MARKET WRAP - 2 / Crude Oil Week Ending 12/04/98
Page Index Of Content
12/04 16:12 World Oil ticks higher, but bears prevail
12/04 17:08 U.S. cash crude - Louisiana grades up, other even
12/04 17:31 NYMEX crude, products end down after volatile week
12/04 17:33 North Sea Brent six cents weaker in late U.S.
12/04 18:00 US foreign crude mostly steady after volatile week
12/04 18:15 U.S. Cash Products-NYH jet fuel down on low deal
12/04 21:56 U.S West Coast crude diffs flat but under pressure
12/06 06:08 U.S. Prods Outlook-High temperatures to melt heating oil
12/05 11:42 OPEC could hold special meeting before March-Lukman
12/04 16:12 World Oil ticks higher, but bears prevail
Depressed oil prices gained a little ground on Friday even though weak demand and a divided OPEC continued to drive bearish market sentiment. "These little movements are just background noise," said Peter Gignoux of Salomon Smith Barney in London.
The International Petroleum Exchange benchmark Brent last traded four cents higher at $10.22 a barrel on Friday but average oil prices this year, at around $13.58, are at their lowest since 1976.
Traders ultimately shrugged off news that Norway on Friday had extended a cut of 3 percent in its oil output, or about 100,000 barrels per day (bpd), for six months to June 30, 1999, in a bid to bolster sagging prices.
Norway imposed cuts from May 1 to the end of 1998 as part of a bid by OPEC and non-OPEC producers to shore up prices.
Traders instead trained their focus on a market smothered by an enormous stock overhang created by a demand collapse in Asia, an unusually warm start to winter in the northeast United States and rising Iraqi exports.
"We are 12 cents away from the OPEC basket (crude price) being 50 percent down on the 1997 average," Gignoux said. "That in itself is a pretty damning indictment of OPEC's aptitude for price stabilization."
OPEC members were divided at a winter meeting last week as Iran and Venezuela were charged with ignoring production curbs, which stand at 2.6 million bpd.
The group neither extended current restraint beyond the agreed June 1999 limit nor agreed to deepen cuts. Instead OPEC appeared to pin its hopes on a further meeting in March. The research arm of Dresdner Kleinwort Benson bank in London on Thursday said OPEC output actually rose by 500,000 bpd in November to 27.5 million bpd after falling slightly in October.
"If our estimate of a rebound in OPEC output proves true, prices could dip further in the near term," the Dresdner Kleinwort report said.
Brokers GNI said the output increase reduced the compliance rate to 74 percent from October's 90 percent.
"These numbers are simply not good enough and prices will fall further unless certain producers see sense," a GNI daily market report said.
Even with a cold snap in Europe and Asia, and the forecast of cooler temperatures in the United States next week, heating oil stocks in particular continued to weigh on prices.
Dresdner lowered its average 1998 Brent price forecast to $13.00 a barrel from $13.30 in view of poor fundamentals. It also cut its 1999 Brent forecast to $13.00 from $15.00.
"Short of a miraculously cold first quarter which might add 0.5 million barrels per day to demand, there is little prospect of any meaningful increase in oil prices before March," said the bank's latest oil and gas bulletin.
Even Saudi Arabia, the world's top crude oil exporter, was feeling the pinch. The Financial Times said on Friday that falling prices had forced the kingdom to turn to its United Arab Emirates neighbour Abu Dhabi for a loan estimated by Saudi bankers at $5 billion. The report said the loan was needed to finance the Gulf state's soaring budget deficit.
12/04 17:08 U.S. cash crude - Louisiana grades up, other even
U.S. light, sweet crude prices climbed slightly higher in the cash market Friday, reacting to what appears to be a slowdown in competing imports, traders said.
Light Louisiana Sweet/St. James was done at just two cents under the cash crude benchmark, West Texas Intermediate/Cushing, compared to a discount of nearly 15 cents a barrel two days ago.
