13
Dec

Thursday – Oil Review and Gas Preview

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What a beautiful day in the energy neighborhood yesterday was. We'll take another couple of those please. It's not just a recovery in oil that sent energy higher or a strong stock market. The XOI, XNG and OIH have all outperformed over the last two and half weeks as visibility on prices and activity in the sector have become somewhat less cloudy into next year. 

  • XOI. Another push like yesterday's and the oily stocks of the XOI will be trading in record territory but well below record valuations.  
  • XNG. Today could very well be the day this index sees all time highs. An expected triple digit withdrawal could steady waffling natural gas prices and the XNG is only a percent below breakout territory
  • OIH. Has a little further to recover as its members fell more with the recent decline in the broader markets. This is the time of year when the majors and independent E&P companies announce their 2008 capital plans and as Lehman was good enough to get their annual survey out early this year we can see that another strong year is in the making.

 

Commodity Watch:

CRUDE OIL:

EIA Inventory Review

exp-vs-act-121207.jpg

Z Comments In A Nutshell.

  • Oil Saw A Small Draw. What a bunch of fair weather friends oil has. As soon as we trade away from $100 for more than a week the same crowd that said it was the inevitable price before year end declared the commodity a short and ran for their commissions. And yesterday, on what at first, second, and third blush appeared to be a relatively benign EIA report these same fellows were scrambling to cover driving crude up $4.37 to close north of $94.

  • Gasoline saw a slightly bigger than expected build and moved back into a small surplus versus year ago levels. Gasoline stocks remain about 10% below the five year average and gasoline, which recently traded into the low $2.20s is now testing $2.40 (---% yesterday). As it moved in lock step with crude yesterday. Demand remains very high for this time of year as does blending component boosted production levels. Prices at the pump were on average 31% higher than year ago levels but had little impact on consumption. 
  • Distillates. As I suspected yesterday, the combination of strangely light demand two weeks ago and last week's cold weather conspired to produce a draw when for some reason analysts expected a build. No doubt they will now expect a build next week. Although distillate inventories remain stout, heating oil remains understored and falling faster than is evident in the main distillate number.  


Crude Oil

  • Imports remain in line with seasonal norms

crude-imports-121207.jpg

  • Stocks continuing lower as tightness remains. This week stocks fell despite the rebound in imports and lower utilization at refineries.

crude-stocks-121207.jpg

  • Stocks at Cushing Rallied. Jumped from 15.9 to 17.3 million barrels in the Oklahoma storage facility which serves as home to the NYMEX contract settlement. Funny how this number mattered so much to obvious shorts just a week ago as they used a smaller build to justify a fall in crude prices despite a much bigger than anticipated draw on crude stocks. Yesterday the recovery here went unnoticed as I partially think it should. 

cushing-121207.jpg

Gasoline. Yes we saw a big build this week but it was not attributable to softening demand and we are supposed to be building inventories at this time of year at a pretty fast clip to prepare for the next, somewhat inaptly named "driving" season.

  • Production rose for the fifth straight week and is near an all time high

gasoline-production-121207.jpg

  • Imports continue to waffle about and appear direction-less near the 1 million bpd mark.

  • Demand was just 0.4% below last year's levels which were the all time high for this week of the year. I really wish the talking heads and oft-quoted powers that be would look beyond the energy report's three or four primary numbers before speaking each week. Ever since the press started quoting traders who had been long but had recently switched to being short you've heard nothing but "price is starting to beat up on demand." That is simply not true. 

gasoline-demand-121207.jpg

  • Gasoline Inventories are 1% above year ago levels and in line with the five year average. Looking at the chart below you'd think we were at the  bottom of the barrel but the chart includes data back to 2001 (the upper end of the range).  

gasoline-stocks-121207.jpg

Distillates

  • Demand hits record for this week of the year.

dist-demand-121207.jpg

  • Stocks

distillate-stocks-121207.jpg

  • Heating Oil Stocks Down 25% from YoY Levels, from 24% last week. Part of the reduction is regulated one and part of it is demand related. This oil, which is the dirtier variety (>500 ppm sulfur) is the stuff we use to heat homes and stocks of it are falling faster than overall distillates (down 1 mm barrels this last week) as production remains very low. 

ho-121207.jpg

NATURAL GAS: Jumped $0.32 to $7.41 in sympathy with the oil short covering rally. This morning gas is trading another $0.08 higher in anticipation of the first triple digit draw down of stocks.

