Thursday- Combo Oil and NG Inventory Reports

Posted on by zman

Oil & NG Running Early Ahead Of Inventory Reports. October crude is up $0.40 in early trading topping $76 and reports that Israeli planes have bombed targets in Syria will only fuel crudes' fire. Not to be callous but if crude really jumps (CLR-no options but very oil and growing), (APA), (PTR), (SU), and (XOM) will be in my sites for trades. For it's part October NG is $010 higher approaching $5.90. 

Oil Inventory Expectations

exp-vs-act-090507.jpg

  • Crude Oil: I'd expect a number higher than consensus again as imports are likely to be disappointing for a second week in a row. Mexico was still in the process of reactivating GOMEX production through this past weekend. Any way you slice it we're still adequately supplied but recent declines in stocks have made a dent and we're headed into YoY deficit territory if further supply disruptions occur from the GOMEX. I still see oil testing the $78 and change high achieved in early August unless OPEC does an about face next week which seems unlikely.
  • Gasoline: Depends on demand which should have been high and imports which probably fell week to week. Anything in the way of a build would cause me to pretty quickly flip out of my calls, wait a bit, and then buy them back lower. 
  • Distillates: We need to be adding more than this at this time of year. If it comes in close to flat (like this estimate) that's more bullish news for the refiners. 

Here's a Great Chart Showing Planned vs Total Refiner Outages. This Fall promises to be a big one as refiner downtime goes as you can see from the right hand side of the graphic. I'm sure the boys at VLO won't mind if I borrow this graph to illustrate the point that the bit of blue (planned plus unplanned maintenance) is already soaring well beyond planned levels September to date.

refining-downtime-fall-2007-by-vlo-090507.jpg

Natural Gas Inventory Expectations

  • My number: 40 Bcf ish. Based on slightly milder weather which resulted in a 1% week to week drop in electricity demand and lower imports, especially from LNG. An injection of this scale would work to significantly reduce the YoY storage surplus as last year's comparable number was 71 Bcf.
  • Consensus Range: 40 to 55 Bcf.

Natural Gas Continued To Rebound. Call it the resurgence of a home grown Cartel (although that's not fair) or call it fear of more storms, October NG rose $0.175 to close near the high of day at $5.805. 

For Nicky...No Hat Eating Yet.  A Tale of 2006.

nat-gas-2006-post-chk-run-090507.jpg

Talisman (TLM) Says May Cut 2008 CapEx If Gas Stays Weak. TLM may cut back North American spending by a third. You're going to see a lot more of this. Not good for the land drillers but worry about it will serve to put a fire under gas.

Tropics Watch: The tropical wave at far right on this page looks like one to worry about. 


Stocks We Care About: 

  • (CHK) Curtailment, Asset Sale and MLP Conference Call: Putting to rest the need for an equity deal; most analysts appeared to have come away happy. The only real change to my comments from yesterday would be the potential sale and lease back of rigs and compression assets that could yield another half billion $ bringing the total to around $4 billion between now and in 2009. The stock edged 3% higher on the day in an ugly market. We added October calls (see below). On a better market day I think this would have been up $2, not $1. I'll be looking to add more soon.
  • (OII) at Lehman Energy Conference: Highlights from their presentation yesterday.
  • (VLO) Presentation at Lehman. Yesterday Valero gave its pretty standard times are tight and we're prepared for the future speech. Both points are true. Here are the highlights:
  • Industry Fundamentals Remain Strong: 
    • gasoline: demand ytd up 1.3%
    • distillate: demand ytd up 3.3%
    • crude demand global up 1.6 mm, largely driven by Asian surging Asian demand

 asian-crude-runs-090507.jpg

 

  • Refiners "Mission" Has Become More Complex
    • Increasingly sulfurous oil
    • Increasingly tight regulations on sulfur
    • Permits for expansions remain tough to get
    • Increasing physical contrainsts - water, electricity
  • Refining Industry Capacity Additions: Not keeping up with demand. Note in the chart below how the dark blue bar, which represents the capacity to produce upgraded products like RBOB and CARBOB is forecast to not come close to keeping up with the red bar which represents demand.

