Tuesday Morning – Inventory Report Expectations and a little more…

SFY News Flash. Finally Punting New Zealand. After years of what can best be termed "distracting if not disappointing results" in Kiwi land, SFY is finally giving up. Should be pretty good for the stock and I'd bet some Aussie firm will take the project off Swift's hands for a decent sum; maybe $200 to $250 million for the package. The real benefit is getting SFY back to it's knitting along the Gulf Coast. While this is not exactly unexpected news, finally putting it on paper through the hiring of an adviser for the sale should boost the stock.

NOAA Beats The La Nina Drum. NOAA is calling for development of La Nina conditions in the next one to three months with this event potentially falling into the strong category at its peak. That would likely mean more hurricanes. Just thought you should know.

Nigeria Watch: MEND releases 13 hostages as an olive branch prior to talks with new president Yar 'Adua.

The Microphone Is Mightier Than The Storm Watch: Well we got our oil rebound as oil jumped $1.21 to settle just south of $66.

  • Part of the rally was a retracement of the "Gonu was a dud" selloff late last week. I'm told we don't run into first resistance on the July contract until $66.30.
  • But the biggest factor was words. I think for now $65 is the new threshold that brings out the OPEC ministerial rhetoric. Yesterday:
    • Iran said that cuts will remain in place at least until the next scheduled OPEC meeting in September
    • and Asian refiners indicated that Saudi Aramco plans to reduce July shipments by 10% relative to June levels. Saudi Aramco frequents this site and never comments but I'd love to have confirmation on those cuts guys so pipe up! Feel free to use this forum to refute all the naysayers who claim you can't really raise production and that your peaking as we speak!

Gasoline however didn't fair as well only recovering 1.1% and is maintaining it's new down trend. In short, I think it's headed back to $2 in the next two weeks.

Cracks Spreads Continue To Fall Except For Diesel. The unsustainable crack spreads seen earlier this month are falling in sync with the rally in gasoline stocks. It's interesting to note that while coastal supplies of Ultra Low Sulfur (ULS) diesel appear adequate, diesel prices and their cracks remain inflated. My sense is that these cracks will begin to moderate soon. Please click the chart below if your browser does not let you see the entire picture.


Early Read On Inventories (from the Bloomberg survey)

  • Crude - DOWN by 400,000 barrels. Sounds reasonable given higher demand from refiners. As a reminder, I expect flat to higher oil prices while downward pressure is exerted on gasoline.
  • Gasoline - UP 1.5 million barrels. Such a build would actually increase the YoY deficit since the comparable weak one year ago saw an unusually large build in stocks (not unlike last week!). The all important number of course will be utilization which needs to top 90% or gasoline simply will not fall and cracks will mount at least a one week surge. I'll be looking for continued growth in gasoline production which has recently pushed ahead of year ago levels despite the lower utilization figures.

Natural Gas: My Early Read On Inventories. No consensus is available yet and while I was a little low last week I again think that falling imports could mean we're in for the first sub triple digit injection in four weeks.

  • Imports Fell Again. Last week it didn't matter but we're LNG took another dive falling 0.4 Bcfgpd from the prior week to hit 2.4 Bcfgpd. Interestingly, Royal Dutch noted that the Chinese, one of the emerging competitors of LNG shipments, is slowing both their intake of shipments and their construction of regasification terminals due to high and rising international LNG prices. This reluctance to pay up on the part of China means more LNG will be available for Japan, Europe, and the U.S.
  • Canadian imports remained mired at 8.0 Bcfgpd, down 1.0 Bcfgpd from year ago levels and in line with last week's number.


  • Weather was a little milder but pretty much in line with the prior week:
  • Electricity - According to the Edison Electric Institute (EEI) electricity generation was off 2.7% from year ago levels. Generation has been running high this year at 3.5% ahead of the year to date period for 2006. This is an offsetting argument to my sub 100 Bcf injection prediction and could very well be tipping the scales towards larger numbers of late as generation has suddenly slowed down.

