Wednesday Morning – Oil Inventory Day

Posted on by zman

Oil Invetory Report Expectations:

  • Crude - down 1.2 million barrels. Bloomberg reports that not only do we have a glut of oil at Cushing but now we have one at the LOOP (Louisiana Offshore Oil Port) in the Gulf of Mexico. Storage facilities there are running close to full and scheduled deliveries may be delayed.
  • Gasoline - UP 200,000 barrels.
    • Utilization - I'm looking for a smallish rise to ~ 91%.
    • Demand probably dipped slightly- The small decline in demand reported last week does not a trend make. With the Nor'easter squarely in last week's demand picture I expect another small decline in gasoline demand in today's report. I'd guess it would be heavily discounted given the scale of the storm. image-of-noreaster-april-16th-2007.JPG(April 16th NASA snapshot of the perfect Nor'easter),
    • Imports - need to stay above 1 mm bpd to provide real relief to the tightness.
  • Distillate - up 400,000 barrels.

New Production In Nigeria Has Offset Shut-In Production of 587,000 bopd. According to the EIA, production from new fields in Nigeria has offset production shut-in by civil strife in the country. EIA went on to say that should shut in production return (which is Shell's plan by the end of 2007) Nigerian production would reach 3 million bopd.

Nigerian Oil Production Looking Up?! Shell production started falling in September 2004. From what you read in the papers and see on TV, you'd think the country's oil production would be another down and to the right chart.

 nigerian-production.JPG

Odds & Ends

Earnings Watch:

  • (BHI) beats Street after guiding estimates lower over the two months. Baker sees strong international growth (20%ish) and single digit growth in the U.S. if drilling activity remains flat with 1Q levels.
  • (COP) reported $2.12 but after backing out a $0.29 gain from asset sales the $1.83 falls short of consenses of $1.86 and down from $2.34 a year ago. The drop was due to a combination of lower oil and gas prices and higher taxes and operating costs.  R&M improved with US outperforming international operations. Outlook: pretty vague. They that the mention the JV with (ECA) is progressing well and that total  E&P volumes will be down seasonally in the second quarter.
  • (ECA) - hit by hedge loss
  • (HES) - EPS falls 47% on the back of lower commodity to $1.17 (in line with expectations).  HES' worldwide average oil price fell $2.56 to $50.74 a barrel. Its average natural gas realization fells > 25 percent to $5 / Mcf. Production continued to rise however and earnings from the R&M segment nearly doubled. More on these guys later.
  • (SII) reports after the close and should post another strong quarter. I'll be interested to see their take on U.S. drilling activity going forward.

Holdings Watch: Added to my (HK) June call position on crude slump inspired dip yesterday.

Broken Record Watch: With violence in Nigeria and workers threatening a strike in Belgium, there is fear "that the goal to get gasoline supply where it needs to be before the summer driving season is looking less and less likely," Phil Flynn of brokerage Alaron Trading Corp. wrote in a Tuesday morning note. Comment: Less hype, more numbers.

Snafu Vs Pseudo Snafu. Headline from the EIA's April 20th issue of the Energy Assurance Daily. ~ Traders Report Production Cut at Shell's 156,000 b/d Martinez Refinery Due to Pipeline Shutdown. On April 19, Shell indicated that the shutdown of the ruptured 20 inch line had no impact on refinery operations. However, on April 20, traders in the area were cited by Reuteres as saying that an increase in gasoline prices in the area was the result of a cut in production at the refinery stemming from the pipeline problem. Comment: Busted.

Analyst Watch: (WLL) and (SM) upped to hold and buy respectively at Sun Trust. (CLB) got a small price target boost.
Alaron Watch Day #6 - Oil backed $1.30 yesterday to close at $64.58. The U.S. average gasoline price remains under $3. Four days left Flynn.

98 thoughts on “Wednesday Morning – Oil Inventory Day”

  3. Goodmorning T-Tupp! It’s been really slow around here the last week or so.

    It’s either: 1) the summer doldrums have set in early or 2) my brilliant idea to short the refining sector has chased everyone off. I’m still short there althugh I lightened up on the WNR awhile back.

