Wednesday Morning – Waiting On Inventories

Wednesday Topics:

  1. Crude Oil and Inventories
  2. Gasoline and Crack Spreads
  3. Odds and Ends: a new ZEB report, etc...

Crude Trades Quietly Ahead Of Report. Moving on to watching the May contract today. The talking heads will be no doubt spin the new contract is $2.50 closer to $60. Newpaper reporters penned headlines last night like "Crude ends higher ahead of inventory report". April crude quitely went off the board at $56.73, up $0.14. May traded off $0.45 but still closed at $59.25. In fact, the entire 12 month strip ,save the April contract, was off slightly yesterday. But there's that headline, almost promising bullish delights in the report!

Sad but true quote watch: “Now that May has taken over, it will interesting to see if prices rise in the near term,” Flynn of Alaron Trading said. I see. Oil is now magically worth $2.50 more than it was yesterday! I guess that means I can bump my $55 near term target up to $57.50, huh?

Still, the early Spring and Summer months have moved further into contago since the OPEC no action Vienna driveby meeting last week.

Crude Inventory Report. Everything that happens before 10:30 is meaningless. That's not to say that what happens afterwards carries a lot of weight with reality either but at least we'll have some more data in hand.

Key takeaways today: Crude will likely weaken slightly if we get a second week of rising imports AND increased refinery utilization. If we get a price elastic demand response in gasoline consumption then it's time to dip another sacrificial toe into refiner puts. You know the names.

Survey says: (Reuters)

  • Crude: Up 0.8 million barrels. This can change to down very quickly. For instance, a 1% increase in refinery utilization relative to last week would itself consume 1.2 million additional barrels per week, all other things being equal. The survey also expects a rise in crude imports and an unspecified increaswe in refinery utilization.
  • Gasoline: Down 1.7 million barrels. Much less and gasoline starts to falter.
  • Heating Oil: Down 1.3 million barrels. Not that it matters but this still could be quite a bit larger than this.

For those of you considering dabbling in the refiners I've constructed a table with data courtesy of Tesoro and the EIA which lets you know what you're up against. And I still think the stocks, especially WNR at this point, are overdone.


I've added a crack spread page for easy reference.
Odds & Ends

HAL to Miss 1Q Estimates: Hey, that's no reason to leave the country! The indicated a slowing drilling environment in Canada and the northern US were to blame. This had the effect of tanking the OIH for 75% of the prior day's gain garnered from the THE acquistion. What a differnce a day makes!

So who else gets hurt by a decline in Canadian and northern US drilling? How about PDS, Canada's largest drilling contract?

SJT: I posted a little piece on San Juan Basin Royalty Trust last night on the ZEB Reports page. Like all my reports I'll continue to add to it as my thoughts change and new data comes in. It's a good proxy for trading natrual gas prices but production of the assets underlying the trust is slipping making it a longer term put play. Maybe COP, the new operator in town, can arrest those declines. Maybe not.

Analyst Watch: Matrix ups my favorite service company CRR from sell to hold and downgrades FST from buy to hold. HAL's price target cut but buy rating maintained at Goldman and Calyon.

55 Responses to “Wednesday Morning – Waiting On Inventories”

  1. 1
    rockaintdeadyet Says:

    I had a quick question. Coming into the date when the contracts roll over, there is often a several dollar discrepancy between the front month and the month they’re rolling up to. Why don’t the big boys (who have the facilities to carry the oil) just buy the front contract and sell it at the next month price? Is the cost of carrying oil for a month significant enough to erase the several dollar profit they’d make in this arbitrage? I’m just curious.

  2. 2
    zman Says:

    1) I mistakenly wrote backwardated in the 3rd para about when I meant contango. That’s now been changed so if you’re reading this after 9:15 est forget I said this.

    2) Rock – Here’s what they do and this one is bigger than they have been for some time so the carry definitely doesn’t kill the arb.

    From Wiki:
    * In the case where the forward price is higher:

    1. The arbitrageur sells the futures contract and buys the underlying today (on the spot market) with borrowed money.
    2. On the delivery date, the arbitrageur hands over the underlying, and receives the agreed forward price.
    3. He then repays the lender the borrowed amount plus interest.
    4. The difference between the two amounts is the arbitrage profit.

  3. 3
    zman testy Says:

    Addax earnings out. Checking.

