28
May

OPEC Thursday + Natural Gas and Oil Inventory Previews

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OPEC Watch: Production Quotas Unchanged. The Cartel left production quotas unchanged, as expected, saying compliance is running 79%. Saudi Arabia said some of their customers are asking for more oil and they are refusing to increase production.

 

The U.S. War On Oil Companies Watch: Draft legislation on Federal leases in the House now:

  • Minimum royalty would be increased 50% to 18.75%. This would be applied to new and existing leases.
  • RIK (royalty in kind) payments would be ended. RIK allowed companies to pay a portion of their royalties to the Feds in the form of actual barrels.
  • Federal lease holding times (the time you have until you have to drill it up and get it under production) would be halved from 10 to 5 years.
  • The Obama Administration added a clause to existing leases, adding a charge of $4 per acre on non-producing leases and rising to $10 per acre in year ten.  These are leases that energy companies already bid on and paid money to the federal government for. Technically, the Feds are not just throwing out the old contract in favor of a new one, they are amending the old one.
  • ZComment: Speechless. Ok, not quite. So, the idea here is to jack up the cost of production and rush decisions on things like deepwater developments. The administration has said it does not believe raising royalty rates will have a significant impact on U.S. production. Does it think this is going to increase production? Setting aside the increased royalty burden for a moment, the acreage charge is, for lack of a better word, bogus. E&Ps and Majors hold large portfolios of leases in the Gulf of Mexico. The decision to drill or not drill a lease depends on a variety of factors including oil and gas prices and service costs as well as science. The companies know that not all of their leases will get drilled but again, it is a portfolio and not all items in a portfolio are going to be winners. These leases often go at the Federal lease sales for millions of dollars, sometimes 10s of millions for a contested block.  For the government to simply come along and change the deal now, when times are tight, only reduces the ability of the companies to invest in oil and gas projects. To the government, I can only say "Good luck at the next lease sale."

 

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Inventory Preview
  4. Oil Inventory Preview
  5. Stuff We Care About Today - WRES
  6. Odds & Ends

Holdings Watch

  • PXD -  Added a July $30 Call position (5) (PXDGF) for $1.05 with stock at about $26. Added (10) more of the July $30 Calls for $0.80 with the stock at $25.25 later in the day.

Commodity Watch

Crude oil rose a buck to close at $63.45 yesterday, another 6 month high, on OPEC meeting eve, despite a firm dollar and a sagging equity market. This morning crude is trading slightly higher despite a stronger dollar and in the wake of the lack of change in production by OPEC.


The July natural gas contract which takes over as the front month contract today closed flat at $3.62 yesterday. See storage thoughts next section. This morning gas is trading flat.

Natural Gas Inventory Preview - to be released at the normal time.

  • My Number: 110 Bcf Injection.
    • Weather: same story as the prior week, a bit milder but noticeably. We did have the holiday weekend to contend with which means less industrial and commercial demand.
    • Imports: Down 0.6 Bcfgpd from last week and down 1.0 Bcfgpd from last year. All of the delta is attributable to falling Canadian volumes.
  • History:
    • Last Week: 103
    • Last Year: 87
    • 5 Year Average: 90
  • The Street's Number: 114 Bcf Injection.

ZComment: Gas is likely to firm up with a number below 100. Any disappoint is probably going to prompt a test of $3. It will most likely be short lived but gas is one of the more volatile commodities out there and  

Oil Inventory Preview - released at 11am EST.

 

API Watch:

  • Crude oil: Down 2.8 mm barrels
  • Gasoline: Down 0.76 mm barrels
  • Distillate: Up 1.4 mm barrels

ZComment: The week preceding Memorial Day, which today's report covers, is typically one in which crude stocks are falling, sometimes, like last year's 8.8 mm barrel drop, by large amounts as the refiners ramp production of gasoline. That appears to be the case with the API numbers above. There are a lot of moving pieces but it appears utilization moved back up along with imports and that increased gasoline demand was partially offset by increased gasoline production. The demand number for gasoline today needs to come in above last weeks 9.2 mm bpd or gasoline will not stay at the current elevated levels.  The numbers may be overshadowed by OPEC entirely as they make reassurances about getting better compliance in the future but if not, it is going to be the demand for gasoline that will determine where crude heads next.

Stuff We Care About Today

WRES Post Watch:

The Nutshell: Warren’s primary assets are a) two waterflood units in the Wilmington Field of Southern California - from here they produce essentially all of their oil and about 60% of their total production and b)  two coalbed methane plays in the Powder River and Washakie (Green River) Basins in Wyoming which until recently have provided a growing wedge of natural gas production.  While they have large undeveloped potential in both plays, neither of their programs work well at the low prices seen in the first quarter. The reserves in California are low risk, long lived, and predictable to produce with the application of sufficient capital and newer technologies. As of last quarter they were cash strapped with a tapped out revolver and negative cash flow.  This is not exploration but exploitation and those long-lived assets mean that they are not on a production treadmill so they can afford to "hunker down" and await higher prices, keeping spending at a minimum to maintain production levels. Like many of their oily brethren their stock price has suffered enormously, much more than oil itself did. My sense is they will "make it" and that as oil rises so too will their equity valuation, either via a rising stock price or via by acquisition by a larger entity who finds it cheaper to "drill on Wall Street" than with the drillbit.  I own the common at $1.80 and some November calls a little higher than here.

Read the full WRES update piece here.

 

ECA Cuts Proposed Haynesville Acreage Sale Size

  • Strong drilling results have led ECA to cut its proposed sale of Haynesville acreage from 134,000 to 30,000 acres.
  • ECA now believes the core of the play has moved further south
  • ECA thinks the Bossier shale may ultimately challenge the Haynesville in terms of size - that's a bold claim and early in my book given that they have completed one horizontal well to date.

