23
Aug

Thursday – Oil Inventory Wrap / Gas Storage Preview & Lots, Lots, More!

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Subscription Watch: If you didn't get an email yesterday don't worry. I didn't send one.  The instructional email for signing up will go out Friday (or this weekend).

 

Dean Vs Campeche Watch: Still waiting for platform checks. Round one looked like it went to Campeche as judges (XOM) and (VLO), both of whom draw heavily on oil imported from Mexico to supply their Gulf Coast refineries, said they expected no impact on makes as they'll just pull from stored crude. After the close yesterday, Shell announced reduced production at is Deer Park refinery in the wake of shut in production from Mexico (this is what's got crude and RBOB rallying a bit this morning).

 

Nigeria Watch: According to Bloomberg, traders say the Forcados terminal may ship three 950,000 barrel loads in October. The terminal has been shut since early 2006.

Crude Oil Report: Build In Crude! Big Draw In Gasoline!

Crude: Up 1.9 million barrels. Bit of a shocker since the last several draws had been much bigger than expected. Analysts had been looking for another large draw this (2.8 mm barrels) which makes you wonder about the value of the whole estimation process since they often get this more wrong than economists trying to predict the jobs report.

Gasoline Stocks Dove 5.7 Million Barrels. Double ditto the above statement as the Street was looking for a 0.9 million barrel draw and got a figure six times that amount. 

  • Utilization/Production:

    gasoline-production-081707.jpg

    Production reached a record level (for this week of the year) of 9.287 million bpd despite the fact that utilization continued to languish at a seemingly lazy 91.6%. This was the lowest level for utilization in the 2000s so either its being measure wrong or it should just get a lot less fanfare than the production numbers.

  • Gasoline Imports Fell Sharply:

    gasoline-imports-082207.jpg

    This is volatile and usually I'd say it means little but it's likely shipments to the U.S. have gotten a little less attractive as wholesale prices have fallen. Record imports played a large role in reducing the strain on refiners this outage plagued summer.
  • Gasoline Demand Hits All Time Record:
    • gasoline-demand-082107.jpg

As imputed by the EIA, demand hit 9.762 million bpd last week, an all time record. I say imputed because the EIA has no way of actually measuring demand and has some other parts of the equation missing as well. That number looks a little fishy since this is the time of year when demand falls off but it's possible that everyone driving around with one gallon of gas in their tank like my brother in law upped it to two. 

Natural Gas Inventory Report Preview: 

  • My number: 35 to 40 Bcf. Last week saw an injection of 22 Bcf but imports were lower and heat was higher. The midpoint of my range would yield a small erosion of the YoY surplus given last year's 57 Bcf build.
  • CDDs: Registered 83 last week which is lower than previously thought and, more importantly, down sharply from the prior week's reading of 91. Although humidity was probably higher than expected so maybe it's nearly (but not quite) a wash as far as people running their AC. Next week this number is currently set to slide to 79 but I think that probably gets revised up a little.

imports-stacked-082207.jpg

  • Imports: Increased to a 2007 high of  13.8 Bcfgpd. This alone would result in an additional 12 Bcf over the prior week's levels.

  • I went back through my historical data and if you got four of these mongo imports numbers back to back it would exceed all of the monthly averages for combined imports from Canada and LNG in history.

  

  • Here's another way to look at those imports. Here we see 10 years of dataimports-range-082207.jpg broken down by its seasonal pattern. The yellow square is the first half of August 2007. That massive 13.8 Bcfgpd number from last week figures in prominently to making this the highest August import month in history. Note that 13.8 Bcfgpd is above the peak winter months on record. I think at levels below $6 some of this gas gets diverted to Europe and Japan.
  • Consensus: 30 Bcf. Which of course is the number you need to watch. Has the recent dip taken into account a slightly bigger number? I'd guess so but I'm in the minority on that view. Given historic builds between now and the end of the injection season we remain on track to hit 3.5 Tcf-ish.

Potential Hedges If We Get Another Leg Down: (KWK), (SWN), (LNG), (XTO), and (UNG).   

