said on Monday the U.S. military will strike Iraq without warning if President Saddam Hussein breaks his promise to cooperate fully with the U.N. arms inspections.
U.N. Secretary General Kofi Annan said that there was no guarantee there would be time for diplomacy if Iraq once again defied U.N. resolutions on the work of the inspectors.
"The U.S. has the mandate from the U.N., so the markets could be surprised by an attack without warning if things go wrong again," said brokers GNI in London.
Annan said complete compliance was the best way for Iraq to achieve a lifting of global sanctions that have been in place since its invasion of Kuwait in 1990.
Oil experts monitoring Iraq crude exports for the United Nations as part of an oil-for-food programme remained in place in Iraq during the latest crisis and loadings went ahead virtually uninterrupted, shipping sources said.
A total of 1.8 million barrels from Turkey's Mediterranean port of Ceyhan and 3.4 million barrels from Mina al-Bakr in the Gulf loaded in the last two days and more loading is now in progress.
But the threat of U.S air strikes stopped some oil loading as scheduled, the sources said. Bulgaria's Rosbulneft loaded only 400,000 barrels instead of its scheduled 1.9 million barrels, citing safety concerns for its decision.
James Brown, Asia energy analyst at Merrill Lynch, said while the latest crisis was over, it did not ensure there would not be another in the future given Iraq's history of disrupting the weapons inspection programme.
"I am not convinced that this present conflict is over. It leaves the oil market on edge until such a time as this whole question is resolved."
The price slide brings into the spotlight once again high global oil stocks and efforts by the Organisation of the Petroleum Exporting Countries (OPEC) to bolster oil prices, which are more than $6 lower than levels a year ago.
OPEC meets in Vienna next week to weigh up whether to cut output further or to try to enforce greater compliance with the existing cuts and extend their duration.
Russel, forecasting a global stock build in 1999 of 900,000 bpd following an estimated 1.5 million bpd build in 1998, said OPEC must cut output again or risk single digit priced oil in 1999.
GNI in London commented: "OPEC really ought to show the market something new at this month's meeting to try to provide some confidence."
11/16 16:33 NYMEX crude ends at $12.82 as Iraq crisis eases
NEW YORK, Nov 16 - December crude oil futures on the New York Mercantile Exchange (NYMEX) Monday fell below $13 a barrel, a three-month low, on a barrage of selling as the latest Iraq/United Nations crisis eased and as technical players bailed out, traders said.
"We're back worrying over the fundamental fact that we have a big oversupply," said a NYMEX floor trader, noting the U.S. had ended a military buildup on the Gulf.
The front-month crude contract settled at $12.82, down 75 cents from Friday, after edging up a bit on market-on-close orders. The contract's settlement was the lowest since Aug. 13, when it dipped to $12.69. The last trade was also a new life-of-contract low.
From Friday's high of $14.22, the front-month contract has fallen $1.40. Other crude forward months also fell to new contract lows.
Heating oil and gasoline futures took a pummeling, too.
The December heating oil contract settled at 36.15 cents a gallon, down 1.71 cents from Friday. It rose a bit in late trading from a contract low of 36.00 cents.
The December gasoline contract finished at 39.57 cents a gallon, down 1.48 cents, after plunging to another contract low of 39.50 cents.
In London, January Brent crude on the International Petroleum Exchange fell 59 cents to $11.75, just 20 cents above its fresh 10-year low of $11.55 reached on Aug. 11.
In the latest Iraq/U.N. confrontation, front-month crude cheered market bulls when it hit an intraday high of $14.81 two weeks ago on Monday, Nov. 2, the first day of trading after Iraq announced on Oct. 31 its decision to stop cooperating with U.N. arms inspectors.
The contract went on a decline after that, then reversed, generally moving up, but in fits and starts, on headline-driven market reaction, beginning Nov. 10. That day, the front-month crude recovered from a contract low of $13.23 to close at $13.52, after U.S. Defense Secretary William Cohen said "time is running out" for Iraq to comply with U.N. weapons inspections.
The following day, December crude edged up to $13.55 as President Bill Clinton said he was prepared to use force, if needed, if Iraq did not back down. The contract traded as high as $13.90 that day. The Pentagon stepped up its arms buildup in the Gulf, saying it would send more warplanes and troops.
