29
Nov

Thursday – Oil Review and Gas Preview

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I will be in and out of pocket today. I will get back to all questions but it may be after some delay.

Commodity Watch

  • Crude Oil closed down $3.80 to $90.62 yesterday surpassing Tuesday's $3.28 loss after traders showed their dislike for the EIA's inline oil/near term bearish for products report. This is the largest 2 day loss for crude since the beginning of 2007. This morning crude is trading up $2.80. I expect oil to see a modest bounce from its brief brush with $90 before a general lack of direction sets in prior to the OPEC meeting on Dec. 5.
  • Canadian crude line shut. Explosion in Minnesota causes Enbridge to shutter between 2 and 4 lines delivering crude from Canada to the u.S. About 1.9 mm bopd or 20% of U.S. import capacity is affected. Enbridge has not set a timeline for restarting the line although you know they are going to move on this ASAP. The cause of the blaze is unknown, probably just an unfortunate accident, probably not a new Minnesota rebel group.
  • OPEC Watch: ``There is no relationship between the fundamentals today and the price,'' Saudi Arabian Oil Minister Ali al-Naimi said at a conference in Singapore yesterday. ``There is a mismatch and anyone that tells you otherwise is wrong.'' Z Comment: So if you believe that why would you raise production next week?
  • Natural Gas followed crude over the edge tumbling $0.35 to $7.20, it's lowest level in five weeks. We switch to January contract this morning which closed yesterday at $7.48. Strong support exists at $7. I should have stuck with my original thinking that this rounded top in storage would depress gas prices until lasting cold set in. While the degree day count is climbing it is not doing so in "arctic blast" fashion. This week's number should make little difference unless it provides a test of and bounce from $7 (I'm fairly confident in the bounce) as $7 Henry Hub gas means $5.50 or less for a lot of new production which could see further hookup delays, especially in shale and coalbed methane plays. Out west, gas prices are still pathetic so a breach of $7 (mentioned 4 times in this one paragraph!) could spawn a fresh wave of curtailment press releases. I'm thinking 35 Bcf come out of storage this week but I did not see what the Street is expecting before this went to press. Gas is trading up $0.14 this morning to $7.62 as it piggbacks oil's strength.

EIA Oil Inventory Report: In a nutshell...short term not bullish. Medium term, not the end of the world for the bulls either.

Key points:

  1. the refining sector has awakened from a 2 plus month siesta moving 2.4 points higher to 89.4%. Crude inputs increased 573,000 bopd. The system is likely to add another 1 million barrels of demand in the next few weeks as utilization gets back into the low 90%s post maintenance season.
  2. Imports moved back to the high end of the range jumping 534,000 bopd from the prior week. Imports cannot add another 1 million bopd. Remember, not all of OPEC's incremental barrels come to the shores of the U.S., plus there isn't that kind of offtake capacity in operation.
  3. Product inventories posted better than expected numbers based on increased production, not a surge in imports despite the fact that demand remained strong.  

 

exp-vs-act-112108.jpg

  • Crude: Spot on with expectations. I thought it might drift to the low side but not imports recovered back to near record levels for this time of year which they did. Not the big drop from last week to this week vs year ago levels. The year ago week saw a nice sized build in crude.

Here's what crude storage looks like now according to the EIA: (still about 3% ahead of the five year average but I expect this surplus to be eaten away in the next couple of months)

crude-stocks-112807.jpg

 

I like this perspective a little better (same numbers, just a little more definition)

crude-stocks-112807bbb.jpg

 

Refinery Utilization finally recovering from maintenance season, hits 10 week high. As it continues to recover it can take another 1 million bopd of crude demand.

util-vs-inputs-112807.jpg

Crude Imports: High but can't get much higher.  Imports were up 534,000 bopd from the prior week and back near the upper band. This level is unlikely to be sustainable logistically and there is certainly not enough capacity to offset the coming increase from refiners as they play catch up (December through ???) on gasoline inventories prior to spring. This = tightness.

crude-imports-112807.jpg

Gasoline

  • Production - rose commensurate with the increase in utilization. 
  • Imports - saw a large dip (lowest level since March) which is surprising given U.S. pricing and I think is likely to be an outlier. Have not heard of anything that could account for a lasting plummet in gasoline imports.
  • Demand: Gasoline demand set a record for the week at 9.356 million barrels (as Mastercard's survey indicated they would) as everyone and their cousin's cousin raced to JCP at 4 am last Friday.

