18
Jul

Wednesday – Another All Important Inventory Report Day

Print Friendly

Subscription Watch 3: The Final Chapter! If you haven't registered with the site or emailed me at zmanalpha@gmail.com times a wastin'! I plan on emailing interested parties before week's end. Response has been better than expected, and I won't bother you with this NPR style of beratement in subsequent posts. To all of you who have expressed an interest you have my sincerest THANKS! Ok, enough of that. Back to business.

Oil Rallied $1.20 to breach $75, then read yesterday's post entitled Rebound? Nahhhh, thought better of rallying on a lack of "fresh" "bullish" "news" (as opposed to the fluffy, albeit disturbing, stories that have been masquerading as bullish news like kidnapping kids in Nigeria) and sold off to close slightly lower on the day at $73.85. Is this the awaited intermediate top? Hardly conclusive but it's the right pattern:

  • strong opening,
  • sharp reversal,
  • lower close.

It's just not enough follow through for me to call an intermediate top...yet. This morning traders are again bidding up crude and gasoline timidly before the report. See the bottom of today's post for some interesting weather maps which could be moving markets pre report.

Backwardation Steepening. The out months, which have more to do with expected demand than the machinations transpiring this close to August expiration, felt differently taking a drubbing for a second day. While August only closed down $0.13, February and beyond were down in excess of $0.40 with the back half of the 24 month strip fell over $1 per barrel.

Clearly inventories take center stage today.

From the Dow Jones and Reuters Survey:

  • Crude: Expected Down 200,000 - 760,000 barrels.Crude stocks are expected to fall due to a rise in refinery utilization. Last week crude stocks fell because imports sagged heavily falling from 10.8 to 10.0 million barrels per day. I don't know about you but if I had a tanker sitting in the GOM to play the contango game and then suddenly there were: 1) more refineries on line to consume said oil and 2) no more contango I'd probably exceed the No Wake, 5 MPH Limit sign as I yelled "all engines ahead full" and made for the LOOP.
  • Gasoline: Expected Up 0.9 to 1.2 Million Barrels. That seems like a reasonable number if imports hold and production rebounds to levels seen just two week's ago.

By the way, all of the sudden, many "oil market players" are talking about peak driving demand in the past tense. Like we're past it. What, did everyone take their vacation on July 4 and rush back to work? When I was kid these things were a little more spread out. Let me check.

historic-peak-driving-demad-season.jpg

Nope it's still that way. So if demand dips now it's not a normal seasonal slowdown. Don't let them sell you that crock. No, if demand slows now it's consumer elasticity to price.

  • Utilization: Up 0.5% to 90.7%. Look for a bigger number in next week's report as significant capacity came back into service last weekend. Either way this is a useless number except that reactions key of it but I'm tired of harping on the whole demand vs production debate as I'm sure you are as well.

Over / Under Watch:

  • Bullish Report: Crude draw > 1 million barrels and a draw in gasoline and utilization below 90.5%.
  • Bearish Report: Build in crude (kind of obvious I know) and /or a gasoline build over 1.5 million barrels or a drop in gasoline demand.

Listen Live At 10:25est on MN1.com for the oil report play by play and our picks. Last week on air I said at 10:30:30.

"this is a bad report for gasoline and a good report for oil...in a nutshell this is bad for the refiners."

Phil at Philstockworld.com and I offered up a plethora of put plays in the moments after the report amongst the independent refiners which as you'll see below turned out pretty well.

Since last Wednesday's report this happened... For those of you who just want to have that spelled out that's a 2% gain for crude and an 11% drubbing for gasoline!

oil-vs-gas-071707.jpg

...And the refiners aren't digging it. But most of them, especially the smaller ones, are still expensive by historical measures.

refiner-multiple-071707.jpg

Well Duh Watch: "If hurricanes come into play in the Gulf [of Mexico] and disrupt operations in Houston but do little to curb demand, we could see oil prices surge above $90+ a barrel rather quickly indeed," said Kevin Kerr. Comment: Indeed we could!
Holdings Watch. I'll probably do very little before the report unless I get the chance to take out some risky July puts but after it comes out we expect to be pretty busy.

CALLS:

  • No action yesterday. I was tempted to get in (late) on one of my newsletter picks (NFX) but alas I was reluctant to add new longs in front of this week's oil and gas reports which could prove pivotal. More on Newfield below.

PUTS:

  • (FTO) Sold my little position in Aug $45s for $1.70, a 42% gain. Still hold the August $50s (up 69% so far) as well as some dead July $35s.
  • (TSO) - No trades yesterday but the July $60s, up 53%, and the July $57.50s, up 47% should be gone early today. In fact most July stuff should have been out off the list and rolled already.