Conference Presentations To Watch Today: (red bold I plan to listen to; all times EST)

  • 8:00 AM APC
  • 8:50 AM HAL, KWK
  • 9:40 AM CHK, PXD
  • 1:30 PM UPL
  • 2:20 PM FTO, RRC
  • 3:10 PM  SD
  • 4:00 PM XCO

SWN Deutsche Bank Conference Takeaways

  • Spacing & Drilling Locations - They still don’t know how far they will be able to downspace the Fayetteville Shale, so despite the fact that they have taken production here from 10 MMcfepd in 2005-- to over 850 MMcfepd at present they are not in what you'd call development mode. It sounds like they are thinking maybe 30 acre spacing but there is more pilot testing to do to see if such tightly drilled sections are optimal. This will translate into A LOT of drilling locations, over 25,000 if much of their 875,000 acre position were to work.
  • On sand, they are using 4 mm pounds per well, have bought their own sand mine, converting it from wet to dry status now and will be running by year end 2009. This will provide 2/3 of their sand needs going forward. They see a savings of $100 per ton or $200,000 per well.
  • They have taken drilling days from 16 in 2007 (I think) down to 12.8 last year, to 11.6 in the first quarter and just drilled 2 wells in 7 and 8 days.
  • They see further cost reductions via pad drilling. Time savings will be more when they drill more wells from a single pad, almost all of their pad wells so far have been 2 well pads, going to four.
  • If they continue to reinvest cash flow from the Fayetteville they don’t see peak production until 2018.
  • Realizations: Were recently seeing realized gas prices that are $1.50 to $1.60 per MMBtu below Nymex. The gas that is getting East of the Mississippi is getting 1 or 2 cents positive to NYMEX goal is to get more gas to the East (recall they have hedged basis)
  • Hedges
    • 2009 - about 50%
    • 2010 - about 12%. They will up this to 50 to 70% hedged as they move towards year end.
      Sounds like they came close to locking in some 2010 $7 gas last week but didn't and then the gas market pulled back. They think they will get another shot or two at locking in 2010 gas at that level.
  • I hold (5) SWN June $40 Calls in the $10KP as well as some common stock in the personal account.

Odds & Ends

Analyst Watch:

  • (DVN) cut to Hold at Argus
  • (FTI) cut to Neutral at HSBC

125 Responses to “OPEC Thursday + Natural Gas and Oil Inventory Previews”

  1. 1
    bill Says:

    >To the government, I can only say “Good luck at the next lease sale.

    You are 100% right on. The current administration doesnt understand free markets or business cases. By doubling the royalty and halving the time to drill they de-valued what they are leasing. So as a result, lease values will fall and so will production

  2. 2
    Sambone Says:

    By Lananh Nguyen
    Of DOW JONES NEWSWIRES

    LONDON (Dow Jones)–Crude oil futures rose to a six-month high Thursday in
    London after OPEC left its output targets unchanged at a summit in Vienna.
    In a decision largely expected by the market, the Organization of Petroleum
    Exporting Countries – which produces 40% of the world’s crude – cited the state
    of the global economy as a reason for leaving its production policy unchanged.
    Despite some recent positive economic indicators, “the world is nevertheless
    still faced with weak industrial production, shrinking world trade and high
    unemployment; for this reason, the conference decided to maintain current
    production levels unchanged,” OPEC said in a press release.
    At 1137 GMT, the front-month July Brent contract on London’s ICE futures
    exchange was up $0.31 at $62.81 a barrel, recouping some earlier losses.
    The front-month July contract on the New York Mercantile Exchange was trading
    $0.23 higher at $63.68 a barrel.
    The ICE’s gasoil contract for June delivery was up $8.25 at $495.75 a metric
    ton, while Nymex gasoline for June delivery was down 68 points at 188.49 cents
    a gallon.
    The recent rally in oil prices is enough to satisfy OPEC members and they
    “don’t want to endanger pushing economies that are still unsteady,” by
    embarking on new cuts, said David Hart, an analyst at Hanson Westhouse in
    London.
    “It’s a pretty pragmatic move on their part…[a cut] would have been
    effectively putting more strain on those economies” trying to get out of
    recession, he said.
    Last year, OPEC embarked on a series of production cuts to reduce oil supplies
    by 4.2 million barrels a day. The cuts have helped to shore up oil prices,
    which are 40% higher since the start of 2009.
    In the wake of Thursday’s meeting, OPEC officials pledged to raise compliance
    to the 2008 cuts in a bid to counteract oversupply.
    Francisco Blanch, head of global commodities research at Bank of America
    Merrill Lynch in London, warned economic uncertainties and high inventories
    were still a risk for OPEC.
    “The market is steadily but surely coming into balance and obviously they’re
    happy about it…[but] September will be a different environment and maybe we
    will get a different response there,” Blanch said. OPEC’s next meeting is
    scheduled for Sept. 9 in Vienna.
    Separately, oil market participants are also looking ahead to the U.S.
    Department of Energy inventory report, due at 1500 GMT. Analysts surveyed by
    Dow Jones Newswires expect the DOE to report a 500,000 barrel decline in crude
    oil stocks, a 1.7 million barrel fall in gasoline inventories and a 1.1 million
    barrel rise in distillate supplies.

    -By Lananh Nguyen, Dow Jones Newswires
    Dow Jones Newswires
    05-28-09 0745ET

  3. 3
    bill Says:

    On bulkers, bdi up again.