On Thursday, as U.S. B-52s and Stealth jets began leaving their U.S. bases for staging areas within striking distance of Iraq, Cohen raised a new warning to Saddam Hussein, saying any military strike would be "significant." That pushed December crude even higher, to an intraday high of $13.90, before closing at $13.84.
On Friday, Iraq remained defiant as U.S. Secretary of State Madeleine Albright warned Iraq: "Reverse course or face the consequences." The contract hit an intraday high of $14.22, but closed at $13.57, after Iraqi President Saddam Hussein around midday, New York time, said Iraq was ready to "react positively" to any initiative that would meet its legitimate demands.
Washington stepped up the pressure with the threat of an attack on Saturday, and Iraq backed down at the 11th hour, making a pledge that it would unconditionally allow the return of the U.N. arms inspectors to resume their task.
Clinton on Sunday accepted Saddam's offer, saying the Iraqi leader had retreated, but added Iraq's vow would be tested quickly and that U.S. and British forces would be ready to attack without warning if Saddam again reneges on his word.
As this developed, market focus has shifted to the oversupply situation. The oil ministers of the Organization of Petroleum Exporting Countries (OPEC) will meet on Nov. 25 to discuss ways to lift oil prices, which have remained about $8 a barrel lower than their 1997 peaks.
11/16 18:32 US Crude Outlook - Weaker as Iraq tensions subside
NEW YORK, Nov 16 - Crude oil prices in the U.S. will be under pressure this week, as traders digest this-weekend's resolution to tensions between Iraq and the United States and turn attention back on supply and demand.
This is apparent from Monday's huge sell-off, in which front-month December light, sweet crude oil on the New York Mercantile Exchange settled 75 cents weaker, at $13.82 a barrel.
Although cash traders say the psychological impact of the no-strike news from Iraq may be larger than the actual fundamental impact on sour crude supplies to the United States, there is no discounting the fact that in December about six million barrels of Iraqi crude, mostly Basrah Light, are expected to reach the U.S. market.
"To me it's been pretty balanced," said one trader who follows Iraqi crudes closely.
The continued flow of Iraqi oil will mean that the sour crude oil market in the United States will not experience new strength it would have experienced had Washington gone through with a military strike on Iraq, U.S. oil traders said on Monday.
Inventory and shipments of sour crudes for the United States has been been, in relation to sweet grades, low. If the Iraqi sour crude Basrah Light had been taken out of the market, sour grades in the U.S. would have strengthened in terms of differentials to the U.S. benchmark, West Texas Intermediate/Cushing, and because of the boost to outright prices on the New York Mercantile Exchange that would have followed military action.
One seller of Basrah Light valued the sour Iraqi crude at $2.30/2.25 under WTI.
Iraqi imports have been as high as 20 million barrels per month since the "oil-for-food" program.
Although traders won't see the December sour crude from Iraq stemmed, the future of the overall "oil-for-food" sale remains in question. Iraq has not officially decided whether to participate in the oil sale after the current six-month period of sales ends November 25.
But most observers of the situation at the United Nations say that Iraq wants to continue the program as long as it is not seen as open-ended. Benon Sevan, U.N. director of the oil-for-food program, said in Washington on Monday that the oil sale is expected to continue beyond November 25.
However, highly placed U.N. staffers said that a gap of about two or three weeks is possible unless Baghdad acts promptly to allow the so-called fifth six-month phase of the program to begin promptly. In the past, Iraq has held up or slowed the flow of oil as the six-month phases end in protest of what it sees as unfair sanctions that include an oil embargo.
Cash traders said that this week's activity is expected to be slight. Most refiners already have their needs met or almost met for December, and many traders want to keep their inventories to a minimum in December, in order to avoid taxes that must be paid on those stocks.
Iraq's crude oil is hitting a market in which sour grades are already under sharp pressure. West Texas Sour/Midland has slipped to $1.75 beneath WTI/Cushing over the last couple of days, the sharpest discount witnessed since April.
Eugene Island and Bonito Sour, both offshore sour crudes, could also succumb this week to competition for imports. On Monday, Eugene Island was trading at a $1.25 discount to WTI/Cushing, while Bonito Sour was holding at about 95 cents beneath the benchmark.