The advance came as the spread between U.S. and North Sea Brent crude prices narrowed, making it less economic to move incremental European cargoes which would normally compete with LLS into the U.S. Gulf Coast.
LLS prices, as well as prices for other cash market crudes, also benefited from stronger futures in the morning, which pushed benchmark WTI/Cushing almost a dime higher to over $11.30 a barrel.
But by the close, the front-month January contract for crude oil on the New York Mercantile Exchange (NYMEX) was down two cents at $11.17 a barrel.
Traders said the differentials for individual grades were largely unchanged except for the Louisiana grades.
Heavy Louisiana Sweet/Empire was done at minus 15 cents to WTI/Cushing and talked at minus 16/11 cents.
West Texas Sour/Midland was done at $1.39 less than WTI/Cushing and talked at -$1.40/-$1.36; West Texas Intermediate/Midland was talked at -32/-29 cents; Eugene Island was done at minus $1.25; and WTI/Cushing postings plus was talked at $2.14/$2.17.
12/04 17:31 NYMEX crude, products end down after volatile week
January crude oil futures on the New York Mercantile Exchange (NYMEX) finished with a small loss on Friday, ending the volatile week above the record breaking 12-year lows struck on Monday.
"The market is still shaky, but it seems people don't want to revisit the lows below $11," said a NYMEX floor trader.
A combination of selling and pre-weekend short covering accounted for the day's volatile trading, with bearish sentiment prevailing as a stubborn large supply overhang continues to weigh the market down.
In choppy trading Friday, the front-month crude contract settled at $11.17 a barrel, down two cents from Thursday, but 35 cents above the record low of $10.82 on Monday. However, it was five cents below Monday's settlement of $11.22.
The contract traded between $11.13/11.35 for most of Friday.
January heating oil settled at 32.20 cents a gallon, down 0.22 cent, wiping out modest gains it had held for most of the day while trading at the 32.10/32.85-cent range.
January gasoline ended at 34.19 cents a gallon, down 0.32 cent on the day. It traded between 33.90/34.65 cents a gallon.
In London, January Brent crude ended at $10.22 a barrel, up a penny, recovering from the day's low of $10.13.
NYMEX traders welcomed news that Norway, a major non-OPEC producer, had extended a 100,000 barrel per day (bpd) production cut to mid-1999, from the end of 1998.
Norway and Mexico, another major non-OPEC producer, joined hands with members of the Organization of Petroleum Exporting Countries (OPEC) in withdrawing 3.1 million bpd of oil from the world market this year. OPEC members contributed 2.6 million bpd to the cuts.
Mexico has previously extended its 200,000 bpd export cuts to the end of 1999, from mid-1999.
But traders said the example set by Mexico and Norway should be emulated by OPEC. They have roundly criticized OPEC after its ministers failed to take any price-supportive steps at their winter meeting last week. The inaction sent oil prices plunging to 12-year lows on both sides of the Atlantic on Monday.
A big drop of 5.7 million barrels in U.S. crude stocks for the week ended Nov. 27 failed to stem the selloffs in NYMEX crude all week.
Warmer-than-normal temperatures, particularly in the important Northeast heating oil market, as well as an increase in weekly distillate inventories of 1.6 million barrels dampened buying interest on heating oil futures. However, some forecasts of colder weather in the coming week led to heating oil's firmness on Thursday. But profit- taking on Friday trimmed gains.
Gasoline has remained bearish, with seasonal expectations of softening demand.
12/04 17:33 North Sea Brent six cents weaker in late U.S.
North Sea Brent was six cents lower late Friday in the United States, traders said.
January Brent was valued at $10.16 a barrel, down from its close at $10.22 on the International Petroleum Exchange.
Traders said no full cash cargoes of Brent were sold in the aftermarket. Friday's activity included 300 lots of January Brent cash partial cargoes at $10.18, and 750 lots sold at $10.15.
