22
Mar

Thursday Morning – Oil Review and Natural Gas Preview

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Thursday Topics

  1. Oil Price Comments
  2. Oil Inventory Report Review
  3. Natural Gas Report Preview
  4. Odds & Ends

Oil: Crude edged over $60 in overnight trading after a quiet first day session for the May contract yesterday. This move above $60 will I'm sure be heralded with great fanfare on CNBC.

The EIA makes a few good points in its weekly petro piece about why it thinks April NYMEX crude was trading so far below Brent and the outer months in recent weeks.

  1. First, lack of demand for WTI. Demand slumped as one Gulf Coast refinery after another went through extended maintenance outtages. This is about to change which will pressure gasoline prices but lift crude prices. Not the best of all worlds for the refiners.
  2. The EIA also sighted high crude inventory levels (which if I'm not mistaken got even higher yesterday but I digress).
  3. Finally, the EIA says that a "wave of sellers trying to balance their accounts, putting downward price pressure on WTI" may have been brought forth.  Ahh, hedge funds.

Let's take those inventory numbers apart because according to the EIA's report, inventories did some zany things last week. And that's not a word I use often nor lightly.

  • Crude: up 4 million barrels vs a Street expectation of a build of just under a million. Imports rose to 10.418 million bopd, their highest level since the second week of January (blame it on a lack of fog in Houston). The following chart shows the min and max import range since 2000. The last two years are highlighted to show that import levels are by no means running low this year either to average levels or to even to last year when OPEC claims to have had over 1 million more barrels on the market.

oil-imports-032007.JPG

Let's take a closer look at this first three months of the year, just for kicks.

oil-imports-first-11-wks-032007.JPG

That just doesn't look so dire. For the first 11 weeks of the year the U.S. has had imports of 9,802 million bopd. In 2006, the same period saw imports of 9,813 million bopd. Let's see, that yields a drop in imports of 11,090 bopd. Given that this is the 11th week of the year and that there are generally 7 days in a week that comes to a stunning 854,000 fewer barrels imported to the U.S. this year.

Not per day, not per week but total. In other words no change. So much for OPEC's cuts showing up on our shores. Bahhh.

  • Gasoline: down 3.4 million barrels vs a Street expectation of a draw of 1.8 million.
    • Refinery utilization rose 0.7% to 86.3%. As this comes up gasoline prices are likely to fall.
    • Additional gasoline produced: 434,000 barrels for the week. That seems a little light given the increase in utilization but it's only a survey.
    • Blending components accounted for over half of the drawdown in gasoline, a signal that refineries are taking on stocks to begin ramping up gasoline production.
    • For what it's worth (and I think quite a lot) the American Petroleum Institure (API) showed a much more plausible INCREASE of 0.75 million barrels of gasoline.
    • Gasoline imports fell back again. Europe wants our gas and they've been willing to pay more for it.

Gasoline In Storage Remains Healthy

gasoline-inv-032007.JPG

Year over year (YoY) gasoline demand growth has slowed dramatically since the end of the last driving season.

yoy-gasoline-deamnd-growth-032007.JPG

Note: Yesterday's comments were littered with some ALL CAPS TYPING regarding the overbought nature of a group of refiners which I reserve for times when I see prices advance (in that case the stocks and gasoline) in the face of data which early on was being misinterpreted. They all sold off from 52 week highs shortly thereafter but recovered slightly into the close on the market's bullish reaction to the Fed announcement.

  • Distillate: down 1.7 million barrels Pretty much in line.

Natural Gas Inventory Day  

My expectations have been off of late and with the waning cold things can get squishy pretty fast. I'm going with a range of 40 to 60 Bcf.  I had not seen a Street consensus estimate at the time of this posting.

  • Gas weighted degree days fell 40% to 108 last week. The last time it was this warm (in aggregate) was the week of November 18 when only 1 Bcf was withdrawn from storage.
  • Last year it was about 20% colder than this year
  • If we average 40 Bcf withdrawals for this rest of March natural gas will trough around 1,400 Bcf, comfortably above the 5 year average of around 1,200 Bcf (I'm including 2006 here which saw light demand and supply in the aftermath of Katrina). Average trough storage for the period 2001-2005 was 1,025 Bcf.

