12
Apr

T Booned Thursday

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Boone Bullishness. On On The Money, T. Boone Pickens said the following (I'm paraphrasing):

  • TBP: Oil will test the highs, $78, before year end. Demand is increasing and price has to move up "if supply is not growing". Comment: "if supply is not growing?" Spoken like a politician with that if in there. Supply is increasing outside of OPEC. Inside OPEC, spare capacity is growing. The weak dollar, a spate of refinery outages, and the lingering fear premium from the actions of a cash hungry zealot(s) is what has been driving oil and don't you forget it. Finally, he should read my posts; didn't I just point out that demand growth just got trimmed for the second time in two months in Wednesday's piece?

Global Supply Not Growing? It Looks Like It's Growing To Me.

world-oil-supply-growth.JPG

Let's Break It Down By The Big Players. The following is a table of the major players in the global oil production arena.

  • To be considered a Big 12 player you had to produce 3% or more of the world's oil. Sorry Angola but don't worry, you're growing fast and Norway and Venezuela are trying hard to give you their spots at the table.
  • First note that Saudi Arabia was unseated last year by Russia as the dominant player. Saudi is under production curtailments so it's not their fault. Russia is pressing ahead full bore with its new found love affair with capitalism.
  • The U.S. has been sliding for a long time but has done well (you can't see it here but I'll show you later) in arresting the slide post Katrina.
  • The rest is fairly self explanatory although Mexico has it's own set of problems right now so that number is fairly meaningless- it will continue to slide until they allow outside investment.
  • Note the small fry contingent are growing faster than the big boys some of whom are limited by production (again Saudi) and some of whom suffer from neglect (Venezuela).

 global-big-12-oil-production-041107.JPG

Let's also take a look at some more recent data. Maybe that's where the "if supply doesn't grow" comment comes from. I broke these down by relative size so the charts wouldn't get too busy. Note: Sorry but you'll have to click on it to view the whole thing. Note also how easily Saudi Arabia was able to turn on the taps in May of 2004- that's 1 million bopd in about two months.

world-oil-prod-by-country-41107.JPG
And Even The EIA Thinks Global Spare Production Capacity Will Rise.

world-spare-oil-capacity.JPG

click to enlarge view of global spare oil capacity

Ok, enough of that, back to the interview with T. Boone.

  • TBP: We've got to use more nuclear but it must be built on budget. It's safe and it's cheap. Comment: I couldn't agree more about building more nukes and their safety. Uranium however has shot the moon of late. I wonder if it's too late to buy (CCJ) - nuclear fuel and (USEC) nuclear bombs to fuel?
  • CNBC: Coal?  TBP: Yes, coal.  Comment: Absolutely agree. It provides ~50% of U.S. generation now and it's gotten a whole lot cleaner.
  • All Alternative Energy Has A Chance Now. Comment: If you think oil is going to top $78 soon then yes, a lot of the alternative energy plays become viable when oil is over the $60-65 level. However not all. Some of the smaller ethanol companies just won't make it. Especially the ones that have changed their names more than once in the last five years ;->.

Final Comment: This was played up all day as a big interview with T. Boone Pickens talking oil with Melissa Francis. What hypsters. He was there to talk about shareholder activism and they spent less than five minutes talking energy.  I agree with everything he said but I'd point out that it was all pretty vague and they left out natural gas almost entirely - he did mention that natural gas will be a major transportation fuel some day which jives with Mayor Bloomberg's statement about curbing NYC emissions yesterday.

Digesting Yesterday's Oil Report. A much larger than expected draw in gasoline sent gasoline prices soaring to a fresh 7 month high of $2.1587. Oil tried to rally as well but ultimately closed barely positive and was only saved from a closing in the red by a last minute "saved by the bell" rally which left May crude at $62.01.  On to the survey:

  • Crude expected up 1.6 mm barrels; actual up 0.7 million.
  • Gasoline expected down 1.3; actual down 5.5 million barrels. This morning I said: for prices to not spiral out of control (too late) we need two things to happen: 1) gasoline imports topping 1.1 mm bgpd and 2) utilization moving on up and eventually past 90%. I have a hunch gasoline imports come in closer to 1 mm bpdg this week while utilization will tick up to 87.5%. 

Comments: Imports failed to improve instead falling to 0.953 mm bgpd. Utilization jumped to 88.4% but I have it backing off below 88% again next week based on announced shut downs. Despite the higher utilization, distillate output grew while gasoline output fell to 8.531 mm bgpd, it's lowest level since April 21st, 2006. Of course, that's pretty normal for this time of year but with all the extra demand it makes for tight supplies.

