4/27/07 Wrap – Big Week For Commodities, Stocks

The week in a nutshell:

Comments:

• Gasoline - Refinery utilization FELL and more outages were announced sparking a massive run in gasoline prices, the refinery stocks, and energy stocks in general. Tesoro added to it's quest to double in under four months doing a very good impression of a Chinese dot com.  (VLO) beat by a nickle but it was the buyback that wowed the crowds. The ZEB barrel weighted index is at a new high for the year, up 41%, having shot the moon last week.

• Note to congress: If you want to see gasoline prices fall (long term and not just a quick and unachievable fix), how about easing up on these guys from a regulatory standpoint? They add capacity all the time through upgrades and green field construction is unlikely and would be inefficient anyway. Less talk of windfall profits tax (Hillary) and more talk about demanding more efficiency from car makers.  How about less concern over expanding the SPR (Bush/Bodman) and more for expanding existing facilities? How about working with the oil companies to find a solution instead of taking an adversarial approach. Senator Clinton do you have any idea what the impact of, in your words "taking those profits" would be? You think gasoline prices are high now, curtail investment

• Inflation Watch:  (It's Food So No One Cares). And while you're at it get on with helping those in the cellulosic ehtanol field. Corn demanded for ethanol is already blindsiding with across the board increases in food prices. Of course, if you exclude food and energy from CPI I guess it doesn't matter to the average Joe who drives a car and eats at McDonalds. Speaking of (MCD), aren't they at a record high right now. Beef and chicken prices are expected to jump from 10 to 20% this year with a similar gain next year based on the increase in feed prices. Not only corn but also feeds like Alfalfa are on the rise. So does Ronald McDonald suck it up or pass it on?

• (NFX) gave us exactly what we wanted on Woodford reserves but some were disappointed over elevated operating costs. I think that lacks vision as LOE will lever down after hurricane related expenses are over and longer term should moderate as longer reserves life (lower operating cost) reserves turn into a greater and greater percentage of production.

• Rigs drilling for natural gas declined by 13. The gas rig count has bounced off the 1,473 level a number of times now.  Probably a strong sign for rates and gas prices.

• Speaking of natural gas, an 18 Bcf injection was met with a ho-hum response. Gas was pretty volatile this past week but contained within the upper $7s for the most part and ended on a strong note as May contracts expired and June took over. Friday's rally had more to do with a foiled terrorist plot in Saudi Arabia than anything on this side of the pond but that happens sometimes. My expectation of sub $7 gas this Spring (late Spring now) is really ebbing at this point. I still think we may see a dip before the first swirling cloud is spotted over the Atlantic but that concern along with the elevated rig count which isn't really boosting production outside of a few key states will likely to keep gas prices at a healthy $7+ for the time being.

• Finally, the CFTC indicated natural gas traders increased their short bet on natural gas prices. The large short position probably explains the increased volatility as these guys are a nervous bunch. Yes, we have the third most gas in storage for this time of year but the weather has been cold enough to increase the YoY storage deficit of late.