The sour crude market is unlikely to stage a comeback until early next year, when Chevron's 295,000 barrel per day refinery in Pascagoula, Mississippi returns to full speed. The refinery, which runs mostly sour crudes, has been shut-down since it was flooded in September by Hurricane Georges.
In the U.S. sweet crude market, Heavy Louisiana Sweet/Empire has climbed to a premium to Light Louisiana Sweet/St. James after a bout of short-covering late last week. LLS was done at -33 and -30 cents to WTI/Cushing on Monday and HLS was done at -20 cents on a deal that involved an exchange of LLS for HLS.
Crude traders said the HLS gains were in part the result of weather-related production shut-downs in September and October.
On the foreign side, crude oil is being amply offered, with barrels coming from West Africa and Europe, as well as Latin America, traders said.
With the January trans-Atlantic arbitrage wide open around $1.37 a barrel, traders are trying to take advantage of the profit incentive to offer Dated-related barrels into the U.S.
North Sea Brent is said to be on offer at $1.05-1.00 under January West Texas Intermediate. West African crudes such as Nigerian Bonny Light, Forcados and Angolan Cabinda are all said to be available in the U.S. Gulf.
Colombian sweet crude, Cusiana is valued around $1.50-1.45 under WTI. Traders said bids on four December-loading cargoes of Cusiana are due on Tuesday.
Colombia's state-owned oil company Ecopetrol is said to have awarded a cargo of Vasconia was sold at $2.95 under WTI, or 15 cents weaker than talk on Friday.
11/16 20:29 U.S. ACCESS crude prices extend daytime losses
LOS ANGELES, Nov 16 - U.S. crude oil futures extended daytime losses in the ACCESS overnight session Monday, in reaction to the prolonged world oil glut and fading concerns that a key source of exports would be threatened.
Tensions between the United Nations and Iraqi, a key oil exporter, faded after Bagdad agreed to unconditionally to allow U.N. arms inspectors to resume weapons monitoring duties unhampered. The agreement averted a possible air strike by U.N. forces.
By 1720 PDT, crude oil for December delivery eased about five cents a barrel to $12.77 on ACCESS, with total volume reaching 2,791 lots and 947 traded in December.
"It's a continuation of today when the Iraqi situation was blown off," said one ACCESS dealer.
Traders said $12.77 would be the support level for Tuesday's daytime market, and if prices slipped lower, support was seen at $12.50.
"We'll see if that holds," the trader said. "If it doesn't, support is $11.42 a barrel, last June's low."
The December contract had finished the day down 75 cents a barrel at $12.82 a barrel.
Unleaded gasoline eased 0.07 cent a gallon to 39.50 cents, with 30 lots traded overall and 18 lots changing hands in December.
December heating oil fell 0.15 cent a gallon to 36 cents a gallon with 97 lots traded total and 49 in the front month.
Today in the energy markets - Nov 17th
VIENNA - Second day of meeting of OPEC Economic Commission Board, drawn from experts from the 11 member countries, to discuss the oil market outlook ahead of OPEC's winter ministerial conference.
ABERDEEN, Scotland - Value and Profit from Supply Chain Culture conference . Stakis Treetops hotel. Speakers Kerst Troost, commercial and financial director Shell Exploration and Production.
GENEVA - Godwin Obasi, chief of the World Meteorological Organisation, gives a news conference on latest developments in studies of the El Nino/La Nina weather phenomena and on global warming following recent meetings in Latin America 0930 GMT.
HAMBURG - German Mineral Oil Association news conference on ecological tax reform 0900 GMT.
LONDON - The 19th Annual Oil and Money Conference sponsored by Energy Intelligence Group and the International Herald Tribune. Kuwaiti Oil Minister Sheikh Saud Nasser al-Sabah is the keynote speaker. Also scheduled to speak are Algerian Oil Minister Youssef Yousfi, Iran's Deputy Oil Minister Mehdi Husseini, Petroleos Mexicanos Director-General Adrian Lajous and the Franco Bernabe, chief executive of state Italian oil company ENI <ENI.MI>. Intercontinental Hotel.
