06
Mar

Thursday – Natural Gas Preview & Oil Review

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Wow. Where to begin?! Another new record for oil and another giant surge in natural gas.

Commodity Watch

  • Natural Gas rallied with oil yesterday. April gas closed up $0.39 to $9.74. This morning gas is trading up 3 cents.
  • My Number: 125 Bcf withdrawal. This compares to a withdrawal of 99 Bcf last year.
  • Weather: 193 HDDs versus 180 last year and 212 in the prior week (151 Bcf withdrawal).
  • Imports: running down 2.1 Bcfgpd relative to year ago levels which by itself would augur for 14 more Bcf in today's withdrawal ...
  • ...But Supply Was Running Hot. Most recent available production data is for December and that showed a 3.8 Bcfgpd YoY increase. So giving a little extra demand for weather
  • Street Consensus: 142 Bcf withdrawal. 

Natural Gas Short Trade Comment: What really burns me up is that back when I thought gas was too cheap ($5 to $6 last Fall) I thought and repeatedly wrote about the large short position someday leading to a huge rally (which I planned to be on the long side of). But week after week and month after month this short covering rally failed to materialize.

  • Once I thought gas had crept up enough this Spring and, with what I thought was going to be Spring like warmth around the corner, I went short via (UNG) puts.
  • About that time (early February) the exact short covering rally I was hoping to play on the long side kicked my teeth in on the short side and continues to do so. 
  • Normally, I detach my trades from where (at what level) I bought something...nobody cares about that price but me and I shouldn't either. With that said, I'm still not adding to the short position. I guess I would had I not already gotten burned which is irrational but there you have it.
  • The fact of the matter is, the pendulum is swinging against me and although it is likely to swing quickly back the other way, I want to be sure of just how far they will take it before I look at rolling into April contracts.
  • Finally, as to the March 40 and 42 UNG puts I'm holding as they are just about worthless. Given the volatility those $43s and even $42s may yet rise from the ashes. But, as gas has now taken four rests along the way to current levels before breaking out to new highs, I would rather add to the position on the way down then make another bet on the way up. This isn't normally the case where you can point to individual stock metrics and say, " that shouldn't be" because there is definitely a squeeze on.

  • Crude Oil Closed Up $5.00 To $104.52 Yesterday!
  • OPEC Decided NOT TO CUT Production. OPEC-12 kept member quotas at 29.67 million Bopd. OPEC production including Iraq is currently 32 mm bopd according to the Cartel.
  • The EIA Reported A Draw On Crude Inventories Instead of an Anticipated Build.
  • The dollar has hit fresh lows to the Euro overnight, having pierced the $1.53 per Euro level for the first time.
  • Rebel Yell Watch: FARC (Revolutionary Armed Forced of Columbia) has attacked and damaged a 100,000 bopd oil pipeline in Columbia in reprisal for last week's attack on a rebel base in Ecuador. The 100,000 bopd export pipeline is expected to be repaired in 3 days. Zcomment: Hugo Chavez' own little MEND like band of rebels. Need the price of oil to go higher? They have hotline. 
  • This morning crude has traded as high at $105.97 as the dollar makes free lows and is trading between flat and $105 in volatile trading this morning.

EIA Inventory Review:

exp-vs-act-022908.jpg

CRUDE OIL: Draw Down Instead of Build Up.

Utilization & Crude Inputs: Both Up. Refinery utilization was expected to remain flat with the prior week but it instead jumped 1.2 points back up to 85.9% but as you can see from the following chart its still remains near the low end of the range as we exit the first maintenance season of the year. 

 utilization-022908.jpg

Crude Inputs to U.S. Refineries Is Beginning To Recover. Inputs can increase by as much as half a million bopd over the next couple of months as refineries gear up for the summer driving season. Given the near record levels of gasoline in storage (read on) and the commensurately lower refining margins I'm expecting a slower ramp here this year than the normal hockey stick you usually see at the beginning of Spring. 

crude-inputs-vs-util-022908.jpg

Imports ... Fell. After weeks of skirting the high end of the seasonal range imports took a breather last week. The reduction could be related to fog stifled operations in the Gulf of Mexico (likely) or it could be the start of a reduction in OPEC shipments the tanking tracking firms have recently noted (I doubt it as the timing seems a little early for that versus the reports of reduced February shipments. Either way,  this drop in imports was behind the draw on crude and is therefore what traders rallying oil to $105 and beyond are hanging their hats on. 

crude-imports-022908.jpg

Stocks Increased By 3.1 Million Barrels. After 7 consecutive weeks of rising inventories we get a draw on stockpiles and that is the reason touted for oil to come within in a hair of $105? Remarkable. The decline in stocks parallels one seen a year ago at this time (see blue and green lines below) and is attributable almost solely to a one week (so far) reduction in crude imports. 

crude-stocks-022908.jpg

GASOLINE: ...Yet Another Bigger Than Expected Build. Inventories now at highest levels since March of 1993.  