I still think natural gas needs to test $6 and hold before I get more bullish on the group although I'm sure CNBC is going to have a swirling gas price ticker to celebrate the advent of hurricane season.
Odds & Ends

"The Fundamental's Don't Matter" Watch:  an analyst at perma bull Fimat said that "while lacking supportive fundamentals now, there can't be many who think the probability is high that another hurricane season will pass as passively as the last." That last bit even sort of ryhmes if you say it fast enough. I know what he means and we all know that natural gas will spike when the first tropical wave rolls half way across the Atlantic but I'm not sure these guys ever care about the fundamentals. El Nino not working for you? Hype La Nina. Cold ending too early for you? Hype hurricanes. When do you ever see a quote about the fundamentals from these perenial media favorites?

Canadian Spring Forecast: From Accuweather, sounds like a mild Spring, eh.

Analyst Watch: I'll post them in comments
Random Company Thoughts:

TLM is doing good things in Vietnam. Another E&P I like with great management and a somewhat downtrodden stock price.

Doing a bit of work on CRZO. Like what I see so far. It will likely make the list of longs once natural gas has fallen into the low $6s. They done well as a late entry into the Barnett and have amassed a good sized acreage position in several other promising but early stage shales. Could have results from a Floyd Shale test by April/May which could give them a new core area to develop. Not buying just yet but watching more closely than ever.  Modeling slowed by a lack of guidance which is good in a sense as they're not out there over-promising and under-delivering like some of their peers.

MUR is back in the press talking about tripling the company's size by 2010 primarily thorugh asset or company acquisitions. They've announced a predilection for an acquisition that gets them into new plays.

52 Responses to “Thursday Morning – Oil Review and Natural Gas Preview”

  1. 1
    Jon Says:

    Jeez, Zman, get a little sleep!

  2. 2
    Stephen Says:

    My screen says crude is over $61, hmm. I was also a little perplexed by Brent Crude being more expensive in March than Nymex, but cheaper in February and January. Historically, which has been the more expensive?

  3. 3
    El Diablo Says:

    As a fellow CNBC-hater, I’m shocked to see their recent addition of ‘fair and balanced’ views. Maybe they see the light, maybe they are pre-empting the obvious format of the forthcoming business news channel from FOX.

    Examples: They were openly shocked by the market’s reaction to yesterday’s fed statement. Rick Santelli was screaming at a bull this morning basically telling him that he is a fool. Cramer video on YouTube expounds on unscrupulous tactics used by hedge funds to manipulate markets.
    http://www.youtube.com/watch?v=708wDFX28lc

    Maybe there’s hope for these imbiciles, or maybe its just the fruits of good ‘ol competition. Either way, its a notable and recent change.

  4. 4
    Dave Says:

    El Diadlo I agree with you. I remember the Cramer video and wondered why he didn’t get in trouble. Also Rick always seems to want to be trading again

  5. 5
    zman Says:

    Stephen –

    Up until the last little bit Brent had usually discounted WTI by $2-3 but has occasionally traded at premium. It needs to with the quite burdensome taxes the poor N. Sea folks will still have to pay!

  6. 6
    zman Says:

    Dave – it’s still early on the video as far as SEC investigations go.

    Have they stopped making fun of Steve Leasman yet?

  7. 7
    Dave Says:

    Zman No! Also many traders call Cramer and the female commentater on each afternoon Abbot & Costello. A cruel bunch sometimes.

  8. 8
    zman Says:

    Back when Maria B originally started broadcasting from the NYSE floor, traders would make that beep, beep, beep sound a service truck makes when backing up whenever she went by!

  9. 9
    zman Says:

    17 Bcf BUILD
    …and CNBC has a guy on talking about how things are going to get bullish soon!

    Next week’s weather looks identical to this one.

