- Crude Oil: After a second day of heavy selling (profit taking) yesterday, November crude is up $0.50 to $0.60 in pre market trading to just reclaim $80.
- BP delays Whiting Indiana crude unit restart. No reason given.
- Russian oil exports to fall 120,000 bopd in October due to unscheduled maintenance at a Baltic Sea port.
- Natural Gas: The October contract expires today and will be volatile going off the board around the $6.30 mark. I've been paying more attention to November for awhile now (just over $7) which puts a different spin on the whole hat eating debate.
Housekeeping Item: If any of the charts or tables are too wide for your screen, click on them and they will open in your browser in all their glory.
Irony Watch: The Valley County Wind Farm project has been scaled back from 500 Mw to 50 Mw because of pressure from environmental groups.
EIA Oil Inventory Report Expectations
Comment: I feel like a broken record here but the crude withdrawal could / should again be bigger than the expectations given the GOMEX production shut in late last week. I'd also bet we see another drop in refinery utilization to a level below 89% [I felt so much like a broken record I copied and pasted that last bit from Tuesday's post]. Crude trading off yesterday pretty much discounted the 2 million barre expected draw in my mind. Crude probably trades a bit lower $77-78 if we don't get a bigger draw than consensus. However, anything close to 3 mm (or more) and look out $81 here we come.
Tropics Watch: Getting A Little Busier
- Nobody Cares about TS Karen But I wouldn't write her off just yet. The 12th named storm of the year is spinning towards Bermuda so maybe they care but not the energy sector. Looking at the multiple storm tracks available to the modern amateur meteorologist these days I would be remiss if I did not point out that yesterday one pointed to the possibility of Karen heading on a more Westerly course (towards Cuba) and today three do.
- TD 13 Formed In The Extreme Western GOMEX: It is expected to strengthen slightly in coming days, possibly becoming a tropical storm over Mexico's offshore oil fields before coming ashore in Mexico by Saturday. This may give prices a boost early.
Stocks / Sectors We Care About Today Watch:
- (APA) – Nice gas shows seen in an Australian project (testing next week, by no means a company maker…what is for a company this size but it's another bit of success for a very well run large cap E&P). Continue to hold the Oct $80 calls here but will likely look for an exit and roll longer soon following any weakness. I like how this one played up with oil and sideways with the little retrenchment in crude over the last couple of days but I don't want to overstay my welcome in short dated calls that have worked so well.
- Oil Sands Tax Impact: According to consultant and super brain trust Wood Mckensie, the cost to Albertan Oil Sands producers would come to $26 Billion (US or Canadian, take your pick this week) if proposed tax changes are implemented.
- Deepwater Drillers: (HES) locked up the deepwater drillship Stena Drillmax I for a five year period beginning 2009 for $950 million. Why I care? Two reasons: 1) that's a lot of money a long time (sort of) away and it speaks volumes as to the strength of the deepwater trend and scarcity of available capacity to pursue this trend. 2) $950 million / (5y X 365d) implies a day rate of $520,000. This Stena rig is capable of drilling in water depths of 7,500 feet. The ship (GSF) / (RIG) just ordered is capable of drilling in depths of 10,000 feet initially and is upgradable to 12,000 foot capability. The line in the worry sand for analysts has been a day rate of $500K (which they sounded smugly sure of on their conference call). This HES/Stena deal makes hiring RIG's new build a $550 K engagement worst case in my mind. RIG/GSF will merge by year end and they have an option on another ultra-deepwater capable drillship which I bet gets exercised.
- Dry Bulk Shipping Conference Today:
(DRYS) – I picked some up two days ago and like it long and short term. It still remains cheapest in group and is in "the heart of the play" with it's large fleet of Panamax sized carriers with more new builds on the way.
The long term economics look compelling and 2008 is shaping up to be another year of higher rates for these shippers. DRYS speaks at the Jefferies Bulk Shipping Conference at 11 est. There's a long list of companies presenting and live and recorded presentations are available at www.jefferies.com.
- Refiners: Cheap with upside as some product inventories remain low.
VLO will almost always be cheapest on this list (it's much bigger than the others in terms of Market cap and especially in terms of throughput capacity) but when cracks are rising in one of their core regions (at least as I think they will as you'll see at the bottom of the crack spread section) then I think it's time to narrow that gap rather quickly.
Crack Spreads Update: Treading Water.
Biggest takeaway: Cracks aren't plummeting nor are they in the basement for this time of year. Mid-Continent should stabilize and tick back up based upon a large amount of region specific maintenance scheduled to take place in September and October. Gulf Coast cracks should remain above year ago levels given the following table:
Who benefits? (VLO) for almost certain. Majors and mini-majors as well but the effects will be harder to separate from their global ops.
- VLO 70 October calls for $1.75. Last bid $1.60.
PUTS: No action
Odds & Ends
Analyst Watch: (ALJ) cut to hold at Credit Suisse, (CEO) cut to underperform at BS, (STO) cut to neutral at JP Morgan,
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