12
Sep

Wednesday – OPEC Hangover or Party On, I’ll Have Another?

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Commodity Watch: NG up strong ($0.20 and back over $6) on possible TD (maybe TS) formation in the Atlantic. Oil flat after initial OPEC surge; holding over $78.

OPEC Wrap Watch: 500,000 Bopd Quota Hike...Or Was It 1.4 Million? Actually it was both. OPEC agreed to raise production from current quota levels of about 25.8 million Bopd to 27.2 mm Bopd beginning in November. They're already producing roughly 26.7 mm bopd (OPEC 10 - those subject to compliance) so the hike is 500,000 actual barrels and the rest is just a "true up" so that they're not "cheating" any longer. OPEC set the date for it's next regular meeting in March 2008. Traders were under the impression that the group would get together again before year end, most likely in December. Maybe they get together again if it gets really cold in the US but otherwise, I think they've made their nod to the international community.

  • So why the early price uncertainty... The early uncertainty was the apples and oranges nature of the statement. In true Fed fashion the powers that be in OPEC confused everyone. "500,000 that's built in, let's rally this thing" warred against "1.4 million! Holy Crap!"
  • ...Followed by the spike into the close? Ultimately traders went for the record after the close deciding that OPEC wouldn't be able to meet the additional 0.5 million by in a little over a month and a half. At least these are the current theories out there. Oil closed at $78.23, a new record for a front month NYMEX contract.
  • I think we test $80 soon. It of course depends on a variety of factors including the inventory report and what the IEA has to say about global oil demand in its report today but I think we're going to knock on $80 and then fall back into the mid to low $70s over the next few weeks. The stocks aren't discounting anything like a $75 price deck in their cash flow multiples so we don't need prices to stay up here to see the XOI and friends advance. So in answer to the titular statement and of course barring a Bernanke and/or economic flop I think the stocks are getting back into rally mode.

Mexican Rebel Watch: In other news affecting oil prices, the Popular Revolutionary Army or EPR vowed more attacks unless two of it's members held captive by the Mexican government are released. As of yesterday, Pemex was sending in crews to repair four of six natural gas pipelines damaged in the attack. The two remaining pipelines continued to burn. Damage is estimated in the "hundreds of millions of dollars" which sounds far fetched but isn't when you include lost gas sales and the economic impact of the 2,500 businesses that have been shuttered due to lack of fuel.

Stocks We Care About Today Watch:

  • (PBR) - clicking on all cylinders and has a strong Brazilian market behind it as well. These guys are looking bullet proof and their chart broke out yesterday. (PBR) was a double down and one of three bottom fish picks from a slow, hard down day last Friday along with (APA) and (COP). Not without tribulations all three are in the black at present.
  • Speaking of (APA) it was upgraded by Goldman this morning buy citing "improved visibility on oil and weak expectations". They cited discoveries and production in Australia (mentioned here in comments Monday: APA discovery: 80 MMcfepd tested (limited by facilities) from a third discovery off Australia. They think this is about 300 Bcfe gross (APA has 65%). Good timing given the recent strength in Aussie gas prices but these won’t be developed until 2010+).
  • Refiners - seem to rally with oil and not with products. Cracks continue to hold up and below you'll see some headlines from mid day yesterday out of the EIA which are nothing if not bullish for fourth quarter crack spreads. Banc of America bumped it's rating on (TSO) to buy this morning but started (VLO) at hold.
  • (RIG) - got pounced on for (GSF) announcement yesterday of the ultimate deepwater drillship. 12,000 water depth capable (that's a record) but with a hefty price tag (about $740 million which is $100 million over most standard drillships these days) it scared some investors who worry that a collapse in the global economy could leave the combined (GSF)/(RIG) (Trans-Sante Fe or Global-Ocean?) holding the bag on the largest portfolio of deepwater drillships and semi-submersibles out there at present with a value approaching $4 billion. The hit to the stocks was largely eradicated by the energy rally by days end yesterday and I think that the concerns are over blown given the incredible forward utilization of the present and under construction global deepwater fleets. This rig will be in service in late 2010 garnering a day rate in excess of $500,000. The dip in prices yesterday was a bobble, a speed bump, a non-event for a company that is very likely to do $15 per share in earnings in 2009.
  • (PTR) - Under pressure from shareholder rights groups, Warren Buffet again trimmed his stake...from 10.16% to 9.72%.
  • (KWK) sells mid west assets for ~ $2.50/ Mcfe. The sold their reserves in Michigan, Indiana and Kentucky for $1.45 B. At YE06 they had booked 539 Bcfe attributable to these assets and I'm giving land and processing a little value in the per Mcfe calculation. Still, $2.50 is not a bad price for these and pro forma production growth is still a strong 50+% per year.
  • (NFX) cuts to hold by Goldman who cited better opportunities elsewhere. Wow, that's just stupid. I'll wait for the stock to get thoroughly shelled today and then pick up a longer term winter position here.
  • OSG - nice rally in this LNG, tanker, dry bulk outfit since the mention here on Monday (up 6%). Looks like it has more room to run. Also looking at (DRYS) and (GNK).
  • (COP) - nice turn yesterday, cheapest and gassiest of the majors, expecting more of a run as gas prices recover from shoulder season weakness.

Oil Inventory Report (from the Dow Jones Survey)

expected-091107.jpg

Comments:

  • Oil - another big draw which if it comes to fruition would put us in YoY deficit land for the first time in ages. I'm less sure of this big draw down being achieved this time around as I was on the last two occasions. Dean impacts should be waning so imports should tick back up. This sets the bar pretty high for an oil bearish number.
  • Gasoline - though a small draw is expected I would be surprised to see a larger one and will be watching the West Coast for another drop in production and stocks which would tell me to add to my ailing (TSO) call position.
  • Distillate - this looks a lot like last week's number meaning those surveyed are just assuming everything stayed the same.

Food For Thought Watch: Buy Firewood and Blankets.

new-england-dist-091107.jpg

EIA Headline Watch: U.S. Winter Retail Heating Oil Prices Seen 12% Higher 2007 vs 2006. EIA said retail HO will average $0.30 higher at $2.78 per gallon for the October to March heating season. EIA attributed the expectation of higher prices to a combination of higher crude prices and lower distillate inventories than last year. Comment: I hate to say I told ...