  10. 10
    sane Says:

    Wow a build 😛

    Real bullish
    -Sane

  11. 11
    zman Says:

    This reaction to what would normally be a wildly bearish storage number is why I’ve gotten more neutral.

    I’m not in the if you can’t beat em join em camp but:

    I think natural gas has a floor under it of around $6.

    So as we start to build storage 3 weeks early this year and people say, “wow that’s a lot of gas in storage” prices will fleetingly dip below $7 and may get as low as $6 before a series of events become clear. HAL reinforced it with their slowdown talk the other day and it goes something like this:

    1)Prices fall to near $6,
    2)N. American gas rig counts retreat slightly,
    3)a small number of E&P companies squawk very loudly about shutting in some production, saying they’d rather keep it in the ground then sell at these prices
    4)a tropical wave forms in the Atlantic,
    5)La Nina strengthens and threatens a hot summer
    6) prices zoom back to $7.50 plus by late April.

    Meanwhile, E&P companies (and not just the small ones) continue to record double digit gas volume growth.

  12. 12
    nltd Says:

    Z

    Sadly, your #11 comment may be right on. With what they’ve managed to do with crude this week in the face of a build…who knows.

    N

  13. 13
    sane Says:

    As Cramer says, fundamentals don’t matter.

    I have come to the conclusion that as long as people continue to pay these prices, theses prices will stay or go up until people not so much won’t pay the prices, but can’t pay the prices.

    -Sane

  14. 14
    Dave Says:

    Going to call it a day. Still holding some COP & NE I picked up wens. morning. Yes Zman can’t help my self I went back into NE again !

  15. 15
    zman Says:

    N & Sane –

    That’s why I’ve come to be more neutral/bullish. If they’re going to run the companies up again then at least I want to own quality. Names leverage to gas that are growing and haven’t blown it on the cost side. That list is being worked on.

  16. 16
    zman Says:

    Dave – cheers. Don’t blame you on the NE,quality company and the sector is likly to outperform in the near /med term.

  17. 17
    zman Says:

    Hey guys,

    If you liked today’s post or any of my stuff, please remember to Digg It. It only takes a second and it’s free!

    (I feel like those guys on NPR but at least I’m not asking for cash!)

    TY

  18. 18
    zman Says:

    BQI bulking up. Picked up some acreage adjacent to their current parcel.

  19. 19
    zman Says:

    Iran taking over 60% of its oil trade in euros or other non dollar currencies.

    This is a growing trend which weakens the dollar and boosts crude prices.

    Some other Opec members and Russia have announced a desire to switch from the dollar to the euro as the world’s oil currency in recent months.

  20. 20
    JC Says:

    Z-man,

    As an energy newbie, I find your blog is a definite must-read. Insightful stuff.

    Curious about your take on TSO — looks like it may very well stay above $100 today — are you planning on doubling down on your puts?

  21. 21
    El Diablo Says:

    Any insight on this aspect of nat gas run: sharp 10%+ moves over 3-4 days starting on Nov 22, Jan 18, and Mar 20. I suspect that this is due to some sort of futures roll. Any ideas? The timing (week before expiration, every other month) is incredibly suspicious. Jan 18 ‘could’ be explained by the infamous cold weather prediction, but that would be contrary to the move this month. (I don’t care what the free press comes up with, no one in their right mind would be placing a hurricane bet 3 months before any storms begin forming….)

  22. 22
    El Diablo Says:

    Addendum: when this occurred in Nov and Jan, I thought it could be due to a natural buyer (gas utility) being caught short during winter deman. Again, this theory would not work for the run this month.

  23. 23
    El Diablo Says:

    And a correction: first occurred on Nov 27, not Nov 22.

  24. 24
    El Diablo Says:

    If its any consolation, those prior rapid, violent runs (nov, jan) effectively marked tops in the gas market. Add Aug 22, 4-day, 10% run to the list as well. Another top.

  25. 25
    sane Says:

    I find the euro talk interesting. All of it is caused by
    A) Anti-American sentiment
    B) The dollar hitting the crapper.