refining-capacity-from-vlo-090507.jpg

  • Valero is spending heavily to upgrade existing plants for both greater efficiency and more reliability:
    • under running budget 2007 by about 10% due to project delays.
    • Preliminarily they plan to spend $4.7 to 5.0B in 2008. Spending on reliability. Port Arthur - massive expansion >20% irr, St Charles: debottlenecking and adding hydrocracker, this will also balance the refinery which will increase margins by reducing import costs. 
  • Finally, they’ll reduce share count by 15% in 2007 while maintaining investment grade debt.
  • (NFX) Speaks At The NYSE Euronext Virtual Investor Forum. They present today at 10:30 EST.
  • (APC) - Updates Independence Hub progress. Five wells producing total of 250 Mmcfgpd (on the way to 15 wells and 1 Bcfcpfd); still on time and on budget.

Holdings Watch:

CALLS:

  • (CHK) Added Oct $32.50s for an average of $2.05. Last bid $2.20.

PUTS: No Action. 

Odds & Ends 

Analyst Watch:

  • Bernstein upgraded independent refiners (SUN), (VLO), (TSO) and also mini major (MRO) from underperform to neutral saying we're "closing in on the seasonal margin low". They bumped price targets to current levels (guess they were a little low huh?) and are raising EPS estimates substantially...I've been saying that for weeks but it's nice to have the company. I always love it when an analyst is late to the party, takes up estimates but makes a worthless ratings call (neutral). In other words they would have been buys if you hadn't been asleep at the wheel three weeks ago.
  • RBC initiates (HK) at outperform.

Rockies Watch: Their day will come: (BBG), (PETD), (SJT), and (PINN) but not yet.

Nippon oil to pay Iran for September oil loadings in yen. Not exactly a bullish statement for the greenback. Many OPEC members have been calling for the historically dollar denominated barrel to be switch to Euros. They have massive dollar reserves and I'd guess they're tired of watching them tumble in value. 

 

 

106 thoughts on “Thursday- Combo Oil and NG Inventory Reports”

  1. Crude Hits One-Month High Ahead Of US Inventory Data

    By David Elliott
    Of DOW JONES NEWSWIRES

    LONDON — Crude oil futures stretched to one-month highs in London Thursday morning on expectations of a further fall in U.S. inventories and gathering technical strength.

    Traders said further gains are likely if the Department of Energy’s inventory data proves bullish, but warned stiff overhead resistance may cap the upside short term.

    “We’ve had a strong run up over the past two weeks and that’s pulling the technical traders back in but you’ve got to think we’re looking vulnerable at these levels,” said a trader in London.

    At 1115 GMT, the front-month October Brent contract on London’s ICE futures exchange was up 34 cents at $74.68 a barrel.

    The front-month October contract on the New York Mercantile Exchange was trading $0.42 higher at $76.15 a barrel.

    ICE’s gasoil contract for September delivery was up $10.25 at $661.25 a metric ton, while Nymex RBOB gasoline for October delivery was up 105 points at 200.70 cents a gallon.

    The primary reason for the nervousness over the crude market’s current position is the fact neither Brent or WTI have had a chance to correct during the run up from the respective August lows of $68.14 and $68.63 a barrel.

    Technical analysts at Barclays Capital said WTI could see further gains to $76.45 a barrel and Brent to $74.50-$74.90 barrel but will likely “top out” at these levels and correct lower.

    But much will depend on how the market views Thursday’s U.S. inventory report.

    Analysts surveyed by Dow Jones Newswires expect both crude and gasoline inventories to fall by 1.1 million barrels, distillates to rise by 100,000 barrels while refinery utilization is expected to fall by 0.2 percentage points.

    Some feel the erosion of crude futures may be deeper.

    “As we see it, crude stocks could well have shrunk even more, which would give a boost to oil prices,” said Eugen Weinberg, an analyst at Commerzbank in Frankfurt.

    But others felt an Atlantic hurricane may have skewed the erosion of crude stocks to last week.

    “Last week’s 3.5 million barrel draw was primarily due to a reduction of imports into the Gulf of Mexico due to Hurricane Dean, so it is highly likely that these imports will now have entered the system and will affect the headline number,” said Rob Laughlin, senior broker at MF Global in London.

    Whatever the report shows the market is unlikely to see considerable movement ahead of the Organization of Petroleum Exporting Countries meeting in Vienna next week.