Odds & Ends

Analyst Watch: (RIG) price target upped at RBC.

70 Responses to “Tuesday Morning – Inventory Report Expectations and a little more…”

  1. 1
    zman Says:

    Morning Bill. See the VSE. Have you ever looked at the cellulosic guys, STKL? Pretty interesting although of course the valuation is a bit whacky.

  2. 2
    bill fraser Says:

    I dont follow ethanol stocks.

    Im long ng here at 7.60 as i think its oversold. A week ago , people were tripping over themselves buying at 8.20.

    i will be neutral going into thursday.

    Im buying below 7.60 and will sell at 7.66

  3. 3
    zman Says:

    Contango (MCF) announced some more nice wells in the Ark Fayetteville Shale and added 3 wells to its program there.

    They’re also drilling the Dutch #3 and expect production from the #2 well to be on in mid July.

    Contango shares have still not fully discounted the value of the Dutch #2 well in terms of reserve adds relative to mkt cap.

    Sorry, no options here.

  4. 4
    zman Says:

    Bill – I agree, think NG is oversold.

  5. 5
    zman Says:

    TSO still weakening. I think RBOB resumes it’s weakening today. Hopefully we drop through and close below $2.11 on everybody making nice in Nigeria.

  6. 6
    T-Tupp Says:

    yea. implied volatility is taking a hit today though in the july expiry’s…

  7. 7
    T-Tupp Says:

    nm, there was an anomaly in my streamer..

  8. 8
    zman Says:

    Here ya Tupp but we could be in for a lower leg in the refiners. They really haven’t had much of a drop at all. Given that they rallied with cracks and cracks are now getting popped pretty hard (well at least gasoline) you’d think they’d be off more.

    That little FTO may be worth a look for you on the shortside.

    I’d stay away from VLO as its the cheapest/best of the bunch and may be slow to correct.

    TSO looks like the bloom is off the rose

  9. 9
    zman Says:

    Morning Nicky! Phil Flynn ignore the facts?!?! You can not be serious!

    Can you post a link to where you see that on his site. I have apparently been blocked but I want to make sure I’m in the right area. tia

    btw, I think his stop on RBOB loses people a little too much money. Below $2.11 the chart looks really ugly. Jeez, same goes for Natural Gas but at least he got in front of the tipping point at $7.25.

  10. 10
    zman Says:

    Gotta drop my daughter at summer school…back in 20.

  11. 11
    T-Tupp Says:

    nicky- even your daily chart dosent adjust for the split?

  12. 12
    T-Tupp Says:

    my esignal account daily charts are making the adjustment but shorter bars are not adjusting for it

  13. 13
    T-Tupp Says:

    where do you see the most crucial support level for this stock? i hold a large put position….

  14. 14
    T-Tupp Says:

    i have my 7, 14, and 21 EMA’s crossing for tso, and MACD crossed w/ a bearish divergence, same with RSI; but also through the 50 line, and stoch. below 50

  15. 15
    T-Tupp Says:

    we could see strike pegging this week on TSO although maybe not until thurs… i though thats what we were seeing yesterday morning with that weird bounce

  16. 16
    T-Tupp Says:

    what was that supp level for rbob? were down like 3.5 cents now… @ $21185

  17. 17
    zman Says:

    Back…thanks Nicki.

    Funny, Flynn always talks up the bullish side, now noting the IEA underestimating global demand yet the last couple of times they were cutting the numbers so we’re actually just correcting for their over cut?

    he also points to Brent / WTI relationship coming “a bit back in line” don’t really see that yet and as he expected WTI to be $2 over Brent about 6 weeks ago I’d say he should just give it up and try to understand the concept of S/D.

    Thanks again Nicky, I’ll try to get on the email list with him.

  18. 18
    scoop006 Says:

    Z- do you have an exit $ on MRO 120P?

