Tuesday Morning And All Is Bullish

Ok, so it really wasn't much of a blue monday for the refining group despite a couple of downgrades for group leaders (VLO) (in terms of capacity) and (TSO) (in terms of recent stock performance). Gasoline and crack spreads in fact had a much worse day. For once I agree with the talking heads...this is just profit taking. We need data and the passage of a little more time before a reversal can take place. A brokerage firm or two downgrading the sector simply won't get you there.

Speaking of brokers, the refinery ratings count now stands at:


The Street is still pretty bullish.
Refinery Stock Frenzy Has Outpaced Margin Expansion, Take TSO For Example.


Natural Gas Sentiment Watch: Increasingly less bearish on natural gas /more bullish on a select group of natural gas players: (CRZO), (NFX), (SWN), (KWK), (CHK), (DVN) and (APC). Doing homework and waiting for small retrenchment (5% range) in the group before going long, except for Newfield which I hold for near term catalysts as well as long term reasons.

  • While I expect a little late Spring seasonal weakness in gas prices as the weather warms up over the next month I think the downside is limited to say $6.50 or $6 at worst. Much below that and the curtailment press releases come out.
  • Also, there's that giant and probably increasingly nervous NYMEX natural gas short position out there that will cover on profit taking or any cloud formation that even looks like it might start rotating over  the Atlantic.
  • Yes we have the second most natural gas in storage for this time of year and that should help to mute gains in gas later this summer barring hurricanes in the Gulf.
  • However, supply growth is hard to come by outside of Texas and Wyoming. Oklahoma holds promise but it's early there. The Gulf still looks like a trainwreck despite a post Katrina / Rita recovery as several large gas projects get repeatedly delayed.
  • Imports are likely to be lower with gains in LNG offset by reduced shipments from Canada and increased exports to Mexico.
  • The 12 and 24 month strips have provided the E&Ps with plenty of opportunity to hedge and this combined with strong production growth and decelerating operating cost growth means they should be minting money all year long.

Oil: Off a whopping 2 cents yesterday. Despite:

  • Opec cuts demand forecast.  First the EIA, then the IEA, now Opec. Down 40,000 bopd to 85.44 mm bopd for 2007. As always, the swell folks at OPEC say they stand at the ready to increase supply if need be.
  • 1/2 Restart at McKee which started a profit taking $0.064 slide in gasoline. Comment: true that will consume more oil but we're at the upper end of the range on crude storage.
  • Exxon reopens Torrence, Ca. refinery.
  • Shell Nigeria: plans to "resume producing oil from its 380,000 bpd Forcados field in Nigeria, which has been shut since militants bombed its tanker loading platform in February 2006. Shell told us that Forcados would be back up and running by the end of May or the beginning of June," a West Africa crude trader said.~ Reuters. Comment: It may take a little while but this outweights everything else and should weigh on crude prices longer term. For now, the news is lost in the maelstrom.

Crude Advancing Modestly This Morning. May crude is up $0.55 to $64.16 on a leak in an Enbridge pipeline that carries crude from Alberta to the Midwest. No word on how long this will take to fix but already those available for late night quotes to Bloomberg and Reuters are calling for oil to increase to as high as $67.50 in the near term.

Early Read On Crude Inventories (from the Bloomberg survey):

  • Crude: up 850,000 barrels. 
  • Gasoline:down 1.4 million barrels. After two in a row at the 5 million plus mark and with rising refinery capacity I think a smaller draw, on the order of the survey, is in order. Some are calling for a bigger pull (another 5 million) but I just don't think so.l Utilization probably grew to 88.8% according to Bloomberg. Yesterday I said it would creep up to ~ 89%, then 90%ish next week.

Fimat Watch. Even Fimat, Bull of Bulls said, ``You need to see new headlines to extend gains at this level,'' Michael Fitzpatrick, vice president for energy risk management at Fimat USA in New York, said yesterday. ``Gasoline had been leading us higher because it seemed there were refinery glitches every day. Now, it looks like we will be seeing more refineries coming on line and increasing gasoline output.''

Odds & EndsAnalyst Watch: (CPE) to buy at AG Edwards and (SNP) from buy to sell at Citi. CIBC raised price tagets for (CNQ) and (TLM) which has been the subject of takeout rumors for quite some time now.

Earnings Watch: (MMR)  - Strong drilling results combined with flat to down 2Q production guidance make this worth watching but I'm not playing for now.

Next Big Thing Watch: Carbon Capture and Storage (CSS). Shell will build a 900 megawatt near zero emission coal fired plant. Using integrated coal gasification technology the facility will capture the CO2 normally emitted by a coal fired plant and then inject it into a fallow North Sea oil field. If it works this could prove to be a boon for the coal industry and potentiall a bad thing for companies like (HW) and (EEE).