    It’s widely expected the organization won’t up production to quell the current price rise and that opinion in itself is also bolstering prices.

    KBC Market Services said in a note to clients that OPEC is stuck between a rock and a hard place as a decision to ramp up oil production would see oil prices fall to $60 a barrel while a decision to keep prices unchanged will push prices up to $80 a barrel.

    “The key OPEC decision-makers…would be equally uncomfortable with either of these outcomes,” it said. “If OPEC does not impose a price ceiling, the market will continue to search it out by pushing up prices to discover the point of resistance.”

    —By David Elliott, Dow Jones Newswires

  10. labor costs up less than expected.

    Speculation regarding Fed talk moves further from “if” towawds “how much” they will cut.

  11. should have added PBR to the list of oily stocks I’m watching. Yet another nice deepwater discovery off their own coast announced this morning.

  12. there were also reports of a Syria says air defenses fired on Israeli warplanes, reports in Syrian airspace. Israeli officals later denied any bombing on Syrian targets. News hit around 7:43

  13. either way, tensions are definitely up in Gaza again and the Israeli people are demanding action vs Hamas. The oil market looks like it believes the report at oil is cruising now up 0.85 to 76.60

  15. CLR opening flat at $15. This is my favorite newcomer to the oily collection. You can check out the Zeb Reports menu for a synopsis written when they came public last spring and on the hedges they added since. No options but I like the common.

  18. Thanks Q –

    I’m not saying I believe in them as far as sustainability goes but I think they go higher before falling back into the mid $70s with a low still around $67.50 at worst near term.

    I’d appreciate that what we’re doing over here not be communicated to that or any other site. I’ll take care of that if necessary. Thanks.

  19. Z,

    I bought into HALIG a little lower than when you posted the trade and have 30% gain already: will we see 37.5 this month on HAL?

    “SAFETY PAYS”

  20. Q – re HAL – I think so but I’m also setting stops on that one and looking to dump the Septembers and roll longer next OIH / market weakness day.

  24. Quarryman – I would enjoy talking with you about cement and aggregate stocks sometime, no urgency just interested in investing when the time gets right. Here or via email.
    Thanks

    Greg

  25. EOG and Oil. Unreal the association this primarily gassy stock has with crude.

    HK back over $16

    NFX and SWN continue to march up day by day.

    Crude up $1.50 to $77.25
    NG at 5.94

  26. Greg,

    VMC and MLM are keepers. Everything is built on aggregates, concrete and roads are made out of aggregate, and these guys have cashflow ALWAYS. When (small if) the DEMS take over, the voter-friendly focus will be to wage war with cruise missiles and aircraft carriers again, and to focus our free hundreds of billions on needed infrastructure improvements.

    MLM and VMC have risen meteorically this year and settled back quite sharply. They are nice equity buys for LT hold right now. As to options plays, I’m holding LEAPS to leverage the equity positions I already have.

    We’re the lowest beta folks on the mining block, non-global in nature, and [surprising] not a commodity.

    “If you didn’t grow it, you mined it!”

  27. Thanks Quarryman, any opinion on RMIX or others?

    I will add MLM to my watch list of: VMC, CX, EXP & TXI

    “You Rock Quarryman!” Bet you’ve heard that before. 😉

    Greg

  28. HAL stop question from earlier: yeah $0.40 is about right.

    Got to get on the radio…setting stop just under VLO and TSO calls for the report.

    Both have had great moves and I like em medium term but one bad report can really hit you.

  32. Q – We just went over live on MN1.com. That show is fun (we normally do Wednesday) but a bit of a distraction.

    TRADE: out half VLO calls, out half TSO as per stops

  33. Demand for gasoline still holding 9.6

    Sane you got those API #s?

    Natural Gas: 36 Bcf – that’s light of Street expect but gas off to up $0.07 as oil retrenches a bit.

  36. Please interpet, just a little, for me the portent of these numbers. You guys are used to cracking crude, I just crack rocks!

    So, Z., you’re trading half of the VLO to lock in the nice gains in the past three weeks. Just to build cash, or because you think oil is a little top heavy.

    I’m trying to weigh Phil’s broad market view, with your sharp oil knowledge, with Wang’s {amazing] short-term trading finesse.

