Expect a light and potentially volatile trading session today in the commodities and equities as most players are still on break. With the recent run in crude, which was again made during holiday-thin sessions the potential for a sudden move to the downside of multiple dollars exists throughout this week. If you missed the weekend wrap click here.
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- Crude Oil: closed last week up 3.2% to a one month high of $96.27. This morning oil is trading up $0.10 to $0.20.
- Iran Watch: Iran said over the weekend it will begin generation from a Russian built and fueled 1,000 Mw nuclear reactor in southern Iran by Summer 2008. Zcomment: Can you say Operation Opera II?
- Tropical Cyclone Watch: The Atlantic tropical season may be done but the Pacific one is just getting started. A tropical storm off Australia has forced the shuttering of just over half of Australia's oil production. And if you see anybody hyping this tell them to get real, the Aussies only produce about 25,000 bopd. The one threat to energy production from this season is that storms can and sometimes do make their way into Arabian Sea disrupting tanker traffic from the Persian Gulf.
- Natural Gas: closed up almost a percent last week to $7.38. Remember we have another easy comp coming up for this week's report. This morning natural gas is trading off a nickel.
- Gas-Weighted Heating Degree Days.
- Expected: 182,
- Actual: 196. This is the fourth consecutive week actuals have exceeded the Climate Prediction Center's weekly forecast. This compares to last week's reading of 200 HDDs which yielded a withdrawal of 165 Bcf.
- So we should be looking for another 150 to 160 Bcf number this week versus a year ago withdrawal of 47 Bcf. This means storage should end the year with a YoY deficit of around 230 Bcf or about 7%. How quickly things can change as we are currently at a YoY storage deficit of 3.8%.
- Moreover, this week's earlier read is for a season high 205 HDDs which should yield a withdrawal north of 165 Bcf.
Holdings Watch: We're ending the year on a pretty light note with only a few positions in oily and gassy names and oil service, and no refiners.
Stocks We Care About Today Watch:
Refiners: 4Q07 vs 4Q06 Shaping Up To Be A Downer For Crack Spreads. This shouldn't come as a shock to anyone as during most of the quarter products failed to keep pace with advancing crude oil which is about to set a 1 year percentage gain record. Recent weeks have seen a slight improvement in most regions but it's too little too late. This will mean that 4Q results will almost certainly decline for the second quarter in a row on a YoY basis. I'm happy be on hiatus from the names at present but will be re-entering soon as I believe they will begin to anticipate record summer gasoline prices somewhat earlier than usual.
Gasoline Cracks Are Down in All Regions Relative To Year Ago Levels …
… And the same goes for diesel with the exception of the Gulf Coast.
Refiner Multiple: For the most part the group is still very cheap by historical standards.
Note that the smaller refiners have been subject to year end tax loss selling. This should present an opportunity to enter (FTO) prior to 4Q earnings when they should report another respectable quarter (they should get out of jail free pass for any miss due to the downtime from the minor fire earlier this quarter) and outline a strong 2008.
Tracinda is Hot For Energy. After bailing on their offer for a stake in TSO, Kirk Kerkorian's private investment firm is taking a 35% stake in small cap E&P Delta Petroleum (DPTR) for $19 per share or a 23% premium to Friday's close. An offer by a financial investor (as opposed to one made by an operator) will have less of an impact among the small cap E&P sector as it will be seen as a one time event and likely not as the beginning of another sector shopping spree. If an arb to the takeout price remains after the open I will take options designed to close the gap as this looks like a done deal. Management and Tracinda mention use of proceeds in the announcement and I'm sure shareholders will be happy to have the extra flexibility Kirk's cash will give them.
Odds & Ends
Analyst Watch: nothing.
Texas Watch: Texas hits record gas production in October …
…But While Lower 48 Production Has Lept This Year, It Is Still Well Below Levels From Just Four Years Ago
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