EIA Worried About Winter Watch: Based On EIA's Read On The Supply Demand Numbers I Can See Their Concern. With Non-OPEC production mired for some time now around 51 to 52 million bopd, a drop 0.6 million Bopd expected drop in 4Q production from OPEC, and an expected seasonal increase in global demand to a record 87.6 million bopd in the fourth quarter we're in for some serious inventory reduction. If that demand number holds. I think a lot of what drives the EIA's forecasts are what's happened in the immediate past. Lat year saw a similar sized (2.5%) bump in 4Q06 demand. I'm not saying it won't happen, just that I think their math on that side of the equation may be a bit aggressive. The "feeling on the Street" that this could happen will help support crude this winter.

Natural Gas: Back to YoY Deficit Territory This Week. We'll also continue to shrink the surplus to five year storage. With oil prices so much higher than gas you can bet more stripping of natural gas liquids (NGL's) is taking place than in recent months which further reduces the amount of available gas to put in storage.

gas-graph-091007.jpg

Tropics Watch: A disturbance about 1,100 miles east of the Windward Islands is getting better organized and will likely become a Tropical Depression or even a TS later to day. This has gas traders excited this morning and gas back over $6.

And Last But Not Least, A Picture Of The Hat I Will Not Be Eating Any Time Soon Modeled By Little Z!

mazhat091107.jpg

Holdings Watch: No changes yesterday but I'll try to insert these tables more often or Scoop will bug me about it.

open-options-091107.jpg

Odds & Ends

Analyst Watch:

  • Many are above in the Stocks We Care About Today section.
  • B of A cut its rating on (WNR) to sell and lifted (TSO) to buy with a $62 target saying it was the "best play on the extended refining cycle." He also raised (FTO) to buy. SUN was cut to neutral. I'm not a big fan of this analyst so I'm not surprised by his (VLO) hold or (FTO) upgrade.
  • JP Morgan upgraded (GSF) and (RIG) to neutral from underweight. Nice going there pal.

Errata: I mis-spoke (typed) when I stated the new of head of OPEC was from Angola in yesterday's comments. He is the oil minister from Algeria. Newcomer Angola and the "restructured" Iraq continue to remain outside OPEC's current production quota system. My apologies to both ministers for getting my A-countries mixed up.

 

 

164 Responses to “Wednesday – OPEC Hangover or Party On, I’ll Have Another?”

  1. 1
    Sambone Says:

    Off subject – Earthquake possible Tsunami in the Indian ocean, looks pretty big.
    http://www.prh.noaa.gov/ptwc/?region=3

  2. 2
    Sambone Says:

    91L – Soon to be a TD and then “Humberto”.
    http://www.ssd.noaa.gov/goes/east/catl/loop-rb.html

  3. 3
    Sambone Says:

    Crude Steady, Eyes US Stocks And Ponders OPEC Move

    Dow Jones Newswires

    LONDON — Crude oil futures are holding around unchanged levels, with WTI just shy of an all-time high, as the prospect of another fall in U.S. crude inventories overshadowed OPEC’s production quota hike.

    Further signs of tightening in the U.S. market would offer support to an already strong market ,and while further gains are possible, a sustained rally will only be likely if the WTI’s all-time high of $78.77 a barrel can be breached, traders said.

    “With prices rallying on what was essentially bearish news (the OPEC quota hike), it’s a very difficult market to read,” said a London-based trader. “If we don’t break the highs there’s a chance the market will wake up to the reality of more crude hitting the market and the funds might be tempted to get out again.”

    At 1044 GMT, the front-month October Brent contract on London’s ICE futures exchange was up 16 cents at $76.54 a barrel. Brent remains well below its all-time high of $78.40 a barrel from November.

    The front-month October contract on the New York Mercantile Exchange was trading $0.11 higher at $78.34 a barrel.

    ICE’s gasoil contract for September delivery was up $2.00 at $685.75 a metric ton, while Nymex RBOB gasoline for October delivery was down 2 points at 219.50 cents a gallon.

    OPEC agreed Tuesday in Vienna to lift its production quota to 27.2 million barrels a day from November, an increase of 1.4 million barrels a day from the current quota of 25.8 million barrels a day. This quota increase includes 900,000 barrels a day of oil currently being produced above the quota limits and 500,000 barrels a day of extra output.

    Last week consensus suggested the organization would stand pat on output at the meeting although some observers had expected an output increase of 500,000-700,000 barrels a day by the time OPEC members sat down to meet Tuesday.

    While on paper OPEC actions seem bearish for prices, many in the market don’t feel they go far enough to easing tightness in the oil market, hence the rally for prices.

    “The previous figure for 10 OPEC countries — Angola and Iraq are not bound by this quota — was 25.8 million barrels (a day), but in fact the ten were already exceeding this level in August, producing approximately 26.7 million barrels,” said Eugen Weinberg an analyst at Commerzbank in Frankfurt. “Yesterday’s increase can thus been seen as merely legalizing some of the gradual increase in output that has taken place in recent months.”

    Others point out the additional oil from a November quota hike won’t arrive on the market until January and feel the move by OPEC is largely symbolic.

    But Olivier Jakob of Petromatrix said closer attention should be paid to OPEC’s move before believing an $80 a barrel crude price can be sustained.

    He pointed out the quota hike gives Saudi Arabia, which has stuck to OPEC production limits, a “legal framework” to start supplying more customers, it allows other OPEC Arabian Gulf producers to make up for missing United Arab Emirates production — due to maintenance — in November and excludes production from Iraq and Angola.

    Nevertheless, for now the market has taken a bullish slant from the news and will be looking to the U.S. inventory data for help break the highs.

    Analysts surveyed by Dow Jones Newswires expect the Department of Energy weekly report to show U.S. crude inventories falling by 2.7 million barrels, gasoline inventories by 500,000 barrels while distillates are seen climbing by 1.4 million barrels and refinery refinery utilization is expected fall by 0.1 percentage points.

    The market has also found support from continued worry over the safety of oil facilities in the Gulf of Mexico from the ongoing Atlantic hurricane season.