    Pretty soon I’m gonna reach brain lock and go up in the pit and just run a Cat pit loader for while to clear my head! 🙂

    Any help is appreciated.

  38. I was just doing it to protect profits but I botched it. Tough to type, set stops and check to make sure they work while on the radio. I’m holding for now.

    Where’s your quarry. I’ve got a bit of the “dirty jobs” mentality to me, especially on weekends.

  39. API and DOE at odds in gasoline. I am surprised at the refinery util especially with all of the “reported” problems.

  40. That was a big rally in gasoline imports (1.3 million bpd)…wouldn’t have expected that but they are volatile. Probably ever tanker in the vicinity made a last ditch effort to get here for the holiday weekend. Bet we’re below 1 mm bpd in 2 weeks time.

    That gassy list from yesterday’s note:

    “This will have positive ramifications for the gassy stocks in general but especially for big liquid names like (APC), (COP), (EOG), (XTO) and a little later with gassy mid caps (NFX), (SWN), (KWK), (CRK) all the way down to minnows (PQ) and (HK).” is on the warpath today save SWN and PQ.

    Phil had a short play on COP on the radio, I had the long side.

  41. Apologies for no posts but lost internet access last night and its only just come back up. Still may disappear again – something damaged in storms.

  48. Strong day in E&P land.

    NFX and CRK raging higher

    COP on a rampage along with all the gassy names from yesterday’s post and the oily names from today’s

  51. ZMAN thanks for the help logging in and the CHKAR trade. nice pop since i got in at $0.75 and time at my side for the winter just around the corner.

  54. Z – just looking at that graph – by the looks of things the low in nat gas did not come until the end of September last year – 3 long weeks to go!

  57. Nymex Crude Climbs Back Closer To $77/Bbl

    DOW JONES NEWSWIRES
    From MARKET TALK:
    [Dow Jones] Nymex crude oil climbs back to near $77/bbl after slumping on mixed DOE inventory data. Oct crude +$1.03 at $76.76 after falling as low as $76.12 since the data were released at 10:30 a.m. EDT. A bigger-than-expected fall in crude stockpiles is supporting prices, as is a terrorist risk in Nigeria and Syrian claims that Israeli jets flew into Syrian airspace, traders say. (matt.chambers@dowjones.com)

    Reported earlier:
    NEW YORK — Crude oil futures pared early gains Thursday, falling from a one-month high as a drop in U.S. inventories failed to meet some expectations that had sent prices soaring in early trade.

    The front-month October light, sweet crude contract on the New York Mercantile Exchange was recently up 84 cents, or 1.1%, at $76.57 a barrel, after earlier rising as high as $77.43, the highest for a front month contract since Aug. 2. Brent crude on the ICE futures exchange rose 71 cents to $75.05 a barrel.

    The Department of Energy said crude oil stockpiles fell last week by 3.9 million barrels to 329.7 million barrels. While analysts surveyed early in the week by Dow Jones Newswires had looked for a 1.1 million-barrel fall, prices had rallied $3 a barrel since Friday, partly on expectations that the data would be more price supportive than early forecasts.

    “The DOE numbers are pretty bullish, but I think the crude rally, which started Tuesday, might have gone a bit far,” said Tony Rosado of IAG Energy Brokers in Fort Lauderdale, Fla. Gasoline futures were hit by an unexpected rise in U.S. refinery use, Rosadao said.

    Refinery utilization rose 1.8 percentage points to 92.1% of capacity, compared with expectations for a 0.2 percentage point gain, the DOE’s Energy Information Administration said in its weekly inventory report. Gasoline stockpiles fell by 1.5 million barrels, compared with expectations of a 1.1 million-barrel fall, while distillate stockpiles, which include heating oil and diesel fuel, rose 2.3 million barrels, much more than expectations for a 100,000-barrel gain.

    Front-month October reformulated gasoline blendstock, or RBOB, fell 72 points, or 0.4%, to $1.9893 a gallon. October heating oil rose 2.54 cents, or 1.2%, to $2.1253 a gallon after earlier rising as high as $2.1508, a one-year high.

    “The build in distillate was larger than expected and the recovery in refinery runs was a surprise to most observers,” Tim Evans, an analyst at Citigroup in New York said in a research note. “Overall, this is mixed data.”