The Brent December-January spread was heard sold at minus 10 cents, while the Brent January-February spread traded at minus 29 cents, traders said.
12/04 18:00 US foreign crude mostly steady after volatile week
The U.S. market for imported crudes remained mostly steady on Friday, as traders wrapped up a volatile week for crude oil prices.
The New York Mercantile Exchange settled two cents lower on Friday at $11.17 a barrel, just above the intraday high of $11.13. The contract reached an intraday high of $11.35.
LATAM - COLOMBIA, ECUADOR
-- Colombia's main sweet crude, Cusiana remained valued at $1.30-1.25 under West Texas Intermediate, where the state-owned oil company Ecopetrol awarded three January-loading cargoes at the stronger prices. The cargoes are scheduled to load January 4-6, 6-10 and 12-16, were due on Wednesday.
Cusiana's strength was attributed to the recent narrowing of the trans-Atlantic arbitrage, which has made alternative sweet North Sea Brent expensive in U.S. markets.
Also on offer are two December loading cargoes of Cusiana, with one cargo loading as promptly as next week.
-- Traders were still in the dark about Ecopetrol's December 31-January 6 loading cargo of medium heavy Cano Limon, with some players wondering if the cargo had been awarded. Most players are very hesitant to even put a price on the heavier crude.
Loadings of the grade have been severely disrupted this year, with the latest hitch occurring Wednesday, when the pipeline connecting the Cano Limon field to the Caribbean loading port of Covenas was shut after storage facilities at the port were filled. Most disruptions to the pipeline have been from guerrilla bombings, however, which totaled a record 74 attacks this year.
-- Details were equally scarce about Ecopetrol's January 4-8 loading cargo of medium-heavy Vasconia, for which bids were due on Thursday. Vasconia was last heard done at a discount of $2.85 under WTI, when a December cargo was sold to a U.S. refiner.
-- Ecuador's sour crude Oriente remained valued around the $3.00 level below U.S. benchmark WTI, traders said.
NORTH SEA, WEST AFRICAN
-- The January WTI-Brent arbitrage continued to fluctuate around the one dollar level, settling at 95 cents on Friday.
-- Although the relatively narrow arb is beginning to affect U.S. buyers' interest in North Sea Brent, there was talk on Thursday that at least one more VLCC of West African crude had been fixed to come to the U.S.
Early January Brent was on offer at January WTI minus 40 cents, but many buyers said this was too expensive for their tastes.
-- A U.S. refiner is said to have fixed a VLCC of Nigerian Forcados, scheduled to load December 15-20. The Forcados is on offer at a delivered price of $1.40 over Dated Brent, traders said.
Nigerian Bonny Light and Qua Iboe were also said to be on offer at the same levels, which traders said was about equal to February WTI minus 20 cents.
IRAQ
-- Sources estimated that more than 10 million barrels of Iraqi sour, Basrah Light were scheduled to load for the U.S. Gulf in December. Traders said Basrah was on offer at $2.40 under February WTI, for second half January cargoes of Basrah.
12/04 18:15 U.S. Cash Products-NYH jet fuel down on low deal
New York Harbor jet fuel differentials ended Friday lower, giving up another penny per gallon to their 5.0 cents loss in the last week, as sentiment was weighed down by a single but low level deal, traders said.
Jet fuel in the Northeast has been under pressure as differentials moved down in correction to earlier demand for a heating oil blendstock.
But airlines demand was also lackluster and arbitrage supplies from the Gulf Coast, fixed on high levels two weeks ago, were exerting additional pressure.
Outright jet fuel prices have fallen by around 17 percent since Nov. 20.
But traders saw a floor to the fall before it hits the same price as heating oil.
"It can't go much lower because once it goes to No.2 oil, it will be No.2 oil," a source said.