 

Gasoline Inventories...still running low.

gasoline-inventories-112807.jpg

Distillate Stocks...middle of the road

 distillate-stocks-112807.jpg

My way of viewing it...nothing dire here yet but exports are known to be rising while heating demand is still kicking in.

 dist-stocks-112807.jpg

Production that came back on line appears geared towards the clean stuff as weather draws down stocks of the dirtier heating oil class of distillates

heating-oil-112807.jpg

 

Natural Gas Report Preview

  • My number: 30 to 35 Bcf 
  • Imports: 8.2 Bcfgpd from Canada remains near the lows for 2007 while LNG is at its lows tallying only 0.6 Bcfgpd.
  • HDDs: 144, up from 111 in the prior week and 6 more than year ago levels when we saw a withdrawal of 27 Bcf.
  • Consensus: ??? Bcf 

Other Notable Stuff

APC Ups 2007 Production Guidance. After the bell last night, APC added 2mm boe to their expected production range for the year due to a number of factors including the smooth start up of the 1 bcfgpd capacity Independence Hub in the deepwater Gomex of which they have 60% of the throughput, a generally calm Hurricane season, an increase in gas gathering capacity for the Powder River Basin, the completion of a gas treatment facility that helps debottleneck some gas production capacity in the west,

  • they increased 4Q guidance from 48-50 to 50 - 52 MMboe or 543,000 - 565,000 barrel of oil equivalent per day (BOEpd)
  • they cited a year end exit rate of > 560,000 boepd
  • and a 2008 production target of 5 to 9% (which is a reiteration of a 3Q comment)
  • this remains my second largest position but I may roll to longer dated calls if we get a pop on this news as the recent sector tumble has put my Dec 60s $5 and 9% out of the money.

PBR Watch: added another big profile platform, the p52, at the Roncador field offshore Brazil...adds 20,000 bopd initially but climbs to 180,000 full capacity by mid 2008. At last notice, this platform was scheduled to come online in "by year end" so it looks a little early. The

Odds & Ends

Analyst Watch:(RRC) to outperform at FBR, (NOV) to buy at Citi, (DHT) to buy at UBS, (RIG) to hold from buy at Sterne Agee as they increase their PT from $130 to $140 (little bucket shop of a research firm with a mixed message recommendation probably won't mean a thing to the stock.)

 

29 Responses to “Thursday – Oil Review and Gas Preview”

  1. 1
    zman Says:

    I’ll be in and out of touch today working from a hospital lounge but please feel free to ask questions and thanks for all the kind words yesterday.

  2. 2
    Sambone Says:

    8:55 am EST

    Nymex Crude Pulls Back As 2 Enbridge Lines Reopen

    DOW JONES NEWSWIRES
    From MARKET TALK:
    [Dow Jones] Nymex oil futures drop back after two of four Enbridge pipelines reopen. The lines, with a flow totaling 1.5 million b/d, were shut down following an explosion on Line 3 Wed. Crude remains above Wed closing price of $90.62, but down for the week. “This is a market that definitely wants to head lower, but for the time being there’s going to be a pause” until more details emerge on the Enbridge outage, says Jim Ritterbusch of Ritterbusch and Associates. Nymex Jan crude +$2.50 at $93.12/bbl, after jumping as high as $95.17/bbl following explosion. (greg.meyer@dowjones.com)

    LONDON — Nymex light, sweet crude oil futures soared $3 higher in early London trade following an explosion on a key oil pipeline in the U.S.