    All of the performance figures for positions of interest (stuff I write about but haven’t bought yet), my options positions and the stocks I buy are updated on the ZEB Performance page for all to see. I started reporting performance back in March and will not backdate it b/c it’s a pain. I will maintain it so anyone who cares can see moves in the portfolio.

  4. TK and RAIL continue to rally.

    TSO up $2 is pretty ballsy. I’m not taking the bet as a draw in gasoline will rocket the group and it’s a coin toss today.

  5. nfx looks great. dont they report today?? what was the catalyst you weretalkign about with that name again? im thining of initiating a call position there.

    also waiting for the gas #’s impatiently… i have a 250 contract VLO, Jun 70’s (1/4 of my total position) im probally going to initiate today.

    a nother q i had for you is that i dont see any data on mymex or barchart.com on ROB gas before like 6 months ago, is this a new contract? is there a way to construct a 12-month strip of that contract? and while im on that topic, how are the 12 month crude and NG strips constructed? are the 12 months equally weighted? is this a better profitability benchmark for well hedged co’s than less hedged firms?

  6. Even with those put, I am still here and glad to see that your good spirit still intact.

  7. the performance tab looks great! you should find a way that updates it realtime, when i was on baystreet i used starquote linked to excell, all automatically transposed. just tryin to make your life easier– unless you have already devised a plan.

    is there the web whre i can learn about the shipping sector and the other stocks you currently have positions in? it loks interesting. is there any reports here i shoud read to be better aquaied with these guys? i thought i would be furfuiiled with the 3 subsectors i trde now: Integratedes (major & mini-major); larger E&P’s (hedged, unhedged; high-cost, low -cost); and refiners (most major ones).

  8. NFX – tomorrow before the open. Imporved results from recent Woodford shale drilling, better recoveries, some more word on rates, etc.

    If you do I’d scale and go with NTM, June calls.

    Wow – Size refiner short!

    On RBOB, pretty new I think EIA data goes back into 2005 on it. You could build one in excel or if you’ve got bloomberg you could just pull it up.

    As to the strips, they’re an equal weight of the next 12 mos contracts.

    profitability benchmark: yes but further out … one of the reasons I’m reluctant to short the gassy E&Ps is the steep contango and general loftiness of the 12 and 24 month strips.

    These guys have ample opportunity to hedge at very nice prices. It would be intersting to match the strip curves against the rise in service costs (LOE/mcfe) going back in time. As the two converge, which I’m sure they are profitability gets squeezed.

  9. Thanks Lou! I’ve been kicked and I’ve been beat around a bit but that’s no reason to have bad day!

  10. Z– ditch the TSO 90’s for sure (i would even dump the 95’s myself) while you an get a lil TV!! im so nosy eh? lol

  11. what do you mean scale? and are you saying go to the NTM vs. the nfx’s?

    what did ou mean size refiner short?

  13. scale = dollar cost average, don’t jump in all at once.

    and 250 contracts on VLO = SIZE

  16. the money i run requires me to take positions that size (1,000+ contracts), incementally of course, the last one thru the last 60 days was up to 2500 at one time

  21. really didn’t see that dip coming … that should drive the refiners higher for days.

    plan to dump lower strike TSO puts here before they go with the typical 15 minute delay then launch action see of the last several months on these kinds of surprises

  23. Those numbers are lousy,.at least for the bears looking for a build in gas and ref rates up,…hmmm. We’re gonna be in the driving season before we know it and the refiners are going to make sure we don’t build up any supplies for it. They learn well don’t they.

  26. Lousy indeed. I do a back of the envelope on utilization and it wasn’t something in the announced neighborhood. Oh well, if you can’t beat em, run with em for a bit.

    Tupp, you on the put side with VLO?

  27. only bright spot I see (for bears) in that report is another uptick in imports to 1.2 mm bpd. That’s not a big brightspot.