  4. 4
    zman testy Says:

    There goes $100 on TSO. They’ll need utilization to stay very low to support this pre – inve rally

    ACX looks good, nothing new really, conf call later.

  5. 5
    El Diablo Says:

    I’d add that the fed decision/statement should have greater influence on oil prices near-term than these shoulder/transition week reports. Talk of further economic slowing/inflation fears should have a more dramtic impact on near- and long-term supply/demand factors than one weekly storage report.

  6. 6
    Attacking Mid Says:

    z – EOG is approaching $70. It has done so twice in recent months and both were excellent short opps. Think it might be true a third time? Finger on trigger.


  7. 7
    zman testy Says:

    Back from a reboot.

    Interesting report: 4 mm bbl up crude due to higher imports of oil but gasoline imports were down, demand apparently strong and despite higher utilization (up 0.7%) very little additional gasoline was produced this week vs last.

  8. 8
    zman testy Says:

    AM – re EOG – probably so. They’ve been doing the conference circuit touting 17% production growth this year but that’s old news and they’re still pricey. Funny how that gassy stock trades more with oil than n gas.

  9. 9
    sane Says:

    blending components comprised of 2.7 mm bbl of the gasoline draw. What was even more interesting was the API’s report vs the doe’s.


  10. 10
    zman Says:

    EL D – couldn’t agree more.

    Gasoline and oil giving up the ghost now. Can you say big crude import not just the end of HSC fog impacted inventory work through? This is cheating and it started at least 6 weeks ago.

    TSO and WNR should roll over if gasoline closes down. Those high crack spreads I posted this morning siply aren’t sustainable with higher refinery utilization.

    Really odd to get such a big build in crude WITH higher utilization. I mean, imports were up but not enough to account for that.

  11. 11
    zman Says:

    Sane – hit me with the API numbers…my PC is crippled.

  12. 12
    zman Says:

    TOM – if yiou’re out there I’d love a TA on TSO, WNR and HOC please.

  13. 13
    sane Says:

    The American Petroleum Institute reported a rise of 5.7 million barrels in crude supplies for the week ended March 16. The Energy Department had reported a climb of 4 million barrels. Motor gasoline supplies were up 753,000 barrels, the API said. The government reported a fall of 3.4 million. Distillate supplies were down 168,000 barrels, the API said, compared with the government’s 1.7 million-barrel decline

  14. 14
    zman Says:

    VLO negative. Of course their spreads stink in comparison to the west coast but the group generally moves together.

    I’m going to go out on a limb here and say:


    Even the analyst CNBC finds to interview said he expected gasoline prices to fall from here.


    VLO has underperformed so I’ll shy away from them.

  15. 15
    zman Says:

    Thank you SANE!

    In light of the increase in refinery utilization the API’s numbers look a hell of a lot better than what now appears to be a bogus EIA report. Same goes for the distillates although that was more believeable.

    Often when these two disagree by a wide margin there is a snapback in one or the other the following week. I’m betting we see a smaller draw or even a build in gasoline next week.

  16. 16
    sane Says:

    The API’s looked a lot more rational to me too. The funny thing is they both reported a large crude build.


  17. 17
    El Diablo Says:

    The fed can not continue ‘ignoring’ rampant inflation in food and energy. Their antiquated method of excluding these two fundamental drivers of consumer sentiment must change. Everyone knows that consumers have buoyed this economy for years, ANYTHING that negatively impacts consumer sentiment should be given the highest attention by the fed. (They may be getting the hint on housing prices.) The fed must also recognize that policymakers and speculators are equally to blame for this attack on consumers (ethanol legis, skyrocketing housing prices, gasoline prices, corn prices, beef prices). If they don’t put the ‘brakes’ on this soon, consumers will ‘break’ this era of economic expansion.

  18. 18
    zman Says:

    EL D – I wonder how often Bernanke gets out to buy a steak at the grociery store or a 6 pack of beer. I’m astounded at the prices and I think the CPI is underreporting the non core food component.

    Energy he knows about but has no control over and that bleeds into food prices as well.

    The core stuff is up more than they report as well but their “utility” equations are depressing it. It’s BS really.

  19. 19
    sane Says:

    I never understood the ex food and energy deal either. If food and energy prices are up by 200%, but the core is only up by 1% I would gamble to say I would not have as much money to spend on those products encompassed in the core. Inflation is inflation is inflation no matter what product / service / material it is.