    Two workers were killed in an explosion and fire on an Enbridge Energy Partners LP crude oil pipeline Wednesday, approximately three miles southeast of Enbridge’s Clearbrook, Minn. terminal, the company said. The pipeline carries crude oil from Canada to the Midwest U.S.

    “It caught the market by surprise after yesterday’s selloff,” a London-based trader says. “It’s a bit of a kneejerk reaction but we’ll have to see how long the pipe’s going to be shut before getting a proper handle on the impact.”

    At 0828 GMT, the front-month January Brent contract on London’s ICE futures exchange was up $2.41 at $92.22 a barrel.

    The front-month January light, sweet, crude contract on the New York Mercantile Exchange was trading $3.48 higher at $94.10 a barrel.

    The ICE’s gasoil contract for December delivery was up $10.50 at $832 a metric ton, while Nymex gasoline for December delivery was up 639 points at 233.96 cents a gallon.

    —By Nick Heath; Dow Jones Newswires

  3. 3
    Sambone Says:

    Z – Let me know if you need updates. I have to go to the dentist later, but should be back.

  4. 4
    Jason Says:

    Z, best wishes and hoping your emergency is short and temporary. Everyone else, great job contributing each day! I read every last post and hope to progress up the learning curve quickly enough to provide meaningful contribution myself at some point.

  5. 5
    zman Says:

    Thanks Sam…I’ve got Thomson loaded on a laptop…feel like a bit of cad using it in the ICU but a) hospital has wireless b) the family assures me I’m already a cad, and c)
    I am indeed a market junky and don’t readily hang it up. Plus I’m not a doctor so unless someone needs coffee I’m pretty much a dunsel here.

    DO has two contract announcements out with Callon this morning. Their Ocean Victory and Ocean America semi-submersibles won contracts for roughly 6 months and 1 year respectively for right around $500,000 per day which is not too shabby and speaks to the continued strength of the deepwater market.

  6. 6
    zman Says:

    PBR presenting a buying opportunity on a service vessel fire. Looks to me like they are hitting on all cylinders and will post very strong growth next year. more on them later

    TSO – looks to be gap filling action. This was pummeled by the loss of the Tracinda offer and I took a little of the Dec 50 calls on Monday.

    HAL – should be there, am not…thanks for the Cramer article Scoop…I rarely buy options for takeouts but given how I feel about their long term prospects I will continue to trade options here and plan to add stock and write some near term calls against it until someone yanks it away from me.

    Has anyone heard the NG consensus #s?

  7. 7
    Sambone Says:

    9:46 am EST

    Nymex Crude Jumps After Pipeline Blast

    By GREGORY MEYER
    Of DOW JONES NEWSWIRES

    NEW YORK — Crude oil futures were higher but off a peak Thursday after two of four major U.S. pipelines shut down due to an explosion were reopened.

    Light, sweet crude for January delivery on the New York Mercantile Exchange was recently up $1.52, or 1.7%, at $92.14 a barrel after climbing as high as $95.17 a barrel in screen trading overnight following an explosion and fire on a major Canada-to-U.S. pipeline owned by Enbridge Inc. in Minnesota. Brent crude on the ICE futures exchange rose 91 cents to $90.72 a barrel.

    Word of the explosion stoked the rally. At 3:45 p.m. CST Wednesday, a temporarily closed pipeline section near Enbridge’s Clearbrook, Minn., terminal exploded and caught fire, Enbridge said, killing two workers. Three other operational pipelines, with a a flow totaling 1.5 million barrels a day, were closed.

    “This market is jittery to begin with,” said Michael Cambria of Eagle Futures on the Nymex floor. “Any kind of jittery situation, any kind of explosion, or when you hear that people perished, that market’s going to react to it.”