Meanwhile the rest of the products in the Harbor were soft, holding onto low differentials despite the drop on the NYMEX products amid very thin trade.
Gulf Coast distillates also defied the NYMEX, shedding an additional quarter cent on its differentials while gasoline outright prices were slightly softer on the day.
January gasoline on the NYMEX settled down 0.32 cent at 34.19 cents per gallon, with its contango to February widening as the forward contract only shed 0.22 cent to 35.85.
The widening spread was putting pressure on the distillates as traders sought to dump the distillate and store gasoline.
But there was also pressure on the prompt heating oil which fell 0.22 cent to 32.20 while Feb. only slipped 0.07 cent to 33.58.
Jan. crude settled a marginal two cents per barrel lower at $11.17.
NEW YORK HARBOR
Distillate differentials ended weaker, particularly on the jet fuel with a sole low-level deal dragging down market sentiment, trader said.
The 54-grade traded at a 0.60 cent premium down from Thursday's trade at 1.50 cent, but traders said liquidity was really thin and the deal could have been for distressed supplies.
The 55-grade was also pegged up to a cent lower on the back of the 54-grade's weakness, at 1.50/2.00 cents premium.
Jet fuel has shed over 5.00 cent on its premium in the past week amid incoming arbitrage supplies from the Gulf Coast while spot demand from the airlines was muted with shortcovering already completed, sources said.
Diesel was down a quarter cent with Sunoco's lowering its posting to 0.25 cent premium, and a couple of deals reported there.
Heating oil was steady to shade firmer, trading at the top end of its range of 2.25/2.00 cents under the print.
Trade on the gasolines was thin with prompt regular conventional M5-gasoline a shade firmer on the back of the Gulf's strength at a 5.25/5.00 cents discount.
Prompt regular reformulated A5 grade traded at a 2.65 cent discount, and A9 at 1.25, 1.20 cents.
The premium grades were notional with conventional V5 steady at 4.00 cents discount and the RFG D5 at 1.75 cents under the print and D9 at 0.75/1.00 cent.
GULF COAST
Gulf conventional gasoline slipped about 0.20 cent while distillates also ended slightly weaker, traders said.
Heating oil traded at 4.00 cents under for the front 35 cycle, about 0.30 cent weaker.
Regular gasoline was pegged about 6.20/6.00 under the January screen or about 0.20 cent weaker, traders said.
Low sulphur diesel weakened about 0.20 cent assessed at 2.45/2.25 cent under.
Jet fuel 54-grade on the front 35 cycle was assessed at 2.50/2.25 cents under.
Premium V5 grade gasoline was pegged steady at 1.50/1.75 to the M grade and the prompt A regular reformulated gasoline was traded at a 3.00 cents under the screen.
MIDCONTINENT
Group gasoline held losses pegged at 5.50/5.25 cents under on weakness in the Gulf.
Chicago gasoline gained about 0.20 points to 5.40/5.20 cent under the screen.
Chicago low sulphur diesel for early December material was pegged 0.75/0.50 under the screen. Group material was pegged 15 points stronger at 0.50/0.25 cents under.
Chicago premium rose to 2.75 over and Chicago jet fuel slipped to 1.25/1.50 over the screen.
Group Jet held Wednesday's gains on the possibility of Colonial Pipeline space, and was steady at 3.50/3.75 cents over.Chicago jet was pegged at 0.50/1.00 cent over the screen.
12/04 21:56 U.S West Coast crude diffs flat but under pressure
Differentials for U.S. West Coast waterborne crudes remained steady Friday, but came under pressure when a major refiner said it had sold benchmark Alaska North Slope (ANS) crude at a sharply bigger discount. While the official differential for ANS remained steady at $1.70 under January West Texas Intermediate (WTI), traders reported that a cargo for late December delivery sold Decebmer 3 for a $2.10 discount.
The deal was still considered unofficial on Friday because they buyer, reported to be Atlantic Richfield Co., declined to confirm the deal.
