23
Mar

TGIF – OPEC Cheating, Refineries Churning, Gas Aplenty And A New Idea

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Friday Topics

  1. Oil- Up, up, and away
  2. Holding Watch- Refiners and a LONG idead: CRZO
  3. A brief word on Natural Gas Storage
  4. Odds & Ends

Oil: Up. Big. Apparently Greenspan's comments of nigh on three weeks ago are history. The economy is not slowing and many are even seeing rate cuts in the offing within the next few months. I'm not in that camp. But back to oil.

  • up a whopping $2.08 yesterday to $61.69.
  • XOI rallied as well and is up 6% this week.
  • Grudging Bullishness Watch: In comment's yesterday I offered up some calls on liquid names and after further reflection EOG, SU, XLE, and XOM should perfrom well if oil advanced to $65. Let's see what it does with $62 first.

Holdings Watch:

  • Refiners - still have puts in the game but not adding more until they start to perform. I'm hearing more people talk about crack spreads having peaked but that was before a $0.04 rise in gasoline prices today.Still with the number of refineries healing themselves every week gas prices should be do for a bit of a pullback.
  • E&P: Adding a name on the long side today: CRZO . See yesterday's comments and add to it the stock is technically strong, close to some potentially catalytic news in a new shale play, and is doing very well with it's late entry into the Barnett. As far as acreage goes they have the most per share of anone in shale plays. Finally, it was just picked up by a new Jefferies analyst who's a pretty smart guy and that firm likes energy. If I'm wrong and we get no shoulder season pullback in gas at least I'll be long one of the quality, lower cost gassy names with massive upside potential. Other more known growth entities that fit that bill are of course CHK, SWN, and KWK. This will be a 33% scale in and only executed once I get a handle on what kind of day we've got going. I'm in process on one of my ZEB Reports here but feel comfortable enough to dip a leg in the water for now.

Oil Movements Says Compliance Is Faltering. Shocker! Roy Mason of tanker tracker consultant Oil Movements says Opec exports will be up 100,000 bopd by April 7 for the four week average. Mason estimates week to week exports are nearly double that (190,000 bopd). He says compliance reached a peak of 1.1 mm bopd but is below 1 million bopd at present. He then cited tanker freight rates going up because of more oil being on the high seas. That should sound pretty familiar to my regular readers.

  • Oil Movements went on to note that "all of the increase was to Western refiners and sourced from the Gulf producers". Sorry Venezuela but your just not up to the task of cheating right now.
  • And he's not alone in his summation that Opec is cheating, according to Upstream, Lloyd's Marine Intelligence Unit said last week that Opec exports had crept higher since the end of January.
  • Opec head al Hamli said "compliance with production limits exceeds 60 percent". Comment: He's handling this better than the last OPEC president did (who no doubt had the folks at MEND on speed dial oil ) but controlling all the members must be like hearding cats when oil is over $60. People watch those tankers and this story will circulate more and more in coming weeks.

Fair and Balanced Bullets From Snafu (thanks largely to El D):

  • TSO's 166,000 bpd San Francisco refinery back on line.
  • Shell to repopen 187,000 bopd pipeline in Nigeria
  • Asia demand to rise according to Chevron and Opec (see note below)
  • According to a report issued by the American Gas Association (AGA), domestic natural gas reserves increased for the eighth straight year in 2006 and now exceed 205 Tcf, their highest level since 1978.
  • And I'll throw in the EIA's report showing that natural gas production grew 3.0% in 2006. If you strip out the Katrina losses in the end 2005, gas production still grew 1.6% YoY. I'd point out that 4Q shows declining production in the Gulf of Mexico but that the final numbers are likely to be revised higher as the data firms up.

Natural Gas: 17 Bcf Build (Earliest Build EVER Recorded) And Traders Yawned And Closed Gas Up. Gas treaded water after the early season build in inventories and was quoted up a nickel most of the day until oil really took off. The May contract finished up a $0.17 (I guess one for each Bcf added to storage LOL) to close at $7.435.

  • My EIA database goes back to 1994 and there are no builds in storage for this week or of March.
  • We now have 1,533 Bcf in storage, which is the 4th highest tally for this week of the year.

2006 / 2007 Withdrawal Season Ends Not With A Bang But A Whimper

storage-whimper.JPG

...And The May Contract Couldn't Have Care Less

gas-price-chart-032207.JPG

At 10:52 I wrote this in comments:

 

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. [probably should have written $8]

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

The preliminary read on this week's weather looked like a carbon copy of last week and I think if anything temperatures have outpaced forecasts. Look for another build next week. My old 1,400 Bcf target looks safe as it's unlikely to be reached.