Stocks of Interest

  • (IOC) Got Mauled For 19%. Still no drilling report but apparently they were downgraded by an impatient analyst. The unpredictability of situations like this are what make me say, "if you don't know, don't gamble, wait for the news and react". We made 120% in three days on this name last time after the news had hit. What we sold for $4.70 two weeks ago when the company's relief rally petered out closed bid $0.55 yesterday.
  • (NFX) can sell Gulf of Mexico shelf assets to (MMR). One less headache to worry about as the company increasingly focuses on longer reserve life, repeatable success while still having the big swing for the fence potential of its deepwater program. Now if they can sell off their North Sea division and dispose of their Bohai Bay production things will really start to click for them. This story just keeps shouting: “Company For Sale!” to me. Maybe that’s not the plan but it seems to me that they’re making it more digestible and they were in cheap to the Woodford which could be big for them. Some of those wells have come in monster for a shale and they've got plenty of locations and budget there. I still haven't followed my own writing from the newsletter but plan to when things settle down with oil.
  • (SNP) Just Shy Of Refined Volumes Guidance. Sinopec meets oil production target with volumes rising 2.1% in 1H07 relative to the year ago half. However refining volumes came in just shy of guidance at 6.4% vs a 7% expectation. Last week (PTR) announced it had fallen just short of its own production targets. No play, just reporting but I'm starting to watch (PTR), (SNP) and (CEO) a bit more closely these days.

Odds & Ends

Analyst Watch: (WLL) raised to buy at Keybanc, (SWSI) raised from Buy to Strong Buy at Matrix, (TOT) cut neutal at Jp Morgan. Citigroup cut coal companies (BTU), (FCL), (ACI) from buy to hold. (BTU) got the same treatment from HSBCyesterday. It has been a pretty mild summer so far. Credit Suisse picked up several tanker and shipping stocks with mostly neutral ratings. CIBC picked up Chinese solar panel maker (LDK) with a sector outperform rating and $44 PT. I plan on getting my head around the impact of BP getting 2x as serious about solar on the smaller players but judging by yesterday's action I'd have to guess it's not positive. Finally, (RAIL) was initiated with a Buy rating and $60 PT over at Keybanc.

Nigeria (or Don't Try This At Home) Watch: Local youths have drilled holes and set fires in six locations along the Trans-Niger pipeline feeding the Bonny Export terminal. Shell said there is no impact on production and that it has known about the fires since they were set in early June but they have been unable to get to the sites to extinguish them.

Weather Watch: Definitely a tropical wave with rotation over a large area (I'm obviously no meteorologist) off the coast of Africa. Another wave over Haiti appears denser and bears close watching. If these get organized the panic in the natural gas futures market will be classic "yell fire in a crowded theater" variety.

As far as natural gas is concerned, these could lend support...

tropics-071807.jpg

But this will not.

weather-071807.jpg

Have A Great Day And Don't Forget To Tune In For The Energy Report!

79 Responses to “Wednesday – Another All Important Inventory Report Day”

  1. 1
    Sambone Says:

    Looks like we have a spinner at 85/15

  2. 2
    zman Says:

    Morning Sambone – is that long/lat? Where abouts is that (the one off Africa).

    CNBC just mentioned that crack spreads have come in a bit. I guess the drop over the last 10 weeks didn’t count.

  3. 3
    zman Says:

    http://zmansenergybrain.com/?page_id=60

  4. 4
    Sambone Says:

    Just above Honduras. Zoom in.
    http://www.ssd.noaa.gov/goes/east/watl/loop-vis.html

  5. 5
    zman Says:

    Sharp eyes. How’s the shear?

  6. 6
    zman Says:

    WNR roast: Day 2! Down $2+ at the open. Of course all of this is meaningless until the inventories hit but clearly joe investor is panicking.

  7. 7
    Joe Says:

    Thanks Z – $9 in two days isn’t bad.

  8. 8
    Sambone Says:

    Going down in 24 hours. We’ll see.

  9. 9
    zman Says:

    Took out July TSO puts. Too much gain, too much risk. Will look at Aug’s at 10:31.

  10. 10
    codydog Says:

    z–is it possible to post a few names for the trigger happy for post 10.30 trading/

  11. 11
    jimbo Says:

    Baron Rothschild said he was so rich because “he always sold too soon” (from FT). That’s consoling, I sold WNR at 47.