LONDON - Institute of Economic Affairs annual conference on Electricity '98, strategies for success in a competitive market. SAS Radisson Portman Hotel. Speakers include David Jefferies, Chairman National Grid Group plc, Jim Forbes, CEO Southern Electric, and Jim Whelan, MD Easter Power and Energy Trading.
HAVANA - President of Brazilian state oil firm Petrobras, Joel Renno, and Energy Minister Raimundo Britto visit Cuba to discuss deal with Cuba Petroleo (Cupetrol) for oil exploration and production in Cuba.
NEW YORK - Russian Oil and Gas Finance and Investment Forum with update on Russian capital markets. Plaza Hotel, New York. Forum organised by Sachs Associates and Bloomberg news.
BOMBAY - Storage Terminal Tanks Indian 98 conference, (Second day).
TEHRAN - Britain sends an oil and gas trade mission to Iran (Fourth day).
ADELAIDE, Australia - New Age of Natural Gas Convention (Final day).
LONDON - Senior Georgian government members visit London to discuss investment opportunities in Georgia (Final day).
TORONTO - First Energy Capital Corp. investment conference spotlighting Canadian oil companies active internationally (Final day).
11/17 02:54 WSC-Canadian Energy Weather
As of 07:35 GMT, 17 NOV 1998
SUMMARY- Temperatures were near to 4F (2C) below normal.
IMPACT- Cooler air over the region during the next 48 hours keeps heating demand slightly above normal, before milder air arrives and lowers the need for heating later in the week.
FORECAST-
48 HOUR...Temperatures from near normal in the west to 2-4F (1-2C) below normal today, 2-4F(1-2C) below normal Wednesday.
3 TO 5 DAY...Temperatures 3-6F (2-3C) above normal Thursday, 4-8F (2-4C) above normal Friday, near normal levels Saturday.
6 TO 10 DAY...Temperatures near to above normal.
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11/17 05:49 U.S. Products Outlook-Bearish but still no cuts
NEW YORK, Nov 16 - U.S. cash products players said Monday they expected fundamentals of high stocks and increasing refinery runs to continue to pressure down prices, although players were divided on the impact of any continued nomination freezes on the Colonial Pipeline.
Last week, the Colonial Pipeline froze November nominations on the largest products line from the Gulf Coast's refining hub to the consuming center in northeast, which was full on both distillates and gasoline lines.
Gulf Coast gasoline shed shed over a penny a gallon on its differentials for prompt gasoline supplies while New York traders were more bearish on the forward barrels as they expected the length to push its way northward.
But on the otherhand, some traders said the Colonial Pipeline was more concerned about fitting all 36 cycles in by the end of the year, which may reduce the amount of product coming up.
Meanwhile, growing refinery runs were going to add to the glut. The American Petroleum weekly stock data showed refinery runs were returning to full rates and were up two percent to 95.6 percent in the first week of November.
"It's an ugly gasoline market," said a Gulf Coast trader for a major refiner.
An additional gush is expected to flow if Exxon Corp's <XON.N> 186,000 barrel-per-day (bpd) crude unit and 42,000 bpd coker at its 450,000 bpd Baton Rouge, Louisiana return this week as slated. The plant is undergoing maintenance which the company said would last six weeks. The Baton Rouge maintenance caps the last U.S. planned turnaround of substance before spring.
Meanwhile Chevron's <CHV.N> Pascagoula, Miss. 295,000 bpd plant which was flood-damaged after Hurricane Georges hit the Gulf Coast in the end of September, is slated to restart late November and to reach full operations at the end of the year.
Vitol's 105,000 bpd North Atlantic Refining Ltd at Come By Chance, Newfoundland is expected to begin to return to service on Friday according to an operations source at the refinery. But normal operations were still a week to 10 days off, the source said.
Either way, the news is bearish for New York Harbor hub, as the refinery is a major exporter to the hub.
In terms of possible refinery run cuts, one trader said if Exxon Baton Rouge returns from maintenance as slated this week, the Gulf hub would be oversupplied to the point that many oil companies would begin making refining cuts.
U.S. Gulf coast refineries cracking U.S. light crude (West Texas Intermediate) last week sustained a 91 cents a barrel loss compared with losses of 37 cents for the previous week and with October's average margin of 38 cents in the positive.