    Enbridge has since reopened lines 1 and 2, a spokesman. The reopening restored the pipelines’ capacity of 770,000 barrels a day. Line 4, which can carry 730,000 barrels a day, remains shut down. Line 3 was the pipeline that exploded.

    The explosion came against a backdrop of tight U.S. oil supply. The U.S. Energy Information Administration reported Wednesday that U.S crude stocks fell 400,000 barrels last week, the fifth drop in six weeks. U.S. crude imports total 10.4 million barrels a day, making the Enbridge pipelines a major source of oil flow to the U.S.

    While prices fell back after the two pipelines reopened, “I don’t see them falling much further until there’s clearer information from Enbridge as to when the two other pipelines will be back in operation,” said Rick Mueller, a Netherlands-based senior oil analyst at Energy Security Analysis Inc.

    Front-month December reformulated gasoline blendstock, or RBOB, rose 3.03 cents, or 1.3% to $2.3060 a gallon. December heating oil climbed 3.02 cents, or 1.2%, to $2.6040 a gallon.

    —By Gregory Meyer, Dow Jones Newswires

  8. 8
    yona Says:

    Bloomberg has -20 for NG

  9. 9
    zman Says:

    Thanks Y

    I’m a little bigger but theirs is the number that counts. We’ll a bigger number next week. Gas trading flat before number.

    Feds said earlier to use SPR if needed to replace displaced enbridge volumes

  10. 10
    zman Says:

    down 12 not a good number for gas

  11. 11
    Sambone Says:

    SPR – My question is when are they going to refill? I thought that after Katrina, those that got the oil had to replace it?

  12. 12
    zman Says:

    storage surplus to last year increases from 2.8 to 3.1%

    more rounded top than I thought…gassy stocks initially dipping on report.

    producing region actually saw a build, it was mild and production in TX, AR, OK continues to trickle up.

    SPR – Kat was like 12 mm barrels if I remember correctly. They’ve been adding dribs and drabs back occasionally but hell, we’re almost full anyway.

    NG flat here and maybe its the prospect of the demand from this week’s cold but that storage number was nothing to write home about, especially given the crap volumes coming down from the Canadians and floating in on tankers.

  13. 13
    zman Says:

    at least DO starting to work now. back in a bit.

  14. 14
    Denise Says:

    Good Morning,
    I am back from my trip-wild last 10
    days! My technician thinks we still have more room to go-(in fits and starts)until middle of next week
    My favorite short seller sold all trading longs last nite and is getting short(he is usually early)
    I started taking my trading profits yesterday-(better early, lucky, ect…)(can not handle more worry wrinkles)

    Z-Hope you and your family fare well-
    sorry to hear there is a medical emergency

  15. 15
    zman Says:

    Enbridge says line 4 back on line today

    line 3, the one that blew up, back on line in 3 to 4 days

  16. 16
    zman Says:

    SU looks like its going to break down soon

  17. 17
    Sambone Says:

    12:34 pm EST

    Nymex Crude Below $91/Bbl On Enbridge Pipe Fix

    By GREGORY MEYER
    Of DOW JONES NEWSWIRES

    [Dow Jones] Nymex crude sinks to a new low for the day after Enbridge Inc. says its closed Canada-U.S. pipelines will start flowing again after an explosion and fire in Minnesota, giving the market a sense that any supply disruption will be short-lived. Enbridge says Lines 1 and 2 have reopened, while heavy-crude Line 4 is expected to reopen Thu morning. Line 3, the heavy-crude line that caught fire Wed, is shut but is expected to return to service in two to three days, Enbridge said. Nymex Jan crude +36c at $90.98/bbl. (greg.meyer@dowjones.com)

    NEW YORK — Crude oil futures were higher but off a peak Thursday after two of four major U.S. pipelines shut down due to an explosion were reopened.

