Wednesday Morning Waiting On Inventories + A WNR Roast

Cross Roads For Curde. Crude sported a minor rally yesterda but in the end couldn't hold $62. Today everything hinges on the inventory report. A build in gasoline stocks would push crude towards a test of $60. Another draw of last week's 5 million barrel variety and we test $65.

Inventory Expectations from the Dow Jones Survey:

  • Crude: up 1.6 million barrels. Could be bigger. Could also be negative if imports continue to rise and the refiners come out of hibernation. The crude number continues to ride shotgun to the key driver of prices at present: gasoline.
  • Gasoline: down 1.3 million barrels. As I pointed out on Monday, it's normal for gasoline stocks to experience drawdowns for the next 2 to 3 weeks. However, for prices to not spiral out of control (too late) we need two things to happen: 1) gasoline imports topping 1.1 mm bgpd and 2) utilization moving on up and eventually past 90%. I have a hunch gasoline imports come in closer to 1 mm bpdg this week while utilization will tick up to 87.5%.

Pay the Piper Watch: The downside to actually not running your facilities is that you have to report earnings on a quarterly basis. While it may jack gasoline and stock prices through the roof it puts a dent in throughput and may even shave earnings per share.

  • Otherwise, Chevron's comments remind me of other recent industry warnings updates (see (COP) on April 4th): oil and gas price realizations down YoY and oil price down sequentially, upstream volumes down, chemicals margins off slightly. Of course, COPis up over 2% since then so maybe nobody will care about this notice either.
  • Distillate down 900,000 barrels. Natural gas is rising this morning as traders anticipate a big number here. Very hard to judge this time of year as heating oil is not as elastic to weather as natural gas is.

EIA Dropped A Number of Bomb Shells Yesterday:

  • EIA Cuts Global Oil Demand Forecast.For the second time in two months the EIA cut their demand forecasts for globals and US crude oil consumption. In February I said that the EIA and IEA upward revisions to 2007 oil demand wouldn't stick and well...there you go (again).


Comment: IEA downward revisions should come any day now.

  • EIA Also Commented That Global Crude Inventories Likely Declined 600,000 bopd in 1Q07. With 90 days in the quarter this yields a global crude drawdown of 54 million barresl. We know it didn't come from the U.S., where inventories actually climbed 13 million barrels during the quarter.
  • EIA Says OPEC Production On The Rise. That's funny, I thought they were under production quotas and wouldn't raise exports until September. This means that at present levels of production, the 10 OPEC nations subject to quota compliance is running about 50% relative to the 1.7 mm bopd cuts announced between November 2006 and February 2007. Meanwhile, total OPEC nation production is up even more with Angola pumping away- happy to join the club but not paying the dues yet.


EIA Says Natural Gas Prices To Rise Releative To Year Ago Levels. More on this in tomorrow's gas post but suffice it to say for now that the EIA bowed down to hurricane mania with its price forecast while sighting higher production, higher LNG imports and lower demand for generation this summer.

Crack Spreads Linger At Record Levels. If the EIA is right about global crude demand the following spreads should represent pretty much peak levels for this year. Of course, I said should.


Once again I've exceeded everyone's patience with a giant post. I'll have to get to crude supply and demand by region tomorrow.
Odds & Ends

Holdings Watch: Waiting on more data. Still pretty comfortable with refining puts (well some of the closer to the money ones) since I'm in May contracts.

Analyst Watch: FBR moves (GI) up to hold and bumps PT by $2 to $79. (GI) is being acquired by (WNR) so this would seem a fairly odd move until you see that the FTC is indeed trying to block the merger on anti-competitiveness grounds. I still have half my puts on (WNR) which should get roasted a bit more today. Meanwhile, BS cuts (WNR) to underperform. Ethanol maker (VSE) cut to reduce at UBS. Stifel initiates on drillers (GSF), (RIG), and (NE) with hold ratings.

Erronius Comment Watch: “While we expect [refinery] utilization rates to improve as we transition out of maintenance season, refined product inventories are at very low levels,” Prudential analyst Jason Gammel said in a research note. “We expect that margins will remain strong into summer, but they may be near a peak in the shorter term,” he added.

Comment: First, I agree with that last part. Second, the word 'Very' means a lot of things to a lot of people. I find it to be a bad (inaccurate) but often convenient word. We usually learn in it kindergarten. At present it does not describe inventory levels in either:

41 Responses to “Wednesday Morning Waiting On Inventories + A WNR Roast”

  1. 1
    zman Says:

    El D – thanks for all your writing on the Brian Hunter Effect! I didn’t see it until after I posted this moring.