  12. 12
    zman Says:

    If bearish for refiners/RBOB: WNR, TSO, FTO

    If bullish for crude: SU, EOG (I know, I know it’s a gas co but it trades that way)

    Bearish for oil: maybe Chinese oils, XOM, CVX

  13. 13
    zman Says:

    Joe – nice when it works, eh? Congrats.

    Jimbo – I agree 110%!

  14. 14
    codydog Says:

    z–thanks, thinking of trying the uso options today instead of futures after the #s

  15. 15
    zman Says:

    refiners other than FTO back to flat pre report.

  16. 16
    zman Says:

    can’t get through to MN1. their loss.

  17. 17
    zman Says:

    crude draw o.5
    gasoline:2.3 million draw.

    wow. refiners off the table.

  18. 18
    codydog Says:

    any ideas post-numbers?

  19. 19
    T-Tupp Says:

    sorry to say it z but i thnk we might still be in this DTR with TSO

  20. 20
    sane Says:

    The American Petroleum Institute reported a fall of 3.7 million barrels in crude supplies for the week ended July 13. The Energy Department had reported a decline of 500,000 barrels for the latest week. Motor gasoline supplies were up 956,000 barrels, the API said. The government reported that supplies were down 2.3 million barrels. Distillate supplies rose 312,000 barrels, the API said. The government posted a 200,000-barrel decline

  21. 21
    zman Says:

    Man, they had tech problems at the station and blew my opener! Totally discombobulated now.

    Tupp- I agree.

    Cody – same as before….the bullish list popped nicely.

    That crude number was not as bullish as expected and crude could tip over after this rally. Watching.

    Similarly, the gasoline number isn’t as bad as demand and production remained at past levels but volatile imports swooned.

  22. 22
    sane Says:

    Pretty big spread in the API/EIA gasoline numbers. I think we might get a bounceback next week.

    Sane

  23. 23
    zman Says:

    Thanks Sane! Refiners focused on API and the fact that next week’s util number will be up again, probably much more strongly.

    Still in the remaining FTO august puts b/c for some reason we were talking about ethanol.

  24. 24
    Popeye Says:

    OIH getting hammered now.

  25. 25
    zman Says:

    Gas draw was almost entirely conventional gas. Blending down slightly.
    RBOB stocks increased.

  26. 26
    scoop006 Says:

    Z Are you still holding July HAL 35p’s & if so what’s your exit plan?

  27. 27
    j Says:

    DVN cranking on MLP news.

  28. 28
    zman Says:

    Thanks J – everybody who does one of those, and it’s the in thing to do, gets 10%. The prospect of that is lifting E&P today.

    Scoop – yes, that’s a little hedge for me if energy zooms. As you said, those are Julys so I’ll be out on the next rally and rolling to August on the following dip.

  29. 29
    zman Says:

    Took back my August FTO puts for $0.70. Very risky.

  30. 30
    zman Says:

    J – seriously, thanks for the headsup there. Been mired in refiners and ignoring my first love E&P. SWN, KWK, and CHK likely MLP candidates, several others already floated.

  31. 31
    Eric C Says:

    Z- Don’t you mean July FTO puts?

  32. 32
    Brian08 Says:

    I’ve heard the MLP being thrown around there for companies like CHK…Guess that goes against my understanding of what an MLP is…I owned TPP until recently when I sold it…I thought the MLP stuff was usually reserved for the transport of nat gas/oil and the E&Ps really didn’t do it, or is this a new phenomenon??

  33. 33
    Sambone Says:

    See HGT

  34. 34
    zman Says:

    Eric – yes but that’s not what I meant to buy. My stupid trading platform defaults to front month so that when I switch back and forth between different issues it changes on me. crap, crap, crap. Thanks for telling me …ieeeeiiihhh! That’ll be a day trade. crap.

  35. 35
    Moe Gamble Says:

    Nicky, oil is now a religious fetish.

  36. 36
    zman Says:

    Brian

    MLP = Master limited partnership. Great “vehicle” for a legacy asset in that you basically monetize a slow or no grow, steady cash flow asset like an old field or in this case, their midstream assets, by setting up partnership that pays a yield to investors. Lately these have been 5 to 7% but it’s great for the company as they can break out value while slimming the main corporate enterprise down so that new growth prospects, like a new high growth field, can have more of the spotlight.

  37. 37
    zman Says:

    N – Distillates. Much smaller than expected build. 0.2 mm bbs vs 1.0 expected.

  38. 38
    Brian08 Says:

    Interesting take on how an E&P would use those…Yeah the yield I had on my TPP cost basis was great, like 7.2%…Here’s hoping that Aubrey starts to float that one out there for those JAN 08 calls!

