Oil: Cruising Higher. July crude rallied strongly yesterday (up $0.89 to $66.87) along with the rest of the 12 month strip as tensions mounted in Israel and Lebanon with the summer heat. Nigeria took a few more hostages but no major supply disruptions were reported yesterday. I'd say we're definitely headed for a test of $67.50 followed by a pretty good look at $68.45. Nicky has been dead on of late in comments on the site with regard to the technicals and the important of charts far outways the importance of the glut of crude in North America.
Early Read On Inventories: (Bloomberg survey of 5 analysts)
- Crude -Unchanged.
- Gasoline - up 1.5 million barrels per day. The last two increases in gasoline stocks were quickly followed by multiple refinery snafu and then surging RBOB prices. I'd more of the same, in that order, this week followed by a selloff next week.
Nigeria Watch: MEND says it may attack a pipeline supplying Port Harcourt refinery which the government has agreed to sell. I guess it's on their list of things to do so they'll do it if they get time: 1) call reuters and sound threatening, 2) pose for photos with AK's and RPG's 
, 3) take a hostage or two and demand cash although this doesn't address the lack of infrastructure and real profit sharing with the people you trumpet as your causes, and 4) bomb pipelines. Oil workers have also called for a strike May 24, in addition to teh one planned for the 28th and 29th to coincide with the presidential innauguration. Comment: expect an increased level of violence (actual and threatended) well into June. Hopefully, Y'Adua will act quickly to address villager concerns. This is unlikely to end prettily and, taken together with increasing refinery demand for crude in the US, will be supportive of crude north of $60. I'm still looking for $70 to act as a pretty hard ceiling.
OPEC Watch: Rejecting Calls To Raise Output On A Daily Basis. Or as they put it: It's your refineries stupid! If we send it, you can't use it.
Snafu Watch: BP - Toledo refinery coming back online, COP's Ponca, Oklahoma refinery restarting this week, and VLO's McKee is at 59% of capacity and will be near 90% by the end of June.
Natural Gas: Biding it's time until the next report. Very quiet trading despite all the turmoil surrounding the oil markets and strong pricing particularly for heating oil (where storage is also very full). Heating demand picked up a touch relative to the prior week.
Over / Under Gas Watch: 90 Bcf. Below bullish. Above sort of maybe slightly bearish. Sorry for the wishy washy but with the still large short overhang here and approaching hurricane season, and elevated and increasing prices for competing fuels it's hard to get too bearish unless the number is shockingly large. I wouldn't expect a substantial downside response unless the injection tops 105 Bcf this week.
- HDD (cooler) - 36 vs 23 in the prior week.
- CDD (cooler) - 18 vs 26 in the prior week.
Imports provide near term cautionary note for gas prices:
- LNG imports rose again last week averaging a whopping 3.3 Bcfgpd from 3.0 Bcfgpd.
- Pipeline imports from Canada tipped up to 8.3 Bcfgpd from 7.9 in the prior week.
Note: the chart directly above should read "combined imports" on the y axis. One of the consequences of quickly rebuilding a lost file!
Odds & Ends
Analyst Watch: I'll post this in comments.
Speaking of Analysts: UBS Global Oil & Gas Conference in Austin this week. I'll try to give you reports from the presentations I care about (times in CST): Tuesday: (GSF) 10:00, (RIG) 10:35; Wed - (NE) 9:25
The Trading Bottom Line: Holdings Watch
- Calls - Bought a 2x position in (EOG). Other than that:
- (PQ) We had a great day here despite a continued lack of exploratory news. Continue to hold a 2x position in the July $12.50s;
- (HK) broke out to new highs. 3x position in June 12.50s;
- (APC) sold more assets and saw their stock jump again (Jim Hackett is making easy work of the divestiture program with the elevated strips and doing it, I might add, with significantly paring back the company's future growth potential). Holding a 1x August 50 position;
- (SWN) our half size position continues to run as it appears that natural gas prices in the high 7s have more staying power than many, including myself, originally thought. Holding a 1x June 45 position after having taken profits on half my pos last week.
- (NFX) - the undiscovered continent of mid-cap E&P. So many sell side analysts have got this all wrong or just aren't paying attention it's really sad. I'd hate to see it get acquired for the traditional 15-20% premium off the current below average multiple. Holding a 1x position in the June 45s.
- (CRK) - still like it here- glad to see it perking up a bit. Holding a 1x position in the June 30s.
- (CHK) - another one the Street han't fully thought out yet. What, do you have to wait for them to corner the N. American gas market before you catch on? Or is the fact that they've got a prospect inventory of 8x to 12x what they've already drilled in the Barnett (and they're already the largest player there) just not exciting enough for you?! Holding a 2x position in the June 35s.
- (HAL) - it's good to be formerly bad. And they're still the whipping child of the large cap service group trading at 12.9x 2007 earnings vs SLB at 16.6x. Continue to hold a 1x position in the HAL June $35s.
- (NE) - It keeps running though I'm down to a 1x position in the June 90s and will likely liquidate the position by the close Wednesday.
