28
Jun

Thursday Morning – Oil Review & Gas Preview

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Oil Report Review:  

Crude Stocks Continue To Rise So Of Course Crude Should Rally. Crude stocks rose by 1.6 mm barrels, higher than the expected 1.0 mm barrels. Crude prices, keying off an unexpected draw in gasoline, rallied $1.20 to close just shy of $69.

Crude Stocks Now At Nine Year Highs. Hmmm, what were prices like in 1998. Not saying we should go to $12 again but should we really be near the upper end of the band?

crude-stocks-062707.jpg

Gasoline: Expected Up 1 MM Bbs. Actual Down 700,000 Barrel. Finished gasoline inventories actually rose! However, blending components were responsible for the total gasoline draw down which combined with the higher utilization mean that we should look for higher production levels next week as refiners prepared to produce more gasoline.

Sidebar: EIA wrote an interesting piece that potential explains the recent divergence between gasoline production and refinery utilization. In a nutshell EIA attributes the split to a combination of the use of finished oils and other blending components being added to blend gas volumes up. They do concede that a certain amount of tweaks at the refineries themselves can result in a small amount of increased production. I'm not sure they're giving enough credit to the last point but this is occurring and it means that as utilization returns to high levels the increase in production won't be linear.

My short term thinking at the time of the radio show was that we would see a near term bounce in wholesale prices and prices at the pump (especially with the coming holiday weekend).

However one week does not a trend reverse and the longer term trend is towards a narrowing of the year over year inventory deficit which should ease RBOB (probably next Wednesday), ease crack spreads, and ease the price of the refining stocks.

Here's a look at the gasoline numbers:

Utilization Recovered To 89.4% But Production Remaind Flat At 9.3 MM Bpd. Utilization rose by double the amount expected. This a better indicator that production will be on the rise next week than anything else. Production continued to climb although at a pretty slow rate.

util-vs-prod-062707.jpg

Imports Again Suffered A Set Back. This is about the time of year when they start falling off as other markets compete for those volumes.

imports-062707.jpg

Gasoline Demand Remains High But Actually Retreated Slightly Week to Week. It's still pretty strong though growing 1.4% on a YoY basis and if imports begin to turn down and demand doesn't moderate further, gasoline prices will re-rally over the next few weeks. Beyond that, RBOB should moderate as the seasonal peak for demand passes.

demand-062707.jpg
Natural Gas Inventory Report Preview:

  • Consensus Range: 80 to 90 Bcf.

Over / Under Ranges:

  • < 80 Bcf = gas rallies
    80 to 85 Bcf = gas rallies mildly
    85 ot 95 Bcf = gas treads water
    > 95 Bcf = short term leg down which would be a buying opportunity.

My number: 84 Bcf injection. You've got conflicting currents of warmer temperatures and higher imports both by land and by sea.

  • Temps: Cooling Degree Days (CCDS) rose from 51 in the prior week to a 2007 high of 59. Traders will also be keeping an eye on forecasts call for an increase in CDD to 68 for this week (next week's number). Heating degree days were a non issue at 4.
  • Imports: Gross imports were up 0.6 Bcfgpd relative to last week (or ~ 4 Bcf more for the weekly tally).
  • LNG - rose back to 2.8 Bcgpd. I'd expect 3.0 to 3.5 Bcfpgd range to hold as long as U.S. prices don't collapse. Even if they do it would be a fairly short lived dip as the sudden dearth of imports would quickly jack prices back up.
  • Canadian Pipelines - increased 0.2 to 8.5 Bcfgpd. I expect this to continue its 2 steps lower and 1 step back up process as drilling and production activity north of the border dwindles and more gas is demanded for growing oil sands developments as well as other domestic consumption.

Odds & Ends

Analyst Watch: nada.
Holdings Watch:

CALLS:

  • (EOG) added more July $75s for $1.15. Sold in the afternoon for $1.50 (30% in 4.5 hours was too pretty to pass up and my faith in natural gas holding up ahead of inventories being shaky made it an easy day trade.
  • (HAL) entered July $35s for $0.55, ended the day in them and up 55% at $0.85.

PUTS:

  • (TSO) - closed out my July $57.50s for $3.20; a 22%, two week gain. Nothing to write home about until you consider my track record with the refiners this year.
  • (FTO) - bought August $40 puts for $1.45.