14 Responses to “Tuesday Morning And All Is Bullish”

  1. 1
    Calmodern Says:

    In regard to IGCC being a longer-term negative for Evergreen (EEE), the company maintains that the K-Fuel process will make low-rank lignite and sub-bituminous feedstocks suitable for use in IGCC. The near-term opportunity is the approximately 600 million tons of unscrubbed coal burning per year in the US, much of it coming from boilers (industrial and utility) where the installation of scrubbers is economically impractical.

  2. 2
    zman Says:

    Cal – Sure it would work in the process but why would you want to pay up for it unless you’re worried about mercury?

    As to the real opportunity being the 600 mm tons I agree. They should focus on that. Produce k-fuel around the clock. Maybe I’m being a little impatient with them but their seems to be a lot of ongoing study and few contracts signed. Instead of producing and selling the product they seem to be moving towards selling the tech to produce the product and even moving into carbon credit trading?

    I’d rather see the plant up and running continuously than another test burn. It works. What’s the need for further testing of a blend with yet another coal?
    Take care of the knitting and then move on to the other opportunities. I’d bet yet another equity offering is needed before they can do anything else.

  3. 3
    zman Says:

    Don’t get me wrong. I really like new management here. I’d just like to see more focus on the core product: produce and sell the kfuel. Then do all the other fun stuff. Sell carbon credits to Cameron Diaz for all I care but continuously produce the kfuel.

  4. 4
    zman Says:

    TSO divergence from cracks starting? Test of $109 is pretty important. If this thing can make the transition from buy the dips to protect the profits we could see a pretty sharp drop. I think it’s at the cross roads now.

  5. 5
    Kevin Says:

    Looks like refinery stocks are pricing in a smaller drawdown in gasoline tomorrow. I will wait to see what the report has to offer before initiating a position one way or the other. Either way oil/gasoline is bullish the closer we get to the “driving season” and I would only be short/holding puts for a couple weeks from today. GL

  6. 6
    Neil Says:

    I think zman thinks gasoline has had its run and will peak earlier than usual this year.

  7. 7
    Kevin Says:

    What impact will this have,..


    Virgin Islands: Important Oil Refinery Shutdown for Maintenance
    Crews have erected scaffolding at the Hovensa refinery in the U.S. Virgin Islands to prepare for a scheduled round of maintenance and inspection that will require the shutdown of several processing units at the Western Hemisphere’s second-largest oil refinery.

    The cleaning, inspection and repairs will take place from May 7 to June 10 and will require the hiring of about 1,800 temporary workers, said refinery spokesman Alex Moorhead.

    Hovensa will not specify how many units will be closed and will not disclose whether the project will have any effects on production, Moorhead said. Hovensa typically does not release such information to avoid disrupting the market.

    The refinery, on the island of St. Croix, is a joint venture between a subsidiary of Hess Corporation and a subsidiary of Petroleos de Venezuela, S.A., the Venezuelan state-owned oil company.

  8. 8
    Kevin Says:

    “Western Hemisphere’s second-largest oil refinery.”

    VLO must have the largest in Corpus Cristi at 340K barrels a day so I suppose this refinery may put out 300K a day,…just a guess.

  9. 9
    zman testy Says:

    It might contribute to local tightness but not have na impact on the mainland.

    Just FWIW, Exxon’s Baytown is the biggest at 562,500 bpd.

  10. 10
    zman Says:

    Sure is quiet over here. I got bored and started a nice rant on Philstockworld.com about Alaron’s $10 in two weeks on crude and $4 gasoline comments on CNBC.

    Did everybody see the post ok today? I know we had some technical problems with yesterday’s post.

  11. 11
    sane Says:

    Yeah saw the post ok today.

    Flynn was on the front page of marketwatch yesterday rattling about the $10 dollar jump and $4 gasoline. He looked excited.


  12. 12
    zman Says:

    Did you catch his logic. That normally WTI trades at a $5 premium to Brent but now its at a $5 discount. So as refiners come out of maintenance demand for crude will turn the tables around and right the ship to the historic average?! In two weeks. Sure.

    I’m starting a 10 (2 trading week count down) on his prediction with tomorrow’s post. Also that differential of $5 to WTI is high, hasn’t been that way for a while, and the swing in 2 weeks , please. What if Brent falls back? Way overly simplistic and he knows it.

    If it happens he gets more business b/c people will think he’s some kind of guru/oil genius. If it doesn’t happen, CNBC won’t mention it again or at most give him a rib over it.

  13. 13
    sane Says:

    It Seemed like bad logic to me, so I just ignored it.
    To say that it is too easy.

    He is just trying to be the next T Boone.


  14. 14
    zman Says:

    TK takes out OMM. 8-0

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