27
Mar

Tuesday Morning Outlook

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Tuesday Topics:

  1. Oil - tied to Iran. Early inventory expectations run the gamut.
  2. Gasoline - ditto plus domestic blazes cause more refiner downtime.
  3. Natural Gas  - winter has left the building.
  4. Weather - long hot summer looks to be in the cards.
  5. Odds & Ends - truly odd today.

Oil Closes At New High For 2007 (well, for the front month anyway). Reason: Iran. May crude nosed over $63 interday and closed at $62.91. Headlines everywhere are ringing crude closes at its highest level of the year to date. Not for the May contract which has been as high as $63.75 back on the March 8th. I know, I'm just being picky. The reporters should tell you that the 12 month strip closed up $1.22 to $66.70, a 3 month high.

Inventories A Secondary Consideration. Estimates for Wednesday's crude inventory report range from a decline of 2 to an increase of 2.6 million barrels of crude. Most analysts see a decline in gasoline stocks of at least 2 million barrels. What Iran does will no doubt take precendence this week.

Gasoline put on the real show rising $0.07 to $2.067 for April delivery.  That makes a $0.525, (34%) rally in the nine weeks since (CVX) announced it had a fire at its Richmond, CA site on January 15th!

  • Since mid January the maintenance season has turned into a Ray Bradbury novel with fire after fire being reported. From Imperial Oil forcing the Torontons to ride bicycles to blazes at (VLO) and on and on.
  • (BP) reported another fire, this time at its 175,000 bpd Whiting, Indiana refinery last Thursday (two years to the day after its infamous Texas City fire) and said yesterday that the facility would be offline 4-6 weeks.
  • (HOC) also announced a fire yesterday at its 26,000 bpd Salt Lake City, UT facility. Output was listed as reduced but if it goes offline this represents nearly a quarter of the company's capacity. Holly has one other facility, an 82,000 bpd refinery in New Mexico.
  • Most (but not all) of these snafu can be seen here along with when the facility returns or is scheduled to return to service.
  • It Just Doesn't Get Any Better Than This Watch: Deutsche and BS even downgraded a couple of prominent refiners before the open yesterday based on valuation and/or topping margins in the east. I doubled my hobbled (TSO) put position yesterday as it's been rallying on what will almost certainly turn out to be  an anomalously high and relatively short lived crack spread period. Thanks for the help fellas. Good company, nothing personal, just too far too fast with a lot of hot money on the trail.

Natural Gas. Along for the ride.  It's time to think about making the switch from thinking about heating degree days, HDDs, to cooling degree days, CDDs. You'd think it was still a little early to worry about cooling load but then you look at the forecast and it's already warming up. Ok, maybe it's just hot around here. CDD's are still only expected to total 6 this week and next for the whole country.

  • Turning back to heating degree days, last week was about the same as the prior week at 110 (which the Climate Prediction Center pretty much nailed at the beginning of last week). We should see another small injection into storage this week.
  • The early read on this week's weather is for HDDs to drop to 67 (typical slack demand should season weather). Expect an even bigger build.

Weather Watch: 90 Day Map. Welcome La Nina. Gas may fall to $6 once Mahmoud backs down and oil cools a bit but a hot summer forecast will put a floor under a commodity like gas that fuels 20% of electricity generation.

summer-heat-1-032607.JPG

If that one's too general for you click on the thumbnail summer map from the International Research Institute for Climate and Society.iri-summer-032607.JPG

Odds & Ends 

From the "you wouldn't believe what sort of stuff I read at night" file: From Wallaces Farmer: If La Nina establishes itself before mid-May, the risk of severe drought would increase from 25%, which is the chance now, to about 33%, says Taylor. That would mean about a 70% chance that the U.S. average corn yield for 2007 would be below the trendline of 148.4 bushels per acre. Weather conditions so far in March translate into a projected U.S. average corn yield of 146 bu. per acre for 2007, slightly below the trendline.

Comment: This guy is talking about cornbelt meteorology and this is supportive of high ethanol and gasoline prices as well as high beef, milk, and obviously corn prices. In fact, if you look around a bit on the web you'll see numerous recent reports citing reduced crop yields in everything from cotton grown in the Mississippi Delta to oranges in Brazil. Hello inflation.

From the "tell you 'bout the plane crash with a gleam in her eye" file: Storm Depot: (TELA) - yep, they're public, they're setting up hardware stores in Florida selling hurricane preparedness materials (with installation) and they're no doubt going to get sued over that name. Still, it'll probably run like a banshee when the first tropical storm bends toward the Keys. Not an endoresment. Just an amusement.

(END) Watch: No news is apparently good news as the stock appears to be pulling out of its slide. They speak at Howard Weil on April 5th and should, by then, be pretty close to being able to pindown a spud date for their next exploratory shot (Balgownie) which has the potential to double up the company from a 3P reserves basis.