STOCKS: No action.

66 Responses to “Thursday Morning – Oil Review & Gas Preview”

  1. 1
    zman Says:

    This comes from the PSW site. Phil is such an articulate writer I’m not altering a thing! Well said Phil!!!

    …at 10:25, ZMan and I addressed the nation on Andrew Coffey’s show and actually went bullish on oil with the following selections:

    * VLO $75 calls at $1, now $1.62
    * XOM $85 calls at .65, now $1.08
    * TSO $60 calls at $1, still $1.05 (I hate this company both ways!)
    * EOG $75 calls at $1.2, now $1.65

    The only way ZMan and I can improve on this month’s broadcast picks would be if we just drove over to people’s houses and gave them money so they wouldn’t have to bother with all that tedious time it takes to actually buy the stock and wait an hour or two before cashing in!

  2. 2
    zman Says:

    remaining EOG and HAL working nicely. Old PQ 2x position looking good. Of course, it’s all meaningless before inventories.

    glad I got out of the TSO short. FTO remains a rogue trade.

  3. 3
    zman Says:

    If the number is at all bearish I’ll be entering NFX calls. Stock’s off too much since the takeout rumor died.

  4. 4
    MMarkkk Says:

    Which NFX calls are you looking at?

  5. 5
    J Says:

    The problem is that you are too humble Z. Phil has you licked on self-promotion.

    This oil market is crazy, at some point the market has to correct to reflect true short-term supply and demand. Anyone have thoughts about when how much oil corrects?

  6. 6
    zman Says:

    M – the 45s but also the 50s again. Volume is HUGE in the 50s today. I’d go longer dated but I think these guys are close to getting

    J- maybe so.

    N – thanks. He’s getting a bit snooty, or is it snotty?

  7. 7
    zman Says:

    N – agreed on your crude levels today and RBOB 2.10 to 2.45 from yesterday.

  8. 8
    zman Says:

    forgot to add: the decision level is <85 Bearish and vv. Over 85 and I'll be saying bye bye to the remaining EOG which is getting pretty volatile in front of the number but breached $2 while I was typing a minute ago.

  9. 9
    Stephen Says:

    J is right about self promotion, with your call on CLR, even a fool like myself could have made money. I tried to get in, but was a little too greedy.

    Do you think HAL is just being pushed up ahead of the numbers? I think the accountancy rumours have kept the share down in recent weeks.

  10. 10
    zman Says:

    99 selling eog

  11. 11
    zman Says:

    out HAL at $0.90.

  12. 12
    zman Says:

    big build in the east… cove point lng in Maryland must have been humming!

  13. 13
    zman Says:

    ANR – up another $0.50 and over $20. This is a new high and probably gets dumped with gas soon.

  14. 14
    zman Says:

    took new position in SWN 45 PUTS for $1.10. Stock is still unched, chart looks on a cliff and if you look at a daily of the UNG it’s in look out below territory.

  15. 15
    Larry H Says:

    zman,
    thought of making a trade like that but just dont feel too good about having short exposure during beginning of hurricane season. but then again, I live in south Florida, so Im a bit biased.

  16. 16
    zman Says:

    didn’t get out EOG. it moved too fast. watching. looks like they’ve trying to recover ng. had cnbc off, anyone got comments there.

    HAL out of July 35s at .90 for a 64% gain. How’s that for self promotion J!

  17. 17
    J Says:

    Getting better Z, but you are still somewhere south of Paris Hilton in self-promotion.

  18. 18
    zman Says:

    We’re now only 4% (99 Bcf) below year ago levels, down sharply from the 17% YoY deficit we faced in early March.

    We’re 19% ahead of the five year average.

    Without a lot more heat or some slowdown in the amount of imports we could conceivable tied with year ago levels in 3 to 4 weeks.

    Larry H – it’s a very short term trade.

  19. 19
    zman Says:

    For H

    JP Morgan upped all the airlines this am

    J – I saw a life size card board cutout of Paris at the duty free shop in Honduras. Now that’s promotion!