  39. 39
    MMarkkk Says:

    Brian: historically the MLP vehicle was used almost exclusively by the midstream folks. But lately we’ve seen numerous launches by E&P’s and you’ll see more until the folks on Capitol Hill think they may want to double tax us some more! With the clowns in charge, it could happen unless they are kept in check.

    The vehicle also allows for additional acquisitions and investment so that the MLP keeps a firm base of reserves and cashflow. Much like the Canadian royalty trusts. Competing against an MLP in the acquisition market is almost impossible as they use discount factors in the low low single digits.

    Also, highly doubtful you’ll see any of the Major Integrated’s using this vehicle. Their CFO’s and CEO’s don’t want to go that route.

  40. 40
    zman Says:

    M – whereas traditional upstream guys are closer to mid teens to 20% now?

  41. 41
    Brian08 Says:

    M&Z thanks for the education…Learning more and more on here about this energy stuff everyday!

  42. 42
    zman Says:

    Nicky – thanks Nicky. Unleaded should look weak if the finished gasoline dropped purely over imports which led to a bring draw on conventional gasoline. RBOB saw a build. But we’re still up 4 cents which doesn’t seem all that weak.

    Bernanke testimony watch: I think the congressional aide on the right is checking out the aide on the left on CNBC now.

  43. 43
    zman Says:

    Nicky – so based on your levels above,

    so far Dist is the only one really breaking out and could run another 3 to 4 cents while RBOB and WTI had trouble with your first resistance levels. Sound right?

  44. 44
    MMarkkk Says:

    Depends on the company and its size. The mid sized boys are probably in the 8-12. Saw a presentation the other day from Merrill Lynch that said to make US acquisitions these days you have to bid 8% on the proven producing and maybe 15% for probables and something sweetening the deal for possibles. That’s a world dominated by the likes of EOG, XTO, CHK, etc and the smaller folks. Majors aren’t making the big asset acquisitions so they aren’t included in those numbers I don’t think.

    Wish the E&P’s would come back down to earth. I’ve got a few Put’s left to close out. The numbers released today didn’t help much!

  45. 45
    zman Says:

    M – I hear ya re puts. At least nat gas isn’t running away on those tropical waves!

    Our SWN might actually fall a little here and if Nicky’s levels hold I might salvage my complete cluster re FTO puts this morning.

  46. 46
    zman Says:

    M – holy smokes, that pretty competitive. I haven’t been on that side of the table in years but the discounts used to be higher.

  47. 47
    zman Says:

    Thanks for the levels N.

    HAL buy program in about 5 minutes at this rate.

    Gotta say this rally in refiners is not yet convincing BUT it comes with the 100 dow pt drop so while I’m not discouraged on my remaining refinery puts I’m not killing myself getting into new ones either. Real tug of war action. On the daily charts they look pretty pathetic.

  48. 48
    MMarkkk Says:

    Z-yeah, the world of A&D is pretty crazy right now. That’s why I mentioned yesterday that CHK has been paying premium dollars for their acquisitions. Everyone else wants to chase them too. For a while when the Canadian Royalty Trusts were running fast and furious, they were rumored to be using 0% discount rates due to their tax structure. Of course, the Halloween surprise from the supposed conservative tax man in Canada whacked them pretty good. They are no longer as active as they were. The Canadian Gov’t and some of the yahoo’s running our US Congress have a lot more in common with Chavez than any of them or us would like to believe. The shifting tax regime/regulations makes things fun!! Just wait until that 15% dividend/cap gain tax expires. Big tax increase on more people than anyone wants to think about. I predict that the month before the expiration there will be lots of selling pressure so people can lock in that 15% tax rate.

  49. 49
    codydog Says:

    z–any view into the post lunch period?

  50. 50
    SLM Says:

    Nat Gas up .14 in the last 15 min?

  51. 51
    zman Says:

    M – I agree, there will be a size unlocking effect.

    Cody – watching the rally in crude pretty closely. Natural gas shooting up all the sudden. Big wave cropping up near Trinidad in a weather map that came out 10 minutes earlier than usual.

  52. 52
    zman Says:

    Sambone,

    take a look at the latest map.

  53. 53
    zman Says:

    Looks better organized than most to date …questions; does it get shorn and does it bear towards east of Florida? Sambone, Redjack, you out there?

  54. 54
    zman Says:

    NOAA not expecting further development in western Caribbean sea.

    http://www.nhc.noaa.gov/aboutgtwo6.shtml?