Gasoline demand continues to rise unabated by higher retail prices. Last week demand increased to 9.363 million bgpd, a 2.5% YoY clip. U.S. gasoline prices averaged $2.80 per gallon retail last week and the EIA put out a nifty chart showing that the demand response probably won't come until we hit $3 gas.

 eia-gaso-demand-response-to-price.JPG


  • Distillates expected down 900,000 barrels; actual up 100,000 barrels. Natural gas actually train ded off on the build which is pretty silly given the fact that gas is much more tied to cold weather (at least on a week to week basis) that heating oil is. That being said I think the current lofty levels of gas are unwarranted anyway.

Natural Gas. I don't have a number today. It's the should season and strange things happen then. I wild guess would be a draw of 30 to 50 Bcf but I really didn't spend any time on that (well, enough to type this but not much).  

Dissecting The STEO. The EIA was very busy this week and not just with oil. In their Short Term Energy Outlook they laid out a call for higher natural gas prices brought about by concerns over "extreme" summer weather. This call for higher prices flies in the face of subsequent paragraphs in the STEO which delineate higher production, higher LNG imports and lower gas demand for electricity consumption relative to last year. Comment: Way to join the hurricane mania bandwagon boys!

  • Domestic Production Growing. They expect nat gas production to rise in 2007 and 2008 citing a recovery in the GOM and a higher rig count on shore.
  • LNG Still Expected Up Big. They also show a massive pop in LNG and state that 1Q07 preliminary LNG shipments rose 47%!!!!!!! A similar bump in LNG shipments is expected in 2008 relative to 2007 yielding LNG imports north of 1 Tcf.
  • Curiously, they skip mentioning our biggest source of imports - pipelines from Canada. You’d think you’d make mention of it if you’re projection high gas prices since most analysts expect a high single digit to low double digit percentage decline as gas production falls on lower Canadian rig activity and more gas is consumed by the oil sands plays.

Odds & Ends

AnalystWatch: I'll post these in comments

Holdings Watch: I'm liking (NFX) more and more as a long term buy. Exceedingly adept management, three potential near term development catalysts, a leadership position in the Woodford Shale (and some mongo wells there), and a long list of other postives including a strong balance sheet and some significant exploration potential. This is not the typical option play as I have no idea what happens today or this week or this month with the stock. Although, by the time of the conference call in late April they should have some pretty good news from the Woodford as they fine tune their technique.

Pay the Piper Watch Followup: Regarding (CVX)'s 1Q warning update yesterday, the stock was down 0.6% but only after most of the sector started to roll over. Initially, no one cared at all, much like (COP)'s update last week. (WNR) however, did get roasted in the wake of the FTC blocking their merger with (GI) and a broker downgrade to sell.

56 Responses to “T Booned Thursday”

  1. 1
    bill fraser Says:

    Re:Gas

    on one of your links this was mentioned

    Herbert said an average of 572 drilling rigs were at work in the fourth quarter of 2005, when natural gas reached $15 per million British thermal units. That rig count fell 23 percent to 441 in the fourth quarter of 2006, when natural gas prices were half the prior-year level.

    More recently, in the last three weeks, an average of 268 rigs operated in Canada — a 53 percent drop from the 574 rigs in operation during the same period last year.

    “It’s a blood bath,” Herbert said, noting that Simmons anticipates the second quarter to show a count down 40 percent from the year-ago level

    Conclusion: Gas prices are too low so production activity is dropping like a stone which will create conditions that will cause gas to double from here.

    Im not worried about hurricanes but lets not dismiss the bullish argument due to this one factor

  2. 2
    Blessed Says:

    Z,

    What happened to Russia in 2007? A drop from 9.2 to 5.9?

  3. 3
    sane Says:

    Blessed

    Flip it around
    1997 5.9
    2006 9.2

    Sane

  4. 4
    Blessed Says:

    Z,
    Sorry I had to run out. got it I don’t know what I was thinking the answer was right in front of me.

  5. 5
    zman Says:

    Morning fellas

    Bill F – agreed on the activity falling like a stone but part of its the weather up there, early thaw kills the drilling.

    I’m not attributing the whole gas price to hype just some piece of it . 😉

    We have the second most gas in storage ever for this date after all. I was just pointing out some seemingly contradictory points in the STEO.

    Thanks for pointing out the Herbert bit, where’d you see that?

