KORNER REPORT / Investing & Market Kommentary - 6
CRUDE OIL Continued
01/15 14:41 NYMEX Crude, Products End Lower Ahead Of Weekend
NEW YORK, Jan 15 - Crude oil futures and refined product futures on the New York Mercantile Exchange ended lower Friday in thin trade ahead of the long holiday weekend, traders said.
A selling spurt minutes before the close pushed February crude down to $12.06 a barrel, before settling at $12.11 a barrel, off four cents.
In the early trade, light short covering had pushed the contract up by as much as 20 cents to $12.35. But about an hour before the close, business had slowed, with little book squaring left ahead of the long weekend, they said.
NYMEX is closed on Monday in observance of the federal holiday to observe Martin Luther King, Jr.'s birthday.
February heating oil settled at 32.56 cents a gallon, down 0.21 cent, after last trading at 32.50 cents, its session low. Earlier, the contract touched its session high of 33.35 cents.
February gasoline ended at 35.24 cents a gallon, down 0.36 cent, after posting a last trade of 35.20 cents a gallon, its session low. The contract peaked at 36.00 cents in earlier trade.
February Brent crude on the International Petroleum Exchange in London last traded at $10.79, down seven cents.
Traders said there was little news to affect trading. But they said they were also keeping an eye on the weather as a warming trend forecast for next week was deemed bearish.
Warm weather this weekend should lift temperatures into the 70s degree Fahrenheit from Kansas to Texas and into the 40s from the Midwest to the East Coast, Jeff Manna, a meteorologist at Strategic Weather Services, said.
For the Midwest and East Coast, the warm weather should melt much of the snow and ice that has fallen since New Year's Day.
"Warmer temperatures will be the big story. There is no cold air in sight," Manna said.
Traders said that on top of large inventory increases in U.S. crude and refined products reported this week, the market remains pessimistic as lower demand for oil is projected for the rest of the year.
The International Energy Agency, the Paris-based energy watchdog for the West, said Friday weak oil markets remained top-heavy with supply and a sustained recovery would require a return to econommic health in Asia.
"We remain convinced that sustained recovery in oil markets will require a reestablishment of Asian economic growth and that does not look imminent," it said in its monthly report.
It sliced world demand by 600,000 barrels per day (bpd) on average from its projection for 1999 to 75 million bpd and forecast annual growth of 1.1 milloin barrels daily.
Demand last year had proven weaker than expected, with only 400,000 bpd of growth, to 73.9 million bpd, it said.
It also warned that the new financial crisis in Brazil could hurt Latin American demand patterns, echoing concerns raised by some oil analysts when Brazil devalued its currency, the real, on Wednesday.
01/15 15:28 North Sea Brent Gains Nine Cents In U.S. Trading
NEW YORK, Jan 15 - North Sea Brent gained nine cents in Friday's aftermarket, traders said.
March Brent was valued at $10.88 a barrel in the United States, up from its close at $10.79 on the International Petroleum Exchange. The IPE closed early on Friday, in sympathy with the New York Mercantile Exchange which is commemorating the U.S. Martin Luther King holiday. The IPE will also close early on Monday, but the NYMEX will be shut the whole day.
A full cargo of March cash Brent traded at $10.84 on Friday, traders said. Other deals included 900 lots of March cash partial cargoes at $10.90, 200 lots of partials at $10.89, 250 lots at $10.88, and another 100 lots at $10.84.
Traders said a Brent February-March spread traded at plus 15 cents in Friday's aftermarket.
01/15 15:59 U.S. Foreign Crudes - Mostly Steady Ahead Holiday
NEW YORK, Jan 15 - The U.S. market for imported crudes was mostly steady on Friday.
The New York Mercantile Exchange closed early on Friday, and will be shut on Monday to commemorate the U.S. Martin Luther King Day holiday.
The front-month NYMEX crude contract ended lower in thin trading on Monday, settling four cents weaker at $12.11 a barrel.
LATAM - COLOMBIA, ECUADOR, VENEZUELA,
-- Colombia's sweet crude Cusiana remained valued around $1.15/1.10 under West Texas Intermediate, after a trader sold two February loading cargoes of the grade at those differentials. It is unclear whether the trader has sold the third cargo of Cusiana.
-- Details were still scant on a February 22-26 cargo of Colombia's medium-heavy Vasconia crude, for which bids were due on Wednesday. Vasconia previously traded around $2.90/2.85 under WTI.