Despite Arco's silence, traders said the deal, if confirmed, could signal a dramatic downturn in the price of ANS.
A damaged refinery, a seasonal drop in West Coast demand and rumors of upcoming refinery maintenance combined to put pressure on the discount for ANS, traders said.
Equiva Trading Co., the seller, has been under pressure to unload crude since an explosion last week trimmed the processing capacity of its refinery in Anacortes, Wash.., traders said.
Atlantic Richfield Co. initially declined comment but sources said the company may confirm the deal later.
If the price is confirmed, it would drop the Reuters published discount for ANS, used as one of three reference prices for the West Coast ANS.
As a result of damaged refinery, Equiva could be forced to sell one cargo a month of ANS instead of buying two to three cargoes a month as it normally does. A normal cargo holds around 350,000 barrels of crude.
"This will take them out of the spot market as a buyer and put them in the spot market as a seller for a cargo a month," one West Coast crude trader said.
Equiva is jointly owned by Texaco Inc. <TX.N>, Royal Dutch/Shell Group <RD.AS>, and Saudi Aramco.
Traders said the unofficial deal involved 300,000 barrels of ANS to be delivered in late December to Atlantic Richfield Co.'s Ferndale, Wash., refinery. The price was pegged at a $2.10 differential off January West Texas Intermediate (WTI) prices.
Outright ANS prices have fallen nearly $8 a barrel under year-ago levels due to a broad collapse in crude prices. ANS discounts, however, have held steady at $1.70 a barrel in recent weeks as refiners try to trim inventories.
Outright prices for ANS are calculated by subtracting the discount off the current value of West Texas Intermediate/Cushing (WTI) crude.
The news sparked concern among ANS sellers such as BP Oil. The deal could effect the pricing of 500,000 barrels per day in term contracts based on the last spot deal.
ANS is also under pressure because West Coast traders have said Exxon Corp.'s northern California refinery at Benecia will shut entirely in January for planned maintenance. The company has declined to confirm that.
Outright prices for January ANS on the West Coast fell to $9.41/9.58 a barrel from $9.46/9.63, reflecting declines in WTI prices.
Traders said California heavy grades remained steady, but that demand could stregthen.
Two major producers, Chevron and Texaco, may buy spot heavies to complete line fill on the Pacific Pipeline, due to begin operation in January.
"They're trying to fill it by December 15. That should make (supply) a little tighter," one trader said.
12/06 06:08 U.S. Prods Outlook-High temperatures to melt heating oil
U.S. heating oil prices are due for a meltdown this week as high stocks face unusually warm winter weather forecasts, analaysts and traders said Monday.
"The mild weather is not going to help...stocks don't look like they are going to be drawn down," one Gulf Coast trader said.
Other traders were sceptical that the futures heating oil screen could go any lower than depths it trod at Monday.
January heating oil on the New York Mercantile Exchange (NYMEX) lost 2.20 cents per gallon on Monday to close at 32.13 cents.
Meanwhile, gasoline also looked bearish with Exxon's <XON.N> Baton Rouge refinery beginning to emerge from its six week planned maintenance last week, although the 186,000 barrel per day (bpd) crude unit remains out of service with no estimated date of return, traders said.
"It's really bad on gasoline..the losses on the NYMEX were gasoline led," said one New York trader. On Monday, January gasoline on the NYMEX shed 2.10 cents to settle at 34.09 cents a gallon.
"We'll see how it goes on the new contract, but there is the glut and until people dump more distillates for the gasoline (storage), it will stay down," the trader said.
In the Northeast, the major heating oil consuming hub, unseasonably warm weather of the last few weeks was expected to continue. Temperatures were expected to be 10 to 15 degrees Fahrenheit above normal and eight to 12 degrees above normal on Friday, according to the Weather Services Corp on Monday.