Gasoline production is at record levels despite the bottom of the barrel utilization levels shown in the previous graphs. What gives? Two words: blending components. AKA, a good piece of the reason you are paying $3.20 + at the pump right now (the other being $100+ oil of course). Note that the chart below is for Finished Gasoline which includes ethanol and other blending components and which now account for half of U.S. finished gasoline inventories. 

gasoline-production-022908.jpg

Demand: At 9.071 mm bpd, gasoline inched up slightly week to week as it tends to this time of year ... 

gasoline-demand-022908.jpg

... and the country's thirst for gasoline ran about 1.3% less last week than it did in the prior year period. With prices waffling between 25 and 40% more expensive than year ago periods, I wouldn't call the smallish decline in demand (again, still well Above the five year average) much of a referendum on the economy. 

gasoline-price-vs-gaso-demand-022908.jpg

Gasoline Inventories Continue To Bloom. Again, a 15 year high.

gasoline-stocks-022908.jpg

DISTILLATES: Remain at the lower end of the range in aggregate but will take on a less important role in coming weeks. Demand for ULS diesel continues to be remarkably strong despite record prices.

dist-stocks-022908.jpg

 

Holdings Watch: No changes but I'm getting ready to lighten up a bit into this seemingly out of control commodity rally.

Odds & Ends

Analyst Watch: (MD) upped to buy at Citi, (REXX) coverage initiated at Buy at Broadpoint Capital (who?) with a price target of $23...that valuation seems pretty stretched.  (CSIQ) upped to Strong Buy at Broadpoint (no idea) and target increased at equal rate weight rated Lehman.

For Quick Review This Weekend: (HEMI), (BPZ), and (EVEP).

58 Responses to “Thursday – Natural Gas Preview & Oil Review”

  1. 1
    Sambone Says:

    9:03 am EST

    Nymex Crude Steadies Ahead Of Pit Session

    DOW JONES NEWSWIRES

    1357 GMT [Dow Jones] Crude steadies after an earlier jump near $106/bbl and now trades back toward Wed’s record close. “We would continue to issue our usual caution against attempting to pick a top to this market. Until the Federal Reserve readjusts its stance away from additional interest rate cuts and as long as economic releases continue to surprise on the bearish side, a weak dollar/strong oil connection should remain intact,” says analyst Jim Ritterbusch. Nymex Apr crude +3c at $104.55/bbl. (GM)

  2. 2
    Sambone Says:

    Refineries Returning Online Will Fuel Oil Demand

    By JESSICA RESNICK-AULT
    Of DOW JONES NEWSWIRES

    HOUSTON — A slew of key processing units at U.S. refineries are set to come back online in March following seasonal maintenance, and their demand for crude oil will be back in full force.

    This burst of demand, which usually accompanies the return of refineries retooled to supply gasoline for summer driving season, could send futures prices past the record highs set Wednesday.

    While U.S. refinery utilization, a metric that reflects how much refining capacity is being used, was above average in February, the number of refineries scheduled to return from work and unplanned outages suggests that utilization rates will continue to rise.

    “We’re certainly expecting to see more utilization,” said Sander Cohan of Energy Security Analysis Inc., a Boston-area consultancy. But, Cohan said, a contradictory scenario is building: As new refineries come online, some others may be cutting back their throughput rates — reducing their utilization — because certain markets have become particularly soft.

    “There’s so much gasoline production out there right now, it will remain to be seen whether they’re going to cut back runs due to slow demand growth,” he said.

    Refinery utilization for the week ended Friday rose 1.2 percentage points over the previous week, according to data from the Energy Information Administration, the statistics arm of the Department of Energy. The move brings refinery utilization for February to the highest February level for crude runs since 2005.

    Crude oil futures topped $104 a barrel on the New York Mercantile Exchange Wednesday following weekly government data showing an unexpected decline in U.S. crude oil inventories last week. The drawdown triggered a run on crude, and Nymex futures surged 4.2%.

    However, concerns over a weak U.S. economy have furthered speculation that gasoline consumption might fall.

    “Total U.S. petroleum consumption is expected to increase by 140,000 barrels a day, or 0.7%, in 2008, while real gross domestic product is expected to grow by 1.6%,” according to the Energy Information Administration.