-- Talk on Colombia's medium-heavy Cano Limon remained mostly thin. The grade remained valued at $2.45 under WTI, where the last deal was heard done. One seller of Cano valued the grade closer to minus $2.00.
-- Ecuador's sour crude, Oriente, remained steady at $2.95/2.85 under WTI, after a deal this week at discount of $2.90 to WTI into the U.S. Gulf. Oriente, like other sou crudes, is supported by production shut-ins in Canada and in the United States and demand for the Ecuadorean grade is said to be quite strong.
Traders are still waiting for state-owned Petroecuador to decide what to do with several long-term Oriente contracts which expired last year, but a decision was said to be imminent.
"It sounds like they are going to have a tender for an undetermined number of contracts and then they will renegotiate some contracts," one trader said.
-- Traders said an early-February cargo of Venezuela's Mesa/Furrial crude was sold earlier this week at a narrow discount of $2.20 under West Texas Intermediate. Nonetheless, traders said that price was at the high end of the range and the grade is valued at minus $2.30/2.20. Regional traders said PDVSA's February program should load between 35-40 cargoes of Mesa, or about 3-4 cargoes more than January's program.
But while there may be more cargoes of Mesa, PDVSA is said to be planning to inform its customers that there will be fewer cargoes of its heavier crudes. Although Venezuela's sweet Santa Barbara crude will not be affected by the cuts, traders said February barrels of Santa Barbara are already sold out.
NORTH SEA, WEST AFRICAN
-- The March trans-Atlantic arbitrage widened out slightly on Friday, settling at $1.41 a barrel, but U.S. traders remained doubtful about the profitability of bringing European crudes into U.S. market because of continuing strong prices for prompt, or Dated, Brent.
-- Brent remains on offer into the U.S. Gulf, with February barrels on offer at 40 cents under March WTI and mid-March barrels offered at 55/60 cents under WTI, traders said.
-- Traders said West African barrels stored in the LOOP were being offered into U.S. markets this week. One trader said half a million barrels of Cabinda and almost a million barrels of Nigerian Forcados were being shown around.
01/15 19:30 U.S. West Coast ANS Edges Lower, Diffs Flat
LOS ANGELES, Jan 15- Prices for U.S. West Coast waterborne crudes dipped slightly on Friday as oil futures in New York ended lower ahead of the long holiday weekend.
The official discount for Alaskan North Slope (ANS) crude was steady at $1.66 under the benchmark February West Texas Intermediate (WTI).
Bids for WTI edged down two cents to $12.18 a barrel, with offers settling at $12.24.
In the broader markets, trade was thin amid a dearth of news, although traders said they were keeping an eye on the weather as a warming trend forecast for next week was deemed bearish.
The February crude contract on the New York Mercantile Exchange (NYMEX) settled four cents lower as a last-minute selling spurt pushed the price down to $12.11 a barrel.
NYMEX is closed on Monday in observance of Martin Luther King Jr.'s birthday, a federal holiday.
01/16 02:23 OPEC President Consults With UAE On Oil Market
DUBAI, Jan 16 - OPEC President Youcef Yousfi has consulted with the United Arab Emirates (UAE) on ways of improving the troubled world oil market, a UAE oil official said on Saturday.
"We received a letter (from Yousfi) calling for consultations and coordination on the oil market," the official from the Ministry of Petroleum and Mineral Resources told Reuters.
"It called for an effort to find any means possible to improve oil prices," he added.
The official said Yousfi, who is Algeria's oil minister, did not specifically mention the possibility of holding an OPEC emergency meeting before the cartel's next scheduled session in Vienna on March 23.
But the letter said all measures to improve the oil market should be considered.
The official declined to say whether the UAE supported holding an emergency meeting, saying the country would state its position when it responds to Yousfi's letter in the next few days.
An OPEC official said on Thursday that the cartel's Vienna headquarters was not aware of any formal approach from Yousfi to member countries for an emergency meeting in mid-February.
OPEC delegates said ministers from the Organisation of the Petroleum Exporting Countries, including Yousfi, were in consultation about the possibility of bringing forward the conference scheduled for March 23 because of low oil prices.
But Yousfi had not called for the meeting to take place early, they said.
Kuwaiti Oil Minister Sheikh Saud al-Sabah earlier this week called on OPEC to consider an early meeting in February.
But OPEC delegates said cartel powerhouse Saudi Arabia and other countries wanted a row over how to measure Iranian compliance with existing output cuts settled first.