- Puts - No action yesterday. I've still got a small, very ill-fated position in (SU). It's been acting like oil is $80 and natural gas is $5. That's a real head scratcher until you look at the owners. 😉 Despite the run in the majors, mini majors and independent refiners yesterday I'm not going to stick my head back into that buzz saw of put killing action until after the holiday. Phil at PSW - insert link - said it best that this will likely be a "sell the news" event. I'll wait with him to find out.
- Stocks - No action.
- (END) - recovery in process after nervous types dump shares in the face of almost certainly rising guidance (probably 2 months out) and big exploratory potential. Yesteday in comments on Philstockworld.com I said:
END - may average cost is a little over $2 and I’d be happy owning it now. Risk/reward for near term event at Balgownie prospect in the North Sea due to be at total depth (TD) mid to late June is probably $1.75 on a miss and $2.50 on a good well (muey pronto). END puts chance of success of this well at 1 in 3 (which is pretty good for a N. Sea exploratory test).
- (SCU) - I botched this as a trade. Don't get me wrong, I still like the company but I'd have done better to bail when they hacked back their Fayetteville Shale program with barely a footnote (as if no one would notice they went from 14 wells in 2007 to just 4). It took investors several days to notice they dropped the 1 there!. Still, their program in the Powder is the key to growth this year and that looks only slightly behind schedule and can still easily be made up.
N – so your saying any pullback isn’t real until we fall that far?
Analyst Watch:MRO and RDS.A – upped to buy at AG Edwards. This is a case of worse late than never imo. BP cut to hold there as well.
Hurricane report due out at 11:00 per CNBC. Just another “report” we have that will effect the oil complex,..at least for today. Gotta love it.
Thanks K…these guys are shameless. I was talking to Phil Davis this weekend and while I was busy pointing out the inherent conflict of interest that GE has of “reporting” on energy while owning a major service division he was doing the same about their interests in clean energy (which don’t survive if oil prices slump long term).
shorts getting kicked to the wall again , I C. Is this insane or what?
Step aside guys, I just layed down on the buzz saw belt, and brought some JUN170OIHP’s !( I will exit fast if nothng gives soon )
I hear ya Z. Oilis on fire,..could be some serious whiplash if that report has a bearish foecast.
H- gutsy move Mav. No taker here but good luck.
K – I fully expect strength through week’s end, then a divergence with gasoline tipping lower and oil maintaining these levels if not getting a little stronger for the next several weeks.
The easy range on crude would be to say $60 to $70. I think it may be more like $64 to $70.
HK at $16. In fact everything on my list is strong save NE (which is probably due for a pullback) and SU which won’t really pull back b/c I’m short.
Z, builds in Gasoline just don’t matter anymore do they. Ref rates could be over 90% but the media keeps pounding the “below average levels for this year” concept to death. We’ll see what the report will bring.
Looks like Lacker of the fed, slowed things down, with his remarks..i.e.- Inflation expections may rise, tight labor market, and core inflation on a hole- not falling , but the economy can easly handle higher gas and energy….so buy calls go long!!!
Looks like RIG will hit $100 before end of this week. COP(Breakout)target $88. TLM is also a breakout. Wow, this market reminds me of last spring, like the good old days.
Oh my,..she’s AT THE PUMP reporting,..lets see what important news she has (CNBC).
Nicky, that wouldn’t surprise me but I think unless there is a 3-5 million barrel build in gasoline (very unlikely) the oil sector will dip into a buying opp for savvy traders is all it will acomplish. CNBC wants $4 a gallon to pump all day long. It’s despicable, really.
My OIHJAN170 Moving up- Very Scary_ How long will this good feeling in my belly last for this P ?
I dumped my 170OIH P’s at 4.3/4.5!. Very qucik day trade…
E&P and service land just dipped into the red on lower oil and flattish ng prices. RBOB taking it on the head worst of all the energy commodities yet the refiners are onward and upward.
Having taken a good look at regional cracks last night the west and pac-nw are straightening themselves out and their cracks are rolling over. Ostensibly bad for TSO. Mid con and Gulf coast cracks continue to fly higher and now there are some reports of outages in the cornbelt with scattered reports of higher grades gone from several stations. This is probably good for VLO.
I’m thinking about playing this long VLO, short TSO but will likely wait for inventories to pull the trigger. Next week I’m thinking (again before seeing the data) that gasoline will come down a bit.
Where is the H report you were pimping earlier this AM, CNBC? Hello? That figures.
There it is.
3-5 MAJOR storms. 75% chance for above normal Hurricane activity. According to the EIA (I believe they said).
Good point Nicky.
Nicky – re Katrina levels. Exactly.
Their gose my morning buy on the JUNOIH170P’s—still have 25% postion…at3.7
BP cuts Alaska pipeline by 100,000 bopd (25%) for a “few days” to repair a water pipeline leak.
Phil Flynn now an advocate of US oil in this market. He actually downplayed the shuttering in this article.
http://www.delawareonline.com/apps/pbcs.dll/article?AID=/20070522/BUSINESS/70522040/1003
Could Phil be going short?
what are your supports? and what was yesterdays low ? Thanks Nicky!