    Sounds very plausible and would explain some confouding dichotomies in the market right now. I’m going to do a little more reading on it today.

  2. 2
    Dave Says:

    I wouldn’t worry about long entries….the more explanation given the better. IMO.

  3. 3
    zman Says:

    PQ announces good results in the Woodford Shales and raises production guidance. This is one I’ve had on the “potentials” screen. I’ll be looking at taking May 12.50 calls sometime this morning.

  4. 4
    zman Says:

    Thanks Dave- I was just tired of typing. lol.

  5. 5
    Dave Says:

    Any idea what the surge in NG volume was all about yesterday?

  6. 6
    zman Says:

    Dave – Your tax $ at work. It was the EIA’s STEO (short term energy outlook) calling for higher gas prices this summer relative to last due to, wait for it…concern over “extreme” weather.

  7. 7
    zman Says:

    The STEO actually called for a price of $7.83 and gas quickly rallied to close up over $0.30 to $7.86.

    They also said nat gas would rise due to rising oil prices. Then, as you say in this morings post, they cut global oil demand.

    Now that’s just pathetic. Now we’re closing in on $8 /mcf this morning with the second highest amount of gas in storage for this day of the year on record.

  8. 8
    El Diablo Says:

    Re: Brian Hunter, you have to make one leap of faith: that reporting on the contracts was not exactly precise. The stories say the position was long mar07/short apr07. It wouldn’t make sense to me or explain recent price action if those were the actual contract months–those contracts have expired. What would make sense if it was meant ‘the contract that expires in mar07/apr07’, which would translate to the apr07/may07 contracts. It seems plausible that a reporter would ‘translate’ the months in order to make the issue less confusing.

  9. 9
    zman Says:

    El D – saw that and that’s why I said I’d do more reading.

    That PQ news is pretty big but I’ll probably wait for a green light on any purchase until after inventories.

  10. 10
    zman Says:

    WNR getting roasted.

    Picked up 1st lot of PQ May 12.50 calls

  11. 11
    dave918 Says:

    gas crack for may @ $28.00

  12. 12
    zman Says:

    Well that’ll take everything positive:

    gasoline down another 5.5 mm bls

  13. 13
    zman Says:

    utilization jumped to 88.4% which is really odd, that implies massive demand.

    Sane, have you seen API yet?

  14. 14
    zman Says:

    EIA says that while refining utilization rose, that gasoline production declined and distillate production rose.

  15. 15
    Kevin Says:

    CNBC sure loves the drama. You would think we were at our last drop of gasoline soon. Too funny. Refinery rate is up and that should turn the tide next wek IMO.

  16. 16
    zman Says:

    Kevin – hear ya drama. The only thing they said worht listening to was the dollar talk which I probably don’t spotlight often enough.

  17. 17
    zman Says:

    Addax Petroleum has been quitely rising to reach new all time highs. All systems appear go there and you should get another Iraq (Kurdistan) well test rate soon.


  18. 18
    sane Says:

    The American Petroleum Institute reported a rise of 1.97 million barrels in crude supplies for the week ended April 6. The Energy Department reported an increase of 0.7 million barrels. Motor gasoline supplies fell 3.2 million barrels, API said. The government reported a drop of 5.5 million barrels. Distillate supplies fell 443,000 barrels, API said, while the government reported a rise of 100,000 barrels.

  19. 19
    zman Says:

    Endeavour Petroleum (END)

    You know it’s worth pointing out that with the current $5 premium for Brent and the fact that the copmany’s oil sells for a preium to Brent that these guys are going to have their biggest quarter ever.

    Date hasn’t been set yet for 1Q announcment but I’d bet they beat.

  20. 20
    zman Says:

    Thanks Sane!

    EL D – what was that tonto link for the DOE ‘s version of snafu???

  21. 21
    zman Says:

    Wow – talk about a middling reaction to the numbers.

    I guess people are starting to notice the rise in utilization which didn’t correspond to the gasoline number. The stocks (except for TSO) are mostly red again. XOM falling more than I’d think. If you need a cover stock, there you go.

  22. 22
    sane Says:

    I find it convenient that
    1) Refinery util… up
    2) Operable capacity… up
    3) Distalate capacity… up
    4) Gasoline production… down by almost 200k/day

    Are we going into winter?


  23. 23
    Kevin Says:

    WHy the disparity between the API and the Energy Department? Just wondering?