    I was at the right track and bet on the wrong horse. Free and Sblk reported after the close

    Sblk released after the market and came in at .17 vs 25 estimate. They hedged their position in ships by shorting futures (ffa’s) and had a 3 m loss on the hedge.
    The good news is they locked in 100 % in available days. They re wrote 4 charters lowering the rates but extending the terms. Cash is growing and will continue to grow even after debt repayments and they are making about 9 k per day on 12 ships or 108 per day, which is locked in.
    The earnings estimates are too high as they dont reflect the new charters that were extended. It traded down 5 % after market

    Free reported great numbers (I havent had a chance to go thru it yet) but it trading up over 20 % in premarket.

    Dsx has no net debt and should rise today

    drys , i would avoid under any scenario as the ceo is a crook

    exm, same as drys but the ceo larceny is slightly less. He gave himself shares at 1.75 and free warrants when the stock was 5

    this is FREE earnings here reported .29 vs .25

    http://finance.yahoo.com/news/FreeSeas-Inc-Announces-2009-pz-15367812.html

  4. 4
    zman Says:

    Bill – thanks for the update on the bulkers. Durable goods orders being up won’t hurt them either I’d think.

    BOP – saw your comment on WRES piece. Thanks. I don’t think you are missing anything with your summation. On the differentials I gave them a pretty good haircut using a little steep discount than the average of the last couple of years for oil and for gas. That includes some quarters where basis was extremely blown out so should be conservative as in a rising price environment basis should be contracting, first on the oil side, later for gas.

  5. 5
    zman Says:

    Can’t seem to locate a link to the KWK presentation starting now.

    Will be listening to PXD in about an hour.

  6. 6
    BirdsofpreyRcool Says:

    z — one thing to note on WRES… under no currently-expected oil price scenario is the company EPS positive. But, as we know, it’s Free Cash Flow, EBITDAX, and value/BOE that drive a company’s valuation. Negatve EPS headlines can give some people heart palpitations on release. So, just wanted to note that.

    I can’t believe how completely “wrong-headed” the thinking is in Washington on domestic E&P. But, how can i expect anything else? In part, it’s brilliant, raise current revenues (although future lease revenues will come in lower), if prices at the pump go up, politicians can just blame the “greedy oil companies.” It’s just so sick. The shear mountains of money (that are capitalized, not expensed) to bring on, let’s say, a Thunder Horse… Well, it’s our own Govt, continuing to wage it’s war on the private capital markets.

    End game = govt owns more and more of the economy = politicians have more and more of the power = decisions become less and less economic = who wants to buy US Debt again?

    Not good. Not good at all.

  7. 7
    bill Says:

    >if prices at the pump go up, politicians can just blame the “greedy oil companies.” It’s just so sick.

    thats the beauty of the administration plan..

    do everything under the sun to stop production

    – no drilling on federal land
    – half lease terms
    – double royalty rates
    – no drilling offshore except gom
    – then when gas at the pump goes to 5 bucks blame the greedy oil companies

    I see very bad times ahead .. oh yeah and its all Bush’s fault

  8. 8
    bill Says:

    Free indicated up 50 %
    dsx up 2 %
    drys down 1 %
    sblk down 5 %
    nm up 3 %
    exm up 1 %

  9. 9
    BirdsofpreyRcool Says:

    bill — if our country was running a surplus, we would make it through all this nonsense and work it out (eventually). But the terrifying part is that we are dependent on foreign investment (50% of latest bond auction) to keep our own massive govt spending afloat.

    There should be some level of Economics 101 that people have to pass to run for office, now that the govt is setting investment policy.

  10. 10
    zman Says:

    Bill – I will get to them at some point, probably DNR first, used to follow them, have a bottle of wine from them on my shelf which is endearing. PXP is newer to me and has more moving pieces but is interesting.

  11. 11
    BirdsofpreyRcool Says:

    TechTrader weighs in –> 50/50, take the day off

  12. 12
    BirdsofpreyRcool Says:

    Credit Market Indices —

    IG 146 1/2

    HY 80 5/16

  13. 13
    zman Says:

    BOP – re 11, ok now I know he’s a slacker, lol.

    Crude up 45 cents now. Listened to the webcast live from OPEC this morning, optimistic tone (who can blame them after the rally from the lows) and vague signs of a pickup in demand highlighted by more than just the Saudi Minister.

    PXD conference presentation in 20 minutes

    We get the gas number first today at the regular time followed by oil numbers at 11 EST.

  14. 14
    Sambone Says:

    By Spencer Swartz and Tahani Karrar
    Of DOW JONES NEWSWIRES

    VIENNA (Dow Jones)–A simple calculus underlies OPEC’s decision to leave its
    oil spigots steady: the group’s big production cuts since late 2008 are
    starting to bite, and the world oil market is starting to bounce the cartel’s
    way after exacting a heavy toll on members’ economies.
    The recent increase in crude prices – in part due to sharp production cuts by
    the Organization of Petroleum Exporting Countries – has given oil ministers
    some peace of mind that the worst of the global recession’s impact on oil
    prices appears to have passed.
    “We feel the market has been reacting positively,” said OPEC President and
    Angolan oil minister Jose Maria Botelho de Vasconcelos. “We will wait for this
    trend to grow slowly.”
    Oil prices set a fresh six-month high Thursday of $63.93 a barrel in New York.
    With prices relatively comfortable, OPEC Thursday glossed over the fact some
    members, such as Iran and Venezuela, are pumping well above their production
    targets agreed in late 2008. Such quota-busting is typically a source of
    frustration inside the group.
    OPEC Secretary General Abdalla Salem El-Badri applauded the group’s roughly
    80% compliance with the previously agreed cuts, but he did call for even
    greater discipline.
    “We always urge member countries to adhere more to their production
    allocations, so if next month we have 85% or 90% that would be an excellent
    achievement,” El-Badri said.
    In a relatively short meeting, the group’s 12 members said there was no reason
    to cut or tinker with its output, which satisfies about 40% of the 83 million
    barrels consumed daily worldwide. It’s the second time in as many months that
    OPEC has opted to maintain its output ceiling of about 24.85 million barrels a
    day for its 11-quota bound members.
    “The price is good, the market is in good shape and the recovery is under way,
    so what else would we want? The world is going to be a better place pretty
    soon,” Saudi Arabia oil minister Ali Naimi told reporters after leaving the
    OPEC headquarters here.
    Naimi said he wasn’t worried by the fact that oil inventories in the U.S.
    remain at a near 20-year peak and that demand was still tepid. OPEC cuts are
    starting to reduce that overhang and consumption is beginning to pep up with
    the start of the U.S. summer driving season, Naimi said.
    To be sure, another factor for OPEC standing pat is that the group’s members
    are suffering from production-cut “fatigue” and have little appetite for taking
    more barrels out of the market.
    The group started cutting output nearly nine months ago. Output in recent
    months remains about 3.4 million barrels a day lower than before the cuts.
    Weaker crude prices also have reduced OPEC member state budgets by around $370
    billion, El-Badri said.
    Oil prices in New York traded higher at $63.72 a barrel after the OPEC meeting
    Thursday, up nearly 40% since OPEC’s last meeting in March, but still well
    below a record high of $147 a barrel hit last July.
    -By Spencer Swartz and Tahani Karrar, Dow Jones Newswires (Benoit Faucon and Hassan Hafidh in Vienna contributed to this article.)

    Dow Jones Newswires
    05-28-09 0919ET- – 09 19 AM EDT

  15. 15
    bill Says:

    z you should add this link to your bulker area

    http://reports.platou.com/FixtureReport/Pages/BulkFixtures.aspx

    capes are up 6 k to 56 k per day was below 20 k a few months ago… bdi up 222

  16. 16
    bill Says:

    gm bondholders getting a better offer

    market likes it

  17. 17
    zman Says:

    re 15 – just added, thanks much, good link.

  18. 18
    zman Says:

    FYI, CHK is speaking in 2 minutes at a conference. I’ll be on the PXD call.

  19. 19
    zman Says:

    I’m sure no Eagle Ford news today out of PXD or the presentation would have changed and we’d have a press release. More likely is June 2 at RBC or later. Call about to start, will let you know if they give any additional color, sense is they won’t say anything other than they are encouraged.

  20. 20
    BirdsofpreyRcool Says:

    GM offer = the only ones still “sharing the sacrifice” are the bondholders. Wonder what %age of the group they speak for? I know the large institutional holders here, they would NOT buck a govt request to cave. Not worth the public fight and threats to the reputation for them. But still, wonder what percentage that includes.

  21. 21
    zman Says:

    PXD still going through the yada, yada.

    Crude at $64.

    On the WRES report, I left out the 2010 view when their oil hedges come off, will add later today.

  22. 22
    BirdsofpreyRcool Says:

    GM offer… once the market understands what the govt did to private capital, i don’t think the rally will hold. But, it’s a brave new world… and i could be completely out of touch with the new sense of “shared sacrifice.”***

    ***(which only applies if you are private capital)

  23. 23
    zman Says:

    PXD Comments –

    150 wells drilled through Eagle Ford on way to lower Edwards trend. Had gas flares out of most of those out of the Eagle Ford during drilling.

    Completed fracing of the well, turn to sales shortly. Said they will have rate information in short order.

  24. 24
    zman Says:

    Adding to 23.

    Sounds like they will have well results out next week.

    Plan to drill the second well in 3Q and then drill more wells to get a better understanding in 2010. There’s no rush given gas prices. Note that they have infrastructure in place to get this gas to market due to their prior efforts in the underlying Edwards Trend.

    Their well is in DeWitt County, about 100 miles to the east of the HK wells. Their second well will be 50 to 75 miles southwest of the first well. That’s a massive, um, stepout. Point is, big, big area of potential, too early to label it the next big thing but good data points so far.

    Rock qualities look similar to those seen by HK.

  25. 25
    zman Says:

    re 22 – looks like market starting to balk a bit here.

  26. 26
    zman Says:

    re 20: CNBC said 20%.

  27. 27
    BirdsofpreyRcool Says:

    z — thanks. 20% is far from the 90% required.

  28. 28
    BirdsofpreyRcool Says:

    Bloomberg Headline — “Colgate to Introduce Portable Tootbrush”

    yeah… the old models are so tough to carry around.

  29. 29
    zman Says:

    PXD Q&A

    Why the recent and historic discount to your peers? Bad oil hedges in last couple of years. Long reserve life (that helps others so I don’t really get that answer but I think he means on a $/BOE basis and not on the P/CF where it should be a plus, not a minus). I’d add to that the high debt levels.

    Free cash generation this year. #1 priority is to maintain high cash flow generation model. Substantial amount goes to debt reduction. Says balance sheet is strong and want to get debt to cap down to 35 to 40% range (which is still pretty leveraged).

    Hurdle rates in Sprayberry needed to restart drilling? Much more focused on drilling to the Wolfberry. Sounds like they get busy later in the year if oil prices hold here. Need to get gas prices up though.

  30. 30
    zman Says:

    BOP – 28 = LOL.

    PXD looks like it wants to go higher, market is governing that. News that the frac is done on the 1st Eagle Ford shale well and that the well is being turned to sales now without mentioning any problems should be a modest positive. Need more data and more wells. We’ll get some well data soon (probably next week) but more wells is another matter, going to take time. Its a big company, other areas a lot more important than this for the baseline growth of the company, the E.S. just adds spice and may end up changing the look of the company over time. It also may be one of the few plays that work in a sub $4 gas environment, but its very early to be thinking that way.