  19. 19
    zman Says:

    Scoop – at this point the $0.30 bid looks pretty tempting. That’s a 1x position that looks like a $4 loss for me. Do I take the $0.30 now or maybe hold out for another day like today and get $0.50 tomorrow? That’s the question that would really bug me if this were a bigger position. As it is I’m sitting tight. If gasoline breaks lower, as I expect, then it could tumble, adding as much as a buck. I’ll wait for that. If storage is a big draw on crude w/o the rise in gasoline stocks I’ll be left holding a worthless bag…which is not far off from that $0.30 it’s worth right now.

  20. 20
    zman Says:

    H – where’s H? I’ve got a contest ready for him and he’s no where to be found!

    OK – here goes, for H:

    Spread the word of ZEB to your friends, family and coworkers. What I’m looking for is people that not only want to read about energy but also people who like to talk and trade the complex.

    As you can see from the RSS hit counter at upper right we have just breached 100. This means 100 people take ZEB by email or RSS on a daily basis. At present over 600 unique visitors come to the site each day. I’d like to increase both of those numbers.

    What’s in it for you? Two things: 1) and this is the most important one, good ideas…my best ones come from you guys. 2) free stuff. Everybody likes free stuff.

    How do I get free stuff? Glad you asked. Just send the link to this site to people you think are interested and ask them to sign up for RSS delivery AND registration with the site. Then send me an email every time 5 of your friends sign up (letting me know who they are so you get credit). They’ll also need to post at least one comment so I know they exist.

    What free stuff do I get? Well, the site is going pay in August so the number 1 prize will be a 3 month free subscription and a Rebel T (which are pretty hard to come by). 2nd and 3rd place will receive 1 month free and a MEND coffee mug. So sign em up my friends and get rewarded.

    One final word, please don’t spam this site to your entire mail list or get people to sign up just to get the T-shirt. If you want one that bad I’ll send you one. I’d really like the offer to go out to people you really think have an interest. Thanks. I’ll post a pic of the Rebel T tonight.

  21. 21
    zman Says:

    Little Illinois Basin CBM player starting recover from it’s bad pilot program results last month. This one can run like a banshee and the pilot was a tiny portion of their acreage. Funny money only please.

  22. 22
    Stephen Says:

    That’s a shame, none of the best sites stay free.

    I can’t play options here in Hong Kong, but one idea I’d like run by you guys, is to buy puts on SGR, they have run up with all the other energy infrastructure companies, FLR, FWLT, JEC. SGR actually started it’s move when FWLT spiked. But these guys still haven’t reported their 1Q results because of losses on a petrochemical project, I think this stock will come down when they do report.

  23. 23
    foo Says:

    Any news on NRG? It just popped higher with some high volume options too.

  24. 24
    zman Says:

    NRG no news I see. Could be just up with hotter forecast.

  25. 25
    zman Says:

    Bill F – nice trade NG.

  26. 26
    zman Says:

    Well that was a nice interday bounce in RBOB and TSO, added TSO $120 July $60s for $2.40 for a trade.

  27. 27
    zman Says:

    My bad, looking at the CALLS, my system defaults to them. How about the $57.50s July PUTs for $2.70.

  28. 28
    zman Says:

    Nicky, what’s your best short term read on distillates?

  29. 29
    zman Says:

    I’ve got July HO at just short of 19100, is that the one you’re looking at when you say distillates?

    Exactly my point for asking. This is the other shoe that has to drop (assuming RBOB was the first and that it has indeed started to drop) to get people to take profits in the refining sector.

  30. 30
    zman Says:

    MCF rallying pretty hard on this morning’s shale well update as expected.

    SFY getting thumped by their offer to sell New Zealand. Price talk must be low.

