Oil: Rebounded on the confirmation of news that MEND had indeed bombed three pipelines in Nigeria and promised in an email sent to Reuters that they will continue to explosively express their disgust with both outgoing president Obasanjo and president elect Yar'Adua . Some things never change. Between the pipelines shutting down the Brass export terminal and the shuttering of a (CVX) operated flowstation the prior day, Nigeria is suddenly producing nearly 200,000 bopd less than last week.
Message From Qatar: It's The Refiners Stupid. Short term discombobulations aside here's a Gulf Times story in which the oil minister of Qatar says the oil markets are oversupplied and that customers don't need an increase in OPEC production since there is no spare capacity to refine it.
Oil Inventory Report Estimates (from the Platts Survey):
- Oil: up 500,000 barrels. I've seen estimates ranging as high as a build of 2.2 million barrels.
- Gasoline: up 200,000 barrels. Here's why this number is of no particular use: On the high side you've got John Kilduff at Man Financial looking for a whopping 900,000 barrel increase (and I might add, a 2+ mm barrel increase in crude). On the low side, the smart fellas at Wachovia are looking for another drop in gasoline stocks, this time by 500,000 barrels. The other 10 to 12 usual suspects are somewhere in between so this isn't a close race but a midpoint average. I'd guess the over/under number in determining the direction of RBOB is an increase of 400,000 barrels. Anything less and we rally a bit and visa versa.
- The press will tell you that gasoline stocks have fallen for twelve weeks in a row. I'd tell you that's the norm and not the aberrent failure of our aging refining sector nor the realization of some match stick conspiracy theory.
Natural Gas: Thursday's gas inventory INJECTION could top 100 Bcf.
- HDD - fell to 39 from 49 in the prior week when an injection of 87 Bcf of was reported.
- CDD - registered a slightly warmer than normal 17 but it really shouldn't have much of an effect just yet. In general I've found that owners of the newer more well insulated homes with more energy efficient heating and cooling units are the early adopters of AC in the Spring. The rest of the U.S. will sweat a little and hold out as long as possible before flipping that switch.
- In the year ago period 85 Bcf was injected so we might eat into the YoY storage deficit but not meaningfully so.
- The over/under for gas prices is likely to be 100 Bcf.
Odds & Ends:
Holdings Watch - Changes in positions:Calls:
- (CRK) - Added the June 30s for $1.05. Great numbers but even better conference call.
- (NE) - Took a double helping of the June $90s since the group was down again and by all metrics business is booming. That and I've been underexposed to service of late with only my May $32.50 (HAL) calls in place.
- (RAIL) - Dumped the second half of my position for an 85% loss after selling the first half for a 130% gain almost a month ago. I'll very like add a June or July call position here as I think its run is far from done.
Puts: No changes
Stocks: Took a toehold position in (BPG), the little Illinois Basin CBM minnow, at $0.81 after watching it fall 36% over the last two days on the announcement that it wasn't completely satisfied with one of it's pilot programs. Not for the faint of heart.
Analyst Watch: FBR cuts (BRNC) to underperform, UBS cuts (NHY) to neutral.
END annouced 1Q07:
production was 10,100 boepd, well over the 2007 guidance of 8,800-9,200 boepd
their Balgownie prospect spuds this week, that’s a little earlier than I thought. This has company maker potential but never bet on exploration with $ you care about.
Acer was a dryhole, this is the one they just swapped an interest for. ouch.
CHK looks like there was a below market block sale this morning.
probably one buyer and a group of sellers. This could walk up from here.
END, I reduced my exposure. They beat on production, but disappointed on revenue.
In your earlier piece, you mentioned $130M EBITDA for 2007, 2008, 2009. I’m not sure whether you might change that.
It seems it all rides on the Balgownie now, if it comes up at 10,000 boepd and they have a 45% stake, you might see a real boost.
One other question, I have is their margins before interst are 17.5% and their margins after interest are 6.5%, it seems they are going to have trouble keeping their costs down. They also mentioned using a semi-sub in the 3Q, which might be rather expensive.
Also depreciation, depletion, and amortisation is a major cost is that the depreciation in their reserves?
I also had a look at costless collars and I can see where you’re coming from on the accounting front.
Picked up some GBX yesterday. T Boone Pickens owns it. Bear story – Big short postion, Earnings not good, lots of debt, etc. Bull – Bad earnings behind it, more orders coming, broke to the upside on it’s charts. It’s a short term trade.
Re END
I’ll put out a late afternoon update on this and MCF.
EBITDA: I’m at about $120mm this year and next and then growing to nearly $160 in 2009. Revenues were obviously a disappoint here, possibly gas prices but it’s hard to determine from their PR.
It’s true, a lot of weight is on Balgownies shoulders.
On the semi sub they’ll only be carrying a portion of the cap costs.