  20. 20
    J Says:

    Nicky,

    Agreed, I think we see $65 by Sept, but the longer this goes on, the larger the fall could be. As Z likes to point out, the OPEC crew views quotas loosely. If they cheat at $60 what do you think they are doing at $70. Has to be tempting for the sheiks. I’m keeping a good bit of powder dry as I think we are going to see an attractive entry point or two in the next 6 months.

  21. 21
    SLM Says:

    How do you think the 99 injection number will change expectations going forward? LNG imports must be greater than we thought.

  22. 22
    H Says:

    I know- I did my airline thing a few times in the 1st half of the year, you can of couse as you all now trade them as anti-oil/gas, But i am not a fan reight this minute, don’t like the increase in capticy/ over traffic and loads. causing lower yilds- of late, y/y and q/q – and i don’t think in the short term things are getting stronger….HOWEVER what do i know they have been beaten down some, and the seteiment stinks, but theirs still a lot og defending the second half picture and this bunch can see the sun again without me……Thanks Z, I been doing a solar trade of late!

  23. 23
    Kevin Says:

    Not to pat myself on the back… but BTU is up 5% in the last day!! I was considering buying more but did not want to chase it!

  24. 24
    J Says:

    Z,

    Didn’t NFX have a conf call this morning? Looks like it is holding up pretty well today.

  25. 25
    zman Says:

    J – I add to that the tankers are creeping back up. Couldn’t be that business is improving could it?

    SLM – If anything the higher than expected number pushes injections expectations higher. It may set up a nice opportunity to go long a little further into the summer as Nicky and others have been pointing out.

    I think LNG is running the 2.8 Bcfgpd Apache says it is. I gave too much power to the weather when making my projection. Holding things flat, injections should have been up about 4 Bs higher than last week or 93 Bcf. Now it is a survey so you’re going to get some variability but that’s a lot. I think Tx and Wyoming volumes are inching higher week after week. Not in a linear fashion but higher none the less. That’s a problem for the bulls.

    At some point CHK and others will curtail output in some regions (they may have already but not PR’d it). Unlike a domestic version of OPEC they have cause as some plays are only marginally economic below $7. I know I’ve said that a lot and it’s not the malaria but just a reminder that when we see one of those PRs it’s time to buy gas and gassy stocks. Today’s reaction is rather muted and I still think we’re closer to a bottom than to another leg down. At some point those shorts are going to say, “wheewww! time to cover before the first spinner arrives” …say in 3 or 4 weeks.

    Speaking of storms, the familiar hurricane season pattern of precipitation stringing across the Atlantic from Africa is starting to take shape. Also, your’ still getting a lot of activity coming up from Central America. Time to keep an eye on those animated graphs a couple of times a day.

  26. 26
    H Says:

    Kevin – that was a good buy! I was going to buy some too, thinking everyone would expect a kickdown….on the eia, but of course the estimates were to gamed, and either way I’m sorry i didn’t I think it was a perfect fast money trade-

  27. 27
    zman Says:

    J – that looks like the announcement for their earnings on 7/26. NFX is one you’ll never see me taking as short. Unless they’re over $60 which is probably fair value. They get no respect but that’s a great little company. I expect them to get acquired and they’re even making it easier for that to happen as they shed non core and move to a longer RP ratio company focused on resource plays were success is more mechanical/repeatable. I will be sorry to see them go.

  28. 28
    zman Says:

    Nice one K! ANR too. Coal is on fire despite gas’ move. The two appear to be decoupling as their respective inventory situations are quite different. I wonder if it’ll last.

  29. 29
    zman Says:

    Nicky – I gotta give you props on nat gas you’ve been dead on!

  30. 30
    J Says:

    Thanks Z, I’m struggling with calendar reading today.

    Kevin good call on BTU. I think BTU is a buy anytime in goes below $48. I wanted to jump in big time when it sniffed $45, but I am already too heavy in coal. It broke my heart to watch.

  31. 31
    zman Says:

    from last Friday to now:
    August
    RBOB: down 3.4 cents
    August Crude: up ~ $1
    This means after a one week respite, cracks will have fallen 7 out of the last 8 weeks.

    TSO: 61 > 57 : that makes sense
    VLO: 76 > 74.50: also makes sense as it’s the preeminent player with a lower valuation.
    FTO: 45.50 > 44.30: expensive stock, still just pennies off its all time high.