    Demand still running strong on the 4wk avg.

  30. Ok – mea culpa. I’m in the process of dumping those way OTM puts on TSO now. Probably hold the $105s and $110s a little longer.

  31. might add if we see a big retracement this afternoon, or tomorrow am. some poor market maker is gona be buying me a new boat before the ent of this hahahhaha

  33. Guess we wait for the next inventory report,..LOL. I tell ya,..it sure doesn’t look very good for gas prices this year. $4.00 may be right,..but not yet.

  34. Z- watch for the intraday IV down pumping, and bid/ ask spread delay to chase away opt. day traders of front month contracts.

  36. Z- what do you think the efect of tomorrows earnings call will have on VLO? lately stocks have added to themselves than when even the blockbuster earnings came in they fell off… those examples are from different sectors, but i wonder. although their (refiners) margins have had continued support i think the case may be different, esp. with the advent of the cracks nation wide catching up to West coast margins (good for VLO), ect.

  37. The American Petroleum Institute reported a climb of 5.5 million barrels in crude supplies for the week ended April 20. The Energy Department had reported an increase of 2.1 million barrels. Motor gasoline supplies were down 82,000 barrels, the API said. The government reported a drop of 2.8 million barrels. Distillate supplies were down 1.8 million barrels, the API said, though the government said supplies were unchanged for the week.

  38. There’s obviously something wrong with either my math or understanding of the numbers. Gas production was 8.5Mbpd and gas imports were 1.2Mbpd, including both gas and blending components. Let’s assume that it was 60% gas and %40% blending components (I’m making this up so maybe this is where I’m going wrong) so the gas import would be 0.7 Mbpd. So on the plus side, we should have been adding something like 9.2Mbpd to inventory. On the draw side, gas demand was 9.3Mbpd. So it looks to me like the draw should have been something on the order of 0.1Mbpd. I don’t know if these numbers use a 5-day or 7-day week, but either way, it doesn’t add up anything close to a 2.8M draw.

  39. Tupp – I agree completge. You’ll notice I wasn’t short VLO during this refining put slaughter.

    On earnings I’ve been thinking the same thing. “Buy the obviously great promised news, sell the actual report.” Becasue how much better can it get. Here (the refining sector) it might be different, especially VLO which hasn’t had the cracks to support a run like TSO’s (until recently).

    VLO outsizes TSO in capacity maybe 5 to 1 so as Gulf Coast margins jump, VLO’s scale will put 2Q earnings through roof.

  40. Yeah Lawdymama,..Those numbers don’t add up. I’m completely convinced that the Energy Department,..err,..Federal Government is invested heavily in the market and can manipulate “the numbers” any way they choose. How far fetched is it really,..who’s watching the watchdogs,..you know? Noone knew we were funding the Billion dollar Manhattan project in the 1940’s. Have they revised that number down since then,..LOL.

  42. Even crazier, TDW, does tug boats, up 4.5% on heavy volume, YTD up 35%. Didn’t know there was so much money in tug boats.

  43. Lawdy – they explained that to me once, a long time ago, and no they don’t add up. Last week we would have had a build. Also, they use exports, which they don’t provide for you or collect (they estimate them weekly)

    I just got off the phone with EIA and will have the latest explanation in a few minutes from their gasoline expert.

  47. SPR??!!! No thanks.

    I saw the SPR imports line and assumed since it was zero there was no add. Plus, last week I read they rejected bids from the oil companies b/c they were too high.

    WTF are we doing refilling the SPR at these prices? With gasoline supplies low?

  48. Yeah funny thing is last week showed no filling the SPR, but this week all of a sudden shows they have been filling for 3 weeks now.