    The National Hurricane Center pointed to an area of low pressure about 1,150 miles east of the Windward Islands and an area of low pressure over the northwestern Gulf of Mexico.

    “Environmental conditions appear to be conducive for some development of this system over the next day or so,” they said.

    —By David Elliott; Dow Jones Newswires

  4. 4
    zman Says:

    Morning Sambone, Humberto today I’d bet.

  5. 5
    Sambone Says:

    Yep, also watching the GOMEX. Heating up.
    http://www.ssd.noaa.gov/goes/east/gmex/loop-rb.html

  6. 6
    zman Says:

    APA signs deal with EVEP for deep gas exploration in central and east Tx. No terms but it’ll add to the rally from the Goldman upgrade.

  7. 7
    zman Says:

    oil up $0.30 to 78.50+; NG up $0.25 to $6.18

    As usual nothing matters until after the number but the hold list is slightly green save VLO and NFX.

    APA benefiting the most of course. If oil runs I’d bet COP and APC will have big days as worry over it is the only thing holding these gassy names back on the big gas surge day.

  8. 8
    zman Says:

    APA full on chart breakout. Think it probably ticks $85 soon.

    PBR approaching big break out as well, probably has another $3 in it before any resistance. Will try to add more today if oil numbers bear up to it.

  9. 9
    zman Says:

    OII – All time high.
    COP breaking out right now.

  10. 10
    calvino Says:

    Joe BAstardi says storm is looking ‘alanesque’ – at least lotsa rain in se Texas, LousyAnna.

  11. 11
    zman Says:

    Wow – Big reaction to the KWK asset sale; up 7% and it’s probably not done.

    SWN back up through $40

    pretty quiet around here today…will do the MN1.com show at 10:25 est as usual.

    oil up 0.70 now, just below 79. Nicky any thoughts?

  12. 12
    zman Says:

    TRADE: COP

    …added the September 85s for a quick trade at $1.25. This is a double of my position bought last Friday at $0.85 and a bit risky in front of numbers.

  13. 13
    zman Says:

    Z = kiss of death for trade today on COP. Wow from up $0.80 to flat in five minutes. Would add more if I hadn’t already…will add more if numbers favorable on oil inventories.

  14. 14
    sane Says:

    The International Energy Agency made a modest downward revision to oil demand forecasts on Wednesday, saying it doesn’t know how the turmoil from the U.S. subprime mortgage market will affect demand. “For oil, the degree to which it affects the three key growth regions, North America, the Middle East or China will be paramount. Until a clearer path emerges, we have only made a modest adjustment to oil demand growth for the rest of this year and in 2008,” the IEA said. It sees 2007 oil demand at 85.9 million barrels a day, down by 90,000 from an earlier forecast, and 2008 demand at 88 million barrels, down 160,00 barrels from last month’s view. (Corrects pulse to reflect that IEA was estimating demand, not prices.)

  15. 15
    zman Says:

    Nice of them to schedule this revision to demand for the day AFTER the OPEC meeting.

    COP already recovering from the little drop

  16. 16
    rkbos Says:

    do we like those oil/gas nos ?

  17. 17
    calvino Says:

    That Nymex floor sounds like someone just dropped an m-80 in there.

  18. 18
    Nicky Says:

    Huge draw of 7.1 in wti.

    Draw of 700k as expected in RBOB

    Build of 1.8 in Distillates also as expected.

  19. 19
    Nicky Says:

    As I said yesterday whilst the front month is at a premium this will continue as will the huge draws – its self fulfilling.

  20. 20
    Nicky Says:

    Z – not sure that hate looks very edible. Your daughter looks adorable though!

  21. 21
    sane Says:

    N, Agreed
    why buy now when you can by cheaper later

  22. 22
    zman Says:

    big drop on refinery utilization
    big drop in crude oil inventories

    very stout numbers, on MN1.com

  23. 23
    zman Says:

    Thanks N – anybody listening to me on the radio?

  24. 24
    sane Says:

    Gasoline demand is backing off per seasonally
    Just under 9.4 down from just under 9.6 last week

  25. 25
    calvino Says:

    Phil Flynn – Alaron – calling a bottom to nat gas.

  26. 26
    Sambone Says:

    I am

  27. 27
    sane Says:

    API

    5.2 Draw crude
    3.3 Build Gasoline
    5.7 Build Distillates

  28. 28
    zman Says:

    Cal – I already did that , LOL.

  29. 29
    zman Says:

    Yet another rally day in PBR, really like the COP now, cheapest of the majors and running.

    Phil Flynn calling a bottom on gas…that makes me a little nervous…lol

    APC should be but is not up today of all days…hmmmm.

    Wow – HAL

  30. 30
    calvino Says:

    Good, I’m way long – NAL and Daylight.

  31. 31
    zman Says:

    Nicky – I agree the backwardation is part of it but imports were off sharply again.

    Down 674K bopd or responsible for 4.7 of the 7.1 drop.

  32. 32
    zman Says:

    That big draw puts us in YoY deficit territory on crude.

  33. 33
    zman Says:

    Refiners not acting right. Maybe its the slightly bigger than expected build in distillate but VLO and TSO both getting weaker since the report…odd makes me want to buy more of both.

  34. 34
    sane Says:

    They are filling the SPR again

  35. 35
    zman Says:

    How did it sound Sambone?

    There was a big bump in HO inventories but there is supposed to be this time of year and we’re now down 29% YoY vs the 22% in this morning’s food for thought chart.

  36. 36
    Sambone Says:

    Ok, nothing to write home to momma on, but Ok

  37. 37
    MMarkkk Says:

    A couple of weeks ago I looked at EOG, NFX and SWN. Decided to focus on NFX. What a dummy!! The other two are running well and NFX gets a downgrade! From a fundamental business standpoint, all 3 are great. But short term that NFX move is stinking. Maybe time to double down! Or I’ll just catch a flight out to Vegas!

    I also really like CHK and XTO along with those above. EOG is a broader, more organic growth company. XTO is operationally the best. CHK is financially stunning, even though its run by a Landman. And it has a hand in a bunch of hot plays right now. SWN is a one trick pony but what a pony!! NFX is set up nicely for a broad move.