Analyst Watch: (CRZO) upped to buy Keybanc, B of A picked up the solar companies with mostly neutral ratings except for (ESLR) which it rated sell and (SPWR) and (FSLR) which it awarded buys.

22 Responses to “Tuesday Morning Outlook”

  1. 1
    zman Says:

    SFY upped to neutral at UBS.

  2. 2
    El Diablo Says:

    I disagree. Natural Gas-fueled plants account for 20% of nameplate ‘capacity’ of the US generating fleet. Output is less than half that (less than 10%, I’ll try to dig up exact numbers). On average, natural gas plants operate at 40% of capacity. Coal and Nuclear plants operate at over 90% of rated capacity.

    We need to stop the proliferation of focusing on nameplate capacity, which is meaningless in terms of fuel consumption. This is similar to focusing on the ‘number’ of refineries in the US, rather than their ‘output’.

  3. 3
    dave Says:

    Zman

    Do you think the OIH will try to fill the gap down

  4. 4
    zman Says:

    El D – from the EIA’s Electric Power Monthly. Table 1.1

    http://www.eia.doe.gov/cneaf/electricity/epm/table1_1.html

    gas as a % of total generation:
    2004: 17.9%
    2005: 18.7%
    2006: 19.9%

    It gets higher in the summer. Take the month of July:
    2004: 21%
    2005: 24%
    2006: 26%

  5. 5
    dave Says:

    going to buy some COP & XOM

  6. 6
    zman Says:

    I think 150 is pretty major resistance. Once Mahmoud comes to his senses, if that is indeed possible, and gas gets hit with more injections for the rest of March (the worst March ever for gas demand) we should see lower commodity prices.

    The rise has been Iran and merger mania. If those two go away and we don’t break out of the 150 range then I think we head back to below 140 in the next 2-3 weeks.

  7. 7
    zman Says:

    dave: long?

  8. 8
    dave Says:

    Zman….sorry yes long I’m in now

  9. 9
    El Diablo Says:

    You’re right, I’m looking at utility only data, which apparently excludes IPPs-

    http://www.eia.doe.gov/cneaf/electricity/epm/table1_2.html

    I’ll research the IPP data some more.

  10. 10
    dave Says:

    Looking at CVX as a long, but do not want too much exposure

  11. 11
    zman Says:

    Dave – so you’re using me as a contrarian indicator, eh? Well, that’s what makes a market!

  12. 12
    zman Says:

    EL D – ohhhh! That explains it. The EIA has done a poor job, in my opinion, of monitoring the reclassification of utilities to non-utility (IPP) status.

    The IPPs used to just include industrial generators but now you and I could by a generator and make power and be classified as a non-utility with no other line of business.

  13. 13
    dave Says:

    Zman….No but read a BCA research report this AM and looked at some of Kurt Wolff’s thoughts

  14. 14
    zman Says:

    Dave – hit me with the highlights if you get time.

  15. 15
    zman Says:

    XOI on the warpath to rally despite crudes lack of momentum (today).

  16. 16
    zman Says:

    Gasoline off nearly 3 cents but oil attempting to rebound.

    Nat gas up for who knows what reason: probably more predictions of summer heat.

  17. 17
    sane Says:

    The weather predictions are funny. Here around Chicago it is supposed to dip back into the 50’s and they are talking like we are going into the next ice age 😛

    Sane

  18. 18
    dave Says:

    Zman

    Sent you an email of the article by BCA research and some of KW’s reflections. I think I will call it a day.

  19. 19
    umagumm Says:

    71F here in NY but we should have a huge gas drawdown next week because they haven’t turned of the heat in our office. It’s about 100F

    Any thoughts on BQI? Seem to be finding a lot of oil sands, but don’t seem to be in any hurry to make money. It might be fun to take a flier on this with some other members of this board, but I don’t see any catalyst here. Anyone?

  20. 20
    zman Says:

    AM – BQI question for you re catalysts.

    CRZO – going up without me. I never got a trade off on that one and my report is about half done. Waiting for a pullback at this point.

  21. 21
    zman Says:

    Oil briefly touches $68 this afternoon.

    NEW YORK (Reuters) – U.S. crude oil futures briefly shot up more than $5 Tuesday afternoon to trade above $68 a barrel, the highest price for front-month since September 6, 2006, on concerns over Iran, traders said.

    By 5:25 p.m. EDT (2125 GMT), prices had pulled back, trading up $1.59 at $64.50 a barrel.

    “The (oil) market has been on pins and needles with the Iran situation and as soon as the rumor mill got starting things took off,” said Phill Flynn, an analyst with Alaron Trading.

    Asked to comment after the price spike, the U.S. Navy said there was nothing to substantiate a rumor of an Iran strike on a U.S. ship, and the White House said there was nothing to indicate any incident taking place regarding Iran.

  22. 22
    jennifer nicole lee fitness Says:

    Stride for Fitness, Harvest Classic,

    ller of Rochester captured the 10K portion of the 25th annual Stride for Fitness Saturday, which was run for the

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