    Sane

  49. Ok here’s the math for Lawdy straight from the EIA.

    Demand
    =
    Production
    +
    FINISHED Imports (this runs less than half of total gaso imports to avoid 2x counting the blending component)
    –
    Exports (estimated but small – they use the latest monthly data and trend it)
    –
    Change in stocks

    So good luck if you want to back into the equation. I’ll put a matrix in tomorrow’s post for kicks

  54. Z,..yours are very helpful thanks. I suppose that should’ve been the first place for me to look,..LOL.

  56. T-Tupp some, not all kept the $100 to $110 series b/c I’m pretty stupid.

    Check out the STKL – I mentioned it April 5th as a good choice in the ethanol plays. someone over at PSW just point it out as breaking out today.

  59. TSO is simply a run-away train today…up almost 7%. Good to see everyone is heeding the downgrades.

  60. I agree with Exxon. The SEC’s reporting requirements for reserves are antiquated. So is the accounting for reserves.

    Just one example: you have to write down reserves if they fall below an economic threshold based on commodity prices at year end. It’s called a ceiling test writedown. In subsequent days, months or years, even if the price rises and the reserves are now economic, you don’t get to write them back up. That’s just stupid.

    Exxon is just trying to present their best (fair assessment) picture of reserves. Maybe they should just keep it out of the K to keep the SEC off them. Everybody is adding 2P and 3P reserves to their presentations these days…it’s like we’re in Canada or something.

  67. K – glty sir

    Thinking about punching out of the VLO calls already. I’m not that greedy and it’s up 25% today.

    When in doubt, sell half.

  68. Yeah,..although VLO is getting ready to break 52 week high at 70.75. Whoops she just did,…

  69. Is it just the weekly draw that’s driving the screaming increase in RBOB price or did I miss something? Maybe it was Z going long on VLO….

  74. thank K – I like it better than the 1.70 to 4.70 on my TK – timewise, it was a much better return although so’s blackjack if the cards hit right for you.

  76. my perf is gross of commish just so you know. too much of headache to list and it’s more there for purposes of letting you know where I stand at the end of the day.

  77. with that said I still like TK and the other tankers.

    Bill F – you out there? any thoughts re tankers right now. last I saw Opec production rose another 600,000 bopd in March (as of April 19th report from a tanker tracking co)

  79. I’m also long END, it has been very low volume of late, it has been dead money since FY results and will be until results come out and show the company is making a profit.

    I also think people have been selling to participate in all the madness that has been going on today, but intrinsically the company is worth much more than $2.

    Just my opinion.

  80. doubled my VLO calls. i have a feeling all the dumb money is gona ge pouring into the stock the next 10 or so trading days.

    i think we could see a 5% day tomorrow, but im using the assumption that about a quarter of that will come from the open….

  81. Tupp – I agree …just when you think there couldn’t be any more funny money in the group, funny money’s nieces and nephews show up to the party.

  82. hahhahah.

    when i worked at UBS the foreign cleaning lady in the washroom asked me about buying some stock when she was cleaning…. what can we call that money???

  83. i think we should be getting some of the GS cleaning staff’s funny money from that upgrade… same PT as BMO CM i might add, but like 3 or four weeks later than theirs

  85. I’d guess the Bear Stearns guy is taking some flak these days.

    Along with all the guys who gowngraded TSO in the past 3 weeks.

  87. I thought about playing cleanup crew myself but they check to see if you have a form u4 on file before highing since bud fox. ;->

  90. Oh, I see. I just don’t submit it everyday. You should be able to if you want to though.

    I just submitted today’s post. Please vote, vote now , vote often . lol.

    Some of the pages aren’t “diggable”. Was it the main page or some other page?

  93. EEE – aka KFX CEO Mark Sexton resigns

    CFO Kevin Collins takes the reigns.

    Both of these guys were excellent at the real Evergreen Resources.

    Mark was the visionary who take EVG from nothing to the first major CBM pureplay and finally sold it for a pretty penny.

    In my mind this is a major blow to KFX (EEE), no offense meant to Kevin who is an excellent numbers guy.

  97. Stephen – They were in line after you back the charges. $0.92 vs $0.92.

    Production was near the high end of guidance at 64.7 Bcf vs the range of 59.3 to 65.9

  98. 2q guidance is up and full year is yoy of 7 to 11% growth (organic) which is none too shabby.

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