  20. 20
    zman Says:

    Sane – you know that the government basis its inflation calculations on the utility of say, the price of car and not the actual price of a car.

    So if a 2006 honda costs 20,000 and has 2 front airbags and a 2007 honda costs 20,500 but has 2 front and 2 side impact airbags, the government may deem them to be the same price because you got more with the 2007 model. Gee I wonder if this ever gets manipulated?

  21. 21
    rockaintdeadyet Says:

    I see how the arb works, I’m just wondering why the prices get so far out of wack, since the arb guys (theoretically) should bring the prices back in line by selling the forward and buying the spot until there’s no longer enough of a price difference to make it profitable.

  22. 22
    zman Says:

    TSO negative.

  23. 23
    zman Says:

    Rock – I think the out months jumped up very recently on the OPEC stand still news.

  24. 24
    sane Says:

    I would say manipulation station. Yeah I forgot about the utility jargon.

    Talking about food and energy prices, my wife ( who is usually oblivious to prices and thinks money grows on trees ) said the other day at the store, “Holy crap, $7.99 for a case of pop?!!!” She even realized that prices were jumping, and if he realizes it I would gamble to say a majority of the population is seeing it.


  25. 25
    zman Says:

    XOI looking pretty sick here.

    All the refiners are turning red save HOC, which must sell something entirely different. It’s still up a buck (1.7%).

  26. 26
    El Diablo Says:

    I want to clarify my comments: I don’t think Bernake is a fool, rather that he has made the mistake of delaying action too long, now he has a tough decision to make. The only effective tool he has in his arsenal is jawboning (same as OPEC). Raising rates has resulted in the great ‘conundrum’. Financial firms can get money cheaply in Japan, regardless of what the fed does with short-term rates. He has ‘delayed’ stern warnings to the market because he did not want to be responsible for ending the great bull run. Now that investors are extremely jittery, he runs the risk of exascerbating market fear/panic. If he is a good ‘trader’ he will reconcile his mistake sooner rather than later, because it is going to cause panic either way. Look for the next big sell-off to occur on the ‘release’ of a fed statement, by the time rate increases get here, much of the ‘irrational exuberance’ will be gone. I only harp on this because energy stocks are especially vulnerable, given their strong tie to consumers’ perception of inflation. Just ahead of a fed statement is a riskier time to be long these stocks.

  27. 27
    zman Says:

    EL D – well said my man, well said.

    TSO looking partiucularly weak now.

    Gasoline down a cent and a half. Guess traders aren’t buying that big draw either.

  28. 28
    El Diablo Says:

    what up with nat gas? ran up over 2% in front of pathetic heating oil number and sticks there. Some clown calling for cloudy weather this weekend or something?

  29. 29
    zman Says:

    From Bill Fraser just posted on Monday’s post but I thougt I’d repost here for all to see. Thanks Bill.

    Topt sold 9 tankers and are leasing them back. Additionally, they are drydocking most of their vessals for special surveys which is cutting into billable revenue days. So it’s a utilization problem coupled with higher expenses. The leases have a 50 m “sellers credit” which comes back to topt and the end of the leases. This is recorded on the balance sheet as a long term asset. Ultimately this 50 m comes into equity. Additonally, due to Accounting rules, the profit on the ship sale has not found its way to the PL since their is the contingency on lease performance.

    When you add the 50 m to se of 198 m you get pro forma equity of 248 ans shares o/s is roughly 33 so book is 7.70 even if they break even over the next 2 years and the stock is at 4.50

  30. 30
    zman Says:

    I haven’t checked the La Nina page today… Maybe they said something about or the EIA said something about summer n gas demand.

    You can ask them. They’re sitting on the site right now along with the DOD and NASA.

  31. 31
    zman Says:

    Sago mine shut over high costs

  32. 32
    Sambone Says:

    Zman – Love this site! Well done!

  33. 33
    zman Says:

    From the truly ridiculous file:

    The chief executive officer at Total SA Christophe de Margerie, was being questioned by French police as part of an investigation into whether the company may have paid bribes to Iranian officials to secure a major natural-gas project in the country.

    It’s called “pishkesh” – the oil that greases the palm and without it nothing would get done over there.

