The EIA reported a withdrawal of 36 Bcf, just shy of the Street's estimate of 42 Bcf. Gas traded from down $0.16 at the time of the EIA's report to flat by the close at $9.68 on the May contract, which becomes the front month tomorrow, on the back of surging crude prices. The weather is getting warmer and I expect gas to begin to soften as we enter the slack demand of the "shoulder season" where heating demand collapses before making the hand off to gas-fired generation demand.
CNBC Guest Watch: A CNBC guest gas trader on late in the day commented that gas storage is low and that this will keep gas prices going higher with a small pullback in the near term. He sites all the bull side and none of the bear and saying gas storage is low is woefully misleading. Storage is above the five year average and is right in the middle of the range as you can see in the first chart below. He mentions LNG not coming to the U.S. (that will change in April since we need test volumes to commission new facilities) but neglects to put numbers to the equation so let me:
- LNG off 1.0 to 2.0 Bcfgpd depending on the week on a YoY basis.
- Canadian imports are actually running flat to a touch high to year ago levels (call it 0 to 0.5 Bcfgpd). I expect imports to the U.S. to begin to ebb this year but I've been looking for that to happen for the last 2 years and still volumes keep coming south.
- Domestic production: (ah, this was totally skipped). Up 3 to 4 Bcfgpd and potentially higher now. The industry has worked hard to debottleneck the West and the Barnett and newer shales like the Fayetteville are cranking. The top E&P companies are looking at high single digit and even double digit North American gas volume growth which is almost unheard of. These volumes are treadmill volumes for sure meaning you can't slow your pace of drilling without seeing a quick response in rate but few are talking about slowing down at present.
- So I'm Back To UNG Puts. Subscribers please see the Holdings Wiki for specific contracts.
- Yet I Remain Long Numerous E&P Stories. Why is that? Several reasons really, chief among them being valuation, then opportunity set, strength of balance sheet, an improving operating cost environment ... I won't go over the whole list tonight as I have dinner guests but if you subscribe, and the time to get in on current low rates (locked in for at least a year) ends in 4 days, you'll open up a world of information along these lines. Click here to check it out.
Valuations Remain Low. The E&P names are by no means expensive and by no means discounting anywhere near the futures market view of natural gas prices. Analysts are slowly raising their pricing assumptions but a healthy discount between strip and estimates remains.
Strip Pricing Remains Buoyant:
- 12 month strip: $10.17
- 24 month strip: $9.72
Analyst Price Decks Remain Conservative:
- 2008: $7.72
- 2009: $7.88
The Charts:
hk, strong accum today, somebody parked @20 this morning with stealth no bid shown & bought everything sold from about 10 to 10:50 . then the price took off. it still does not seem to be in play & limited option action. good news for us accum now. the best fits to me r dvn, eog & eca. dvn will be on 3-28-08 listen to richels they like to acquire long range inventory for development. high stock price for these cos gives them a great opp to acq assets for stock. i anticipate that dvn will merge with pbr but don’t discount the odds that 1 of the big 5 doesn’t make a play for them. this is definitely a stock under accumalation. call me crazy, gut feeling, to many hours theorizing, but somebody is going to make a play for 1 of these large e&p cos really soon. The super big cannot find these kind of reserves thru exploration. musing of a late nite oil trader, t
Imports: Encana earlier projected 2008 US production increases would more than offset it’s Canadian decreases. I’d assume the same for other major producers.
I notice that you do not take positions on USO. It looks to be primarily 90% CL and balance in brent, NG, HO and other deriviatives. Assuming next weeks CL report is bearish due to imports is it time to buy USO puts. How well does it track CL.
md – it has been a long time since I felt like oil was going to fall for anything other than a quick trade so you haven’t seen me do a USO put. On the long side I get more bang for the buck by going with the oil-leveraged names like SU and APA which outperformed crude when it rallies.
USO does track CL pretty well but I don’t care for the spreads there so much.