The UAE has said OPEC should secure full compliance with existing production cut pledges before taking any new moves to rescue oil prices.
01/16 04:19 US Product Outlook-turnarounds tighten the Gulf
NEW YORK, Jan 11 - Seasonal maintenance works on U.S. Gulf Coast refineries and pre-summer stockpiling have boosted gasoline prices in the refining hub, with traders on Monday expecting prices to extend their gains this week. "Gasoline has steadily been coming up. There are enough folk with planned maintenance to have gradually tightened the market," a Gulf Coast trader said.
But traders said the volume of refining capacity being shutdown is not more than usual for the season. Some traders even thought it would be lower after a heavy fourth quarter schedule.
Among the refiners with turnarounds is independent Valero Corp <VLO.N> which has planned a major shutdown at its Corpus Christi, Texas refinery which produces around 117,000 barrels-per-day (bpd) of gasoline and 35,000 bpd of distillates.
The plant will be closed January 9 to February 10 for works including increasing its 76,000 bpd heavy oil cracker capacity to 80,000 bpd.
Murphy Oil Corp. also has plans to shut its 100,000 bpd Meraux, La. refinery, for a three-week turnaround mid-January, a company spokesman said.
Traders said Koch Industries was also carrying out a turnaround at its 280,000 bpd Corpus Christi, Texas refinery but the company declined to comment.
As a result of the turnarounds, Gulf Coast gasoline prices was the bull across the hubs last week, rising over 5.00 cents per gallon to around 38.20 cents, with some traders still assessing it underpriced.
"We still like gasoline...it is underpriced," one Gulf source said.
The gain on New York Harbor gasoline was not as large at 1.92 cents to 36.25 cents, but prices were firm enough to keep the arbitrage window wide open for Eurograde gasoline cargoes from Northwest Europe.
"The arb is wide open...gasoline's strength has allowed some 12 to 15 gasoline cargoes to arrive by January 20," northeast trader said. "After that, the market will steam off."
But other market sources were not as bearish on the midtermgasoline outlook, saying the imports also consisted of Russian gas oil cargoes.
"There is a lot of both European gasoline and Russian gas oil," a broker said.
Colder than usual temperatures supported heating oil prices by over a cent last week to nearly 36 cents per gallon in the northeast and 33.25 in the Gulf.
But the cold mainly boosted demand for jet-kerosene for blending into heating oil which saw prices soar by nearly 4.0 cents to 38.30 cents in the Harbor and almost 2.0 cents to 36.70 cents in the Gulf.
But by Monday afternoon, jet fuel cash differentials in the northeast started to loose steam, shedding 1.50 cents to a premium of 4.50 cents to the New York Mercantile screen as the wide arbitrage saw a flood of material from the Gulf.
"There is just too much stuff coming up the (Colonial) Pipeline and there are containment problems up here," a Harbor trader said.
Northeast gasoline and distillate inventories were up in the week ending Jan. 1 as part of American Petroleum Institute's hike in total U.S. distillates of 3.8 million barrels and in total gasoline by 740,000 barrels
Adding further pressure, traders said northeast heating oil storage was making way for pre-summer gasoline stockpiling, particularly amid the short-term colder weather forecasts.
In its five day outlook, the Weather Services Corporation forecast temperatures in the northeast 4-8F below normal from Monday to Wednesday, 8-16F below normal Thursday, warming to near normal Friday.
But in its six to 10 day outlook, the mercury in the northeast was expected to head back to above normal.
Oil Stories
HIGH AND DRY
How once booming oil capital of Europe is facing up to long haul back to heady days of black gold bonanza
She has watched Texan oil barons in stetsons and thousand dollar suits sip bourbons day and night and charge it all to expense accounts.
Irene Ross remembers lavish feasts and raucous celebrations as new oilfield discoveries swelled the energy conglomerates' coffers.
And she has seen her home town transformed from a modest commercial, farming and fishing centre into the oil capital of Europe.
As catering supervisor at Aberdeen Petroleum Club - Scotland's equivalent to the oil barons' club in the fictional Dallas TV series - Mrs Ross has witnessed all the heady excesses of the booming North Sea oil industry.
She says: 'I remember the days when no money was exchanged at all.
Business was booming all day and all night and everything was charged to company accounts. The atmosphere was just wonderful.' Today, with the world price for oil at its lowest in decades, she looks back on those days as if they belonged to another era.
For the first time since black gold started flowing ashore in the early Seventies, the North Sea oil industry is feeling the chill wind of major economic decline. And Aberdeen is caught in the draught.