    Nicky: could find the link to the current dust map. NASA and NOAA need to contact the EIA about how to organize a government website!

  32. 32
    zman Says:

    Nicky – search me?! Has anyone taken a look at OECD inventories lately. The press keeps saying they’re very low but the most recent data didn’t bear that out before I left. If it’s true that the U.S.’ high inventories are a global anomaly than that would explain crude prices here.

  33. 33
    David Says:

    Crude is being nasty. You had too many people who kept playing the carry trade and have gotten caught.

    Runs are up and Cushing stocks are dropping, so everyone who was short Dec/Red Dec and farther back are scared.

    Causing a lot of damage around the street.

    Natgas number looks suspect in the East. I am not sure I’d be willing to make any long term bets on that number. Look for a revision next friday

  34. 34
    Kevin Says:

    BTU and ANR are definitely off to the races, but it looks like ACI is lagging a bit… adding a small position.

  35. 35
    zman Says:

    David – hear ya crude comments. Long term bets around this place? Only the longs on the stock page. I’m hoping they beat down gas and the gassy stocks to give us some entry point on some names long (for more stock positions).

  36. 36
    zman Says:

    trying to scoop some TSO 60s Puts here. going for my initial 20%. Other than my two strikes on FTO I’m away from the sector right now. Enough is enough.

  37. 37
    zman Says:

    Nicky – very good point. Where do you see near term good solid support? And don’t say $4!

  38. 38
    Nicky Says:

    6731 gone….

  39. 39
    zman Says:

    Considering the HK June 15s CALLS or Aug 17.50s here.

  40. 40
    zman Says:

    N – CHK is firing up the PR machine sub $6.

  41. 41
    zman Says:

    N – thanks, nice intel. can you post a link to that chart or should I go make my own.

  42. 42
    zman Says:

    Check out GRP getting whacked…that’s pretty odd given the rest of the group and oil. Doubt this little dip in gas hurts their business one iota. Maybe offering an entry but chart looks ugly.

    off to lunch.

  43. 43
    Larry H Says:

    Zman,
    re: CHK.. looks like CEO Aubrey M just bought another 100k shares. He may not know exactly where natgas is going short term, but he does know the details of their hedging program. speaking of shut ins, i remember last year when CHK announced they were shutting in a large amount, when gas was at 4 or so. The stock sold off,, and was a great buying opp.. i love a company that can shut in huge amounts of production when prices dont make it economic, yet still make good on all their deliverys.. Thats power.. I may start to bite a little on HK as well if it goes sub 16,, good management team.

  44. 44
    sane Says:

    Hey z,

    Looking at that tidbit about the refinery util divergence w/ gasoline production d/t blending, I just saw a piece on AgWeb that as of April U.S. ethanol production is up YoY by 100k/bpd @ 391k/bpd while imports remained constant YoY.

    Sane

  45. 45
    P. K. Says:

    First time, long time. Great site (even if the “price” will be going up soon. Z, what do you think of DRC, as opposed to the big boys HAL and SLB?

    Nicky, good link. I often peruse that site but somehow missed that article.

  46. 46
    J Says:

    Z,

    Just a thought on nat gas and weather. I paid a visit to some friends at accu-weather last week. While we were having lunch, they mentioned that the summer temp outlook is still above normal, however forecasting models continue to signal that weather patterns of the type that can bring particularly hot and sunny spells to the US will be fewer than in some recent hot summers.
    In other words, it will be hotter than normal across the board, but without as many of the 95+ heat-waves.

    Seems like this could be slightly bearish for nat gas, since it is what most utilities use to satisfy the electric demands during peak (95+ heatwave) periods. At least that is how it plays out in the Northeast. I know in NYC market, con ed meets most of its peak demand from firing up some smaller nat gas plants.

  47. 47
    J.J. Says:

    I love the website, I an a new vistor. What can you tell me about Coal to liquid or CTL technology? WHo does it ?

  48. 48
    Popeye Says:

    OIH testing LOD.

  49. 49
    J Says:

    JJ,

    BTU is a pretty big player through joint ventures in the CTL side, but I’m always scared of technology that depends on government subsidies. But hey, like H said, solar is booming. BTU gives you exposure to it, without as much risk.
    However, if CTL takes off (which I doubt unless it starts getting ethanol like support), should lift the entire coal sector.