Gas Remains Exceedingly Full For This Time Of Year (and the YoY storage deficit is about to get cut in half.).

gas-storage-032207.JPG

Odds & Ends

Analyst Watch: I'll add these later in comments.
Rumor Watch: HAL rumored to be hot for BJS. High call volume around current price. Just an FYI. These seldom pan out.

Future Excess Capacity Watch: OPEC said today that it expects Asian demand for oil to double by 2030. To meet this demand:

  • "OPEC expects to increase its supply from 30 million barrels a day at present to 49 m/bpd by the year 2030, with much of the new production heading for Asia, an area with limited petroleum reserves of its own. "
  • Opec went on to downplay Asia's fledgling efforts at establishing viable biodiesel industry. Comment: I really hope China surprises OPEC on this one.

Weekend Wrap Up Notes:

I added a search bar at the top as it got lost in the shuffle between sites

Sorry for any typos, my spell checker is offline at present.

Thanks much for reading and please comment and please dig if you like a post and bury it if you don't.

32 Responses to “TGIF – OPEC Cheating, Refineries Churning, Gas Aplenty And A New Idea”

  1. 1
    Rob Says:

    In my opinion, let oil run, because it won’t last. Every time XLE sets a 52 week high it gets slammed down very soon after. While I am a bull now, I am still holding june puts.

  2. 2
    Attacking Mid Says:

    BQI looking strong again today in anticipation of Monday’s scheduled conference call to discuss drilling results et al.

    Here’s a post on another MB that has a nice summary of links to info/news/etc. about the company. Call it…. quick and dirty due diligence in box.

    http://www.investorshub.com/boards/board.asp?board_id=6668

    AM.

  3. 3
    Dave Says:

    AM

    Nice post and link, Thanks !

  4. 4
    wiiboxer Says:

    Z, Great job on your site. Keep it up! can you post where you saw the rumor HAL wants BJS? Thanks.

  5. 5
    Denver Says:

    Please keep it up Z. I (dig) it.

  6. 6
    zman Says:

    AM – Thanks

    wiiboxer – it was just a blurb on briefing .com yesterday.

  7. 7
    zman Says:

    Thanks Denver – what do you think…have the posts gotten too long? Do you guys actually read all this stuff? More macro, less stocks or vice versa?

  8. 8
    Attacking Mid Says:

    I read the macro stuff, but I get especially interested in your stock-specific stuff, cuz that’s what I’m actually trading in.

    BQI has some resistance here at 3.75/3.80. If it can penetrate that, it should be free to run up to about 4.25 – perhaps Monday? I can hope can’t I?

    This stock still has a lot of technical damage to repair, so despite glowing fundamental prospects, it’s still vulnerable to stalling and reversing.

    AM.

  9. 9
    Denver Says:

    I read it cover to cover. I like the stocks in particular. Is there a link to your watch/portfolio list? Thanks again.

  10. 10
    wiiboxer Says:

    Z, what do you think of APR 30 Calls on BJS?

  11. 11
    zman Says:

    AM – hear ya.

    Denver – not really. You can kind of piece it together from the Week Ahead and ZEB reports areas and from the posts.

    Maybe I should look at formalizing it.

  12. 12
    zman Says:

    wwiboxer – In my book it’s too short of a timeframe to be out of the money that far. I’d do the $27.50 if I were to play it or buy yourself some more time with the Mays.

    I don’t recommend playing rumor as much as knowing about them. Still, BJS has been held down and if this breakout continues it could quicly play catchup. Just don’t bet the hacienda.

  13. 13
    zman Says:

    Mideast VLCC tanker rates now over $75,000 per day, up from the $30K range a month ago. What bever evidence can there be that cartel members are slipping barrels out their back door than spot cargo rates zooming.

    TK. TNP. FRO. OMM and TOPT benefit. Bill F has been all over these names of late. Good job Bill!

  14. 14
    Dave Says:

    Zman I just found you post on thursday concerning NE Thanks ! Nice link.

  15. 15
    zman Says:

    Gasoline up another 3.5 cents today on the back of similar rise yesterday.

    According to TSO website, spreads advance in every region by about $3 through 3/16 relative to their 3/9 posting which is listed on the crack tab at present.

    I’ll update it today, repeat that it’s not sustainable, and say for the record that the divergence betweeen VLO and TSO should tighten now that Gulf Coast spreads are gaining at a much higher % rate.

    Given that I’m thinking about going long a little VLO to ease my pain in the TSO puts. (There’s your contrarian indicator).