    Z – like that COP move. Not too long ago its P/E was well below that of XOM and others. Its running about even with them now. The Lukoil investment is paying off big…did you see LUK’s quarterly numbers? And COP still has lots of stock buybacks to go! I’ve got more in it than any other major.

  38. 38
    zman Says:

    Thanks Sane

    TSO – nice rally all of a sudden. VLO shouldn’t be down a buck either.

  39. 39
    zman Says:

    TRADE: VLO $67.50 S for $1.20

  40. 40
    j Says:

    I believe the SPR started once again to take in “royalty-in-kind” contracts in August. I think they bid out 9 million barrels earlier this year and it is just starting to roll in.

  41. 41
    fraser921 Says:

    i wish phil would let you talk 🙁

  42. 42
    zman Says:

    M – I think COP get’s more respect as gas moves into this $6+ territory. It’s still cheap to the other majors though on fwd numbers

    fwd pe on ’08
    XOM 12.9x
    CVX 10.8x
    COP 9.1x

    The NFX story isn’t getting the respect it deserves. Guess they had no deal for GS to work on so they get canned, lol

    SWN is a great pony, so it KWK – nice sale today.

  43. 43
    zman Says:

    …and don’t forget APC…Hackett is very smart. Independence hub has suffered from loop currents but they’ll get it together and then man, 1 Bcfgpd throughput. Great show on putting that platform together on Disc Channel the other night. Funny how it was less glitzy than the Hollywood style production made about the construction/installation of Nansen / Boomvang by KMG. Hackett is a class act!

  44. 44
    Sambone Says:

    Another big wave coming off of Africa, right behind 91L.
    http://www.ssd.noaa.gov/met8/eatl/loop-rb.html

  45. 45
    coco Says:

    any one have any thoughts one the delayed rally in the refiners?

  46. 46
    sane Says:

    j,

    Re #40
    might be, but the gov has been itching to fill it. Either way it does not seen the right time to do it.

  47. 47
    zman Says:

    Go Cop Go

    Sambone – everybody’s a critic. If they hadn’t broken into a discussion of google and rambus, I was ready with dissertations on RIG, natural gas YoY deficity status as of tomorrow and more.

    Ram – CHK working better for you now.

    HAL is getting it’s groove on.

    Coco – sometimes it’s just the big move in crude at the report combined with numbers that for products that were in line with consensus. VLO was weak going in on the BofA dg and it got weaker. Rising crude, flat products = down cracks and off stocks. But… the important thing is we have a very low RBOB and HO inventories. Distillates overall are fine but the refiners will need to crank up production to get enough HO to the people who need it most: homeowners. As the data indicate, HO increased but not enough and compared to last year we fell further into deficit. At least that my thoughts.

    RIG putting on a move now. Knew I should have scooped up more of it.

    Sane – Last year they promised not to refill it going into the heating season. This year, the EIA just said HO is going to be much more expensive than last year and here we are refilling it. Your tax dollars not working for you at all!

  48. 48
    redjack Says:

    With regard to RIG, GSF has scheduled a conference call this afternoon.

  49. 49
    rammastr Says:

    YEHA

  50. 50
    QUARRYMAN Says:

    Phil believes that the entire energy market will deflate and is predicting that we’ll have $60/bbl oil by January 1st.

    http://seekingalpha.com/article/18997-the-rise-and-fall-of-oil-roach-motel-theory

  51. 51
    zman Says:

    TRADE: HAL – half of the September $35s off the table at $1.70 for 89% 8 day gain.

    I’ll roll out the other piece later this week and look to move to October or beyond

  52. 52
    j Says:

    Sane,

    Not the right time unless you are planning to bomb Iran, in that case the timing seems perfect. I’m not a conspiracy nut so I don’t think that is the case.

    Agreed though, timing seems very odd.

  53. 53
    rammastr Says:

    NICKY – Thanks for the late night

  54. 54
    zman Says:

    THANKYOU Redjack, I did not know that. What time, I still don’t see a notice anywhere?

    Thanks Q – I guess that’s what makes a market. Please do not share what we do / say here over there. Thanks.

  55. 55
    Brian08 Says:

    Any reason why VLO is tanking while the rest of the refiners seem to be holding up pretty well?

  56. 56
    zman Says:

    Re #53 Whoa!

    Interesting to see XOI and OIH up about 0.3% each, XNG up 1.5% on the move in gas.

    My stocks look at lot greener (except for NFX and VLO) than that.

    Tropics Watch Update: Rains from a TD off the coast of Texas said to threaten GC refineries. NHC says it may turn into a TS before making landfall in TX. Maybe this become hyumberto instead of the one in the Atlantic.

  57. 57
    Sambone Says:

    Dumb question – Isn’t higher oil/gasoline prices inflationary?

  58. 58
    QUARRYMAN Says:

    He posts his stuff on the public pages of PSW and that article was printed on Seeking Alpha.

    10-4 on ‘what happens in Z-Land stays in Z-Land!’

    Q.

  59. 59
    redjack Says:

    Z..
    It is 2:00 Eastern. Here is the link: http://biz.yahoo.com/cc/2/85002.html

    Also it was interesting that they placed an order for the most expensive drillship ever built.

  60. 60
    zman Says:

    B – just bought a little. B of A downgraded it to neutral this morning. I think it’s a short sighted call but it set the tone.

  61. 61
    BigJim Says:

    Zman:

    Have you seen the Jan 08 call option activity today on EP. Especially out-of-the money calls. Any clue what is the deal?

  62. 62
    Brian08 Says:

    Yeah didn’t buy any, just thought it was interesting…Still waiting for WNR to recover…

  63. 63
    zman Says:

    RJ – Thanks, I’ll be on it and looking for it to break one way or the other hard. The combined company is very cheap.

    Re most exp DS ever, yeah but GSF did it on Monday so it’s really old news. People are worried about the combined company’s massive $3.9 B construction budge. I’d expect them to talk up the combined inventory and clarify how much is booked. Bet you analysts come away mostly smiling. That thing can drill in water 2 miles deep and will rate well over 500,000+ per day.

  64. 64
    zman Says:

    Thanks Q! PTR had a good rally yesterday, bet it’s about to do it again if it can cross the positive line for the day.

