Wednesday – Hooray Another All Important Inventory Day!!!

The Major Energy Agencies Need To Communicate Better... The International Energy Agency (IEA) and U.S.' Energy Information Administration (EIA) really to get each other's phone numbers. Just Monday the IEA raised it's outlook for global oil demand and the Trading God's at Alaron were making the rounds of "I told you sos." in their daily piece. This was well orchestrated with bullish Saudi and Iranian comments regarding production levels who are apparently on the IEA's speed dial list. Now it's my turn.

...EIA Chops Global Demand Forecast (yet again). Way back at the beginning  of the year I said this would happen and there you go. For a third time. Tuesday evening the EIA lowered its estimate of 2007 global oil demand by 100,000 bopd to 85.9 million bopd. 2008 was seen at  87.5 million bopd (up 1.6 mm bopd), also down 100,000 bopd. Notably, the EIA boosted demand for both the US and China (consumers #1 and #2) and still got lower numbers. Hmmmm. Read the EIA's latest Short Term Energy Outlook (STEO) here.

Your Tax Dollars At Work Watch: The EIA was busy yesterday. Here are the most useless numbers you'll hear for quite some time. 13 million barrels and 87 Bcf. This is the amount of production EIA projects will be cut by in 2007 due to Hurricanes.

Nigeria Watch: Up 98,000 Bopd. ENI resumed production of 98,000 bopd at it's Brass River oil export terminal which had been shut after three of its supply pipelines had been bombed May 8.

I Couldn't Agree More Watch: ``The gasoline crisis fears are being wrung out of the market,'' John Kilduff, vice president of risk management at Man Financial Inc. in New York, said yesterday. ``Without continued refinery upsets prices will move lower.''

What's Important Today? Ah Yes Oil Inventories:

The Phil & Zman Show MAY BE LIVE on MN1.com today at 9:25 CST. The host of the show is on vacation so there is a little doubt. I'll let you know in comments.

The latest Bloomberg and Reuters Survey Estimates

  • Crude: Expected Stocks DOWN 200 to 500,000 Barrels.
  • Gasoline: Expected Stocks UP 1.5 to 1.7 Million Barrels. If it's:
    • In line RBOB will trend with the oil prices,
    • Lower than 1.5 it may mount a small rally (unless it's flat or a draw and then all short bets are off), and
    • Over 2.0 and you'll see gasoline running for around $2.05 in short order.
  • Distillate: Expected Stocks UP 1.5 Million Barrels.

What I'm Looking For In Gasoline:

  • Utilization: The fall to 89.6% last week  took everyone by surprise. Especially those of us take a somewhat more than back of the envelope approach to tabulating the comings and goings of refinery capacity in the U.S. That week looked up slightly. This week announced increases outnumber announced downtime by a little over 3 to 2. Therefore, I expect utilization to nudge back above 90%, and if the numbers of the last two weeks filter through we should see a number north of 91%.
  • Production: Production didn't really slide last week (unless you consider a number like 36,000 on a base of 9.2 million a slide) despite the drop in utilization. If we get the rebound in utilization I'm looking for gasoline production will likely crest 9,3 million bpd.
  • Imports: Look for another big import week given that prices remain pretty high and many ships were rerouted from New York to the Gulf Coast to take advance of the regional arb. Probably another 1.5 ish mm bpd were imported. Seasonally this number should start to fall off soon as Europe, which is short on gasoline itself, competes for those imports going into summer.
  • Demand: Still climbing but the rate of YoY growth continues to slow.

While the continuing availability of imports remains a concern, the "two steps forward and one step back" process of getting the U.S. refining industry back on it's feet following the longest maintenance / problem plagued turn season in history is in full swing. The chart of gasoline stock scenario no longer looks nearly as dire as it did six weeks ago as seen in the graph below. The slope of the blue line over the last six weeks has been quite impressive. The bit of yellow at the end of the blue line represents a middle of the road, 1.6 mm barrel increase in stocks.

Gasoline Stocks With This Week's Consensus Projection 


Odds & Ends

Analyst Watch: nada

Holdings Watch:


  • HK - sold remaining position at $3.60 for a 50% gain in 7 weeks.

Puts: (TSO) added July $57.50s for $2.70. The June $120 MRO and TSOs (now $60s) are starting to come slowly back to life.

Stocks: No Action.

61 Responses to “Wednesday – Hooray Another All Important Inventory Day!!!”

  1. 1
    zman Says:

    Across the board ups among the refiners and majors despite lower oil and gasoline. Anybody see a sector upgrade?