  6. 6
    zman Says:

    Blessed,

    It always is my friend, it always is. 🙂

    New well for Endeavor Petro (END) is not too shabby and while not unexpected it will help them make the numbers I espoused earlier this year. They have a small interest but the operator, Norsk Hydro, is growing the field which is positive. Also, that Brent to WTI $5 differential is going to make them have a terrific quarter.

  7. 7
    bill fraser Says:

    your sphere it link on weds

    http://www.royaldutchshellplc.com/2007/04/06/houston-chronicle-as-work-on-albertas-oil-sands-booms-the-slide-in-natural-gas-prices-has-meant-a-retreat-in-the-face-of-high-costs

    im short gas and losing my ass–

    the weather has been colder than normal so i expect a draw and another draw next week

    have you any info on degreee days

  8. 8
    Kevin Says:

    Z,

    Do you expect gas prices to level off a bit through May before the “driving season” due to the refinery utilization rate creeping up? T Boone convieniently speaks at times to bouy prices in the past.

  9. 9
    zman Says:

    Kevin – I’ve been saying I expect RBOB to level off/peak later this month or early next month which is a bit earlier than usual. But it’s a conditional statement.

    No more fires. Lots more tankers. Refiners actual consumiong crude.

    If the dollar and demand from Europe keeps those tankers on that side of the pond gasoline will probably not peak until a little later, say June.

  10. 10
    bill fraser Says:

    what is expectation for ng draw or build

  11. 11
    Mike Says:

    zzz – Did you pull the trigger on the PQ May calls yesterday?

  12. 12
    Kevin Says:

    I’m with you,..thanks Z.

  13. 13
    zman Says:

    Mike: at $0.45 ouch and the $0.40

    Bill F – I never saw it but it looks like it was a build of 23Bcf.

    How is that not bearish with the weather we had?

  14. 14
    Attacking Mid Says:

    Any idea why SU has been so strong this week? I’ve seen no news at all, yet it has switched from being one of the weaker oils to one of the strongest. I’m sure it’s only because “they” know I have puts! Argggghhhh!

    AM.

  15. 15
    zman Says:

    So at the end of winter we have roughly 1.6 Tcf in storage – that’s the second highest level of for this week of the year EVER.

    Now here are some othere numbers that apparently don’t matter.

    Storage deficit to last year 7%
    This is the smallest deficit since the week of 2/2/07

    Storage surplus to the 5yr avg: 28%
    This is the highest surplus this year

  16. 16
    zman Says:

    AM – Could be that it’s BP Capital’s (T Boone’s outfit) biggest holding.

  17. 17
    zman Says:

    Oil up a buck, gasoline down a penny. Actually a bad day for crack spreads. Been a long time since that’s happened.

    The T. Boone effect on oil?!

  18. 18
    zman Says:

    errata:

    meant USU not USEG in this morning post. my apologies for any confusion this may have caused.

  19. 19
    zman Says:

    Gas Storage Updated with some pretty new graphs added.

    http://zmansenergybrain.com/?page_id=8

    El D – let me know what you’d like to see in addition on prices as far as graphs.

  20. 20
    lawdymama Says:

    Attacking Mid – I’m with you on those SU puts…

  21. 21
    zman Says:

    IEA – cuts demand forecast (told you so) but warns falling global oil stocks will keep prices high.

    http://www.upstreamonline.com/incoming/article131060.ece

  22. 22
    Kevin Says:

    Why the big move all of the sudden on OXI? Any ideas?

  23. 23
    Kevin Says:

    Ahh,..comments on opec crude production pullback. Got it. She’ll come back in,..after news is digested. Just a knee jerk move.

  24. 24
    Kevin Says:

    Unreal how oil/gasoline stocks just keep going higher. Everybody shows up on CNBC with a GD comment and up up and away we go again, Parobolically.

  25. 25
    foo Says:

    Z – Hope you’re still holding RAIL!

  26. 26
    zman Says:

    Foo – yup. I thought it would be a delayed reaction.

    Kevin – when it comes down they won’t believe it and it will be compound quickly with massive profit taking. When that starts, I will be there. It stinks for now but when the shift comes it will be shocking.

  27. 27
    Kevin Says:

    Sick of watching oil go up,..I’m buying some here for a trade. Oul mongers will keep talking up oil til we have an inventory report that show less than a 5 million barrel draw in gasoline stocks,..forget the ref rate that was up to 88.4%,..its a non factor.

    Z,..I think you still are pretty put heavy on oil,..right?