    Sambone: we don’t count energy my man! Nor food. It’s not like you need those things, right?

    Oil over $79

  65. 65
    Sambone Says:

    Z – I agree it’s not in the CPI, but transport costs, manufacturing, etc. across the board means higher prices or am I missing something?

  66. 66
    zman Says:

    VLO getting beaten with a stick now (down $1.50). Looks like quite an over-reaction to me as the stock is not expensive to historic levels or its peers and is positioned to benefit from tight gasoline and HO inventories and coming higher levels of downtime at other refiner’s facilities.

  67. 67
    drdavis124 Says:

    Z
    Re #23
    Us nubees don’t know about your radio adventures. Fill us in.

    Phil

  68. 68
    Sambone Says:

    Crude Hits Record; Crude Inventories Fall

    By MATT CHAMBERS
    Of DOW JONES NEWSWIRES

    NEW YORK — Crude oil futures rose to an intraday record Wednesday after the U.S. Department of Energy said crude oil stockpiles fell much more than analysts had expected.

    The front-month October light, sweet crude contract on the New York Mercantile Exchange rose as high as $79.29 a barrel, beating the previous record for a front month contract of $78.77 set Aug. 1. The contract was recently up 46 cents, or 0.6%, at $78.69 a barrel, close to where it was before the data was released. Brent crude on the ICE futures exchange rose 29 cents to $76.67 a barrel.

    Crude oil stocks fell by 7.1 million barrels to 322.6 million barrels last week, the DOE’s Energy Information Administration said in its weekly report, compared with expectations of a 2.7 million barrel fall in a Dow Jones Newswires survey of analysts. It was the ninth week in 10 that stocks have fallen.

    “The stats are very bullish,” said Tony Rosado of IAG Energy Brokers in Fort Lauderdale, Fla. They “could pave the way for an $80 level.”

    Prices rose close to $79 a barrel before the data on expectations that the inventory levels would be more price-supportive than previously forecast. As a result, the immediate price reaction to the big drawdowns in crude stockpiles was muted, traders said.

    Also in the EIA data, distillate inventories, which include heating oil and diesel fuel, rose by 1.8 million barrels, compared with a forecast of a 1.4 million barrel gain. Gasoline stocks fell by 700,000 barrels, slightly more than forecasts for a 500,000 barrel fall and refinery use fell 1.6 percentage point to 90.5% of capacity, a much bigger fall than the 0.1 percentage point drop forecast.

    Storm concerns also supported prices after the National Hurricane Center said a tropical depression formed east of the Lesser Antilles. The depression could become a tropical storm later Wednesday, the NHC said.

    “At this stage it is still five or more days away from the Caribbean Islands, so it is way too early to determine where it is heading as far as North American interests are concerned,” private forecaster Weather2000 said. Still, “in our estimation, Tropical Depression Eight truly deserves monitoring for potential U.S. impacts,” adding it is expected to soon become Tropical Storm Humberto.

    Prices rose to a record settlement of $78.23 a barrel Tuesday as traders bet an agreement to boost OPEC oil production by 500,000 barrels from Nov. 1 isn’t enough, or soon enough, to change forecasts for tightening supply and increased demand in the fourth quarter.

    Front-month October reformulated gasoline blendstock, or RBOB, was recently down 14 points, or 0.1%, to $1.9797 a gallon. October heating oil rose 23 points, or 0.1%, to $2.1850 a gallon. Heating oil settled at a two-year high Tuesday and is close to the intraday record of $2.21 a gallon, reached Sep. 1, 2005.

    —By Matt Chambers, Dow Jones Newswires

  69. 69
    zman Says:

    Sambone – I don’t think you’re missing anything.

    Dr Davis. I do a radio show in Dallas every Wednesday at 9:25 where myself and Phil PSW go through the oil inventory report as it comes out and some specific energy stock plays we’re looking at. You can access it on the web at http://www.mn1.com.

  70. 70
    sane Says:

    Ugh, stupid VLO 70’s.

  71. 71
    calvino Says:

    Rick Dillon on Bloomberg talking looooong Apache 110 and 160 in 5 yrs and Devon 100 and a double in 5 yrs.

  72. 72
    zman Says:

    Oil out of control now: up $1.18 …

    VLO I have the 65s and 67.50s – feel same way. RBOB is now testing $2 (up 2 cents and HO is at a high $2.20, up 1.8 cents. VLO simply shouldn’t be off like this. Intra day chart trying to firm a bit but it looks like an avalanche of small trades (B of A retail?) flooding in. Meanwhile TSO up 2% and the regional data out of the EIA is not yet out yet so all it is the broker’s call today.

  73. 73
    zman Says:

    Sane – just took a look at OpenBook on VLO, they’re working through some sell orders in the 66.70-66.80s and bids seem to build in the high 66.50s, low 66.60s

  74. 74
    zman Says:

    This makes sense:

    BofA initiates on VLO (hold) and WNR (sell) today:

    VLO: down 2%
    WNR: down 1%

  75. 75
    sane Says:

    re #74 oh goody.

  76. 76
    zman Says:

    Sane – i hear ya.

    Oil up $1.60 to $79.84. They’ll get 80 and then what?

    Stocks don’t believe this move:
    XOI up 0.2%
    OIH up 0.1%

    VLO is patterning the Dow now.

  77. 77
    rammastr Says:

    RIG & GSF treading water before the CC. What do you think ZMAN??

  78. 78
    Nicky Says:

    Finally back having been offline again most of the morning – literally tearing my hair out but think it may finally be sorted! Aaaarghhhhhhh!!!
    Feel better for that.

    Nat gas – whew I’m glad PF has called the bottom – now it can fall again.

    In the meantime it appears a more complex ii is tracing out and I am looking for 6.380 – 6.420 before this tops out.

  79. 79
    BigJim Says:

    Need others opinion. My fear about investing on the call side is next week and the Feds. When the market tanked in August, the groups that had risen the most got hurt the worst. Energy and financials did not fair well. My concern is that speculators are in the oil market driving prices up. Thus the reason VLO and TSO are not moving or being downgraded is due to profit taking ahead of Fed rate meeting. My opinion is that Feds will disappoint and market sells off. That is why I am on the side line until market reacts to Fed announcement. Anyone have another opinion.