    Prices were also boosted after the U.S. embassy in Nigeria said U.S. and other “Western interests’ in the oil-rich African nation are at risk of terrorist attack and after Syria said Israeli jets invaded Syrian airspace and “dropped ammunition” over deserted areas of Syria.

    “The reports on Nigeria and Syria are all feeding into the price rise,” said Mike Fitzpatrick, an energy analyst at MF Global in New York.

    –By Matt Chambers, Dow Jones Newswires

  59. Houskeeping Item: Trade Blast Emails (Z-Blasts)

    The Tech on the Email Trade blast is solved. There will be a post about this tonight but for now, if you want notification of trades (beginning next week) please either leave a comment here with EMAIL BLAST as the topic or send me an email at zmanalpha@gmail.com with EMAIL BLAST as the subject line.

    I understand that not everyone wants or even cares about the option and occasional stock trades so you’ll need to notify me to get them.

  62. Looks like that 3 Tcf headline is scaring some traders into taking quick profits …NG down $0.17 to $5.63.

    Couldn’t tell it from the last update on CNBC where the weather girl just talked about OPEC not doing anything at the upcoming meeting.

  63. OIH down a little on concerns of a N. American slow down in drilling activity. CHK plus TLM would confirm the threat but SLB move down $2 is a bit overdone. Thinking about it.

    RIG off a buck + on old news, ditto DO

    Most of this just looks like profit taking on oil to me, not concerns over OPEC. Oil not really plunging here.

  64. Nymex Crude Falls Below $76/Bbl, Now Steady

    DOW JONES NEWSWIRES
    From MARKET TALK:
    [Dow Jones] Nymex crude pares more gains and is trading steady, with Oct crude -6c at $75.67/bbl. Crude had risen as high as $77.43 but RBOB gasoline is leading the way after refinery use rose more than expected in weekly DOE inventory data. Terrorist threat in Nigeria now being downplayed by US embassy after earlier reports that there was a risk. (matt.chambers@dowjones.com)

  67. Zman:

    I see some bought 407 September VLO 90 calls at .05. I always find this telling for the future. I believe this sector is getting ready for another leg up by Thursday of next week. After that options will begin to decrease in value. Any thoughts.

  68. It is the daily continuation chart on natural gas that for me argues that we have yet to see ‘the’ low in natural gas.
    If the count is correct then iii of iii may already have started or alternatively we could still be in ii up with iii down to come. I still expect to see a low of significance this month.
    If one looks purely at the October contract then it can be argued that the low is already in.

  69. T –
    1) ha, that’s insulting cc folks!
    2) agreed, looking at the Oct 85s

    Big Jim
    1) they’re going for a poor man’s double. You should need about a 5 pt move by Monday to make that work. Any longer and it just gets harder and harder. $3 but to breakeven in same time frame.

    Maybe happen, maybe not but the double would be quite a feat. I think it’ll move up as well but I like my $ more or am not as confident of the magnitude of such a quick move as they are! I like my $65s and am looking to dump them and get Oct 70s on this weakness.

  72. T – nice reminder on the APA

    Bidding CALLS:
    APA Oct 85s,
    VLO Oct 72.50s

    wow: HAL (up 1%) and SLB (down 2%). Thinking about taking some SLB long at the close.

  74. 85’s eh you wild man! i havent taken another run at this issue since i lost $60,000 on it in march

  75. Hey, they’re Octobers and the stock was $89 mid July. $60K on APA…no wonder your surly…

    Crude back over 76 and epperson none the wiser.

  80. Nicky – Hi. Off energy subject. Financials seem to be rotating higher without an aggressive conviction. Where could we be?

  87. Pretty nice day for the day’s list of oily stocks that will do will on an oil breakout, even if oil failed to maintain its momentum into the close.

    Especially, APA and PBR. Chinese oils doing very well.

    Nice recovery in RIG and DO as per #63 above

    Nothing done on APA or VLO calls

  88. Scoop – I was using you as a control point but had the wrong button clicked when I hit send. Now I’m getting A LOT of emails telling me you all got the blast test and a few sarcastic ones telling me you didn’t get it.