    I personally don’t blame then for not wanting to keep dollars when they keep losing their value.

    Is the government that blind and stupid to continue to let the dollar weaken?

    -Sane

  26. 26
    zman Says:

    Sane – fighting a nasty trade deficit. We say we want a strong dollar but at the same time we want people “buying American”. The 2 don’t mix.

    Anybody got a good site to search for cusips on bonds?

  27. 27
    zman Says:

    EL D – I think it’s a combo of short covering before expiry after a pretty good drop and an attempt to pump

  28. 28
    zman Says:

    Thanks JC – no double here (I have enough pain for now) I think thery’re going lower (CNBC guests have been saying for the last two days that we’re near peak cracks for now) and they should be down today and yesterday on the big up move in oil. But I’d rather double down a winner than a hope any day.

  29. 29
    nltd Says:

    Just supposition, but could it be the pumpers taking advantage of the shorts?

    When nearing exp, they start the pump, knowing the shorts will have to cover. They get a bargain pump out of it because the shorts do the heavy lifting…

    N

  30. 30
    zman Says:

    N – agreed.

    XOI up 6% this week. See why I less bearish on everything but the refiners? Leaving the toe hold positions in APC and COP in the water but not adding to puts here. It looks to me like they might try to break the XOI out of what would be a triple top around 1230 which at this rate could be breached by Monday or Tuesday in a strong up market. No sense getting in front of that.

    Potential market cover plays (bull calls) in SU, EOG, XOM, and BHI.

  31. 31
    zman Says:

    HAL flat to down on takeout of BJS rumor. Call buying would seem to indicate quite a few somebodies believe it.

  32. 32
    sane Says:

    Hey diablo,

    When you say no one in their right mind would be placing bets on hurricanes now means you are talking about rational people. Problem with that statement is that there are a lot of irrational people in the market right now. Look at places like FIMAT and chumps like Flynn. Those people get aroused ( putting it mildly ) by the idea of $100 oil and $15 nat. Like Pavlov’s dogs who would salivate at the sound of a dinner bell, these people salivate on the sound of the words: hurricane, rebels, war, chaos, and other words / ideas of destruction.
    They finally figured out that the winter is pretty much over with, so not it is time to talk about summer, and what is the first thing that comes to their mind? Hurricanes, which starts the salivating, then their finger starts twitching, and that buy button starts to get hammered. Rational does not matter in this market.

    I look at the E&P / Energy charts and graphs of the fundamentals every day, and to be honest, things to not look very grim to me, but remember “FUNDAMENTALS DO NOT MATTER”, to the speculator. The futures market is a high priced Las Vegas right not. Instead of gambling and playing the fundies, they walk into the casino scream fire and grab all the chips off the tables as people are fleeing for the exit.

    I am growing tired of the market as of late. I am trying to train myself to be one of those people buy just because it is going up, and just follow the wave. Probably would make my trading life easier, and the money I make off of them could just go back and pay for my nat / gasoline. Yeah that sounds like a fine Idea. Yuck.

    -Sane

  33. 33
    zman Says:

    EL D –

    You see anything for this sudden resurgence in gasoline today? All I see is increased price of oil due to increased refining demand.

    So now gas is going up because oil is going up to produce more gas.

  34. 34
    zman Says:

    “She can tell you ’bout the hurricane, with a gleam in her eye, it’s interesting when people die, give us higher gas prices” ~ script for the CNBC weather girl, eh Sane?

  35. 35
    henry halaiko Says:

    i find the sarcasm and grudging bullishness on this chronically bearish site unsettling, and have sold some long positions

    this site is the best 60 second compendium of pertinent information each day, and one of the better contrarian indicators…

    many thx

  36. 36
    sane Says:

    Exactly z.