EIA Natural Gas Inventory Report Preview

My number: 125 Bcf withdrawal.

  • Imports were up 0.35 Bcfgpd from the prior week primarily due to an uptick in gas imported from Canada. Not enough to make a noticeable difference.
  • Gas-Weighted Degree Days came in at 198, up significantly from 181 a week ago when  we got a draw of 88 Bcf. One year ago it was very cold (213 HDDs) which yielded a 146 Bcf draw from storage.

Consensus:  130 Bcf withdrawal (Bloomberg)

Double Edged Sword Watch: Texas Natural Gas Production Leaving The State Reaches Record Level of 10 Bcfgpd last weekend. According to the EIA who cited Bentek who monitors gas flows in the region Texas gas production traveling on interstate pipelines and leaving the state reached a record high this past weekend. I've been saying for a while now that although (CHK) and others may have announced the delayed hookup of a large number of gas wells in the Barnett in recent months that they would be getting these wells tied into the system before year so they could not only talk about improved 4Q average production but even higher 4Q exit rates. And there you have it. No exactly bullish for gas prices.  

HOLDINGS WATCH:

Calls:

  • (VLO) bought the January $67.50 calls for $1.80. Last bid 2.05. This position was taken as recent moves in product inventories have become more favorable to an improving crack spread environment.
  • (CHK) added some $37.50 December calls for $1.40. Last bid $1.30, and
  • added some more (CHK) December $40s for $0.15 in a high risk, high potential return trade. For this one I wrote: High risk and small and I’ll be quick to take profits (if any). Last bid $0.10. 

Stocks We Care About Today:

(APA) announced its first significant well on its acreage in Tierra del Fuego following a 700 square mile 3D shoot. The well is relatively small ball for them at 1,600 bopd and a little associated gas but they already started to drill the first of six planned offsets.  

Odds & Ends

Analyst Watch: (SUN) upped to Buy at Deutsche Securities, (FSLR) started at UBS with a Buy rating and price target of $350. UBS also started (SPWR) and (ESLR) with buy ratings.

 

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

  1. 1
    zman Says:

    Oil giving back one-third of yesterday’s gains (down $1.30 at the open).

    Wholesale inflation increase worst since 1973 at up 3.2%. Economists had been looking for a rise of 1.8%. Core was up double expectations at 0.4%.

    Broad market to opening lower on the PPI and worry that the feds plan won’t work.

  2. 2
    zman Says:

    blood red opening turning green.

  3. 3
    sane Says:

    “We will continue to monitor inflation”

    Nothing to see here, move along now.

  4. 4
    zman Says:

    Sane, exactly …they need some of that yellow and black plastic tape to separate core from non-core inflation.

  5. 5
    Nicky Says:

    PF remains bearish on the energy market (for now!).

    We can now of course take it that Goldman are long again and it appears the speculators are in control again.

    It remains to be seen whether we are now in 5 up which will take us to new highs likely towards the end of January or this is the end of B of an ABC correction in which case C will take us down to the early 80’s before we turn higher in 5.

  6. 6
    jiveyjr Says:

    SD looking chipper

  7. 7
    Nicky Says:

    Broader market – 1460 – 64 remains important support – if it holds we can still work higher.

  8. 8
    zman Says:

    Thanks Nicky…he’s only bearish today because he saw the early morning indications were lower, lol. These guys keeping talking about waning demand in the recent data but I just don’t see it. Got some levels for gaso and HO for us

    Jivey – SD’s not even exactly cheap but people sure do like it. Long term I think its another big winner that will eventually break out into large cap E&P territory.

    Energy groups trading with broader market. CPI tomorrow will probably reign in any rallies there until tomorrow (when it could absolutely get killed or explode). Don’t see how CPI makes people happy tomorrow with that bust of a number in PPI today.

  9. 9
    zman Says:

    SWN and EOG down a buck apiece. There’s your day trade if the gas number comes out 130 or larger 15 minutes from now.

  10. 10
    yona Says:

    anyone see where the options on the NG# closed?
    do those options still exist?

  11. 11
    zman Says:

    Yona: you mean on the actually storage number itself?

  12. 12
    yona Says:

    yes- i havent looked for it in a while – but there used to be options tied to the weekly nat gas inventory number- i used it as a type of whisper number

  13. 13
    Nicky Says:

    HO and RBOB – obviously the previous highs are the line in the sand for this being a B wave higher and they are at 27272 and 24840 respectively.