    Slower economic growth could lower gasoline consumption, as well, the agency said. But, for now, the agency forecasts a growth rate that outstrips the 0.1% growth seen in 2007.

    Crude-oil runs averaged 14.629 million barrels a day in the four weeks ended Feb. 29, EIA data show. This refinery throughput is lower than that from January, but up 1.4% from the average for February 2007.

    March could bring increasing demand from refiners as major units that are currently offline return to service.

    Refineries knocked out by power outages in recent weeks are largely returning to service. The first such restart was a medium-size East Coast refinery coming back online after 18 days out of service.

    Some refiners are bringing units online after maintenance. The largest U.S. refinery in Baytown, Texas, will restart a crude unit in March, according to Russ Roberts, a spokesman for the plant’s owner, ExxonMobil Corp. (XOM).

    One of the most anticipated restarts is at BP PLC’s (BP) Texas City, Texas, refinery. The company will restart a huge unit at its the plant after a two-year turnaround.

    “It’s been out of the picture for so long that you’ll see some sort of movement with it coming online,” said ESAI’s Cohan.

    (David Bird in New York contributed to this article.)

    —By Jessica Resnick-Ault, Dow Jones Newswires;

  3. 3
    zman Says:

    Morning Sam

    Gas stuck in a rut, very low volume, waiting on inventories today. Anybody see the latest consensus? I had the 142 Bcf number from the other day but that seems high to me.

    Weather: forecasts have gotten colder again, big storms expected from South today and going through the NE again by Monday.

    Energy slightly green despite the borad market. APC continuing to shoot for record levels, not quite yet there. SU still being marketed up as well. HK going for $19. I’m going to take some profits and losses soon, especially if this broader market doesn’t buck up soon.

  4. 4
    Sambone Says:

    I’m just glad and happy I’m short the financials! Wow, what a ride.

  5. 5
    zman Says:

    Sam – you’re glad and happy you didn’t listen to CNBC all last Fall then or you ‘d be long them and short energy!

  6. 6
    zman Says:

    Tudor Pickering driving APA towards new highs…those are very smart guys. 1Q and 2008 estimates are going to be flying up soon based upon oil prices. Going to take some APA and EOG April calls soon and start punting some Marches.

  7. 7
    uop Says:

    Z-

    my UNG shorts just sold with UNG dropping, have no long UNG anymore, now I hope the weather up north starts warming up,

    like to get into APA.

  8. 8
    Nicky Says:

    A move below 10392 says we are at least going to see a correction in wti

  9. 9
    zman Says:

    Uop – have you looked at CLR for oil exposure? Interesting story – quick recap on the reports page.

    HK within $0.20 of all time high. Looks like it will break out now.

    A smaller number than consensus and I may take another tranche of UNG puts. There may be a headfake if the number is small as traders try to bluff the position higher so I’m likely to buy in after the number, wait and take some more or not in an hour.

    Morning Nicky – yep, the big run pre market was insane. The move yesterday was predicated on hype and a imports driven draw in crude. Did you see a better consensus number than the 142 Bcf?

    Broad market acting as an airbrake on energy.

  10. 10
    Sambone Says:

    Z – #5, now ya know why I don’t watch those crack, uh sorry talking heads. I do watch Bloomberg though.

  11. 11
    zman Says:

    DRYS off $2+ with market after a $4+ up day yesterday. I was saying I wanted to see rates go on up and 2 days in a row of gains in the drybulks…they just can’t do it and I’m going to add near term, near the money calls small on DRYS as rates shot up again last night

    Capesize now over $140,000: Panamaxes now over 67. These are big moves from recent lows and nearly double year ago levels. Estimates are going to be going up again.

    http://www.dryships.com/index.cfm?get=report

    scroll down to the rate graph

  12. 12
    j Says:

    ALJ being skinned on another miss. Considering they are losing money on operations, their stock should have rallied when they blew up their refinery last week.

  13. 13
    zman Says:

    J – Re 12…that’s so 2007 thinking, LOL. Doesn’t help that the group is circling the drain either. Have not seen if they are going to get that refinery back on line on time yet. Gotta be some value somewhere here soon.

  14. 14
    zman Says:

    ZTRADE: DRYS March $75 Calls for $3.80.

    Finger on the UNG put trigger for the gas number.

  15. 15
    Nicky Says:

    CNBC still saying 142 bcf

  16. 16
    Nicky Says:

    Alaron predicting 154 – lets hope not!

  17. 17
    zman Says:

    Thanks Nicky.