DD&A, yeah it’s just an accounting thing, again non cash.
Simplest thing to do is take net income, add back the deferred taxes, DD&A, and any non cash charges to get to cash flow. On that basis they’re doing very well
Thanks Sambone. I’m short his biggest position, SU, to my great discomfort. GLTY.
I assume SU is up strongly today on Total’s announcement of plans to build a refinerey in Canada to handle oilsands production. I figured the exuberance would wear off, so I sold the call leg of my straddle and switched those dollars to additional puts. So far, it’s not working.
AM.
crude up 5.6 mm bls
gasoline up 0.4 mm barrels.
What do you guys think,..GAS up 400K and refineries back up to 89% up .7% is that enough to take off the top on these refiners?
K – maybe but crude may get worse out of this big build and than gasoline. then cracks go up. However, I think we’ve put the top for the year in on RBOB. The futures as is typical this time of year are backwardated, everyone is starting to think we won’t run out etc. but does it turn the refiners down…your guess is as good as mine.
Got very small May TSO 115 puts at $2.10 while I was typing.
Gas is up, TSO is up; Gas is down, TSO is up…
The American Petroleum Institute reported a climb of 971,000 barrels in crude supplies for the week ended May 4. The group also downwardly revised the previous week’s total to 343.8 million from 344.8. The Energy Department had reported an increase of 5.6 million barrels for the latest week. Motor gasoline supplies were up 937,000 barrels, the API said. The government reported a rise of 400,000 barrels. Distillate supplies were down 626,000 barrels, the API said, though the government said supplies were up 1.7 million barrels for the week.
Sane, you’re making my head spin. đŸ™‚
Lawdy – pretty frustrating no? At present, cracks are up today (oil down, gaso flat).
Did you see the piece on EGY? I didn’t get too indepth but I think it’s a winner long term.
back long TK. June $65 calls at $1.40
Profiteering at the Pump
The Great Oil Robbery
By DAVE LINDORFF
from counterpunch.org 5/8/7
In case you’re wondering why crude oil prices are down from last year, hanging around at about $60 a barrel, while gasoline prices have soared past $3.10/gallon nationwide, just check out the latest profit reports from the oil companies. They are at record levels.
The answer for this seeming contradiction is simple: Americans are being robbed blind by the oil industry.
Sure, the oil companies, and their PR and lobbying agency, the American Petroleum Institute, will give you all kinds of reasons for higher gasoline prices at a time of falling crude prices: problems at two refineries in Texas and Oklahoma, rising demand or whatever. But the real answer is that there is simply no competitive market in this industry.
As Tim Hamilton, a researcher and petroleum industry consultant with the Foundation for Taxpayer and Consumer Rights, observes, the oil companies all store their crude oil and refined gasoline in the same tanks, and all know exactly how much inventory each other company has, so they don’t have to meet and collude on pricing in order to reap the huge rewards of deliberate supply constraints.
Says Hamilton, “Years ago, you had companies that would try to guess when the other companies were going to have supply shortfalls of gasoline in the summer. They’d ramp up their own gasoline refining and then supply the market at a lower price and eat their competitors’ lunches, the same way General Motors would do if Ford had a problem on its assembly line. But today, no oil company would do that. They all benefit by keeping the supplies tight.”
Hamilton says that the oil industry has in practice conspired to limit refining capacity, so that companies can keep pushing up the price of gas artificially-only they’ve done this without ever having to meet in secret and cut a deal, because they all have complete competitive information on each others’ inventories, internal pricing, and refinery capacity.
“There’s no correlation any longer between crude oil prices and gasoline prices,” he insists. “Crude could drop to $10/barrel, and you could still have gasoline go to $4/gallon. All the crude oil price does is set a floor on gasoline prices.”
As an indication of how much control the oil industry has over retail gasoline prices, Hamilton points to a study he did, looking at the price of gas approaching Election Day. His results are truly disturbing.
The oil industry has been a solid backer of Republicans for many years, giving 80-90 percent of its campaign contributions to GOP candidates-particularly during the two Bush terms. What Hamilton discovered is that this support hasn’t just been limited to campaign contributions. In fact, the oil industry appears to have clearly tried to minimize voter anger at Republicans late during the election cycle by pushing prices at the pump down just ahead of the voting. In the period 2000-2006, Hamilton found that each non-federal election year-2001, 2003 and 2005, gasoline prices didn’t decline during the month of October, but each of the election years-2000, 2002, 2004 and 2006-they fell, with the most dramatic drop coming in October 2006-a period when crude oil prices were rising sharply. Each time, gasoline prices rose again quickly right after the election was over.
“This is a set of coincidences you’d be hard-pressed to explain by anything but planning,” says Hamilton. (And incidentally, it would be interesting, when Congress gets those Karl Rove emails from the Republican Party and the White House mainframe computer, to see if there are any to the American Petroleum Institute.)