  31. 31
    T-Tupp Says:

    i got some of those puts z 😉

    …the july tso 57.50’s, but my ACB is about 3 bucks, but im in the 60’s at 3 also

  32. 32
    T-Tupp Says:

    vlo has had like zero volume lately…

  33. 33
    T-Tupp Says:

    its almost the same as tso’s a company with 1/10 the MC

  34. 34
    zman Says:

    Tupp – A lot of people are in these stocks with hot money. They don’t know the industry, they only like it when the momentum is hot and the catalyst is clear and running higher. That explains the volume dry up. Tomorrow we very likely get the 6th build in gasoline stocks and we have reason to believe that they will continue to build. Oil should remain lofty. Hot money doesn’t like to gasoline prices fall at the pump. Hot money doesn’t like to see the price fall below the split level. Hot money will find another home.

  35. 35
    zman Says:

    TSO – the stock bounced off it’s 50 day ma this morning but not resoundingly so. It’s pegging to RBOB which, on the way up, it outpaced.

  36. 36
    T-Tupp Says:

    z- i got the 50 ma @ ~ $57.15, or do you mean on an intraday chart…. is that the MA you use for DT’s?, i like EMA’s myself- or was that what you were refering to in short-form?

  37. 37
    H Says:

    Hi Z and Company !

    Big action here this week, Really has put me too sleep, so I decided to go out and enjoy the air—

    Zman I wish I could help increase you site eyeballs numbers, I’m surprised it needs help, it really speaks for itself, will do what I can do! I would love a MEND T ! ( lol )

    I saw my oih Jun calls run yesterday, and really felt bad I sold what I brought fri at .85, then yesterday it hits 2.50ish–darn!

  38. 38
    zman Says:

    T – I was using the sma but I’m really not that technically. If you say it’s at $57.15 I’ll believe you because I just eyeball it with my crosshairs and it looks like $57.67 to me. I may let the July’s ride with a stop while I’m gone b/c I hate to miss the move and I really think it’s coming. We’ll see soon.

  39. 39
    zman Says:

    Thanks H! You wanted a contest so there you go. Just trying to push it along a bit on a lazy, little news, early summer Tuesday.

    Now picking the numbers for the various indexes while I’m gone I leave to you to organize!

  40. 40
    H Says:

    R U kiddine, Me O no no, I can’t even pick the 1st 3 letters of the al- fa – bit, I think Nicky would be excellent at that if she ok with it-

  41. 41
    zman Says:

    Somebody tell me why I forgot to sell my EOG days ago. ouch.

    It’s having a nice day along with the CHK,HK, and PQ.

    FTO and the rest of refiners trying to move up. Defies all logic but then what else is new.

  42. 42
    zman Says:

    Heck of a comeback in the OIH. I think the natural gas number on Thursday will be bullish. I think GRP, normally one of the hot hands in the service stocks but down the most still today despite a recovering group is likely to get a pretty good bounce by Thursday.

  43. 43
    zman Says:

    Done second half HK $12.50 June calls, 50% gain but it took 6 1/2 weeks.

  44. 44
    zman Says:

    CNBC Watch: Did anyone see Steve Leaseman just on? He was talking about a rate cut despite the reversion of the yield curve to an upward slope and signs the economy is running faster and all the signs of inflation just about everywhere you look but core CPI? What’s gotten in to him? I very much doubt the fed is going to cut. I think they’re must more likely to hike.

  45. 45
    H Says:

    Zman, I hate to suggest anything that has to do with yahoo message boards, But I think you can put together a small pitch about you service and site, and post it on a few of the stock boards on yahoo of the xle/oih/gas complex ..why not?

  46. 46
    zman Says:

    Occasionally I get folks from over there and I even lay in a link on a specific stock now and again. It’s not a bad idea although I have seen quite a few services touting how smart they are which is really not my style.

  47. 47
    H Says:

    Yea I agree, but the differance between YOU and then, is you and we have something they don’t come close to , thats real brains and people like you giving TRUE hard research..and you can just intor youself, you intro will spperate you from them-

  48. 48
    H Says:

    CNBC just say anything, oih dropping again ! ?