  92. ZMAN – So bidding refers to I’m thinking about it….

    What firm/analyst seems to correctly call the turn in energy stocks, or at least catch the next wave up?

  93. Scoop – you were the only one not to get it.

    Q – some times it gets quiet around here.

    RAM – bidding refers to being cheap and trying to buy it on the bid and having the bid walk away from me as both stocks lifted.

  97. Nymex Crude Pares Gains On Nigeria, DOE Data

    By Matt Chambers
    Of DOW JONES NEWSWIRES

    NEW YORK — Crude oil futures were steady Thursday, paring gains after a drop in U.S. stockpiles failed to meet some expectations that had sent prices soaring, and as the U.S. Embassy in Nigeria downplayed the risk of a terrorist threat in the oil-rich African country.

    The front-month October light, sweet crude contract on the New York Mercantile Exchange was recently up 6 cents, or at $75.79 a barrel, after earlier rising as high as $77.43, the highest for a front-month contract since Aug. 2. Brent crude on the ICE futures exchange was unchanged at $74.34 a barrel.

    The Department of Energy said crude oil stockpiles fell last week by 3.9 million barrels to 329.7 million barrels. While analysts surveyed early in the week by Dow Jones Newswires had looked for a 1.1 million-barrel fall, prices had rallied $3 a barrel since Friday, partly on expectations that the data would be more price supportive than early forecasts.

    “The DOE numbers are pretty bullish, but I think the crude rally, which started Tuesday, might have gone a bit far,” said Tony Rosado of IAG Energy Brokers in Fort Lauderdale, Fla.

    Also weighing on prices, which managed to hold above $76 a barrel for three hours after the data was released, a U.S. Embassy official downplayed a warning of the risk of terrorist attacks in Nigeria, saying the warning reflected general security concerns amid news of a terror plot in Germany and the upcoming anniversary of the Sept. 11 attacks on New York.

    Earlier Thursday, the embassy said it had received information “that U.S. and other Western interests in Nigeria are currently at risk for terrorist attacks.” That statement helped send prices above $77 a barrel.

    Refinery utilization rose 1.8 percentage points to 92.1% of capacity, compared with expectations for a 0.2 percentage point gain, the DOE’s Energy Information Administration said in its weekly inventory report. Gasoline stockpiles fell by 1.5 million barrels, compared with expectations of a 1.1 million-barrel fall, while distillate stockpiles, which include heating oil and diesel fuel, rose 2.3 million barrels, much more than expectations for a 100,000-barrel gain.

    Front-month October reformulated gasoline blendstock, or RBOB, fell 4.35 cents, or 2.2%, to $1.953 a gallon. October heating oil rose 1.64 cents, or 0.8%, to $2.1163 a gallon after earlier rising as high as $2.1508, a one-year high.

    Traders said gasoline futures were falling while heating oil held steady because of repositioning as the peak summer driving season draws to a close and readying for the weather to turn colder.

    “We are near the end of the season and traders that are long are bailing out of gasoline,” said Tom Bentz, an analyst and broker at BNP Paribas Futures in New York. “Despite low stocks demand is expected to begin declining somewhat.”

    Prices were held up somewhat by concerns of Middle East conflict after Syria said Israeli jets invaded Syrian airspace and “dropped ammunition” over deserted areas of Syria, according to the official Syrian Arab News Agency. It wasn’t specified what type of ammunition was dropped.

    Nymex crude hit a then-record $77.80 a barrel in July 2006 on fears fighting between Israel and Hezbollah Islamic militia in Lebanon could spill over to involve Iran and threaten global oil supplies.

    –By Matt Chambers, Dow Jones Newswires

  98. Ok, let’s try this from a different angle. I’ve just sent an email out. Unless you reply stating you don’t want the blast you’re going to get them as there’s way more interest than I originally expected.

    Out for an hour

  104. Zman:

    Not sure you are on, if not no big deal. But I was driving this afternoon and listening to CNBC. Ron Insona said someone told him that if Job Data is bad enough or a negative number, a 1/4 point rate cut could happen tomorrow. I was surprised to hear that. First time I heard about it even being a possibility. If that happens stocks will take off. Back to watching football.

  105. R – apologies I had to go out. Broader market setting up for a big move. I favor the downside but if higher highs are still out there then there is firm resistance at 1500 spx.

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