  80. 80
    Nicky Says:

    WTI – is it only me who thinks that fundamentally there is zero that supports crude at this level. This looks technical to me yet again. Standing by yesterdays count which now says we are close to a top…..

    Distillates – still standing by my level earlier in the week. somewhere between 22200 and 22400 I think should top this wave…..

  81. 81
    Nicky Says:

    Ram – further to last nights comments….

    pullback today has been very shallow so far which has me favoring more upside in the short term at least….
    we could see the spx go to 1491 – 1503 area.

    Big Jim – if we are at the high end on the 17th then I think you are right and we could well see a sell off. 25 point cut is going to disappoint the market I believe.

  82. 82
    Sambone Says:

    Z – Storm off Texas 09L reminds me of Hurrican Allison in 2001, because there is a Cold front with another one to come Friday.
    http://www.ssd.noaa.gov/goes/flt/t1/loop-rb.html
    http://en.wikipedia.org/wiki/Tropical_Storm_Allison

  83. 83
    BigJim Says:

    Thanks Nicky

  84. 84
    rammastr Says:

    Thanks NICKY.

  85. 85
    zman Says:

    Ram – I’m waiting on the call to decide, still holding my Sept 105 calls.

    Nicky – LOL re PF. On crude, yeah looks technical…the stocks aren’t really buying off on the move as per 76. I’d say fundamentals do have something to do with it since imports were off again.

    but “$80 is wanted, not warranted”

    if we hit 80 but fail to close over it I’ll get nervous on the APA and PBR enough to lighten them.

    BigJim – good points and the safest of courses. TSO was upgraded and VLO at hold and those moves don’t make a lot of sense to me. We may get no cut at all and I agree that 25 bps would disappoint.

    Sambone – agreed…looks like Alison

  86. 86
    sane Says:

    N,

    They want $80 like a kid in a candy store wants candy

  87. 87
    Nicky Says:

    Aye Sane think of the weekend headlines if they can close it there on Friday.

  88. 88
    Nicky Says:

    Some trader on CNBC after the data said if we could get above $80 then wti could really take off – what does he call the move from 70 – 80 I wonder??

  89. 89
    Sambone Says:

    Oil – Next target is 89, then 110

  90. 90
    zman Says:

    Go COP / APA / PBR Go

    HAL / CHK / SWN loving gas up here.

    Come APC get with it.

    TSO up nice

    VLO – the Gulf Coast, their backyard, saw the biggest drop in gasoline stocks of any region. Should support cracks there. Also, you’ve got this storm threaten 13 different refineries with drowning rains. And you’re going to listen to the B of A guy b/c he said Hold on initiation day? What a wuss, if it were high priced I’d understand but it’s cheap and it’s going to directly benefit from higher than usual refinery maintenance downtime this fall at other refiner’s facilities.

  91. 91
    rammastr Says:

    ZMAN – could you tell if the HAL broker is actually buying today? Seems too powerful a move.

  92. 92
    zman Says:

    Ram – given the size and positive gas and oil markets he has to be.

    TSO up $1.65 now. VLO has a lid on it down $1.10. Just makes no sense. Inventories actually rose on the west coast or I would have added to my TSO calls (which I’m happy to say are coming back to life) as per this mornings post.

    Getting on the RIG call in a minute.

  93. 93
    Nicky Says:

    Samborne – there are not the fundamentals to support 110 on this move.

  94. 94
    zman Says:

    Wow OII – new all time high!

    RIG still flat going into the call.

    Q – your PTR is starting to slowly move higher again…another day like yesterday and you’ll have your 147 number by this afternoon.

  95. 95
    zman Says:

    Looking at the RIG Oct 110 if the call goes well. Maybe the September same also but that’s pretty gunslinger.

    notes to follow…

  96. 96
    zman Says:

    Just saw we hit 80 even then sold off 33 cents so far

  97. 97
    zman Says:

    RIG CC Notes

    IDENTIFIED SUBSTANTIAL UNFILLED ultra deepwater demand.

    Did not enter into decinsion to build this drillship lightly

    Can tell this is going to be a good call

    improved design over previous generations, lots of storage, high cruise speed, can drill in 10K feet, up to 40K feet total depth (holy crap)

  98. 98
    zman Says:

    …more on RIG CC…

    5oo – 600 rig months of unsatisfied demand by YE2010. That’s massive. They see the deep and ultra deeps at full capacity through at least 2012.

  99. 99
    zman Says:

    jeez, even NFX is coming positive now. Come on VLO this is ridiculous.

    RIG jumping up.

    TSO up $1.70

    VLO about to pop (I think) cresting the down $1 mark.

  100. 100
    Sambone Says:

    N – Agreed, but this is a breakout on my charts, which tells me that the first resistance is 89, then 110. Will it get to 89 or 110? Not sure, but that’s what I’m seeing.

  101. 101
    Nicky Says:

    WTI up 8 days in a row now…..

  102. 102
    zman Says:

    RIG Comment:

    Day rate talk: think it can do at or above the $500,000 per day rate.

    Go VLO

  103. 103
    Nicky Says:

    Samborne – I understand and yes it could go higher but wave pattern looks complete. If it spikes it could just end up being a failure and everyone sucked in at $80 is going get burned big time.

  104. 104
    Nicky Says:

    CNBC are a great guage – Sharon FFFFFerson is beside herself. I am just waiting for her to start talking 100 and it will be my cue to short it. So far she is at 85 which is a little disappointing.

  105. 105
    zman Says:

    Nicky you are too funny. I’m not dumping my longs just yet but I’m probably happier than she is right now as other than VLO I’m having a pretty fantastic day. Could have held onto that half lot of HAL a little longer but that’s a problem to have.

    VLO stuck down $0.70 now, could go either way but at least I’m back in the green on my 67.50 call trade earlier.

  106. 106
    zman Says:

    COP at 85 …wooo hoooo!

    APA on fire and I like the chart, anybody here a chart guy, tell me if you like that and PBR charts. Jeez, I sound like FFFFerson.