  2. 2
    T-Tupp Says:

    no but this is retarded

  3. 3
    T-Tupp Says:

    whisper numbers….

  4. 4
    tom2oc Says:

    Hi Z,

    The market analysis is updated if you or Phil’s gang are interested for whatever it’s worth.

    Have a great inventory day!


  5. 5
    T-Tupp Says:

    where is everyone?

  6. 6
    zman Says:

    I had to step out. Looks like we’re tanked for MN1.com this morning since the host is out and I couldn’t get his sub on the phone. I’ll try an email but I doubt he’s going to let me on. Phil is in meetings.

    Tupp – I’m actually not that worried about the refiners running this am. Obviously a fund or two took the offers early to create this low volume ramp. As Cramer says, it only takes a few million to turn a sector like this green, especially if you don’t really care about those dollars. Let’s see those inventories.

  7. 7
    T-Tupp Says:

    you on the radio today?

  8. 8
    zman Says:

    Continental Resources – should get coverage in another day or so. Nice new oil play.

    Gasoline: off $0.029 to $2.105. That’s definitely through support.

    Apparently we are going to be on mn1.com

  9. 9
    zman Says:

    Nicky – click his name above

  10. 10
    T-Tupp Says:

    if we get bearish refiner numbers now would be a great time to add to putttttsssss

  11. 11
    Kevin Says:

    WHat is the Gasoline number??? Unchanged from last week would be up 3.5 million barrels. CNBC is butchering this report.

  12. 12
    Phil Says:


  13. 13
    H Says:

    Zman, listening to the radio show, you sound very in the know…really good show, and I would swear you were a big pay pro, who happens to be an nice guy and easy to understand, with no comples BS in you mesaage or opinion! Very fine intviwe!!

  14. 14
    Kevin Says:

    I suppose that number is zero then huh,..We went from up 3.5 million barrels to ZERO?

  15. 15
    Stephen Says:

    What do you like about CLR, Z?

  16. 16
    T-Tupp Says:

    unchanged from last week = no build or draw lol

  17. 17
    Kevin Says:

    Hope everyone is out of their put positions.

  18. 18
    sane Says:

    The American Petroleum Institute reported a climb of 1.7 million barrels in crude supplies for the week ended June 8. The Energy Department had reported a rise of 100,000 barrels for the latest week. Motor gasoline supplies were down 3.1 million barrels, the API said. The government reported that supplies of the fuel were unchanged. Distillate supplies declined 2.7 million barrels, the API said. The government posted a 300,000-barrel rise.

  19. 19
    zman Says:

    This is the snapback I was worrying about in EIA numbers.

    Stephen: they’d IPO’d a month ago, they should get very favorable coverage either tomorrow, Friday, or Monday as they came pretty cheap.

    This is what I wrote when they came public:

    Continental Resources (CLR): Large and In Charge. This is a totally different animal than yesterday’s look at Pin. Here’s the ten minute look on this as it’s very late and I need to post.

    * Enid, Oklahoma based E&P focused on the Rockies and Mid-Continent with a small amount of Gulf Coast reserves, founded in 1967.
    * Both management and science are seasoned and deep.
    * Technically proficient in horizontal drilling, enhanced recovery
    * They operate 95% of their reserves.
    * Reserves: 118 MMBoe, 86% Rockies and 83% Oil. Nearly all reserve adds in the last five years have been through the drillbit. This is a low exploration risk, resource play. While the preponderance of reserves are in the Rockies the company has substantial positions in several unconventional plays including the Woodford Shale.
    * Just over half of their current production comes from the prolific and vast CedarHills Anticline. Horizontal development with high pressure air and some water injection with very good results. Well density is low so there is potential to downspace the acreage.
    * They’re attempting to produce the Lewis Shale in both conventional sand and siltstone intervals but also unconventional in the shale itself. Results to date have been encouraging.
    * Production: 26.5 Mboepd 4Q06, 28 1Q07. Production visibility is good for strong growth through at least 2009.
    * R/P of 13 years which is likely to fall a bit
    * They’ve managed to shrink per unit LOE in linear fasion from 2004 to 2006. Unreal.
    * Fairly massive Rockies and Mid-Continent undeveloped leasehold.
    * Balance sheet is clean, and following this offering they’re probably a little under leveraged.
    * At $14.35 and with 168 million shares outstanding after the deal CNR is firmly planted in E&P midcap territory. Valued at a little over 5x trailing cash flow this seems very reasonable unless I’m missing something.
    * The CEO retains 71% of the company.