Temperatures in the Mid-Atlantic were expected to be 15-20 degrees above normal Tuesday and 10-18 degrees above normal for the rest of the week.
"Make no mistake about it, the early winter weather is the most critical to prices," said an analyst in the Gulf.
"If we don't get the cold early and if refineries are running hard to meet a cold winter demand, there is less and less of a chance of any true shortage late in the winter no matter how cold it gets," he added.
"Heating oil in the Harbor is at historically unprecedented 30 cents with temperatures in the Northeast close to 70 degrees..the extended forecast shows that there is not much change for the region or for the rest of the country."
"It is not a constructive picture for heating oil or for natural gas. The only answer is for run cuts, but that will back out crude into the market. It is not just a problem with U.S. demand but a world wide demand issue."
Meanwhile, New York Harbor heating oil inventories were more than 6.3 million barrels higher than last year for the week ending November 20, according to last week's American Petroleum Institute (API) statistics, traders said.
And while Gulf Coast heating oil stocks are actually lower on a year-to-year basis, last week they rose about 345,000 barrels according to the API, in part because of the recent freezing of nominations on the Colonial Pipeline, traders said.
12/05 11:42 OPEC could hold special meeting before March-Lukman
OPEC's secretary-general said on Saturday the oil cartel would not rule out holding an extraordinary meeting to deal with the world oil price crisis before its next scheduled session in March.
"If things should warrant another meeting before March, I am sure (OPEC) member countries would institute such a meeting," Rilwanu Lukman told reporters in Muscat.
Lukman was speaking at a news conference on the sidelines of international economic forum in Oman, a small, independent oil producer which remained outside the Organisation of Petroleum Exporting Countries (OPEC) but cooperates with its decisions.
Oil ministers of the 11-member OPEC failed in their regular winter meeting in Vienna last month to take any action to rescue oil markets depressed by lowest prices since 1976.
Previously agreed production cuts totalling 2.6 million barrels per day (bpd) -- some 10 percent of OPEC output, remain in place until June, although independent monitors say several countries desperate for cash have been cheating on their quotas.
Iran and Venezuela have been singalled out as prime production quota busters.
The Vienna meeting was marred by bitter squabbling over compliance with two rounds of oil production cuts agreed earlier this year aimed at bolstering prices.
Lukman said OPEC , which is dominated by the world's largest producer and exporter Saudi Arabia, has limited power to impose strong output discipline on member countries because they are sovereign states.
"We don't have the power of sanctions...You cannot embargo a country for violating its quota," he said.
At the inconclusive Vienna meeting, ministers agreed to meet agian in March as previously scheduled. Analysts said OPEC would need to cut another 1.5 million bpd then to lift prices above current levels of around $10.
"Right now there is an agreenment in place which is valid until June," Lukman said.
"So, we already have that in our pocket...The conference reserves the right to hold an extraordinary meeting."
The former Nigerian cabinet minister said there was too much oil in the market. But he added : "We can't go on cutting, cutting, cutting for ever".
Lukman reiterated OPEC price targets of $15-$20 per barrel.
"OPEC would be happy with a price range of $15-$20. That is the price we would like to see in the market. That is the price we are working towards," he said.
Lukman sidestepped a question about the likelihood of a separate meeting between Saudi Arabia, Venezuela and Mexico -- architects of this year's first round of production cuts.
"The three so-called architects met early last week in Vienna. It is up to them if they want to meet so soon after that," he said, adding :"There are consultations going on all the time".
Lukman said the present environment of low oil prices and subdued demand had created uncertainties and sharpened the perception of investment risks for producers and investors.
"This has the disturbing potential of derailing what ordinarily would have been a timely investment to cater for projected high volume demand in the medium to long term," he said.
"Unless investors begin to take action soon enough, especially given the long-lead time for oil and gas expansion projects to come onstream, the seeds of drastic oil price volatilities as a consequence of inadequate supply caused by under-invsetement, would have been sold." |