For years the city was removed from the rest of Scotland. It became a part of the global oil economy and events in Kuwait or the Gulf of Mexico could have a greater effect than those in London or Edinburgh.
Expense accounts, flash cars and lavish corporate entertainment were the hallmarks of a prospering enterprise, apparently immune to normal market forces.
BUT those were the days when the global demand for North Sea oil was increasing year on year and the price of a barrel was so high that nobody whose employment depended on it could fail.
Today on the streets of the Granite City there is uncertainty, worry and dire predictions of disaster if oil prices fail to recovery swiftly.
As companies contract, in a bid to survive, industry experts say the only question in Aberdeen is where the job cuts will stop.
Last week, BP announced it was to shed 200 Aberdeen jobs following its merger with (Amoco). (Total Oil) Marine is planning to merge with Fina.
This week it was revealed that Lasmo and Enterprise Oil are holding merger talks, provoking fears of more job losses.
Any redundancies by the oil giants could be trebled with the contract and support sectors following suit.
The perilously low oil price is the result of increased production and reduced demand. In Aberdeen's boom period in the mid Seventies, the price was around $35 a barrel. Today it regularly dips to $10.
One industry source said: 'If the oil price stays where it is for a couple of years I don't think there will be much of the industry left in the UK.'
The oil giants are preparing for the worst. Most trimmed the fat during the price crash of the mid-Eighties. Now many are cutting back still further and looking to mergers to reduce costs.
BP and Amoco are a prime example. The two merged at the end of last year.
The new company established its headquarters in Aberdeen and announced 900 redundancies throughout Britain. Of those, 200 are in Aberdeen.
BP Amoco spokesman Robert Wine said: 'We have become much more flexible in the way we respond to the oil price. But the longer it stays low we must ask how much life we can get out of a field. We have to start looking at fixed costs and perhaps bring forward some difficult decisions.' Euan Mearns, who owns oil service firm Isotopic Analytic Services, is in no doubt his own company and many like it cannot hold out for long unless oil prices improve.
He said: 'We began to feel the first chill winds last April and things began to bite hard in September and October.' Mr Mearns, who started his firm in 1991 when the industry was in a minor slump, added: 'There has been a tremendous boom since 1994 and it's the reserves built up from this which are allowing us to carry on now.
'But if the price slump goes on for a couple of years a lot of major firms are going to be inserious trouble.' One of the most tangible signs of change is witnessed daily at Aberdeen restaurants - which for a generation have numbered oil executives among their most prized customers. Two years ago they would have thought little of splashing out GBP 80-GBP 100 a bottle on wine to impress clients.
Today it is more like GBP 14.
Jason Kelly, restaurant manager of Gerards, one of the city's most upmarket eateries, said that at Christmas oil workers were, for the first time, having to pay for their festive functions out of their own pockets - rather than their employers picking up the tab.
The restaurant's wine sales are down - with nobody ordering a GBP 150 bottle of 1953 Chateau Latour in more than a year. And where once bosses would spend all afternoon or evening entertaining clients, now it's a quick business lunch and back to the office.
Taxi boss Gene Abel sees a drastic change in oil company spending in the past six months. He said: 'It's worse than the big crash in the Eighties. We used to pick up some staff just to take them to their work. All the offshore workers charged their trips to the airport to their companies. Now they have to find their own way. It's the worst I have ever known it.' Mrs Ross, who has worked at the Petroleum Club since it opened in 1973, remembers executive drinking sessions would regularly go on until four in the morning - with the cash rich oil companies happily footing the bill.
She said: 'Tuesday was our Southern fried chicken night, Wednesday was the barbecue, Thursday was Mexican night and it was steaks on Friday.
Some of them were here every night without fail.
'The wives used to spend all day here because they didn't have anything else to do. They spent the day sipping bourbon.
'All that changed during the big crash of the mid-Eighties.
The club nearly went out of business as hundreds of its American members lost their jobs and had to return home.' But the money from the golden era was ploughed back into the club - and now it is a leisure and fitness centre for people of all professions.
Professor Graeme Simpson, industry expert for the Schlumberger oil firm, said Aberdeen's economic future depended largely on whether it could survive until the upturn in oil prices arrived.
But he admitted: 'There is no real indication that the oil price is going to rise again in the short to medium term.' Most of the oil giants spent the late part of the Eighties getting leaner and meaner.
The question for everyone connected with the industry now is whether they are lean and mean enough to tough out the present depression.
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