  107. 107
    zman Says:

    RIG CC – the next slot for building a drillship like this one would have been 9 to 12 months away and at significantly higher costs…It probably would have cost 50 mm more.

    Call is over that was a good call.

  108. 108
    zman Says:

    now I see we’ve been to 80.18 but will close under 80.

    NG up $0.50. No hat chewing for me!!!

  109. 109
    rammastr Says:

    HAL chart similar. They look like they want to challenge mid summer highs.

  110. 110
    zman Says:

    Anybody else having a good day, I hate partying by myself.

  111. 111
    scoop006 Says:

    Z YEEHAA

  112. 112
    Sambone Says:

    Z – My stuff tells me on APA breakout is 84, then resistance is 95. Note, almost there.
    PBR breakout is 72, then resistance is 90.

  113. 113
    zman Says:

    Coco -asked about SII which is a drill bits and mud company, down in this tape was the question. Caught a downgrade from southcoast this morning. If their is a slowing in drilling coming that’s not one I want to own.

  114. 114
    Nicky Says:

    Just checked and both WTI and Distillates have had 8 up days in a row. And both have been up 9 of the last 10.

    Don’t mean to put a dampener on the party but hang on to your profits. This party may well end tomorrow.

  115. 115
    zman Says:

    Thanks Sambone. Is that eyeballing it or something more akin to that Elliott wave witchcraft Nicky is in to? 😉

  116. 116
    calvino Says:

    Penn West did not treat me badly. Neither did Harvest.

  117. 117
    Nicky Says:

    Market is way too bullish Samborne – I am not sure what you mean by almost there. 84 seems a long way from the close to me.

  118. 118
    zman Says:

    Nicky – I agree on the commodities but the stocks have had a much smaller run.

    84 was related to Apache’s price, about $1.50 away.

  119. 119
    Nicky Says:

    Nat gas partying on this tropical storm by the looks of things – it better come to something.

    Z- Elliott wave doesn’t work on breakout principals. However Samborne is right in the sense that you should buy a new high.

  120. 120
    Nicky Says:

    Z – stocks being brought down by the broader market. So still in a corrective mode. Should turn down shortly which will all tie in nicely with energy futures topping out as well.

  121. 121
    Nicky Says:

    I feel like I am the only one on here not bullish right now? Sane where are you you must be bearish right?

  122. 122
    rammastr Says:

    ZMAN – seems to be too good. Are you constantly looking over your shoulder? As discussed above, grains and energy are at peaks. The FED would be irresponsible to lower rates. The charts of these energy stocks came off the 8/16 downdraft. I would hope NICKY would help us with her crystal ball!!

  123. 123
    zman Says:

    N – just kidding.

    Re TS: it would have to come to a lot to justify this move. I think we’ve got short covering exacerbating the move here. Again, I don’t need it to stay up, mostly just like the change in direction. Sentiment gets a little more comfortable and there are a lot of people who look at the gas price chart from last year’s fourth quarter along with the high storage we had then too and suddenly get more comfortable recommending E&P, earlier in the shoulder season than usual, I just like to be ahead of them.

  124. 124
    kaman Says:

    Cashed out of HAL Sept 35 calls (at $2), sunk more into VLO Oct 67.50 and 70 calls. NFX Sept.s….oy, what was I thinking??

  125. 125
    zman Says:

    Nicky, I’m not bullish on the commodities, just on the people who sell them. Valuations have become compressed and the fear of $4 gas is way overdone. I’m taking positions of the table a bit at a time while playing others for more that haven’t run yet.

  126. 126
    sane Says:

    N,

    I am in the bearish minority also 😛

  127. 127
    rammastr Says:

    Bailed on HAL SEPT 37.50 @.30 ,bot @.10. Hey, it’s still 200% gross.

  128. 128
    zman Says:

    To be clear: I’m thinking mid 70s oil and $6 gas for awhile. Is that bullish?

  129. 129
    Sambone Says:

    Z – Old school chart reading. Tried Elliot, but couldn’t get my arms around it. William O’Neil is my man.
    I’m bearish short term on commidities, BUT “Don’t fight the tape”. The crowd is back, so that sppoks me even more.

  130. 130
    Sambone Says:

    Spooks

  131. 131
    zman Says:

    Sambone – oneil eh, I cut my teeth reading those weekly green and blue books as an intern, that along with zweig.

  132. 132
    rammastr Says:

    I am in the nervous camp.

  133. 133
    Sambone Says:

    What I find interesting is that historically when oil moves up, the general market goes down, but this beast keeps on going up.

  134. 134
    zman Says:

    Why I don’t think oil is headed way lower in the 4Q is in today’s post. The part about understanding EIA’s concern re 4Q demand vs supply.

  135. 135
    Denise Says:

    z-would one want to look at the small cap gassy names right now for some trades?

  136. 136
    Nicky Says:

    Ram – re #122.

    I agree with you. $80 crude – inflation? what inflation? Big Ben now caught between a rock and a hard place. A cut is insanity but I suspect he will go .25.
    And yes I agree grains and energy are topping. I actually went short wheat yesterday. I like the look of the spike and reversal today. Would need a close under Monday’s gap at 8.48 for first confirmation. Soybean meal looking toppy too – needs a close below 247 but again pretty powerful reversal today. Sorry that is off topic.
    If you mean by
    ‘The charts of these energy stocks came off the 8/16 downdraft’
    that these energy stocks are seeing a bounce off the back of the broader market bouncing off the August 16th lows – then yes I agree totally. Yes they could bounce more – they could even make new highs but I believe the market will turn lower.

    Z – you are absolutely right re nat gas. Down move was overdone. I rememeber a decent bounce on the back of a hurricane warning last year though only for the market to absolutely fall apart afterwards.

    Aha – CNBC now saying Fed have a harder decision now next week on the back of this move in oil.

  137. 137
    zman Says:

    Denise,

    There a couple but I’m loath to do it before the Fed. Their relative illiquidity can really bit them if Bernanke disappoints. Ones to study up on are HK and PQ … I like but I want to buy them right and after Tuesday.

  138. 138
    zman Says:

    Nicky – you trade OJ? Farmer’s Almanac calling for increased number of freezes down your way.