  20. 20
    Stephen Says:


  21. 21
    Kevin Says:

    Gee,..I’m sooo glad CNBC is IN THE PITS today. Great coverage,..LOL!

  22. 22
    bill fraser Says:

    was gas up 3.5 or flat, lol

    they showed numbers that looked 3.5 m better but said 0

  23. 23
    sane Says:

    Gasoline got the blending component draw
    2.6M draw on ethanol

    The report is funny because all other blending components were up and finished gasoline was up nicely.

    FUD report.


  24. 24
    zman Says:

    Thanks H. Phil had a meeting so I had to fly solo. The problem with that is I need an assistant to hammer trades out. That cost me a little on my TSO position.

    Kevin – I guess I’m not good enough to be in the pits.

    Nicky – the numbers are really strange. I did a painstaking tally of the comings and goings of refiners according to the last two weeks of EIA nightly reports last night and it was definitely up. Something is not right with their numbers or a lot of people of curtailing and not telling the government.

  25. 25
    bill fraser Says:

    cnbc initially showed numbers of 301.5 vs 298.

    then they corrected it to show flat 301.5 vs 301.5

    anyways we need more rbob

  26. 26
    sane Says:

    demand actually crept back down a tick.


  27. 27
    zman Says:


    the distillate build was low b/c of a big draw in the > 500 ppm (high) sulfur stuff.

    this more that offset good sized builds in the clean and mid range stuff.

    Gasoline: thanks sane, see the blend draw.

    Production rose again to 9.3 despite the drop in utilization. Their utilization number is for crap!

    Gasoline imports fell back to 1.2 mm bpd.

  28. 28
    zman Says:

    Nicky – re Liz. In the words of Dan Rather “they dumbed it down and tarted it up!”

  29. 29
    H Says:


    U say”This is the snapback I was worrying about in EIA numbers”

    You didn’t sound too worried , you sound very calm and cool, easy to listen to and understand, just like your writing as I said yesterday. I think besides the info listens and subcribers , will look foward to hearing/reading from you , they also will look to become edaucted by you, and be able to understand the jargon, and how it works…congrats again on a nice show..well done–

  30. 30
    zman Says:

    I’m not DD ing anything at this point on the refiners. If I were going to be anywhere near a phone, internet, tv next week at all I’d be tempted but no luck there. If it were in contact next week I’d see how far tomorrow they’re going to run RBOB. Agree, charts still look negative. Gasoline production was UP but I’d bet CNBC never tells you that. I’m going to roll back the DVR right now to go check.

  31. 31
    H Says:

    N- your the best chartolgiest I ever knew!

  32. 32
    Kevin Says:

    Z – Any thoughts on CNE or the Canadian Trusts in general? They seem way up in the last few months…

  33. 33
    Kevin Says:

    Liz is such a ditz. She needs to just quit the pit report.

  34. 34
    zman Says:

    H – you’re too kind.

    On the subscription front regular readers of this site will be given a pretty good discount. There will also be a discount for people who get the PSW and Zman sites.

    Nicky thanks for the daily PF update. Check your email.

    Kevin – No specific knowledge there. In general they’ve done well here and in Canada. Nice yields and they may be rising of late due to the increased interest in MLPs in the states. We should talk more about this b/c it’s important but I don’t really have a list to work off. Can you send? I can peruse next week and get back to you with something a little more intelligent.

  35. 35
    zman Says:

    Nicky – you got to stop. That last Liz comment made coffee come out of my nose! Good thing my cup was pretty tepid!

  36. 36
    zman Says:

    Half out CHK $35 calls at $1 for 18% gain. Botched that trade badly as it was over a double last week. Second half is well under water and will go by the board shortly.

  37. 37
    zman Says:

    that GRP from a few days ago, it was the worst performer at the time is really cranking today. Best in the OIH up nearly 6% today.

    This was comment 53 yesterday:

    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.

  38. 38
    zman Says:

    More on Subscriptions:

    Nicky is in! That’s got to be worth the price to play!!!

  39. 39
    scoop006 Says:

    Z- Do you have faith in the July FTO P for a comeback?

  40. 40
    scoop006 Says:

    Z- Do you have faith in the July FTO P for a comeback?

  41. 41
    zman Says:

    Scoop – yep, this is a small setback and the more I look into it the more I see next week’s number giving us a reversal in gasoline. Unfortunately I won’t be here. The safe thing to do is bail and rebuy right before the number.