  55. 55
    zman Says:

    Nicky – was that ex or im? lol.

  56. 56
    codydog Says:

    can UNG really hold a 70 cent move on 30,000 shares?

  57. 57
    zman Says:

    Cody – if it turns that weather gets more organized yes.

    Did you play the EOG and/or SU from this morning?

  58. 58
    zman Says:

    OII good play if it does become organized.

  59. 59
    codydog Says:

    no…I found the numbers immediately confusing, then ended up buying some july OIH calls around 10:45 and sold ’em out about 30 mins ago

  60. 60
    zman Says:

    N – wti?

    Cody – Nice.

  61. 61
    Brian08 Says:

    Z are you staying away from the refiners here?

  62. 62
    bill fraser Says:

    lol, mention of a wave makes ng go up 15 cents in 15 minutes. what happens to ng if it turns into the h word

  63. 63
    Brian08 Says:

    I’ll be retiring before I’m 30…

  64. 64
    codydog Says:

    the july UNG calls have a great symbol – UNGGO !!! fate was calling us and no one listened.

  65. 65
    zman Says:

    Brain – still in my FTO august and a botched trade for July, out of the TSOs before the call this morning. They’re trying to run them a bit and I’m happy to let them. Charts still look toppy.

    B & N – yup > $8

    Cody – unggo – lol.

    The weather service said this shouldn’t develop. What happens if they say it might. Giant short cover.

  66. 66
    codydog Says:

    om a 3 month chart, ung looks like it turned bull yesterday afternoon

  67. 67
    Brian08 Says:

    Yeah was just looking at the WNR chart myself, looks to hit the top around 65…Looks like if it were to start bottoming out that 55 would be in its future(?)…But I’ve made the mistake in getting on the wrong isde of positive momentum…Don’t want to get runover by the train…

  68. 68
    DrT Says:

    I was bearish on refiners before today’s numbers. They have to be taken as bullish versus expectations. Sure production of gas will be up this week but the lower prices probably shut some import arbitrage windows.

  69. 69
    Sambone Says:

    Looks like it still has some spin to it.
    http://www.ssd.noaa.gov/goes/east/watl/loop-vis.html
    You need to zoom in.
    I’m still watching the SW storm in the GOMEX. It could get interesting.
    Check out the temps.
    http://www.esl.lsu.edu/webpics/CMI-GOES/GOES-comps/WEEKCOMP/latest_weekstorm.gif

  70. 70
    andy Says:

    z if sambone finds us a storm before the world knows what would be your favorite hurricane plays

  71. 71
    Sambone Says:

    S/B

  72. 72
    zman Says:

    Andy – APC, CHK, OII but really almost anything will work if gas goes to $8. kwk,swn,hk,lng…

  73. 73
    Sambone Says:

    N- Go here, and then zoom. Not much of if any spin, but water is 85 degrees and very little shear.
    http://www.ssd.noaa.gov/goes/east/watl/loop-vis.html
    Andy – I like DEEP for my hurricane play.

  74. 74
    Sambone Says:

    Here’s another one, you need to animate it.
    http://weather.msfc.nasa.gov/cgi-bin/post-goes

  75. 75
    Sambone Says:

    60W,10N – This one has some interest to me also. Shear is dropping, water temp is 80 degrees. One to watch
    http://weather.msfc.nasa.gov/GOES/goeseastnheir.html
    Need to animate it.

  76. 76
    codydog Says:

    z–re post 89 – would you buy an equally weighted dollar basket of those names or skew it when the long awaited big H strikes?

  77. 77
    zman Says:

    Cody – I’m back in OII long just in case we wake up to a TD tomorrow. APC I’m not chasing at this point but I do like that story a lot. CHK I’m long. SWN I’m still short and feeling pretty stupid about it but I got busy and that one and KWK and anything else people can find >90% gas is going to run. As far as equal weighted, no they’re all slightly different. I like CHK and APC as core holdings anyway so they might get a little more. The OII trades fast so I like to get in and out of it occasionally.

    Sambone – I like DEEP too but not options there.

  78. 78
    bill fraser Says:

    Z

    do you have an opinion on Concho Equity Holdings Corp

    an ipo coming out in a few weeks

  79. 79
    zman Says:

    Bill – I’ll check into it. How about Friday’s post for the walk through?

    N – why do you suppose?

Leave a Reply

You must be logged in to post a comment.

Zman’s Energy Brain ~ oil, gas, stocks, etc… is is proudly powered by Wordpress
Navigation Theme by GPS Gazette

s2Member®
Get Adobe Flash player
%d bloggers like this: