Yesterday was another pretty good day.
- Recently opened call positions performed well as (SWN) and (VLO) ran hard into the close as both approached their 2Q earnings dates. See Earnings We Care About below for notes on Valero’s earnings beat. Southwestern reports after the close today.
- (EOG) ran early and hard with a storm fear / short cover pop in natural gas as did (HK) which picked up a bulge bracket firm upgrade yesterday morning.
- (HAL), (OII), and (NFX) were somewhat more tame than of late, the former on its ties to the now in question Kashagan project in Kazakhstan and latter as profit taking ensued.
- Last night (APC) reported a big bottom line beat and although I don’t own them at present I’m inclined to listen closely to this mornings conference call (see Earnings We Care About below).
- Puts on (FTO) and (WNR) came in a little but I’m still comfortable there as gasoline looks poised to fall while crude prices remain robust.
- (SU) No position there yet but that pipeline capacity constraint story obviously weighed on shares yesterday.
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Oil Stalled. Friday’s close was a penny shy of the all time record for WTI (not inflation adjusted of course). Monday’s close was 22 pennies shy of the all time record.
- Bullish factors include continued problems with Iran (production and otherwise), North Sea (CATS) and Mexico (Cantarell) production, Venezuelan labor difficulties and general mismanagement, rebels, terrorists and countries run by terrorists, hedge funds, potential world power leaders who want to steal oil company profits, the EIA, the IEA, OPEC etc.
- Bearish factors include a whole lot of oil in storage in the U.S., rising Angolan production, rising Canadian production (see yesterday’s post for an important caveat), the fact that Kuwait says they have double the reserves previously thought (100 billion barrels in my best Mike Meyers voice), deepwater GOM growth on the way, rising production from Iraq (fingers crossed on that one) and OPEC who never made their curtailment quotas, continues to slip in terms of sticking with them and has made dovish statements of late regarding their upcoming meeting in September (but seem to waffling on those comments this week).
Early Read On Wednesday’s Inventory Report from Reuters and Bloomberg:
- Crude: DOWN 1.1 million barrels,
- Gasoline UP 1.3 million barrels. This would put us within a hair of the lower end of the five year band, a region we have not entered since early April.
- Distillate UP 0.7 million barrels
- Refinery Utilization: up 0.6% to 92.3%
Crack Spread Watch: Bubble Popped! Yesterday didn’t help either and September RBOB could test $2 as soon as this week ($2.0592 as of yesterday’s close). By the way, I’ve been saying for a while now that numbers earnings estimates (3Q and beyond) marched up in lockstep with crack spreads but failed to come back down with them. Well, taking a look at 3Q numbers, I see that all of the independent refiners finally started seeing their numbers shaved in the last week.
Natural Gas Rallied To Close At $6.449. If you’re short gas, you’ve got to be annoying your family by making them watch endless hours of the Weather Channel while carrying around that bottle of Maalox.
- Heat Watch: Mild Last Week. Last week was actually 2 CDDs short of the prior wee at 70.
- Imports Watch: Gross natural gas imports to the U.S. fell about 1 Bcfgpd vs the prior week and were roughly in line relative to the year ago week.
- LNG – a week to week tumble in LNG volumes accounted for 0.95 Bcfgpd of the over all drop in imports. This is after a sharp spike last week to record highs and the volatility is no doubt attributable to the timing of offloadings (3 extra ships in last week’s number could do it).
- Canadian piped gas inched back a hair from last week to 9.2 Bcfgpd.
- Imports and continued mild weather probably put us in line for a 60 to 65 Bcf injection this Thursday.
- And that would push storage to 2% over record levels as the year ago period was experiencing serious egg frying temps.
But That’s The Past And This Is The Near Future
- Heat Watch #2: This Week Is Not So Tame: The Climate Prediction Center is looking Cooling Degree Days to hit 92 this week, by far the hottest levels year to date (but still a bit below last year’s swelter fest). That alone could send injections below the half century mark, substantially slowing the gain on YoY storage and reducing the surplus to the five year average.
- Tropics Watch: Spin Spin Spin – this bears watching.
Forget the net position, the natural gas short position is massive! Nervous, nervous, nervous…A good portion of this position (about 1/3) was added between $0.50 and $0.60 below current levels. Ouch!
Stocks We Care About:
- (NFX) - Founding father and current EVP of ops David Schaible named President and COO. Trice remains CEO and Chairman. Street should have no qualms there. In other news CNOOC and Newfield will enter into a new production sharing agreement for an additional S. China Sea block.
- (SU) Files application to expand oil sands mining by 120,000 bopd by 2012ish.
Earnings We Care About:
- (APC) Big Beat. Reported $1.09 after backing out gains and charges vs $0.79 expectation. Revenues of $3.3 B handily beat expectations of $2.5 B.
- Production of 52 MMBOE came in on the high side of guidance of 50 to 53. This is likely due to timing of asset sales,
- Full year production guidance increased by 2% (midpoint) to a range of 203 to 210 MMBOE,
- Operating costs were in line with expectations,
- Conference call at 10 est
- Operational Update Highlights:
- Boomvang area (acq from Kerr-McGee) has two exploratory satellite success,
- Conger delineation well found significant pay
- In the Rockies the Greater Natural Buttes, Pinedale /Jonah and the County Line in the PRB again set gas production records.
- Offshore Ghana -big well at Mahogany #1.
- (MRO) Reported $2.25 vs consensus of $2.12. Revenues were in line
- Refining performance was solid, record throughput.
- A little slippage in E&P production guidance due delays in project timing
- Buying Western Oil Sands for $6.2B.
- Conference call at 9 est.
- (VLO) Reported $3.89 vs a consensus estimate of 3.75.
- Discounts to WTI for Mars and Maya crudes and resid continue to widen…good when you like the sour stuff. This should be the whole story. The rest below is nice but mostly history.
- Throughput margins per barrel: 18.14 (!)
- Refinery opex per barrel: $3.87 (can’t complain)
- U.S. fuel margin per gallon: $0.202 (!)
- Bough back 42 million shares (7.5%) during the quarter, up from 15 in 1Q. $2B approved for the rest of the year.
- Conference call at 11 est.
Congrats to Bill F who at 12:04 est and with the stock down almost 1% wrote:
im throwing caution to the wind and loading up on vlo calls. bot 45 60’s, 45 70’s and 10 67′5’s. rbob is making a bounce and earnings will be good, that coupled with oversold conditions and z comments. lets go baby
VLO closed up 2.7% on the day. Nice work.
- (NFX) Bought August $50 calls for $1.15 as the stock encountered a bit of post earnings profit taking. Last bid $1.10.
PUTS: No Action.
Odds & Ends
Analyst Watch: (CCJ) upped to outperform at CIBC but price target cut from $55 to $50 at FBR; (DHT) cut to neutral at JPM.
Ohh, Ohh, I Know, I Know Watch: RBC picks up (WRES) with an outperform rating three days before they report second quarter numbers. This is an interesting little E&P company I left off of Monday’s earnings table (along with EOG who also reports on Friday) by accident.
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