  18. 18
    zman Says:

    135 Bcf – little small, gas off a bit, bidding some UNG 47s

  19. 19
    Sambone Says:

    9:34 am EST

    Nymex Crude Steadies; Dollar, Demand Weighed

    BY GREGORY MEYER
    Of DOW JONES NEWSWIRES

    NEW YORK — Crude oil futures steadied Thursday, giving up earlier gains as buyers weighed the dollar’s weakness against slowing petroleum demand.

    Light, sweet crude for April delivery was recently up 5 cents, or 0.1%, at $104.57 a barrel on the New York Mercantile Exchange, topping Wednesday’s record close. The Nymex contract had leaped as high as $105.97 a barrel overnight after initial reports of a small explosion outside a military recruiting station in New York City’s Times Square.

    Brent crude on the ICE futures exchange was down 17 cents to $101.47 a barrel.

    Analysts say oil could see a short-term pullback as traders book profits from a steep runup Wednesday, but warned new highs may be in store as long as a sliding dollar encourages investors to buy hard assets as a hedge. The euro rose to a record $1.5373 as the European Central Bank’s president spoke Thursday.

    Softening oil demand and comfortable supply — at 305.4 million barrels, U.S. crude oil inventories are about average for this time of year, the Energy Information Administration reports — aren’t capturing the market’s attention, analysts say.

    “The financial sector is in the driver’s seat now,” said Rick Mueller, director of the oil practice at Energy Security Analysis Inc. in Wakefield, Mass. “They don’t care about the fundamentals.”

    “They have such an amazing amount of capital they can throw into the market, they are creating their own reality,” Mueller added.

    Nymex crude rose $5 to close at a record $104.52 a barrel Wednesday after data showed U.S. crude stocks unexpectedly fell last week and the Organization of Petroleum Exporting Countries resolved to stand pat on output quotas. Forecasts of chilly temperatures in the Northeast, the nation’s largest heating oil market, pushed futures prices for that fuel to a new record high.

    Analysts said the dollar’s direction is likely to dominate market sentiment in coming trading sessions.

    “A generally low interest rate environment and global liquidity is facilitating this buying rotation toward various commodity groups and away from more traditional financial instruments such as the equity and bond markets,” Jim Ritterbusch, president of Galena, Ill.-based energy trading advisory firm Ritterbusch and Associates, said in a note. “All in all, we continue to see successive new record highs in crude and heating oil established into next week.”

    Front-month April heating oil fell 76 points, or 0.3%, to $2.9355 a gallon. April reformulated gasoline blendstock, or RBOB, dropped 3.29 cents, or 1.3% to $2.6092 a gallon.

    —By Gregory Meyer, Dow Jones N

  20. 20
    zman Says:

    ZTRADE:

    Entered UNG $47 March Puts for $1.45.

  21. 21
    Nicky Says:

    The delightful Ray Carbonne on CNBC – gas trader – saying nat gas is way too cheap compared to everything else! He says it is going much higher on the bad weather we have coming.
    They groaned when the number came out – doesn’t that just tell you everything!

  22. 22
    uop Says:

    Z

    did you get your march puts UNG ?

    why is APA attractive ? looks very flat.

  23. 23
    Sambone Says:

    Uncle Phil

    http://www.321energy.com/reports/flynn/current.html

  24. 24
    zman Says:

    ZTRADE:

    Got the $46 UNG puts for $1.00.

  25. 25
    zman Says:

    uop – back to you in a minute, on a call.

  26. 26
    zman Says:

    APA = most oil levered large Cap E&P name. Fast grower, rarely disappoint, good management etc. Right now it just makes a good trade on oil.

    NG – give me a break, weather still impacting at these levels. After a 25% run I think we can discount the weather … the groan tells me everything. When oil falls off, so too will NG.

  27. 27
    Sambone Says:

    Question, why can’t CNBC not be sued for false info? See this Gasparino clown who keeps moving the market on false info in regards to ABK.

  28. 28
    zman Says:

    crude selling back, nat gas still looking immune.

  29. 29
    zman Says:

    Crude down $0.75; NG flat. CNBC pumping nat gas like there’s no tomorrow. Look for a piece out on supply this evening.

  30. 30
    freeflow Says:

    Seems like the perfect short – Cramer pumped NG Monday. Now the talking heads on CNBC are pumping it. I’ve been on other boards and they are all pumping it too. I think this drops like a stone next week…

  31. 31
    ram Says:

    Nicky – Were you looking for a low in this time frame and about these levels?

  32. 32
    zman Says:

    Noting HO, which is much shorter supply than natural gas is trading off. These guys are playing such games. When this falls they won’t be able to get out the door fast enough.