  28. 28
    Kevin Says:

    Yeah Z,..all it’s goig to take is one stabilizing oil report as the catalyst. GL

  29. 29
    zman Says:

    Kevin – agreed although they can do this longer than any of us can stay solvent.

    Anybody see what oil’s up on today: bombings in the middle east, IEA’s oil stocks comments, T Boone or what?

  30. 30
    zman Says:

    Took some May 80 SU puts at $1.95…call me a glutton.

  31. 31
    T-Tupp Says:

    your gonna get your head handed to you again

  32. 32
    slmo Says:

    Vlo’ McGee refinery won’t return to full ato full capacity this year. Still on track for 50 per cent.

  33. 33
    zman Says:

    Thanks Tupp,

    thanks slmo

  34. 34
    T-Tupp Says:

    breakaway gap in SU

  35. 35
    T-Tupp Says:

    are you day trading these options zman?

  36. 36
    zman Says:

    Nicky – absolutely post that TA here!!!

    T-Tupp – For the most part no. Buy and lose (lately). But I stick to at least the 2 month out options. Been getting shallacked of late but I’m patient. Agree with the mania Nicky is talking about coming to an abrupt end (someday).

    I’ll post positions this evening but I always tell you when I buy or sell something. That way you can do the opposite. 🙂

  37. 37
    zman Says:

    Nicky, by the way…thanks for the compliments. If you guys ever see me neglecting an area as me to cover it (unless its wind or solar or some other tree hugger power source I know nothing about).

    And if I seem to be unfair and unbalanced point that out to. I try to call it like I see it and I know I come off more bearish than I actually am. Look at the reports page, all but one are long recommendations.

    Also, I’ve gotten a lot more neutral of late although I missed this run pretty badly for someone thinking about going long more stuff. There are few more mid cap names I want to pick up and they’re all longs.

    Anyway, point out problems and/or make suggestions. Unlike some of the talking heads and their guest I don’t have an agenda.

  38. 38
    zman Says:

    McKee 170,000 bpd capacity, is exactly 1% of US refining capacity of 17.349 mm bpd.

    so at the end of this month half of it comes back up and the other half stays down for the rest of the year.

    also driving crude and gaso up today is a 146,000 COP refinery that also takes crude from cushing and which is now going down for maintenance in May.

  39. 39
    zman Says:

    This is an overreaction:

    Accoriding to reuters: Traders had expected McKee would return to service by the fall of 2007.

    So now it’s half at the end of this month and half at year end…overreaction.

    http://ca.today.reuters.com/news/newsArticle.aspx?type=businessNews&storyID=2007-04-12T185811Z_01_N12356584_RTRIDST_0_BUSINESS-REFINERY-OPERATIONS-BORGER-COL.XML&archived=False

  40. 40
    zman Says:

    REVISION

    The END news is a big deal (but not as big as I thought). Went tearing through the model and the number didn’t add up. Bad math from a reporter on the interest vs the net production. Should add a little over 500 bopd which is still a nice bump to Norway production (up about a one-third) and more wells will follow this one.

    That brings my estimates up 2 to 3%.

    Moreover, its oil, which is nice given the Brent premium right now.

    As of the end of quarter, END was producing ~10,000 but guiding production of 8,800 to 9,200. I surmise they are bagging their numbers as the their declines aren’t that severe and they have a new development coming on line mid year UK North Sea.

    With this somewhat unexpected (at least by me and probably by the Street ) addition you should see increases in estimates. Again the Brent price premium is pretty sweet as well and is unlikely to have completely filtered through estimates just yet.

    I’ve added another piece to my position here at $2.13 today.

  41. 41
    ilikestuff Says:

    Thx for the article, very informative.

    The EIA is part of the government, therefore it is forced to be a fantastic optimist about remaining oil supplies as opposed to a realist. Similarly, CERA is sponsored by big oil, so it also is forced to be a fantastic optimist.

    “Estimates” from neither can be trusted.

    It’s obvious from any objective viewpoint that we cannot grow our oil supplies indefinitely, and that peak oil (if you’re not familiar with the term, I suggest you look it up) will hit soon if it hasn’t hit already.

  42. 42
    zman Says:

    Gee, peak oil???!!! What a concept. Do phone Putin because he just seems to be pumping more and more. And Angola and Sudan and yada, yada, yada. Please.