    …and I agree that market trumps whatever I say about valuations in energy. If they believe in recession then everybody goes Ed Begly and bikes everywhere I guess.

  139. 139
    Nicky Says:

    Z – re#128 – how long is awhile?

    Samborne – I thought you were bullish commodities by your earlier comments. Or when you say short term do you mean you are looking at a pullback very short term and then it moving higher.

    The crowd being bullish makes me very nervous and far more bearish than bullish.

    This timing business is difficult!

  140. 140
    Nicky Says:

    Z – OJ has had one huge fall the last few months having been run up on the hurricanes before that. I am wondering if it heading into support – will take a look at the chart….

  141. 141
    zman Says:

    Re 128 – next 3 months for oil and that’ll be a very low floor on gas, probably average $7 winter. But again, the companies I like are largely immune to gas prices (hedges) but not gas price perception. Also, there’s that forward strip to consider which just got a lot better for more hedge as of the last 3 days.

  142. 142
    zman Says:

    N – thanks re OJ, traded it once on blight, made $, then lost more $ and decided to stick with things that burn.

    VLO caught in a “sell your losers” cycle.

  143. 143
    Sambone Says:

    N – I’m bullish long term, but short term I’m looking for a pullback. The problem now is that the “Crowd” is in, so oil, gas, you name it, could go south in a heart beat when they exit. In regards to Ngas, I believe there is short squeeze on. I am patient, so I’ll buy when the crowd leaves.

  144. 144
    zman Says:

    I was going to buy some RIG but it sold back slightly after the call and Nicky’s got me spoooked now.

  145. 145
    zman Says:

    F – you around. DRYS and GNK getting hit. There’s a DJ story about consolidation in the industry. I guess these guys are seen as the most likely buyers.

  146. 146
    rammastr Says:

    RIG – Good CC plus upgrade = downward price?? My 4 1/2 month son and I watched Cramer yesterday. I know he’s cutting teeth, but he just cried through most of the “show”. Hopefully he will plug RIG tonight for the trifecta.

  147. 147
    zman Says:

    it’s another weak get weaker day and the Dow is trumping energy gains.

  148. 148
    zman Says:

    Nicky – can you look at the Dow / S&P levels for us? Or refer me back to the last time you did so above as I don’t see it? Thanks.

  149. 149
    rammastr Says:

    #81

  150. 150
    rammastr Says:

    NICKY – We did get to 1496 and rolled back. Is this “bad”?

  151. 151
    zman Says:

    I show us at 1471.55, something wrong with my machine? show high today of about 1479

  152. 152
    Sambone Says:

    Z – I show 1479 high today. Current is 1473.83

  153. 153
    rammastr Says:

    Oops, glanced at google finance and got wrong number.

  154. 154
    Sambone Says:

    HUMBERTO is born in GOMEX

  155. 155
    Sambone Says:

    Ingrid is next

  156. 156
    zman Says:

    Thanks Sambone!

    Here’s the track
    http://www.intellicast.com/Storm/Hurricane/Active.aspx?storm=2&type=track

    I’d overly a map of VLO’s facilties in the area but that would be tacky

  157. 157
    Nicky Says:

    Z – dont let me spook you please! Stocks may well have some upside left.

    Broader market has consolidated today which favors another run at the 1500 (ish level) on SPX and 13,500 – 600 level on Dow.

  158. 158
    zman Says:

    Soon to be Ingrid TD 8 is tracking WNW

    http://www.intellicast.com/Storm/Hurricane/Active.aspx?storm=1&type=track

    too late…spooked.

  159. 159
    QUARRYMAN Says:

    Z.

    Thanks for the COP trade, I’m half out at 50% and riding the remaining half for a double.

    PBR and PTR are troubling me. My gain in the former is negated by the loss in PTR. I’m trying to hold the faith.

    Q.

  160. 160
    zman Says:

    Paul Sankey, DB oil analyst, that’s deutches bank, not dumb butt, said he’s bearish on crude in 4Q. This guy said $55 befor $80 not too long ago and was chuckling about how “he’s almost lost that bet”. Then he say’s refining margins are terrible now. Show me on the crack graph how they are terrible by any comparison other than the unsustainably high levels of summer. I thought Brits were all smart.

  161. 161
    Nicky Says:

    Z – saw him too. I actually think he is right about prices holding up in September although I doubt till the end. And yes a sell off in Q4.
    But down tomorrow I think.
    Brits all smart? hehehe! Maybe dumb butt was better.

  162. 162
    drdavis124 Says:

    INFLATION:
    Assuming energy stays up the the real killer few pundits talk About is “FOOD”. Prices are going to skyrocket with world wide shortages in the spring.

    Phil

  163. 163
    zman Says:

    Yeah but I think he’s talking a big sell off although this time he didn’t say how far. The argument that “yes we’re short of gasoline and gasoline controls the price of oil and that the driving season is over and therefore oil should fall” is full of wholes. Demand rises in the 4Q due to N.American, Europe and other heating demand.

    Here is global consumption by qtr last year in mm bopd:
    1Q: 85.04
    2Q: 83.22
    3Q: 84.02
    4Q: 85.45

    wow, winter is HIGHER than summer.

    1Q07 was 85.40 and that’s the last full qtr available but 2Q months Apr/May were running higher than their 06 counterparts.

    The EIA sees 4Q07 demand at 87.6 (up 2.5%) and OPEC output will be off 0.6 relative to last year. So I think it’ll be tight, not lose but that’s just my ragged back of the envelope math.

  164. 164
    zman Says:

    Here is global out put during same time frame:

    1Q: 84.22
    2Q: 84.13
    3Q: 85.13
    4Q: 85.55

    1Q07: 84.08

    as of May world output was around 84, OPEC up a little since then Non Opec has been flat for quite some time now. Given that OPEC will be down from 4Q06 to 4Q07, there is no conceivable way (unless we just get a very hot winter) that inventories don’t tighten in the extreme in 4Q07.

    Even if the rest of the world manages to offset the 600,000 bopd of lower OPEC Production that leaves a short fall of 1.8 million bopd. Spread over 92 days for the 4Q that comes to a global reduction of nearly 170 million barrels shaved off global inventories which I think might be noticed.

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