    Light, sweet crude for January delivery on the New York Mercantile Exchange was recently up $1.52, or 1.7%, at $92.14 a barrel after climbing as high as $95.17 a barrel in screen trading overnight following an explosion and fire on a major Canada-to-U.S. pipeline owned by Enbridge Inc. in Minnesota. Brent crude on the ICE futures exchange rose 91 cents to $90.72 a barrel.

    Word of the explosion stoked the rally. At 3:45 p.m. CST Wednesday, a temporarily closed pipeline section near Enbridge’s Clearbrook, Minn., terminal exploded and caught fire, Enbridge said, killing two workers. Three other operational pipelines, with a a flow totaling 1.5 million barrels a day, were closed.

    “This market is jittery to begin with,” said Michael Cambria of Eagle Futures on the Nymex floor. “Any kind of jittery situation, any kind of explosion, or when you hear that people perished, that market’s going to react to it.”

    Enbridge has since reopened lines 1 and 2, a spokesman. The reopening restored the pipelines’ capacity of 770,000 barrels a day. Line 4, which can carry 730,000 barrels a day, remains shut down. Line 3 was the pipeline that exploded.

    The explosion came against a backdrop of tight U.S. oil supply. The U.S. Energy Information Administration reported Wednesday that U.S crude stocks fell 400,000 barrels last week, the fifth drop in six weeks. U.S. crude imports total 10.4 million barrels a day, making the Enbridge pipelines a major source of oil flow to the U.S.

    While prices fell back after the two pipelines reopened, “I don’t see them falling much further until there’s clearer information from Enbridge as to when the two other pipelines will be back in operation,” said Rick Mueller, a Netherlands-based senior oil analyst at Energy Security Analysis Inc.

    Front-month December reformulated gasoline blendstock, or RBOB, rose 3.03 cents, or 1.3% to $2.3060 a gallon. December heating oil climbed 3.02 cents, or 1.2%, to $2.6040 a gallon.

    —By Gregory Meyer, Dow Jones Newswires

  18. 18
    Sambone Says:

    AMEX halted, system problems

  19. 19
    freeflow Says:

    Any activity out there today? I’m contemplating DRYS contracts… Maybe if oil goes down DRYS goes up?

  20. 20
    ram Says:

    Z – I sincerely hope things are improving for your family at light speed!
    A question to mull over the future: Is ATW a relativley small cap version of either DO or RIG? Could ATW be a better candidte for long term investors? Thanks.

    Also, if you are only reduced to a “cad”, then you are doing much better than I when I try to balance work and personal issues – sort of lol because it’s not that funny.

  21. 21
    yona Says:

    Denise- who is the short seller you are so enamored of? does he provide a service like zman does here?

  22. 22
    TTupp Says:

    lol

  23. 23
    Denise Says:

    yona-Doug Kass-streetinsights.com-he runs the Seabreeze Partners hedge fund-
    very smart experienced insight -not always right -but good timing and ideas

  24. 24
    TTupp Says:

    Ever wonder why fund managers can’t beat the S&P 500? ‘Cause they’re sheep, and sheep get slaughtered. *Gordon Gecko

  25. 25
    yona Says:

    Denise- thanks

  26. 26
    apbd Says:

    Hi Nicky:
    Are you out there?
    Where is the broad market going?
    Any ideas?
    We all appreciate them.
    apbd

  27. 27
    zman Says:

    Ram

    ATW very good company. They just blew out numbers and we should be watching them for a trade after the big bounce subsides (may be worth a smaller OOTM call trade before the bounce dies, like on first bit of profit taking tomorrow before it re-rallies to new highs). Long term they probably get gobbled up if they ever get cheap enough for it to be a quickly accretive deal…DO could snap them up and not blink. The only concern I have with them is rig risk. With only 8 rigs chances are that sooner or later you get an unscheduled refit that sacks a quarter or two. That is a great time to buy. Will look at the quarter a little more closely tonight and get back with you in the post.

  28. 28
    ram Says:

    Thanks Z

  29. 29
    Natus Says:

    😉

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