    -Sane

  37. 37
    rvjoetodd Says:

    whats up with oih no pun intended

  38. 38
    bill fraser Says:

    more on topt from yahoo msg board member greatnews:

    Drydocks took longer than expected lowering ship untilization. That combined with a mild winter/modest suzie rates didn’t help. Breakevens on the leases are very high. They are not projected to make a profit in all of 2007. Management compensation has been high. They had a disagreement with their auditors E&Y, which suggested they revise previous earnings downward, and going forward – concerning the $55 million seller’s credit – TOPT disagreed with the accounting treatment, but agreed to take E&Y’s advice. They split company and now Deloitte&Touche are the auditors. Their appointment did not give the market as much confidence as the announcement of E&Y’s departure gave fear. And, I guess, finally, there are some lawsuits that you can read about – that many believe will be meritless- but still hang over the stock like a cloud.

    There is some good news:

    OMM is up for sale. A fund, QVT, has taken an 11% stake in TOPT, and has yet to show a halt in accumulation. This has led to hightened speculation that TOPT may also be taken out. OMM has announced that the week of April 2 is the deadline for binding offers

  39. 39
    bill fraser Says:

    My other pick tnp is up about 10 % and id take some profits. They are ringing the closing bell today and going on a road show this week and next. So some roadshow pr stuff is coming into the price

  40. 40
    zman testy Says:

    Henry – nice.

  41. 41
    zman Says:

    Bill- good thoughts. Like I wrote this morning these seems to be a lot of traffic on the seas right now as imports aren’t noticebly down for crude.

  42. 42
    zman Says:

    Henry – you come to the site so often but offer nothing but jabs. What’s up with that? Sure I’ve made some bad trades but I’ve also made some good ones. I’m trying to build a community here where people can share some ideas and learn from each other. Maybe that’s not how they do it in Reston but that’s how I’d like it to be around here.

  43. 43
    zman Says:

    For Dave – piece on the drillers with a couple of paras on NE
    http://www.briefing.com/GeneralContent/Investor/Active/ArticlePopup/ArticlePopup.aspx?SiteName=Investor&ArticleId=NS20070322120742IndustryInsight

  44. 44
    nltd Says:

    so Henry,

    If using Zman as a contrarian indicator is making you $$$, how ’bout sharing your trades with the proprietor (and cohorts)?

    If it’s not making you $$$ and you don’t like the site, how ’bout just skipping on by?

    N

  45. 45
    zman Says:

    For El D:

    SAN ANTONIO, March 21 (Reuters) – Tesoro Corp. (TSO.N: Quote, Profile , Research) said on Wednesday its 166,000 barrel per day San Francisco-area refinery was near full output as the plant’s 70,000 bpd fluidic catalytic cracking unit was in production after an extended overhaul.

    The FCC was restarted on Feb. 26 after the overhaul, but was shut again on March 3 when circulation problems developed, requiring more work.

  46. 46
    bill fraser Says:

    Zman fantastic site with great data. It’s up to us to formulate our own strategy. I respect everyone’s opinion and it doesn’t matter if you are right or wrong but what logic or data was used to arrive at your opinion. Then it’s up to us whether to accept it or not

    Zman, thanks for the tips.. Long End.

  47. 47
    tom2oc Says:

    Hey Z! That’s it! Oil will be worth nothing in a few years. You need to recycle yourself into techs.

    Check out this video on a water powered bike.

    Gee, if that guy is not a scam, he’d be nice to see the oil crooks jumping off skyscrapers.

  48. 48
    zman Says:

    LOL Tom – and now the Fast Money guys are talking up water for drinking. Wait til they hear about this.

  49. 49
    zman Says:

    NEWS FLASH:

    Opec cut compliance ‘wavering’ – from Upstream – what a shocker (sorry for the sarcasm)

    More on this in tomorrow’s piece. I’d say they’ve been reading my site but I’ve been saying it’s obvious and these guys (tanker tracker Oil Movements) are just seeing the obvious writing on the wall.

  50. 50
    morganusvitus Says:

    The site looks great ! Thanks for all your help ( past, present and future !)

  51. 51
    Elton Michael Says:

    interesting site. You can find more information here http://www.vsbot.com

  52. 52
    vibrate boat parts Says:

    vibrate boat parts 59…

    Hi! http://49.pebthkjr.info/49_0.html . Thanks!…

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