  49. 49
    H Says:

    Someonw warn on earings?

  50. 50
    H Says:

    F@*king, 10year t’s speking again in the last 45 minutes? putting a big ceiling on any runs-

    N I think you better start doing some charting on the 10 years and the bunch-

  51. 51
    H Says:

    start with $TXN index ??

  52. 52
    H Says:

    My gAD! a little choppines and volitery, and everyone runs for the hills?? hello ? test?

  53. 53
    zman Says:

    Sorry had to step out. Thanks for the comments H. What the heck happened to the OIH. Suddenly turned after close of NYMEX. Same for refiners. MRO was just positive and now down $1.50. Bet it gets pinned to $120 on Friday.

  54. 54
    H Says:

    yes…..talking about china Not dumping US Treaserys…..het hows us inflation, housing and growth.

  55. 55
    zman Says:

    WNR rally. Does not make a lot of sense here. Very expensive little stock that is going to get it’s deal with GI approved but everyone already knows that. Trailing PE of 12, fwd of 14 post deal? Industry usually tops at 10x. This will fall hard when the group does.

  56. 56
    zman Says:

    CLR makes new high. Stock only. Really like this one in a up oil (or for that matter $60+ oil market). Should get favorable coverage on or just after June 15.

  57. 57
    H Says:

    Look like things are getting stinky ! and while this happens I’m enjoying a BK BIG FISH sandwich. with lemon and tar tar sauce…keeps me happy!

  58. 58
    homan Says:

    hey dubmdis tso will rip with the dia is done selling zmann dont usnderstand that eric bolling needs a new bentley

  59. 59
    Marie Says:

    Z- What do you think of Forest Oil Corp. (FST)?

  60. 60
    Lije Says:

    Z- I have been reading your site daily for about a week and enjoy it a ton, but I often find some of the more technical details hard to understand. Some of the energy jargon is a little past me. Could you send me a reference or two, so that I can become a little more educated on the finer points of energy analysis.

  61. 61
    zman Says:

    homan – ah, always good to have your wit around. lol.

    Marie – FST just merged with THX – I’m planning a report there on the combined co after I get back…look for it in mid July. My opinion on the combined isn’t yet formed.

    Lije – Sure, I need to put together a glossary. It’s on my “to do” list along with “make money” and “come up with some new good ideas” after I get back from a trip I’m taking next week. Feel free to ask any questions…that way everyone learns including me. If you have specific questions I’m more than happy to address them. Welcome to the site.

    Here is a somewhat overwhelming link list of all things energy: If you read 1/10th of this you would know more than Bill Richardson, former Sec. of Energy.


  62. 62
    T-Tupp Says:

    where are you taking a trip to z?

  63. 63
    zman Says:

    Honduras June 16 to 24.

  64. 64
    tom2oc Says:

    Hi Z,

    Just a note to say to you and Phil’s gang that I updated the TA once again in light of yesterday’s selloff. It’s on the blog if some are interested to read for whatever it’s worth.

    Have a great inventory day!


  65. 65
    Zman’s Energy Brain » Thursday Clliff Notes Says:

    […] laid out my argument for a Week to Week decline in Tuesday’s piece here. In a nutshell, continued lower imports and weather that week to week was pretty similar should […]

  66. 66
    zman’s Energy Brain ~ oil, gas, stocks, etc… » Blog Archive » Thursday Cliff Notes Says:

    […] Tuesday Morning – Inventory Report Expectations and a little more… […]

  67. 67
    Daniel Says:

    I have to say, that I could not agree with you in 100% regarding , but it’s just my opinion, which could be wrong 🙂

  68. 68
    zman Says:


    Sorry, to what are you referring. Your two days off the thread at this point.

  69. 69
    link Says:


    will read it later

  70. 70
    list of proxy solicitation firms Says:

    proxy solicitation rules sec

    Tuesday Morning – Inventory Report Expectations and a little more… | Zman

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