  24. 24
    Kevin Says:

    That oil number seems odd,..Last week we had a build of 4.3 million and this week only 700K? That doesn’t make sense if Gasoline is showing a heavier drawdown from 5 to 5.5 million barrels. This isn’t the “driving season” yet. Is it?

  25. 25
    zman Says:

    K – EIA is a survey with some stats work
    API is a better survey

    The numbers look odd until you see imports for both gasoline and crude off.

    The mixed signals of higher utilization and lower gaso production is keeping a lid on crude for now. Otherwise, w/o that higher util. # crude would be up $2.

  26. 26
    Kevin Says:

    I see,..thanks Z.

  27. 27
    El Diablo Says:

    I posted the DOE EAD (Energy Assurance Daily) link on the snafu page last night.

    Here it is again:


    Perhaps you could add it permanently somewhere.

    Also, on topic, doesn’t the large number of temporary refinery outages due to power failures strike you as odd? There seems to have been at least a dozen in the past 2 months, all across the US. During peak power loads, I could see some substations/transformers tripping offline, but I’m unaware of ANY group of industrial customers ever being plagued by this many ‘grid’ problems–usually commercial/industrial customers have the most reliable power supplies (vs. residential load).

  28. 28
    zman Says:

    EL D – I’ll put it in the side bar later today.

    I’ve been thinking about addind a table that shows the announced net adds/drops to capacity.

    Yes, strangely I’ve noticed the power drops are a regular occurance for this industry. Maybe a little more than normal of late but they always seem to run high.

  29. 29
    sane Says:

    Funny thing about the power outages is that they seem to only be affecting the gasoline cracking units.


  30. 30
    zman Says:

    Sane – that’s about as funny as hearing Epperson on CNBC say there was cheering in the pits at the large gas draw this morning.

    The she said it was shocking gasoline stocks had fallen this fast. How can you mention refinery snafu after snafu and be shocked about the drawdown.

  31. 31
    sane Says:

    When I worked at ( Formerly Bethlehem Steel ) we would have power outages all of the time. ( I know oil / steel are different, but just a large plant comparison ). And they were usually caused by the electrical engineer not calling the power plant to tell them we were going to be starting, or peak loading on one of the systems. Also when something would be upgraded to handle higher volumes / loads they would say “well the electrical system is rated at 300 amps and the piece of machinery is runs at about 280, so that should be enough.”
    Then one in a while the thing would draw about 320 amps on a peak and fry the electrical system. To them it was cheaper to just patch the system and deal with the occasional peak draw, rather than upgrade the electrical system.


  32. 32
    sane Says:

    I would like to pour some gasoline into the pits and light………. move along nothing to see here. 😛

    Yeah they NYMEX pit was cheering while the retailers and transports were sweating and moaning.


  33. 33
    zman Says:

    Old news from April 2 but I just saw it.

    Sudan to increase production from 375,000 bopd in 2006 to 600,000 bopd 2007.

  34. 34
    zman Says:

    Sane – I find it interesting that they can make money long or short but they’re happy to see it go up, not caring about the fact that $3 gas acts like a DaisyCutter on the economy which in turn will depress oil prices.

    And around and around we go!

  35. 35
    zman Says:

    So far I’ve got utilzation falling 1% next week with recently announced units dropping out of service for a week or so.

    EL D – I really think with a way to tally this stuff better. The % util number is just as important as the gaso one at this point.

    Check out TSO … flying.

  36. 36
    sane Says:

    I ran across something funny looking up some NYMEX stuff

    Nymex Pit


  37. 37
    El Diablo Says:

    OMG! the economy may be slowing!

    Good to see the Fed has its finger on the pulse…

  38. 38
    sane Says:

    Yeah I feel that pulse is about ready to flat-line.


  39. 39
    sane Says:

    Funny fed. The economy is slowing, inflation is growing, come on say it, SAY IT, sta… st…. st… stag… stagflation

  40. 40
    ilikestuff Says:

    Thx for the article, very informative.

    The EIA is part of the government, therefore it is forced to be a fantastic optimist about remaining oil supplies as opposed to a realist. Similarly, CERA is sponsored by big oil, so it also is forced to be a fantastic optimist.

    “Estimates” from neither can be trusted.

    It’s obvious from any objective viewpoint that we cannot grow our oil supplies indefinitely, and that peak oil (if you’re not familiar with the term, I suggest you look it up) will hit soon if it hasn’t hit already.

  41. 41
    ilikestuff Says:

    Sorry – posted on the wrong day, should have been with the T Boone interview.

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