  31. 31
    zman Says:

    Gas number in 10 minutes, crude in 40 minutes.

  32. 32
    jat Says:

    Aubrey at DB Conf down south just said that a few decades from now, in an energy crisis, the independents with shale technology would “save the world.” Classic.

    He doesn’t see rig count getting back above 1,000 any time soon (must be talking about gas only) but expects a few hundred to come back on toward the end of the year with higher gas prices.

  33. 33
    zman Says:

    106 Bcf but there was a revision.

    Gas in storage was reduced from 2,116 to 2,107 Bcf for the May 15th number (last week’s number).

    Gas turning up on the number.

  34. 34
    kyleandy Says:

    z – after all the cc’s could u sneak a look at SJT for me i’ve been short it ever since u alerted me to big div cut. as far as i can tell they have no hedges, and i don’t see any prospect for a div increase until gas prices rise. so why would anyone want it for the approx 2 % it’s paying now? thks

  35. 35
    choices Says:

    z or bill: do you watch the Baltic Dirty Tanker Index (BDTI) at all and does it have any significance? Not sure either about the Baltic Clean Tanker Index (BCTI).

    Came across this article over the weekend:
    http://seekingalpha.com/article/139271-the-baltic-dry-index-vs-the-baltic-dirty-tanker-index-which-is-a-better-indicator

    Thanks.

  36. 36
    Sambone Says:

    By Gregory Meyer
    Of DOW JONES NEWSWIRES

    NEW YORK (Dow Jones)–Crude oil inched higher Thursday after OPEC decided to
    stick with current production targets, as widely expected.
    Prices moved in a tight range, as traders awaited data on oil stockpiles due
    at 11 a.m. EDT.
    Light, sweet crude for July delivery was recently up 43 cents, or 0.7%, at
    $63.88 a barrel on the New York Mercantile Exchange. Brent crude on the ICE
    Futures exchange traded 54 cents higher at $63.04 a barrel.
    The Organization of Petroleum Exporting Countries concluded a meeting at its
    Vienna headquarters with a decision not to tinker with current output quotas,
    noting in a statement that “crude volumes entering the market are still in
    excess of actual demand.” Nymex crude posted a fresh six-month high of $63.93 a
    barrel soon after the meeting.
    “There were no surprises in the outcome of the talks,” said Jim Ritterbusch,
    president of Galena, Ill., energy trading advisory service Ritterbusch &
    Associates. “I think they’re in the driver’s seat for the time being with
    prices in the $60 area.”
    OPEC slashed quotas by 4.2 million barrels a day as demand began to contract
    late last year, and members have been 80% compliant with the cuts, Secretary
    General Abdalla Salem El-Badri said in Vienna. The reduced output has helped
    lift oil prices more than 40% this year.
    Badri said prices near $70 a barrel would be “suitable for us to invest and
    have a decent income for our member countries.”
    The cartel pointed out that global oil inventories remain high. In the U.S.,
    where crude stockpiles are above average, oil inventory data due at 11 a.m. EDT
    are expected to show them falling by 500,000 barrels, which would make a third
    week in a row of declines after nine straight increases.
    Gasoline stockpiles are seen falling 1.7 million barrels and stocks of
    distillates, which include diesel and heating oil, rising 1.1 million barrels
    in the week ended May 22, according to a poll of analysts. Refineries, which
    have slowed operation amid the demand slump, are seen running at 82.1% of
    capacity, up 0.3 percentage point.
    In separate data released Wednesday, the American Petroleum Institute reported
    a 2.8 million-barrel drop in crude inventories, an 800,000-barrel decline in
    gasoline stocks and a 1.4 million-barrel gain in distillate inventories.
    Refinery utilization was 80.6% of capacity.
    Front-month June reformulated gasoline blendstock, or RBOB, fell 27 points, or
    0.1%, to $1.8890 a gallon. June heating oil rose 1.18 cents, or 0.8%, to
    $1.5735 a gallon.
    -By Gregory Meyer, Dow Jones Newswires
    Dow Jones Newswires
    05-28-09 0942ET

  37. 37
    zman Says:

    Kyle – surely you aren’t talking about way back in 2007 when I wrote that I thought they were in trouble at $30.

    http://zmansenergybrain.com/2007/03/20/san-juan-production-slide-could-spell-trouble-for-sjt/

  38. 38
    zman Says:

    Choices – I do when I’m interested in the bulkers. Right now I’d put my interest in them at about a 2 out of 5, so I look at it once or twice a week. I like to watch the trend of the index as the daily numbers can be quite volatile and if traded, lead to some nasty headfakes. It’s also import to try and get an understanding of what’s driving the numbers, sometimes the short term moves are related to China’s like or dislike of coal or iron ore in their negotiation process, again, a swing which can ruin your day when it reverses over night.

  39. 39
    choices Says:

    nat gas liked the number- up over 16 cents

  40. 40
    zman Says:

    Crude at 64.35

    NG up 15 cents and rising fast at 3.80

    Stocks not near recent highs but that should change unless we get some awful oil numbers in 10 minutes.

  41. 41
    zman Says:

    Choices, yep, it like the revisions. Now if we can get some benign oil numbers and the broad market to cooperate the energy sector should take a look around at where oil has gotten to and either decide to buy into the new higher trading range $55 to $65 or not. I’d really like to see oil just hold $55 for $60 for a few months, that would provide a base of confidence for the stocks instead of a big momentum trade that sees a sudden drop when prices can’t be sustained at say $70.