    If you are looking for a nice coal buy and hold with a nice dividend, look to buy PVR when it dips under 29. I’d wait it out for a bit since PVR has an increasing gas exposure which may drag it down.

  50. 50
    Fred Says:

    Look at SSL for CTL technology. Welcome back Z!

  51. 51
    J Says:

    One more thing on CTL, the upcoming energy bill will be huge as far as were CTL will be going in the near term. I believe the energy bill will be finalized in July. If they can sneak in some subsidies for CTL, you may see a pop.

    SSL has the best technology, but trust me, if the dollars get allocated they will be going to companies in the US. Time to buy some votes. If you want pure plays, which I don’t recommend, RTK has the joint venture with BTU and SYNM has some contracts with the Air Force that may give them a pop if expanded.

  52. 52
    Larry H Says:

    J,, just to add to your thoughts on CTL companies,, I have done much study and work on that sector,, I must warn you about synm,, their technology as far as I can tell is not all they claim it to be. they are very good promoters and marketers but they really dont have much in the way of solid patent protected technology,, I would gravitate toward SSL or RTK for exposure to the CTL space.

  53. 53
    Sambone Says:

    CHK – I love stocks where the insiders buy their own stock. I’m not quite sure where he gets all the cash to buy it in the open market.SB has a target of 45

  54. 54
    J Says:

    PPP holding up today.

  55. 55
    zman Says:

    Wow. Long lunch. EOG calls are ouching me a bit but the 2x SWN position taken at $1.10, now $1.90 big is more than compensating me for it.

    Thanks Fred. Sasol is the leader in both CTL and in the drying of coal ala KFX. Quality company. We should probably spend more time on coal around here.

    J – be careful playing the SYNM

    Welcome J.J. Glad you like the site. Please feel free to ask away.

  56. 56
    H Says:

    Good Afternoon All!

    Z- I been away all day- i sold my xto’s and any call i brought yesterday-( oil and gas) but now I would appricate to know what calls you looking to buy due to stks going south, you metion their may be and lkly would be an opp to buy…tia.

  57. 57
    zman Says:

    Got the small TSO put position back on the $60s for $3.20.

  58. 58
    zman Says:

    H – looking hard at the NFX $45 CALLS which were pronounced “No Joy” when the 99# hit.

    Other Potential Longs
    SWN – although I’m still on the put side,

    COG is getting sorely abused here but it may have another day of drop in store.

    KWK – just bounced off its 50d sma, unlike most who just broke it. They’re fine at $6.50 gas and their spin of their services gives them a little different angle than other gassy E&P right now.

    PQ and HK as usual.

  59. 59
    J Says:

    Don’t worry about me Z, I don’t have the stones to play in alternative energy. I like my diesel the old fashioned way. Plus the coal lobby has nothing on the farm lobby so I don’t think they’ll be getting too much money for CTL. Gotta be long coal for power and any CTL is just gravy.

  60. 60
    zman Says:

    TSO bounced off it’s 50 day from beneath. Pretty lame rally for $60, was up $3 in the morning but now $0.75 and looks weaker. Somebody really needs to explain to the fast money crowd that if the % move in oil to the upside exceeds that of gasoline that it’s a bad thing. The refiners just seem to track the price of oil (their cost) regardless of the price of gasoline (their revenues).

  61. 61
    H Says:

    Thank You Z- Just needed to see it on this , cause I can’t find it up their- I like the NFx and SWn as well as kwk, but am on the side for now-

  62. 62
    zman Says:

    Anybody got a read on LNG (the company) and the psycho move today???!!!

  63. 63
    Larry H Says:

    Wow,, look at the drop in the UNG Jan 08 50 calls,, almost cut in half. getting tempting..

  64. 64
    zman Says:

    Larry H – true but that spread is ugly. Another day like today and I may bite though via a gassy stock. ok, maybe I’ll take a little UNG. Thanks for pointing it out!

  65. 65
    zman Says:

    HK

    FBR takes their price target to $27 from $24 in the wake of the MLP and gulf coast sale talk. This with the stock at just under $16. I like those guys.

  66. 66
    Daniel Says:

    I couldn’t understand some parts of this article Gas Preview, but I guess I just need to check some more resources regarding this, because it sounds interesting.

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