  43. 43
    T-Tupp Says:

    whoever was asking what is going on with SU one possible answer is that their PT was just upgraded last Fri by BMO Capital markets (my bible, hey im a Canuck!).

    also, they upgraded E&P co’s from market perform to outperform, more specifically gas levered companies.

    z– what’s your email im going to send you some PDF reports by them you might like

    PS– whats with everone in here trading against the trend?? puts are not the perpetually the answer when you assemble an investment thesis lol. Things may not always make sense, but people who actually move the market are doing so for a reason and should be listened to– this is when you look at the technical’s people…

    i.e SU being a well managed co– they missed Q4 07, but WHO CARES!!! they’re above all three EMA’s i follow, there was several explosive “breakaway” gaps on high volume, RSI; MACD; and stoch., are all extremely bullish, oil is on the way up, Suncor is ubiquitously rated outperform………. why are all you guys so intent on losing all your money?? This is almost comical—

    Not do diss on you Z, your fundies are phenomenal, but I fear for some of the guys on this site using these predictions, wiping out their IRA’s or whatever you call them in the States. But maybe it’s like you said: you’ve been having a bad run of things lately and we all have them– I’m just concerned.

  44. 44
    Peezi Says:

    EOG upgraded this morning by 2 reviewers…

    S&P Raises EOG Resources Rtg To ‘A-‘; Outlook Stable>EOG

    EOG Resources Upped To Outperform From Market Perform At BMO

    CHK TA looks good too, check out the 50 vs. 200 day MA…
    http://stockcharts.com/h-sc/ui

  45. 45
    T-Tupp Says:

    eog is not covered by BMO unless theres another researche firm called that

  46. 46
    bill fraser Says:

    What are the HDD’s

    What should the draw be for next week

    HELPPPP!!!!

  47. 47
    zman Says:

    Bill –

    HDDs were expected to be 121 this week which is about 20% over normal.

    With the weather in the west and a noreaster developing I’d expect gas to remain supported for the next little bit here.

  48. 48
    zman Says:

    Bill part 2

    as far as the draw goes, shoulder season demand has a lot of variability in it.

    Last year we added 57 but again it was much warmer for the comparable week.

    Also a 121 HDDs, we’re only 1 over this past week’s number when got a 23 Bcf build.

    I think when the HDDs are finalized for this week next Monday, they’re going to go up by a bit giving you the potential of a for a smallish draw to smallish build next Thursday and a larger draw the following Thursday.

  49. 49
    zman Says:

    SCU breaking out of it’s rut

  50. 50
    bill fraser Says:

    Thank you. Your great numbers shows there is plenty of gas around

    I think after this northeaster things warm up and gas falls

    im shorting the junes at 8.05 and above

    7.50 here we come

  51. 51
    zman Says:

    Bill – GLTY and be careful!

  52. 52
    zman Says:

    Adding to TK $55 – triplling up on TK calls.

  53. 53
    zman testy Says:

    Here’s why I tripled up on my TK calls today:

    From Upstream:

    Opec oil exports, excluding new member Angola, will rise by 210,000 barrels per day in the four weeks to 28 April, an analyst who estimates future exports said today.

    Roy Mason of consultancy Oil Movements estimated O0pec seaborne exports excluding Angola on a four-week average would rise to 24.21 million bpd, compared with 24 million bpd in the four weeks to 31 March, Reuters reported.

    The forecast marks the fourth consecutive week that Oil Movements has recorded a rise in shipments and suggests that adherence by Opec to 1.7 million bpd of pledged supply curbs is slipping.

    “Month on month, Opec compliance is certainly getting worse,” Mason said. “Compliance is certainly below 1 million bpd and heading towards 800,000 bpd to 700,000 bpd.”

    Last week, Mason said exports in the four weeks to 21 April would rise by 390,000 bpd.

    Opec agreed last year to lower output by 1.7 million bpd in two stages starting 1 November and 1 February this year. The reduction includes 10 countries, all except Iraq and new member Angola.

  54. 54
    zman Says:

    CFTC just released numbers through April 10th. Largest short position ever in natural gas. Second largest net short (longs-short) position ever.

    Lot of people betting huge that gas falls. Normally I use this as a contrarian indicator …as in when they cover gas is going to scream higher. If they get it through $8 on this April snow I’d bet you see a huge squeeze.

  55. 55
    sane Says:

    Hey z,

    Just wanted to let you know that it looks like the Monday’s post is not showing up. I am seeing it in the recent comments, but it gives me an error when I clik on it

    Sane

  56. 56
    zman Says:

    Sane / All,

    Can you see Blue Refinery Monday post now?

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