E V E R Y B O D Y K N O W > > T H I S IS A SHORT TERM BLIP
I’m buying some JUN OIH 170 C’s right here @ 4.70
nicky- whats with the strength in refiners and a 7 cent pull back in rbob? is this a fib retracement acceptable fr it to soldier on??? or is it more of a reversal pattern?
Thanks Nicky, Appricate your excellent TA_
Colonial Pipeline allocated for the 31st cycle today. That means too much supply trying to be put into the pipeline. Could be refineries back or large imports into Gulf Coast.
Either way it took USG M2 gasoline from +2.50 to -5.00 at one point.
David – I’d bet a little of both. Gasoline imports definitely have been surprising to the upside.
Stock sell off in E&P is pretty orderly, no sign of panic, just a little profit taking. May buy back those NE June 90 calls here.
I know I being noisy here, but this now has too be toadys lows for service and refiners….no way anyone betting in the pits on trading desks, that RBOB and oil numbers will give any reason for prolonged selloff the news….Am I right?
I’ll tune in tomorrow, at 10:30ET ….
Thanks Again Nicky…..swell work!!
LOL ! I’m just the aunouncer at the track, so pay noo mind….Besides I’s half asleep right now, just have my feet up on my dexk and watching the monitor!
So its alla blur`
But really as Zman, and you and all have been saying I DO NOT EXPECT THIS TO FALL OFF A CLIFF 4 DAYS BEFORE THE HOLIDAY~!
ITS GANNA BE A REVULATION LIKE LAST SPRING ! of KA Traina
So Nicky,. I would be intrested to know whats on your screen, what are your favorite things watch? Me. I have just the basics…the stocks, and etf’s
See you all on the other side of lunch.
The OIH 170 JUN P has 2630 contracts traded today, compared to the Call, which is seeing 1322 traded~
Yes I got my charts_
Z,
Do you have an opinion on SFY, it seems to have trailed the group YTD, but is up on a down day.
Ok, who rebooted the server?
Stephen – I have a spot for them in my heart. Just not sure which part of my heart at present. Swift has a solid team but has had its ups and downs over the years due to a move in NZ which they’re now examining for a punt.
The ups recently have come from Lake Washington salt dome which has been a gold mine for them over the last 5 years or so.
I haven’t looked but I’d bet their operating costs run high to the group. So in other words, I have lots of opinions but would hate to advise you on them until I do more work. It may be that the stock is getting a boost from last week’s story about seeking options in NZ.
Interesting to see SWN and PQ up again on this a decidedly down E&P day.
I can’t remember the last time the S&P and/or the markets went up and had arally, WITHOUT the xle’s and oih’s and the like…can anyone ?
Nicky – I think we’re still in an uptrend on crude, ng, and RBOB at the close.
H – neither can I actually. Wait till the private equity guys decide to buy an oil & gas company. The sector will go apecrap.
TRUE
Thanks on SFY.
I’m also having a look at BAS. The onshore services firms are trailing, the onshore rig guys, GW, NBR, and PTEN. I also think it is being dragged down by BJS.
I’m also still waiting for the private equity guys to buy an oil service company, they are cheap in their favourtie measure of Price to Free Cash Flow, but I worry that they think they don’t understand the industry, and can’t run it better than the oil guys. Oil service, and oil exploration are such messy industries when compared to real estate (EOP), utilities (TXU), and telecoms.
Nicky – if its ok with you I’d like to attribute your technicals on the PSW site from time to time. You have a way of talking TA that I can’t match! I’m an oil and gas so I look the chart, yep, there’s the level, below that and she’s toast, etc.
Stephen
I don’t know BAS. I think the onshore guys continue to be flattish money since capacity, especially around the popular plays like the Barnett has really jumped in the last two years which has put a lid on rig rates and frac prices. I like the onshore guys b/c they’re staying very busy and are still getting paid well to do so and the longer term thought there is that the extra capacity and slightly lower prices is a good thing for them.
Otherwise, the E&Ps would balk and you’d have declining counts which you definitely don’t have. If I had to chose from your list I’d go with NBR and PTEN. HAL and SLB are also a good way to play the same dynamic. BRNC might be interesting as well but probably not options.
N – if you look at the philstockworld.com site you can see his daily post. The area where they have daily comments is pay and is where I write about one-third of my comments during the day.
CHK just spud the first well of 300 at the DFW airport. That’ll make them pretty popular as the early money is going towards renovation of that ugly old terminal.
For fun , not to hold anyone to any calls,
Do we get a follow through of this tommorow, after the reports…or is today a chance to buy some calls…in oih and xle…or pick which dose what..?
MY call today worked nicely on buying the OIHJun 170 P’s @3.70- To bad I didnot hang on longer then 2:30pm
I’d say more flattish trading through the numbers. Then you better get the fabled 90+% utilization and continued increases in production and imports or this will reverse. Obviously you need the 1.5 mm barrel increase in gaso stocks.
your so spot on , zman!