    RBOB – Breaking below 23250 and then 22750 would be the first good sign we are heading lower in a C wave.

    HO – 25600 and 25070 are the equivalent levels in HO.

  14. 14
    Nicky Says:

    WTI has resistance at 96.25

  15. 15
    zman Says:

    Yona theres a link for it on the right hand side of the site but that no longer works. Maybe it was replaced with something …will look.

  16. 16
    zman Says:

    146 – nice number for gas

  17. 17
    zman Says:

    EOG going to go green here. SWN still down almost a buck, nice chart, very gassy…good for a trade while still red.

  18. 18
    zman Says:

    CHK through a very tough level for it at 38.70 on the back of this bigger than expected gas number.

    EOG now up $0.50 and SWN still down $0.50.

    Natural gas appears mired up $0.08.

    Thanks for the levels Nicky!

    Yona: I actual took that bad link off. Nicky, do you have a link to the site where they show the weekly gas numbers with options on them?

  19. 19
    yona Says:

    thx z

  20. 20
    zman Says:

    NFX on the verge of a very long term break out for you TA types

    APC is there now,
    APA is very close as well
    EOG is there now
    CHK should not be far behind.
    DVN looks like it could traverse a quick $5 very soon to the upside.

    Will include a valuation table in tomorrows post.

    Note that XNG is positive today , XOI is flat despite the drop in oil but the OIH is off a full percent as the deepwater rigs and SLB retrench recent gains.

  21. 21
    md Says:

    First time blogger to Zman:
    NG draw same as LY.
    Next week HDD forecast of 177. They usually underestimate and would likely be closer to 186 vs. 135 LY. I believe that next week draw would be over 115 vs. 85 LY and at same storage level as LY.

  22. 22
    rseidman Says:

    Z: Please tell me what is LY?

  23. 23
    zman Says:

    bigger than expected draw yields:

    1% surplus YoY; 8.5% surplus to 5 yr avg

    and

    a big yawn from traders on a day like today. What it does confirm is that contango was the problem and not a greater than expected surge in the tiny withdrawal two weeks ago.

    Welcome to the comment area MD, key will be keeping withdrawals in triple digits as the degree days pair back. Expect a bigger reaction on Monday when the final numbers for HDDs replace the estimate of 177.

    RS – where do you see LY?

  24. 24
    zman Says:

    oh, LY = last year

  25. 25
    zman Says:

    Energy selling off on $2 down oil and gas following the lead down a dime now. 2 steps forward, 1 step back

  26. 26
    TTupp Says:

    whats with NG’s behavior to the larger then estimated withdraw? combo of USO & SPX my guess

  27. 27
    zman Says:

    NG worried about next week and what you said, makret and oil

  28. 28
    zman Says:

    plus we were up a bunch yesterday (again, with oil)

  29. 29
    calvino Says:

    Hi Z and all! Bought some more gassy and oily yesterday morn first time in 2 mos. Good charts today Z, don’t mean ng and oil, mean your work. Macro factors are flying around like axes this market.

  30. 30
    zman Says:

    Hear ya Cal and thanks. “flying around like axes” that’s a good one. Stinks how this market is so black and white (green and red ) of late.

  31. 31
    ram Says:

    Z – Are the ng injections behind the draw curve? People are expecting a warm winter, but we are in winter now regardless of the calender.

  32. 32
    zman Says:

    RAM – this was right in line with the 5 year average for draws and even with last year’s pull. See the nat gas storage tab for an updated graph of withdrawals.

    http://zmansenergybrain.com/subscriber-data/gas-storage/

  33. 33
    zman Says:

    Out SU December $95 puts for $0.40 (89% loss).

    Out VLO Dec 72.50 calls for .05 (90% loss). Still hold the January $65 calls

    Out TSO Dec 50 calls for $0.10 (95% loss)

    Out YGE December $35 calls for $0.45 (54% loss). Still hold the March $45s

  34. 34
    rseidman Says:

    Z: Aren’t you holding VLO Jan 67.50 calls?
    I wasn’t aware of a purchase of 65 calls.

  35. 35
    zman Says:

    RS – correct, my bad

  36. 36
    zman Says:

    Oil giving back a little over half of yesterday’s move now down 2.30 to 92

    NG getting led by the nose down $0.16.