The whole situation makes a joke of Bush proposals for opening up the Alaskan North Slope to more oil exploration, or for Republican calls for an easing up on environmental regulations for new refinery construction. Says Hamilton, “The price of oil produced in Alaska will be set in Saudi Arabia, and any new supply of crude from Alaska won’t affect American gasoline prices in the slightest. And as for new refineries, why would any oil company want to spent $1 billon or more to add refinery capacity so they could get less money for the gasoline they’re selling? There isn’t enough money in the federal treasury to subsidize the building of new refinery capacity in America.”
The irony here is that it is higher prices for gasoline that might eventually convince Americans to use less gasoline, and to reduce the production of greenhouse gasses. But where those higher prices in Europe come in the form of taxes, which can then be used to subsidize public transportation or retirement and healthcare programs, in the U.S. the higher prices simply go to the bottom line of the oil companies, and into the pockets of oil company shareholders, leaving public transit, retirement and healthcare programs under funded, and leaving lower-income workers stuck with higher bills to get themselves to and from work in their cars.
Until the public recognizes that the illusion of competition carefully maintained by the oil industry and its backers in the government is just that-an illusion-this astounding rip-off will continue.
Dave Lindorff dlindorff@yahoo.com
Thank P.
4 week average gasoline demand is up 1% YoY, that’s down again from the previous week’s 4 week trailing average. After three weeks of flattish demand I’d say that $3 gasoline is starting to curb consumption.
Av gas demand fell again. Could bode poorly for airlines seat mile metrics.
TSO thinking about going negative.
Z – yes, I saw the piece on EGY; thanks very much. Sorry for my late thank you but took a long weekend to do some camping.
EGY just seems to plod along, which is probably better than getting way over-extended. And 2008 does look like it should be a better year. Announce earnings today after market closes.
I think the line in the sand was crossed today with that “build” in gasoline inventories. At least short term, that is. Next weeks report should cause more volatility to the downside if ref rate gets into the 90% range. JMO.
lawdy – no thanks needed, just making sure you saw it. I’ll take a look at the Q but its like you say, plodding along, but with an upward bias. đŸ™‚
K- I agree and I’ll go one step further. I think we’ve seen the top on RBOB (about 10 days ago). The refiners are going to have a great second quarter but it may not matter as rates are not sustainable and their is more than enough oil to process.
Andrea seen by NWS as no threat.
http://www.intellicast.com/IcastPage/LoadPage.aspx?loc=usa&seg=StormCenter&prodgrp=TrackingCharts&product=HurTrack1&prodnav=none&pid=none
MCF running yet again strong results.
Starting to get valued for it’s acreage on the come.
zman– my outlook or internet connection at my condo is acting up, ill send it tomorrow when i go into the office- i havet been there since last thursday lol. sorry; lots going on.
still have my vlo pos. but im june dated… 70’s
PS you see the banter about Buffet buying Velero? god imagine all the sheep in that heard??? i do agree in the near termy reversal of the entire sub-sector: i’m in your boat. but i think it might have a few bucks left in her.. besides i have a measley $310 DCA. might exit by end of trading week
Tupp – cool, whenever.
Had not heard the Buffet rumor.
Tom on the Tuesday post:
Hi Z,
Wonder what your take your take on these build of inventories. You think that rally in OIH related stocks will last considering the numbers?
Took profit on WNR puts yesterday at open and switched to NE calls on a nice looking chart. Now back in black after the inventory dump but not sure I should trust that rally ahead of Fed. Also rode OIH calls on a daytrade from the low after inventories.
Thanks.
Tom
Tom – your post was on the wrong day. If you come here you’ll see I think it’s the top in RBOB and a definitely impetus for a move on $60 oil.
As to service, they’re in profit taking mode. I took some NE yesterday and it’s flattish today. Business there is excellent. HAL continues to rally (the only member of the OIH) for reasons unknown.
WNR – still got them along with a little more TSO puts.
MCF – no options but it just keeps exloding higher. Something’s up here, maybe its the Dutch 3, maybe it’s that there’s a rumor.
WHY is gasoline up .03 today? Doesn’t make a lot of sense. I didn’t expect a major fall but I would’ve expected it to end today in the red a small amount at least. Interesting to say the least.
z– cracks must be at a record after today? no?
Hi all. Can someone tell where can I find up to date info on crack spreads ?.
Tupp – No doubt.
Welcome Cowboy – up to date as of last Friday is in yesterday’s post or can check it on Bloomberg.
Thanks, Z
z- i sent it through my old email…
check out the most recent report on tso…
these guys know how to put together a report
Thanks Tupp, will read tonight, gotta family dinner so gotta bop.
wnr double top & downgrade to underperform in an era of money printing…..
downgrade from BMOCM