  42. 42
    zman Says:

    Kyle – I’ll take another look at SJT, probably next week. Down here it is a natural gas trading vehicle.

  43. 43
    zman Says:

    PXD at HOD now but its moot in front of the oil inventory numbers. News was good enough for me to add a touch more if the oil numbers disappoint and squash the group.

  44. 44
    zman Says:

    EIA inventories:

    crude: down 5.4 mm barrels
    gasoline down 0.6
    distillate up 0.3

    So a big draw on the big number, not so much on products…

  45. 45
    zman Says:

    Imports rebounded to 9 mm bopd, utilization back to 85% which more than offset … so this is a better quality drawdown…

    Pretty bullish so far…

  46. 46
    zman Says:

    Gasoline production shot up from 8.7 to 9.4 mm bpd last week, goes hand in hand with the utilization.

    crude inputs to refiners jumped 600,000 bopd, so we are getting an increase in crude demand at least short term.

  47. 47
    zman Says:

    Gasoline demand : big number: up to 9.5 mm bpd, from 9.2 last week. This is 1.76% above year ago levels. Haven’t gotten to type that in quite some time.

  48. 48
    pwdrhound Says:

    Hi all. Not a regular participant here, but read often. Trying to get more active on this section of the site.

    Any thoughts on the downturn on Petrobras (PZE) this week?

  49. 49
    zman Says:

    NG getting the go ahead from the oil numbers to run further, now up 22 cents and looking like we could see a test of $4 from below tomorrow.

  50. 50
    zman Says:

    Pwdr – Honestly I’ve been away from the PBR story for awhile now. It got to be an almost weekly Santos Basin discovery story and then people started asking questions about the development capital needed to get that sub salt oil to market. The numbers went into the hundreds of billions at a time when oil prices were falling. I simply lost interest in trying to understand all the moving pieces. Apologies I’m not more of a help there.

  51. 51
    zman Says:

    More EIA report:

    Distillate demand continues to be lackluster. Distillate stocks remain bloated. Gasoline very likely to outprice diesel for quite some time, especially with ethanol prices set to rise on a poor corn crop due to so much rain. Wife’s idea to buy a Jetta TDI and take the diesel tax credit and get over 30 mpg demonstrates again why she is the smart one.

  52. 52
    zman Says:

    Oil closing on $65. Too far, too fast will make this end poorly.

    Rally monkey has jumped back on EOG and PXD.

  53. 53
    zman Says:

    ZTRADE:

    Added (10) more WRES November $2.50 calls for 0.50 with the stock at $2.03.

  54. 54
    isleworth Says:

    http://www.rallymonkey.com/video/kenindex.swf

  55. 55
    gaamblor Says:

    SPR was up 1.3m last week to 721.6 what is full?

  56. 56
    zman Says:

    727 mm barrels was the last official number but I think it’s larger than that, will check.

  57. 57
    bill Says:

    oil still climbing and ng has a nice move

    funny they revised last weeks number down 11 when the extra 5 to 10 bcf caused ng to fall 50 cents

  58. 58
    jat Says:

    Z,

    where are you seeing that gasoline demand number? I’m reading the 4 wk avg. at 9.2mn barrels/day, down slightly from last year, up again sequentially.

  59. 59
    jat Says:

    Seems like a big difference b/c if you’re running positive YoY comparisons, you can be more bullish on the refiners maintaining a higher utilization. Otherwise, not sure where this thing goes toward the end of summer.

  60. 60
    zman Says:

    Jat

    Scroll all the way to the bottom of the “special file”

    This is the weekly gasoline demand number. Last four weeks read:
    8.923
    8.911
    9.232
    9.538

    vs last year these respectively would be:
    -4.2%
    -4.6%
    -1.4%
    +1.8%

  61. 61
    zman Says:

    Special file is located here for you others wanting to play along at home:

    http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/weekly_petroleum_status_report/current/txt/wpsr.txt

  62. 62
    zman Says:

    KWK looking like a breakout

  63. 63
    Sambone Says:

    By Siobhan Hughes
    Of DOW JONES NEWSWIRES

    WASHINGTON (Dow Jones) — Congressional Democrats are following through on an
    Obama administration call to raise fees on the oil and gas industry,
    circulating a proposal to increase to 18.75% the minimum royalty rate for
    onshore leases.
    The proposal, spelled out in the summary from the House Natural Resources
    Committee, would increase by 50% the current royalty rate of 12.5%. The
    proposal also calls for an end to the royalty-in-kind program, which gives oil
    companies another way to pay royalties – shipping crude oil to the U.S.
    strategic reserve in lieu of making cash royalty payments.
    The proposal comes as the Interior Department has been taking what it calls a
    “comprehensive look” at royalty rates for oil and gas drilling as it plans to
    propose changes to Congress. Interior Secretary Ken Salazar has already made
    clear that rate reductions are unlikely, telling reporters earlier this year
    that “I do not believe that we should be subsiding the oil and gas industry.”
    -By Siobhan Hughes, Dow Jones Newswires

    Dow Jones Newswires
    05-28-09 1211ET

  64. 64
    zman Says:

    By the way, there is a 220,000 bopd typo in the special file today, imports in the table are 8.778 mm bopd in the table but listed as 9 mm bopd in the opening paragraphs. So my comment that this was a higher quality number is still true but has a little less meat to it as imports were essentially flat, not up.

  65. 65
    bill Says:

    I do not believe that we should be subsiding the oil and gas industry.

    I love the double speak

    maintaning current taxes/fees is “subsidizing”

    dont they know they are partners with all corporations as they tax their earnings at 34 %,payroll taxes, and dividends

    Gouge every company thats based in texas and shift the money to union states…nice

  66. 66
    VTZ Says:

    Gold making a run at Nicky’s target of 967 and Silver rallying… probably a catchup move to the bond market move.