Holdings Watch: Dipping another couple of toes and setting pretty stops so they don't get quickly hacked off. I left my two foreign oil picks (PBR) and (PTR) along and watched them rally another 6% and 4% respectively. Oh well, can't kiss all the girls. Both should have further to run / retrace and I'll watch them closely for an opportunity to enter. Adding insult to injury, this morning (PTR) beat and said the second half would see more volume growth...feeling caught a little flat footed there but will likely add a small call position if it doesn't run too strongly out of the gate. 

CALLS:

(VLO) Bought the September $65s for $2.40.

(TSO) Bought the September $50s for $1.70. 

(RIG) Bought the September $105s for $1.80.

PUTS:

(KWK) took a position in the $35 Septembers for $0.40.  

What I'm In Now...Relatively Little. 

open-options-082207.jpg

Odds & Ends

Analyst Watch:  (MEE) to Buy at UBS, (GNK) price target bumped slightly at Cantor. This is another global reach dry bulk carrier in the business of transporting, among other things, coal.

(PINN) Watch: Remember these guys? I reviewed them the week of the IPO and said I wasn't playing. That was the same week (CLR), which has done pretty well, went public. At the time I said they were coming at twice the price (or so) that I would have expected. Well that problem is solved. Still no options but this may be one to play when natural gas recovers.    

Tropics Watch: All quiet on the southern front.

Upcoming Events Watch: Lehman Energy Conference - begins September 5th.

 

42 Responses to “Thursday – Oil Inventory Wrap / Gas Storage Preview & Lots, Lots, More!”

  1. 1
    Sambone Says:

    Lesson Seven – History repeats itself. Why? Because no one bothers to read history!

    Lesson Eight – “People can argue all they want with you, but that’s a waste of everyone’s time. Like, the chart will change if they argue it?

    Lesson Nine – “You know, sometimes the Wall of Worry is a real wall and the
    worry bricks aren’t made of air.”

  2. 2
    scoop006 Says:

    HELLO

  3. 3
    zman Says:

    Sambone – you’re now the official list keeper. Will need to post the whole thing at some point. By the way, #7 is the key to many things in life, not just investing.

    Refiners and service getting a nice pop this morning.

    natural gas looking pretty tentative

  4. 4
    zman Says:

    hey Scoop…how’s trix this morning?

  5. 5
    zman Says:

    NOV running a bit on the announcement of a 2 for 1 split which is a silly reason to run a stock as nothing changes at all but it’s a common occurrence.

  6. 6
    zman Says:

    Slow news day.

    APC approaching $50. They should have had a pretty good lease sale yesterday. Call volume is high for this time of day in my Sept 50s.

    SWN trying to recover but it’s meaningless before the gas number in 20 minutes.

    RIG’s putting on a nice move but again, the gas number could temporarily whack today’s gains.

    PTR = flying.

  7. 7
    scoop006 Says:

    Z Should we take a small put position in NFX for insurance?

  8. 8
    fan Says:

    Z,
    I had a question on this:
    “Potential Hedges If We Get Another Leg Down: (KWK), (SWN), (LNG), (XTO), and (UNG)”

    With regards to UNG, Are you saying buy puts on UNG or short UNG?

    My concern with UNG is that it’s pretty new (launched 4/07) and that it may have large differences from NG contract (The same company that manages UNG also manages the USO etf which while successful has had HUGE discrepencies (up to 18%) with Crude oil contract.

  9. 9
    Sambone Says:

    Lesson One – Just because a market or a stock is oversold doesn’t mean it can’t go lower.

    Lesson Two – Don’t fight the trend.

    Lesson Three – Don’t anticipate a reversal. Wait (a four-letter word you can say in public).

    Lesson Four – Don’t fight the Fed (but at the same time understand what they are doing), which I believe is on Marty Zweig’s top ten list.

    Lesson Five – Don’t trade without stops. Even if you are right that the down move from the July highs
    is over, a move below the August 16th low would not be good. Consider some GTC orders. Remember
    that a 10% loss of capital requires an 11.1% gain on the remaining capital to recover and a 20% loss
    needs a 25% return (from How Technical Analysis Works) to bring you back to even.