  37. 37
    apbd Says:

    Bad snow storm expected in the Northeast this weekend. Will this help our gassies?
    apbd

  38. 38
    zman Says:

    A – without getting too specific, from a sentiment point yes, a little. From a demand point it depends on how paralyzing of an event it is. If people can get to work and power is shut down to a lot of folks then yeah, its a booster…but if industry get shut down or ice is on power lines that’s bad for demand. From what I can tell it looks like temps are now a little cooler than they were expected to be at the beginning of the week this week and forecasts for next week might be firming up to be a little cooler than previously thought. While the CPC doesn’t yet have a forecast for next week Accuweathers graphs have gotten a bit bluer on the 1 one to 5 day forecast map but the 6-10 day is still looking for some warmer weather.

    VLCC rates now at 186Kper day to Japan, that’s a big rise this week.

    Drybulk rates however look to be taking another leg down.

  39. 39
    doc Says:

    $101 OIL
    The price of the oil is going to well over $100 within the next six months. The Saudis are building a multibillion dollar aluminum facility generating electricity with gas. Also, a number of other Middle East countries are in the process of partnering with Western manufacturers to build energy consuming manufacturing plants in the desert instead of selling oil and be left with nothing but sand when the gas and oil runs out.

    The reformulating of the energy will do two things; 1-it will add jobs and 2- it will be more profitable than just selling bulk energy. This will greatly reduce the export of gas and oil to Western world. Energy prices will skyrocket as more and more Middle East countries get into the act.

    News coverage will be huge and the panic will set in.

    You heard it here first from Doc.

    Phil

  40. 40
    zman Says:

    Interesting list of things up on an otherwise very red day

    APA, CHK, SD, CLR, HAL, COP and XOM.

    Doc …first with that news, eh? Ok.

  41. 41
    apbd Says:

    Check out yesterday’s WSJ for the same.
    apbd

  42. 42
    zman Says:

    too funny A! The Saudis have been diversifying for many years now. They expect to be the kingpins for fertilizer in the next few years among other non oil assets.

  43. 43
    ram Says:

    Will the Saudis be buyers of fert. co’s?

  44. 44
    zman Says:

    Ram – that was not the sense I got from what I read (and it was years ago) but more that they planned to use nat gas reserves and domestic reserves of either phosphate or potassium to build a fertilizer powerhouse.

  45. 45
    zman Says:

    Brian – your COP is going to come down to the wire on the 85s

  46. 46
    scoop006 Says:

    I’m holding COP Dec.85.Is $88 doable prior to expiration?

  47. 47
    Brian08 Says:

    Z I listened to your “the market doesn’t give a crap what you paid for the thing”…I got outta those guys over the past week…Took a loss, but preserved some capital…

  48. 48
    zman Says:

    Hear ya B…done with exams yet?

    Scoop. Pretty tall order in my book but I was surprised they sank as far as the did. As long as gas holds $7 and oil is above $86 I think you have a shot at $85-88 in the next 6 days. Obviously, that’s just a guess from a guy who watches its behavior 200 or so days of the year.

    very please with CHK and APA today. Didn’t want to add to anything pre CPI but VLo Jan’s and the deepwaters were tempting.

    Also, market green day and DO/RIG/OII/HAL all should run as they move to new levels and or retrace to old ones.

  49. 49
    ram Says:

    Petrohawk Energy Corp. said Wednesday it agreed to buy reserves in a Louisiana natural gas and oil field, paying $169 million to several private sellers. Is this dragging HK?

  50. 50
    scoop006 Says:

    Z Thanks for responce. Just flipped a nickel and it came up heads, so I’ll hold

  51. 51
    zman Says:

    Ram – No, I reviewed that in yesterday’s post. $2/Mcfe acquisition cost is remarkable. The stock is down with the group.

    This is from Wednesday’s post:

    HK) – Acquiring additional interest in their Elm Grove field. This is the “can’t miss” Lower Cotton Valley wells that offer extreme long lived reserves at low operating costs. With a price tag of $169 million and estimated reserves of 83 Bcfe this is a very cheap, no brainer type purchase for them ($2.03/Mcfe versus the $3+ most deals are being done at of late). Since selling their higher cost, higher decline rate assets in the gulf coast they have now beefed up each of their 3 core regions which provide them with lower cost, lower risk, longer reserve life assets.

    Scoop – it’s nice to have a system.