  67. 67
    kyleandy Says:

    z – re SJT u told me what i wanted to know thks (in jan u mentioned headline stating pretty drastic cut in div, that’s when i shorted)

    whoever bot UNG at 13.27 the other day – nice buy!!!

  68. 68
    zman Says:

    KWK on the tape with some amendments to its credit agreement. Looks like increased flexibility to go deeper in debt for a 250 bp interest rate hike.

  69. 69
    1520sbroad Says:

    Z – did GMXR ever announce the results of their redet? did i miss it?

  70. 70
    zman Says:

    Isle – I have not yet seen them. Maybe they were in the deal documents for the secondary. Dunno, don’t see them. Should have been out by now. I’m sure the banks will go easy on them with the new equity fin. done.

  71. 71
    zman Says:

    Re KWK – BOP will have some comments in a bit.

    I’m flat on my 12.50s and may come out of them in a bit as those can get messed up in a bad day like yesterday. Am up slightly on the $10s.

  72. 72
    isleworth Says:

    Z- how oily is NFX? Tks

  73. 73
    zman Says:

    NFX is about 30% oil on production volumes basis. If you look at potential reserves it will be higher due to their nascent Bakken play and reserves in Malaysia and China. Over time I would expect it to get a bit oilier. Good assets, great management team there. I’ve had trouble trading the options successfully there in the past for one reason or another. I do own some stock though.

  74. 74
    Garyinhou Says:

    Z, Has EOG talked much about their Bakken results.. lots of decent wells in Mountrail Co… Just curious, seems they and Hess are doing pretty well there

  75. 75
    bill Says:

    Z

    lots of calif oil impacted like wren at ye
    vq might be another good company to look at

    .. lots of calif oil impacted like wren at ye

  76. 76
    zman Says:

    Gary – yes they have. They mostly stick to talking about wells in the Parshal field. They consider themselves to be the ones who found the Bakken and think they have a 2 year head start on the competition in terms of getting the science right for optimal completions. I think that’s a stretch but they are routinely drilling the best wells in the middle Bakken, and have in the last 6 months changed their tune on the prospectivity (for the better) of the three forks sanish. They had shut in some production and slowed drilling due to prices. In the meantime, they’ve structured a rail deal to get their transportation expense back under control (trucking that much oil to Cushing is pricey and reached the mid $20 per barrel range late last year). It and the Barnett Combo (the oil part) are what is driving them further away from a gassy big cap e&p to a balanced big cap e&p. They should get to about 50/50 in 3 years which is pretty amazing if you have followed them since they were part of Enron when only gas mattered.

  77. 77
    zman Says:

    Thanks Bill. I can only stomach a few of these little guys at once but I sort of like them and I do like EGY although I’ve never owned or traded it.

    Why’s the market suddenly getting its cheer on?

  78. 78
    zman Says:

    Oil topping $65.

  79. 79
    della05 Says:

    Any comments on continuing to hold the June 30 PXD calls based on what you heard at this a.m.’s tele-conference.

    TIA

  80. 80
    BirdsofpreyRcool Says:

    10yr Treasury auction went well

  81. 81
    BirdsofpreyRcool Says:

    sorry 7-yr note auction went well… half watching… on conf call

  82. 82
    zman Says:

    Della – I’m going to hold those for the actual data. No reason from the presentation today to think they are disappointed with the results. They could be but I didn’t get that impression. They speak next week at RBC and I’d expect them to have more to say then as they have completed the frac and are turning it to sales at present. If the stock had run up into the news I would be a little more cautious think it might be a sell the news event but it does not really seem to be in the stock.

  83. 83
    Garyinhou Says:

    Thanks Z..

  84. 84
    reefguy Says:

    MMR- on cc now

  85. 85
    zman Says:

    Reef – let me know if they have any non flat rock news, like treasure island.

  86. 86
    reefguy Says:

    Ammazzo has big fat wet high P+P, geologic success???

  87. 87
    VTZ Says:

    I have no clue why everyone is so focused on the note auctions now. ITS GOING TO HAPPEN FOR YEARS AND YEARS. If it’s even close to being a concern now, then it’s a guaranteed issue.

  88. 88
    reefguy Says:

    gotts run, no blackbeard new news

  89. 89
    jy Says:

    Reef— That’s a “geologic success” if you are the CEO of McMoran. Allows you to go around to conferences and proclaim that your company is proving the existence of reservoir quality rocks at depths below all current Gulf of Mexico SHELF production. Now you need to find some hydrocarbons trapped in these reservoirs–always the tricky part!!

  90. 90
    BirdsofpreyRcool Says:

    KWK — loan amendment request. Interesting… looking for liquidity via the leveraged loan mrkt… not high yield debt, not equity issuance, but going back to their bank group, cup in hand, saying “please, sir, may I have some more.”

    Key points:
    1) will allow additional issuance with 2nd lien priority of claims (assuming “priority of claims” has any meaning anymore)… unusual to see banks grant this sort of pari passu right (must mean these loans have been sold off to investors, who will presumably take any additional loans off the bank’s books too).
    2) for the right to issue some more (undefined) amount of debt, KWK would have to pay 250bps more on their 2nd lien debt. This is still cheaper than going the high yield or equity route, tho, but would cover new and existing 2nd liens.
    3) means someone in the bank asset assayer’s department is looking positively at the potential for KWK’s asset base to increase.
    4) means more liquidity avail to KWK (without issuing dilutionary equity)
    5) BUT, this is only a request… hasn’t a) been approved, or b) found willing additional lenders.