  33. 33
    ram Says:

    “There’s never just one cockroach. If you see one highly leveraged hedge fund going bust, then there’s another on the way.” Bloomberg – Carlyle Fund Gets Default Notice After Margin Calls

  34. 34
    zman Says:

    great…back to the “all or none” trading style. Energy off heavily…certainly not acting like natural gas is up.

  35. 35
    Sambone Says:

    Any news on King coal? CNX and FDG running to the upside.

  36. 36
    zman Says:

    Sam – don’t see much, a little news out about Australia’s trade deficit which is up over reduced coal output (weather related).

    China is looking to restart a bunch of little mines, that shouldn’t be helping prices though.

    The U.S. is removing some incentives for building coal-fired plants in rural locales, again would not think it helps price.

    FDG has met coal so maybe its a rising demand for iron ore smelting in China. That’s in part behind the run in the drybulk rates.

    That’s all I can think of today, probably none of the above but don’t see any broker comments.

  37. 37
    zman Says:

    Just saw Charlie Gasparino on CNBC …what’s with that guy, he could barely keep his eyes open. looked very depressed about ABK price.

  38. 38
    Sambone Says:

    Ha, he’s probably been handed a lawsuit today on his missed calls on ABK! LOL

  39. 39
    zman Says:

    Right, right, do not pass go and collect $200, go straight to jail.

  40. 40
    apbd Says:

    His family probably made the trades.
    apbd

  41. 41
    zman Says:

    It always ends badly for the guys who trade on “scoop”

  42. 42
    zman Says:

    test test test

  43. 43
    zman Says:

    T – can you see me now?

  44. 44
    zman Says:

    Has anyone had trouble getting on the site today and are you still having trouble?

  45. 45
    kaman Says:

    Hey Z-
    It dawned on me that I should ask you/the forum about USEC stock…pretty much the only game stateside for uranium enrichment (centrifuge technology)…stock has dropped to a serious low, but is it a bargain or value play?
    Anyway, its energy, so thought I’d put it on our collective radar.

    cheers-K

  46. 46
    apbd Says:

    No problems here.
    apbd

  47. 47
    zman Says:

    K – are they the ones that pull uranium out of old bombs? I think I traded the stock a couple of years back but I have not been keeping up with uranium prices since they exploded last year. I do recall that many utilities were set to see their long term uranium contracts expire in 2010. The new prices would auger for higher bills for everyone. I think a couple of the fellas around here play CCJ from time to time.

    Thanks A

  48. 48
    kaman Says:

    I believe that is true. Some recent news this week regarding domestic supply of enriched U…vs. foreign. My perception is that there’s little organic attraction to the company (vs. other plays, opportunity cost and all)…would bounce largely from a Federal “intervention” of some kind. DOE is funny like that.

  49. 49
    rseidman Says:

    I’m one of them.
    And no problem with the site today.

  50. 50
    rseidman Says:

    Referring to CCJ

  51. 51
    uop Says:

    Z-

    was at the dentist, just came back and not much has happened with
    NG AND UNG and
    APA,

    everthing else stinks though.

    what now ?

  52. 52
    zman Says:

    uop – market down 172, group taking a breather.

  53. 53
    zman Says:

    uop – I use days like this to either add to positions and / or catch up on reading. Group is drifting with the broad market. Not a lot more to say than that as it is just giving back some of yesterday’s gains. Refiners still look like complete death, though since gasoline can’t keep pace with oil.

  54. 54
    uop Says:

    Z-

    txs

    my jaw is still numb from te dentis
    and
    looking a tte marke, it numbs me even more.

    Finised fo tte day, tomorrow is Frida and it will not be too good probably.
    adios

  55. 55
    zman Says:

    I can sympathize…had wisdom teeth out last Friday…wanting warm weather for more reasons that just my UNG puts.

  56. 56
    Sambone Says:

    Tini time!

  57. 57
    Nicky Says:

    Ram,

    Technically the market looks very weak and I believe that it quite likely that a full test of the January lows is probably on the cards…
    I had thought that as we chopped about this move could end just sub 12k but here we are on the eve of non farm payrolls having had a very big down day which does not bode well. The technical pattern is very clear and everyone is watching for a break of 12000 on the Dow so we could see a big move if it breaks.

    Energy does not look done to me. We could see a blow off top towards 110 on WTI.

    Nat gas – I was way off when I thought it would turn yesterday. Its being carried along by the rest of the complex and looks like it should run a bit higher. 10200 – 10300 should offer good resistance…

    All commodity markets are getting close to a turn imo. $ is being pounded but Euro/$ shows the chart pattern close to completion and $ downside is probably limited here.

  58. 58
    ram Says:

    Thank you Nicky.

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