    Lesson Six – “It isn’t as important to buy as cheap as possible as it is to buy at the right time.” Jesse Livermore

    Lesson Seven – History repeats itself. Why? Because no one bothers to read history!

    Lesson Eight – “People can argue all they want with you, but that’s a waste of everyone’s time. Like, the chart will change if they argue it?

    Lesson Nine – “You know, sometimes the Wall of Worry is a real wall and the
    worry bricks aren’t made of air.”

    Starting to look at Utilities. I like AEE. Utilities were the best performing asset class in 2000 after the tech bubble popped. They have been crushed lately. They are considered “Flight to safety”. You’ll pay your electric bill before you pay your mortgage. Yes, I know this is an energy blog, but just wanted to give you my thoughts.

  10. 10
    zman Says:

    Scoop – I took a position a put position in KWK yesterday for that purpose.

    Fan: UNG I was looking at the puts. I don’t short stocks, ETFs, what have you unless I being marched in chains to a dark basement room. As to the discrepancy vs the underlying it’s not as big and we’re talking very short term so if gas gets knocked for 5-10%, so will ung.

  11. 11
    zman Says:

    23 Bcf – wow, that’s a little light.

    Adding SWN 40 calls for $0.95

  12. 12
    zman Says:

    number is clean, now movement of base gas to working gas status. woops, now they appear to hate it. That’s odd.

  13. 13
    zman Says:

    After the drubbing gas has taken in the last few weeks, this smaller than expected number should be reason for a small relief rally.

  14. 14
    fan Says:

    yeah, i agree with you on UNG as so far in its short life it has had a much smaller discrepency then USO has had and USO also had to deal with serious Contango which reveresed only recently… On the other hand, what do you think of just buying the miny NG versus UNG? strong points include smaller size than full contract therefore full capitalization is cheaper then UNG by more than 50%, low margin, low commision to buy or sell through a good broker plus you don’t have to worry about any correlation issues and you don’t have to pay someone a large fee for doing nothing

  15. 15
    zman Says:

    Fan – Agreed on all points. I was musing to the masses. Most don’t have futures accounts.

  16. 16
    fan Says:

    longtime fan, look forward to more, thanks again…

  17. 17
    zman Says:

    Thanks Fan! Nice to have you here and commenting during what is undoubtedly the slowest time of the year in the market.

  18. 18
    fan Says:

    bullish ng number and they still want to cream ng… looks like speculators are permabears…

  19. 19
    zman Says:

    Especially when you break the number down. There were DRAWS in the West (-2) and Producing (-15) regions. The East was up 40 Bcf representing the entire build.

    The YoY surplus fell by half to 2.4%

    The surplus to the five year average fell from 15% to 13%.

  20. 20
    zman Says:

    Given the continuing prospects for warmer than normal for the next several weeks we are likely to reverse the YoY surplus to deficit in the next 2 to 3 weeks. The reversal versus the prior year won’t go unnoticed by traders.

    Coming Injection Comps from 2006:
    48 Bcf
    71 Bcf
    108 Bcf
    93 Bcf

  21. 21
    Nicky Says:

    Morning all. Distillates looks in need of one more leg down which argues that WTI may see one too (although it is already possible to count 5 waves down in WTI). Once (i)down is complete we can commence (ii) up. Once we have (i) in place we can work on levels where (ii) may complete.

    Support levels in WTI are 69.26, 60.09 and 68.70.

    Support levels in Distillates are 19480 and 19300.

  22. 22
    Nicky Says:

    Regarding nat gas – they were interviewing a trader when the data came out who pretty much said they would sell any number that came out.

  23. 23
    fan Says:

    are you getting the YoY surplus and other analytical info from EIA site or other news source?
    Yeah I agree, i don’t get it, but NG still breaking down currently … I think it’s probably another Amarath type hedge fund(s) speculating on deep leverage forcing their profit till it breaks and they blow up…

  24. 24
    Nicky Says:

    Nat gas has support at 5578, 5460 and 5390. Once this leg down completes I am looking for a wave iv correction. There is a gap in the 6650 region although this looks a little high for a correction.