Margins have even fallen below the worst monthly performance on WTI-cracking units this year of a 38 cents a barrel loss in September.
While one Gulf Coast trader said there were market rumors that cuts would be begin this week which "wouldn't be surprising", a refinery source said cuts for his company were still "a month, a month and a half away," from happening, barring severe cold weather which would push cuts even further out.
But with OPEC's last meeting of the year coming up on November 25 and the Thanksgiving holiday next week, traders expected trade in the cash market to remain thin.
"It is a very quiet market with disappointment over the Iraqi situation where nothing materialized, while technically, the market is looking extremely negative. There's Thanksgiving and OPEC next week...people aren't that keen to do that much," one trader said.
"The cash market is taking the lead from the Merc... it is unquestionable that the Merc will push down differentials," the trader added.
On Monday NYMEX, December heating oil closed 1.71 cents weaker at 36.15 cents a gallon and gasoline futures dropped 1.48 cents to finish at 39.57 cents a gallon.
11/17 06:02 Oil price swing will hinge on Gulf upstream-ENI
LONDON, Nov 17 - Sickly oil prices could slide further if Gulf petroleum powers follow Venezuela's example and encourage upstream participation by international oil companies, a senior European energy executive said on Tuesday.
But low prices could be followed at some stage by sharp price rises if a resulting flood of cheap Gulf oil forced high cost rivals out of the market while global reserve replacement lagged consumption growth, said Franco Bernabe, managing director of Italy's oil and gas group ENI <ENI.M>.
"We will see a period of low oil prices, but then this period will trigger new oil prices," Bernabe told an oil industry conference.
"The size and timing of the crisis can be affected only by the five Gulf majors, by deciding when or not to open the upstream to international oil companies," he said.
"If these countries follow the path taken by Venezuela then the price decrease will be even more dramatic and market share will increase for these countries."
Bernabe, who said his company planned on the basis of $12 to $13 a barrel for the next four to five years, was outlining what he called his basic instincts about the future of the industry.
Outling a long-term bullish scenario for prices, Bernabe said continuing advances in production and exploration technology would continue to drive down the marginal cost of producing oil in the word's difficult, expensive regions.
But these same technologies could be used to expand output capacity in the major Gulf countries that have the bulk of the world's recoverable reserves if they adopt Venezuela's policy of involving Western oil majors who developed such innovations.
"Their (Gulf countries') market share will increase because most oil being chased in the world is not competitive with the oil that will be coming from those countries," he said.
"Oil in Central Asia will end up being (marginal, high-cost) like tar sands in the 1960s."
On the demand side, world oil consumption growth would pick up steam following a resolution of Asia's current economic difficulties as developing countries raise their energy consumption to first world levels.
The Average Amerian consumed twice as much energy as the average European, 11 times as much as the average Chinese and 27 times as much as the average Indian.
On the supply side, no new major finds of "elephant" or supergiant fields had been made in recent years, although offshore Brazil and West Africa had seen exciting finds.
The historical peak of new discoveries was way back in the early 1960s while the world each year replaced only one fifth of the reserves it consumed.
"It will be increasingly difficult to find new oil in the future," Bernabe said. Demand increases would require the addition of an equivalent of production from a country like Iran every year, he said.
Moreover, the reserves to production ratio of the 120 or so major publicly-quoted companies was continuing to decline, falling to an industry average of 12 years from 18 years in the space of the last few years.
Research by ENI, using data that sought to strip away what Bernabe called an "optical illusion" that exaggerated reservoir size, suggested production increases by most of the world's leading publicly-quoted oil companies would peak in the next two to three years, with a minority reaching peak output in the years 2004/2005.
"Then we will see substantial price increases in a few years time, and the four or five Gulf produers will be brought in the centre of the stage," he said.
11/17 09:36 NYMEX crude open seen 5 cts up on technical bounce
NEW YORK, Nov 17 - December crude futures on the NYMEX were called to open about five cents higher Tuesday as traders said they expected the market to bounce technically from Monday's big losses, traders said.
Refined products were expected to open unchanged to about 0.15 cent better.
"The news from Iraq is out of the way, and Brent in London is just a few ticks higher, so the market will not be moving much as we open," said a NYMEX floor trader.
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