  52. 52
    zman Says:

    Someone asked about an exit strategy for APA in the last day or so. It’s over $105 now and I’ll probably lose the position on a big day for the broad market / oil both of which we could get tomorrow if CPI lets us rebound.

  53. 53
    zman Says:

    CHK going for $39. Those $0.15 calls bought yesterday can be tossed for $0.20 right now.

  54. 54
    ram Says:

    Sorry Z – I should read the posts first everyday. Especially when you put all that effort to inform and educate us. Wasn’t there a time when the energy co traders pushed up stocks based on fund and earnings and not whatever is going on now?

  55. 55
    scoop006 Says:

    #52 was me sold 1/2 my position @ $4.20

  56. 56
    TTupp Says:

    z- what do you make of this artile –>

    http://www.bloomberg.com/apps/news?pid=20601072&sid=aWqnpOASHM0s&refer=energy

  57. 57
    zman Says:

    Ram – no worries, happy to reiterate that as it’s silly to be trading as cheaply as it (HK) does.

    As far as fundanmentals versus sentiment the balance of which is more important than the other shifts back and forth. In the hectic market days of recent months sentiment and oil price direction of the day seems to outway fundies (which are very strong at the companies right now). I’d rather see flat oil for a qaurter at 85 than ten attempts to reach $100 …people could then focus on which companies are 1) growing reserves and production, 2) at a good IRR and not just paying whatever to buy it and 3) making the right decisions to hone their asset portfolios. The companies I like are gen erally doing that or are very cheap or both. But this everything green or everything red is for the birds or at least for better traders (day traders) than me.

    Scoop: of the $100s right, you don’t have both the 100s and the 110s like me, right?

    T: will read

  58. 58
    scoop006 Says:

    $100 bought for $3.70 on 11-23

  59. 59
    zman Says:

    Check out CLR and SD. One almost oil, one almost all gas. Both from Ok, both plain winners.

    T: that explains the XOM/COP rally. I think we need a balanced approach to energy management in the states. Greater efficiency and greater access. Punishing oil companies is short sighted and does nothing to get us off foreign oil. Using the money such a tax would have raised to fund green energy research is unlikely to yield a 1 to 1 trade off in that I’ve seldom seen a tax in the US earmarked for one thing stay with that one thing and that’s before the all the sloth that occurs in managing such a program.

  60. 60
    Brian08 Says:

    Z, just have to analyze some financial statements tomorrow and then write a paper on my portfolio so I’m not worried…I’m going drinking tonite, “what me worry???” 🙂

  61. 61
    TTupp Says:

    z- did you notice the new charts on the intertanko site? they make no sense to me

  62. 62
    zman Says:

    B – good luck with the drunken analysis.

    T – you mean the green VLCC line going through the roof?

    CHK closing the gap on performance to its peers by having them fall a bit and it rise a bit on a day with gas down $0.21. Go figure. In the end the trend is up and I think a lot of PMs will want this one on their books at year end.

  63. 63
    zman Says:

    CHK kind of looks like a mini breakout now. Would like to see a close over $39 just to make it obvious.

  64. 64
    TTupp Says:

    brian, dont worry half the time i was drunk in class

  65. 65
    apbd Says:

    Brian:
    Old memories. Took my MBA nights. Used to stop with my buddies to get the free chicken wings. That was my free supper. Had to wash it down with something. Some nights I was in class, but missed the content. Good Luck. Stick with it.
    apbd

  66. 66
    QUARRYMAN Says:

    Hey Z.

    Hope that CHK continues up as a happy thought. Reading through the posts has a gloomy tone.

    Maybe my armful of cheap contracts on CHK will come in the money. I’d be happy with $40.50 for a brief few minutes!

    Cheers.

    Q.

  67. 67
    TTupp Says:

    i also bought chk yesterday, good luck to all of us lol

  68. 68
    Brian08 Says:

    Haha, thanks T and apbd…I’m lucky we are on a pass/fail grading system here so the pressure is pretty much off…Plus if I can’t analyze a financial statement by now I don’t deserve to be here…

  69. 69
    texana Says:

    z, do u have any idea where clr’s 45,000 acre position in the woodford shale is in relation to nfx’s recently extended laterals that came in @ 10.3, 9.4 & 12 MMCFG/D. great oil stock ARD extending position in fuhrman-mascho field , will hook up this month to start selling gas from yates formation that blankets there whole fuhrman-mascho oilfield @ shallower depth favs : clr,hes,ard, dnr

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