  16. 16
    sane Says:

    I enjoy both the macro and stock stuff. I am a tad more interested in the macro stuff.

    -Sane

  17. 17
    riposte Says:

    Zmann,

    Wanted to thank & congratulate you. Have recently started getting into oil plays, and love your commentary. sometime when you have a chance could you do an analysis of relationships between, tankers, refiners, distributors and oil prices. similar to your comment above linking VLCC and oil

  18. 18
    sane Says:

    Gasoline and oil up on Iran

    -Sane

  19. 19
    zman Says:

    Thanks Sane – what’s up with Iran? They still pissed over that movie 300?

    riposte – glad you like the site. wow, that is one seriously broad request. What’s you’re O&G knowledge level on a 1 to 5 with 5 being CEO of XOM and 1 being “where does my gas cap go?” It’ll help me craft an answer with talking to high or too low.

  20. 20
    sane Says:

    They took 16 british soldiers / sailors captive off the coast of Iraq

    -Sane

  21. 21
    zman Says:

    I saw that. Seems stupid. I’d bet it blows over.

  22. 22
    sane Says:

    They said in the reuters article that they did this in 04 and 3 days later released them.

    -Sane

  23. 23
    El Diablo Says:

    Tit-for-tat. Ahmadinejad (correctly) believes that the sanctions are due solely to efforts of Britian and US. Just his way to thumb his nose at us before the UN vote. He’ll release them in a few days, otherwise USS Stennis will have to deploy ‘search’ teams…

  24. 24
    umagumm Says:

    I really digg the new site, zman. Thanks for all your hard work!

  25. 25
    Fred Says:

    Iran needs pawns for negotiations(threats)- let us build our nukes
    or we’ll kill em’- Such nice friendly folk!

  26. 26
    zman Says:

    Refiners weekened up a bit into the NYMEX close. Still gasoline doesn’t look like a telephone pole but a chart breaking out. On that basis it could run another 10 to 15 cents alone. I don’t think so but it could. Look back, the stocks often loosen up a bit before the commodity.

  27. 27
    sane Says:

    I think gasoline has gotten ahead of itself. 30% run in a month? Anymore in commodities they seem to run way ahead then snap back before moving up, but on the flip side when they want to run something up, they pretty much do it at will anymore, and yeah I agree, it could run up another 15 cents easly if not more w/o the back of oil.

    -Sane

  28. 28
    nltd Says:

    Tom2oc,

    If you’re reading…looks like we’re losing you expert guidance. Good luck in your endeavors. Don’t let the “big WS crooks” corrupt you! I sorta like the way you are.

    Z thanks for another day’s work…first week in the rear view, looks fine to me!

    N

  29. 29
    Jon Says:

    I would like to echo the earlier comments. I always check Zman’s blog for the latest oil & gas info, and I try to keep up with the comments – they are also pretty good! Zman, thanks for all of your hard work.

    Regarding the RSS feed; the new site seems to work differently than the old one. The main post is only a summary, in the old one I could read the complete post (with charts) without opening up my browser. Also, the new one only caches the last 4 comments, the old one held more. Finally, Thunderbird RSS reader will not automatically get new messages. That also used to work with the old site. I’ll keep fiddling with it to see if I can make it work, or get a different aggregator.

    However, I’ve created a Live Bookmark to Zman’s site on the Firefox toolbar. That works very well.

    Have a good weekend.

  30. 30
    robert Says:

    i am a retired army lieutenant colonel playing petro and gold a bit, and this is the best source of info i have come across, and i have looked around quite a lot, including flynn, energy intelligence newsletter, etc. keep up the good work, and know that we value your thoughts, however riddled with self doubt you may become, at times, as we all do. god bless.

  31. 31
    zman Says:

    Had a late meeting. Thanks for all the the nice things you guys have said. I really appreciate it. And Jon, I’ll get to work on the RSS issues this weekend. I’m kind of an internet rube so bear with me.

    And thanks to Robert for your service to this great country! My dad was retired a Lt. Colonel in the army and has some great stories about being on border patrol dmz in ’55. Reminds me how lucky I am that Chinaman didn’t pull the trigger when dad tried to take his picture and how lucky I am to live here.

    If you guys want to help me then get the word out about the site. Email anyone you think would be interested. That’s all I ask. As always, thanks for reading.

  32. 32
    sane Says:

    Interesting tidbit from China.

    Looks like they are making some big finds around Bohai Bay.

    http://news.xinhuanet.com/english/2007-03/20/content_5869423.htm

    -Sane

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