  25. 25
    fan Says:

    Nicky,
    so which level are you a buyer at?

  26. 26
    zman Says:

    Fan – yes, from EIA.

  27. 27
    fan Says:

    from BLOOMIE:
    “PetroChina Planning `World’s Largest’ Gas Pipeline (Update1)”

    That explains it then, it’s all over for NG. Damn Chinese with their diabolical world dom. plans ruining the world again…

  28. 28
    rammastr Says:

    I wonder who will make the millions and millions of tons of specialty steel for the “world’s largest gas pipeline”? Sometimes it’s not the commodity – sort of like the drybulk shippers.

  29. 29
    rammastr Says:

    Does TS have an edge on supplying most of the material with regards to #27?

  30. 30
    zman Says:

    Ram – good points, I don’t know anything about TS.

    Scoop – thanks for the email. Cramer makes some good points re XTO and I should watch them a little closer than I have in the past…very beat up for that good a story. The same can be said of COG, EOG, KWK, and SWN while APC, CHK, CRK, NFX have faired much better.

  31. 31
    fan Says:

    Rammastr – don’t know who is building this monster as its only in feasability stages but looks like Turkmenistan (2nd largest russian natural gas co) is set for the next 30 years as they have signed a contract to deliver 17 billion cubic meters of gas annually…
    .
    Also of note from same article
    “China wants to increase the use of the cleaner-burning fuel to 5 percent of total energy consumption by 2010 from about 3 percent now to cut reliance on coal and oil.”
    So i guess NG 2010 is > $6.00 i’m gonna look for the contract right now…

  32. 32
    zman Says:

    Noon time news

    (NE) – down dip appraisal well at Belinda discovery off EG hits better quality reserves than the disc well. Wet gas at a pretty good rate (30mm/d and 1540 bcpd) – (barrels condensate per day)

    quote is that it exceeds expectations. they have 45% and operate.

  33. 33
    El Diablo Says:

    Anoyne else tired of the ‘parade’ of mortgage CEOs on CNBC?

    Somehow, they believe that they are ‘entitled’ to a market for their services. They just came out of the biggest bull market in history for morgages (home-buying) and they can’t cope with the fact that it has ended. Too bad. These guys were running their businesses ‘as if’ the glory days would never end. Sound familiar?

  34. 34
    zman Says:

    EL D – I don’t watch that channel for that very reason. They NEVER see anything coming. It’s like investing in the rear view mirror with all their guests. I only flip to it when I’m bored and want to lull myself to slip watching the tape.

  35. 35
    zman Says:

    nat gas and oil late day rally into close.

    Sparked a nice rally in RIG and co as well as a continuation of yesterday’s strength in the refining sector.

  36. 36
    zman Says:

    Knock, knock….

    Nicky – any thoughts re the late day ups in NG?

  37. 37
    jimbo Says:

    CNBC just sells hype. Maria B isn’t that good looking anymore. Somebody’s eating acid in the graphics dept.

    (why I listen to Bloomberg)

  38. 38
    rammastr Says:

    Nicky – I guess we tread water until someone or something blinks? Maybe people are afraid of Bernanke’s Tool?

  39. 39
    Sambone Says:

    El, Jimbo, Z – As I keep saying “Talking heads”. Those who can’t, go on TV and become talking heads.

  40. 40
    zman Says:

    RIG / HAL / VLO / TSO – not bad for the new picks.

  41. 41
    El Diablo Says:

    I agree about the talking heads (and Maria’s cosmetic slide), but these CEOs Countrywide, Thornburg have made multiple appearances in the past few days. Don’t they have ‘work’ to do? Or is there only gameplan: go on CNBC and beg for the market’s mercy? pathetic. One appearance-understandable, two within a week-probably a disaster looming, three within a week-story over.

  42. 42
    click through the next website Says:

    click through the next website

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