  34. 34
    zman Says:

    Welcome aboard Sambone and thanks! If you’re new around these parts, sign up for RSS and/or email delivery. It’s all free! That way you’ll never miss a post or comment!

  35. 35
    zman Says:

    Oh yes, and if you like a post remember to Digg It with the Digg It? button up top. It helps get the word out! It’s free to sign up too and only take a couple of seconds. Thanks again!

  36. 36
    Popeye Says:

    RSS feed is realy slow here, only 4 comments have made it so far. Shorted SII this morning :-(, it has to come back to earth soon I hope.

  37. 37
    zman Says:


    HAL can’t be alone and it stands to reason that SII’s bits and mudd aren’t immune to a slowdown.

  38. 38
    zman Says:

    Popeye – which RSS did you go with so I can see if they can fix the delay?

  39. 39
    zman Says:

    Anybody else having delays in getting the RSS comments today? I just resynced the feed (whatever that means) so hopefully it will speed the hell up.

  40. 40
    Popeye Says:


    BTW, also love the site as I’m a novice energy trader trying to find as much info as I can. Great job.

  41. 41
    zman Says:

    TSO continues to weaken.

    Fed remains hawkish. Phil’s not buying the initial jump in the broader market and neither am I.

    Thanks Popeye – glad you like the site. Feel free to ask questions and make suggestions as often as you like.

  42. 42
    zman Says:

    Very tempted to take DIA puts here.

    Looks like the chances of a rate cut just got vastly reduced.

    Bernake as confusing as Greenspan citing worry about inflation but dumping language about rate hikes from statement!

  43. 43
    sane Says:

    He should tighten and get it over-width. They should have raised rates months ago.


  44. 44
    Attacking Mid Says:

    z – I took those puts on EOG based on your advice. The stock’s up $1.55 🙁


  45. 45
    Attacking Mid Says:

    Only kiddin’ ya.

    I actually bought a few calls for $4.60, sold ’em for $5.40 when the stock hit $70, THEN flipped to puts at $5.30 which are up to about $5.60. See… this game’s easy!

    Now if only I could time things like that every day.


  46. 46
    zman testy Says:

    AM – oh nice jab ;->. Once again, the producers are following the broader market up. Also, nat gas was up over $7 again on the Aprils, think it just bounced on the HO draw and early reaction from crude, then forgot to sell off. Definitely like them for puts here. Same APC, COP for gas and TSO, WNR, and HOC!!! for gasoline.

  47. 47
    Attacking Mid Says:

    “zman testy Says:”

    Gee, z… no need to get testy with me!

    BQI up 15%. Hope this is the start of a strong couple of weeks. My $2.50 calls are rockin and rollin, but I have a bunch of $5’s that need a lot of help.


  48. 48
    zman Says:

    Not testy, that’s the default it goes to if I forget to login to my site after yet another reboot.

    High time that BQI started to work for you. I’m really going to write it up some day but I’ve got a few in the queue in front of it.

  49. 49
    Attacking Mid Says:

    Just joshin’ ya on the “testy” thing 😉

    I would say it sounds as if you need to switch to a Mac, but I just took profits on my AAPL calls today.

    I haven’t had a day this good in a couple of months. In fact, I’ve been doing very little trading lately, as it seemed everything I bought went wrong. Hopefully, I’ve turned a new leaf today.

    Perhaps I could do a writeup on BQI for your site? Email me if you’d like to discuss.

    Thanks for the site,


  50. 50
    zman Says:

    I’ll email you tonight.

  51. 51
    zman Says:

    Nat Gas : British forecasting group sees busy hurricane season. Well duh.

  52. 52
    El Diablo Says:

    Makes you wonder how we ever survived hurricane season for the past 200 years. I don’t recall ever seeing a winter natural gas shortage due to hurricanes. Maybe I’m missing something…

  53. 53
    El Diablo Says:

    Let me know if you see any predictions for cold weather next winter, I’m hearing that the northeast will start getting cold in November…

  54. 54
    zman Says:

    El D…You got to be a Constanza to make since of this market.

  55. 55
    cell-phone.cvinfoblogs.org 0 Says:

    cell-phone.cvinfoblogs.org 0 35…

    Hi! http://foreign-currency-trading.plinfoblogs.org/12.html . Thanks!…

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