  42. 42
    zman Says:

    and I should add that the aggressive thing to do is to wait out the nat gas number tomorrow, and if it jacks the group, double down the FTO.

  43. 43
    zman Says:

    On that note I’m dumping my TSO Junes as I think it gets pinned to $60. $1 is better than zero and I’ll hold the July’s through my trip.

  44. 44
    zman Says:

    An Hosting sucks. Never use them. Anyone else having trouble getting to the site today?

    Nicky, with distillates up 4.5 cents and RBOB up 3 cents today, where do you think it stops?

  45. 45
    H Says:

    Hey Z – What do you mean by ( Nicky is in! That’s got to be worth the price to play!!! ) Did I miss something ?

  46. 46
    Popeye Says:

    Z, mysql was down a few ago but the site was still running.

  47. 47
    kmmink Says:

    What product mix would cause such a large draw in the high sulfer content distillates??

  48. 48
    zman Says:

    H – she’ll be subscribing.

    kmmink – it looks a bit funny that’s entirely heating oil. Distributors scrambling to refill their tanks as news spreads that there isn’t much of the stuff around.

    Anybody got a read on the differentials in pricing between < 15 ppm and > 500 ppm distillate at present?

  49. 49
    zman Says:

    Thanks popeye.

  50. 50
    H Says:

    Hello …….whers is everybody ?

  51. 51
    zman Says:

    Sorry for the delay…had to take care of a few last minute loose ends.

    I’m not committing further capital to the refining short at present since I’m leaving. If I were staying in town I like VLO long, and FTO or WNR puts. HOC trades to pathetically in options land or they’d make the short list as well.

    Nicky – hear ya, does not look like a key reversal to me either. Has anyone pointed out that gasoline production rose again while utilization sucked?

  52. 52
    zman Says:

    anyone see a consensus number for tomorrow’s nat gas injection?

  53. 53
    zman Says:

    Thanks N. Where’d you see it? Seems to be getting harder and harder to find.

  54. 54
    Dean Says:

    zman and Kevin – Regarding the Canadian energy trusts, the constituent companies of the S&P/TSX Energy Trust Index ($RTEN on stockcharts.com) are:
    Advantage Energy AVN.UN
    AltaGas Income Trust ALA.UN
    ARC Energy Trust AET.UN
    Baytex Energy Trust BTE.UN
    Bonavista Energy Trust BNP.UN
    Canadian Oil Sands COS.UN
    Canetic Resources CNE.UN
    CCS Income Trust CCR.UN
    Crescent Point Energy CPG.UN
    Daylight Resources DAY.UN
    Enerflex Systems EFX.UN
    Enerplus Resources ERF.UN
    Fairborne Energy Trust FEL.UN
    Focus Energy Trust FET.UN
    Fort Chicago L.P. FCE.UN
    Freehold Royalty Trust FRU.UN
    Harvest Energy Trust HTE.UN
    Inter Pipeline Fund IPL.UN
    Keyera Facilities KEY.UN
    Mullen Group MTL.UN
    NAL Oil & Gas Trust NAE.UN
    Paramount Energy Trust PMT.UN
    Pembina Pipeline PIF.UN
    Pengrowth Energy Trust PGF.UN
    Penn West Energy Trust PWT.UN
    Peyto Energy Trust PEY.UN
    Precision Drilling PD.UN
    Primewest Energy Trust PWI.UN
    Progress Energy Trust PGX.UN
    Provident Energy Trust PVE.UN
    Shiningbank Energy SHN.UN
    Trilogy Energy Trust TET.UN
    Trinidad Energy Svcs. TDG.UN
    True Energy Trust TUI.UN
    Vermilion Energy Trust VET.UN

  55. 55
    zman Says:

    Crickey! Thanks Dean!

  56. 56
    T-Tupp Says:

    their was a refiner in the royalty trust sector that yielded 13% and had some upside prospects. z send em the bmo cm list of outperforms at bmo cm research from the .un’s

  57. 57
    T-Tupp Says:

    the yields are paid in canadian petro currency dollars, but thee two are almost at parity

  58. 58
    Kevin Says:

    Thanks Dean!

    When I bought CNE it looked like a fairly stable dividend play. Around 15% yield…Since then the stock is up 25%… along with most of the energy complex. (I’m not complaining and I have already taken some profits) I’m just curious if these energy trusts have an even better story than I realized!

  59. 59
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