07
Mar

Wednesday Morning

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I’ve got a late breakfast meeting so I’ll make this brief.

Headfake or New Life? Yesterday, the markets zoomed in the morning and again in the afternoon. Stocks were broadly higher with the Dow and S&P500 up over 1.3% and the Nasdaq up nearly 2%. The energy indexes fared even better with the XOI (up 1.9%), XNG (up 1.6%), and OIH (up 2%) all up on the strength of the largest cap members in each. Even gold rallied 2% on the day.

The energy commodities also had a good day:

  • Oil gained $0.62 (1%) to close at $60.69, a day after barely reclaiming $60 at the close. I probably shouldn’t bother pointing out that the markets and oil generally run opposite each other or that a stronger dollar usually means lower oil prices.
  • Natural Gas rallied $0.22 to close at $7.47 on renewed storage and supply concerns but honestly it had fallen pretty fast (from near $8 to near $7 in little of a week’s time) and was due for a deadcat bounce. Those concerns voiced on the gas storage page by Bill are valid and I appreciate the input (more on them in Thursday’s post).

No new picks (other than quick trades) until I’m comfortable buying off on the current direction of the broader market. This looks like a head fake to me and one more bad day in Asia could really spoil the mood on the Street.

Take a look at the XLE vs the DJI and the USO.

dji-vs-xle-vs-uso-030607.JPG

Oil couldn’t have mattered less to the energy stocks over the last week. However, that may change promptly if the market settles down today and inventories are out of line with consensus. Anyway, I’ll be in a meeting when the numbers come out so good luck and be careful. Especially watch out for the five minute reversal in oil prices following the data.

Speaking of inventories it’s that time of the week: Gasoline and refinery utilization are key to oil holding $60 or running to the $63 to $64 level. Estimates in bold from Reuters.

  • Crude: up 2.0 mm bls. Imports appear to be on the rise and this they are playing catch up. I understand the Houston Ship Channel actually processed the prior week’s fog laden backload of roughly vessels last week so I’ll bet crude comes in higher than expected. Note this is a reversal of yesterday’s statement but at the time I had thought HSC was still partially shut in for the period. Either way, this is not the number people are going to watch unless its either very high or very low.
  • Gasoline: down 1.4 mm barrels. Call it an educated guess but looking at the number of refineries starting to gear back up from maintenance and/or technical difficulties I’d say utilization should start to creep up to say 86% this week. That could yield a slightly smaller than anticipated draw in gasoline. Offsetting factors are increased demand for fuel and potential drawdowns in blending components. I thinking the number will be a little smaller but my confidence here is not high
  • Distillate: ??? million barrels (from the Bloomberg survey). I ‘d be shocked if it’s lower but it really doesn’t matter unless it’s a huge number. Remember the “catch up” demand from secondary and tertiary sources here can be enormous well after the degree days have started to melt away.

Odds & Ends

Snafu Watch: Reader El Diablo said it all here. My two cents, traders will grasp at the 35,000 bopd shut in at China’s second largest oil field due to heavy snow.

Analyst Watch: BEXP price target slashed at FBR but buy rating maintained.

EIA Cuts Global Demand Forecast. I think someone who looks and sounds just like me said about a week ago that the IEA (International Energy Agency) would have to do this soon. The EIA beat them to it. Highlights of yesterday’s report:

  • 2Q07 global demand falls 0.3 mm bopd to 84.8 mm bopd.
  • 3Q07 falls 0.1 mm bopd to 86.3
  • full year 2007 falls 0.1 mm bopd to 86.6
  • 2008 falls as well from 88.4 to 88.1 mm bopd

from my February 28th post:

“Recent demand growth prognostications now in question. From the IEA’s January Oil Market Report dated two weeks ago: Global oil product demand is raised by 111 kb/d in 2006 to 84.5 mb/d and by 273 kb/d in 2007 to 86.0 mb/d following revisions to China.

They may have to trim this back some.

Hey, somebody’s gotta pay attention to this stuff. (Psst, sounds like the EIA is still too high).

Vladamir Watch: Very few new stories out there all of a sudden. Nice plane, going to Athens to sign a pipeline deal but otherwise very quiet.

Greenspan Watch: From Former Federal Reserve Chairman Alan Greenspan sees a one-third chance of a recession, according to an interview published by Bloomberg News. “We are in the sixth year of a recovery; imbalances can emerge as a result,” the 81-year-old Greenspan said. He said he was “surprised” by the market reaction to comments he made on Feb. 26 on the possibility of a recession. Comment: Guess his assets are out of the blind trust now, eh? So he retires and starts speaking plainly? Nice.

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