    Still, KWK has shown their hand as to preference on additional financing. It’s cheaper than high yield debt and not dilutive to equity. As a matter of fact, issuing debt (and successfully managing it) provides a turbo-boost to equity. You get to buy more assets (with your debt) and, after paying a relatively nominal interest expense, the benefits of the additional assets accrue to equity.

    Hence, the stock likes it.

    NB: it is only a request, at this point. Hasn’t been approved. Hasn’t been completed. But, KWK showed their cards.

  91. 91
    jy Says:

    Z – Listening to the Ultra Pet. presentation at the Deutche Bank conference. Presenter mentioned several scenarios relative to reserve volumes based on the new SEC Reserve rules. These rule changes are going to allow more latitude for the reporting companies and in my mind will cause a plethora of confusion among investors and analysts over comparison of companies and their reserves. The PUD category, always the weakest of the proved reserves, will become less rigorous.

  92. 92
    zman Says:

    Thanks Reef – Is B.B. on permahold now?

    VTZ – re the auctions. Market is in flavor of the day mode. Very schizo in my book, should make for increased volatility.

  93. 93
    jy Says:

    OOPS! thats “Deutsche”. I barely survived my 3 semesters of college German!!

  94. 94
    zman Says:

    re 91 – Mark Papa at EOG said the same yesterday. Going to be a weird February next year as people sort through strange reserve moves.

    BOP – thanks very much for the KWK read!

  95. 95
    Sambone Says:

    Off subject

    MCO = Barney!

    Basher: So unless we intend to do this job in Reno, we’re in barney.
    [everyone pauses]
    Basher: Barney Rubble.
    [they look bewildered]
    Basher: Trouble!

    Ocean’s Eleven (2001)

    By Joseph Checkler and Alistair Barr

    Hedge-fund manager David Einhorn came back Wednesday to the place where he’s
    made some of his most prescient predictions and made another bold call: He’s
    shorting shares of ratings agency Moody’s Corp. (MCO).
    Einhorn, of Greenlight Capital, said in a presentation called “The Curse of
    the AAA” that many institutions with AAA ratings, including the U.S.
    government, turned that supposed benefit into a disaster by borrowing
    recklessly. Einhorn said the formal credit system should be eliminated, which
    would obviously hurt Moody’s, the biggest purveyor of the ratings. Warren
    Buffett’s Berkshire Hathaway Inc. (BRKA) owns more than 20% of Moody’s shares,
    which recently traded down more than 6%, at $26.28.
    The remarks were made at the 14th annual Ira W. Sohn Investment Research
    Conference in New York. The conference is a benefit in the name of former Wall
    Street analyst Ira Sohn, who died of cancer at 29.
    Einhorn argued that Moody’s is part of a government-created oligopoly, and
    that the smartest investors, including Buffett, ignore credit ratings when
    making investment decisions.
    Einhorn also said Greenlight is donating $6 million from its profit generated
    by shorting Allied Capital Corp. (ALD) shares to three charities: Tomorrows
    Children’s Fund, the Center for Public Integrity and Project on Government
    Oversight. That’s in addition to $1 million the firm has already donated to
    charity. Einhorn got a standing ovation after the announcement.
    The Sohn Conference has for years been an event for Einhorn and other big-name
    investors to talk for 15 minutes about their investment ideas, many of them
    controversial, and some of them famously accurate.
    At last year’s conference, Einhorn warned that Lehman Brothers was overexposed
    to risky assets and urged regulators to encourage the investment bank to raise
    new capital and recognize more of its losses. Less than four months later,
    Lehman collapsed in the largest bankruptcy in U.S. history – pitching the
    global economy into a deep recession. In 2002, Einhorn used the Sohn Conference
    as his forum to discuss his bearish view on Allied, pledging a donation to the
    Sohn foundation of some of the profits from the investment.
    In 2007, Bill Ackman of Pershing Square Capital Management correctly predicted
    at the Sohn Conference that MBIA Inc. (MBI) and Ambac Financial Group Inc.
    (ABK) would be hurt by the subprime mortgage crisis. This year, Ackman talked
    about why he continues to like the stock of General Growth Properties Inc.
    (GGWPQ) despite the fact that the mall owner has filed for Chapter 11
    bankruptcy protection.
    Ackman also threw in a few lines about his battle for board seats at Target
    Corp. (TGT), ending his presentation with a slide that jokingly urged Target
    shareholders to vote for his proxy card. Today is Target’s shareholder meeting.
    Other speakers this year included Jim Chanos, managing partner of Kynikos
    Associates, one of the largest short-selling hedge-fund firms; Steve Mandel of
    Lone Pine Capital, another hedge-fund firm; and Mark Kingdon of Kingdon Capital
    Management.

    Chanos Bearish On Government Involvement

    Wednesday’s speakers fell into two distinct categories: those like Ackman –
    who made specific stock picks – and those like Einhorn, who despite his
    specific call on Moody’s talked more about where the economy is heading,
    including his general idea that banks should do debt-for-equity swaps and are
    not in better shape than they were before receiving government money.
    Chanos warned about the impact of government involvement in the for-profit
    education industry, health care, defense and government contracting. The high
    margins of these businesses may fall because the government won’t allow such
    profitability, he said.
    Chanos is best known as one of the first to spot problems at Enron before the
    energy-trading giant collapsed in 2001. His main Ursus fund returned more than
    50% last year as the financial crisis hammered the stock market.
    Chanos’ presentation was particularly notable because Lone Pine’s Mandel, who
    spoke directly before Chanos, recommended a for-profit education company.
    Chanos joked that he hoped Mandel had already left the building.
    Mandel said Strayer Education Inc. (STRA) is dominant in its market, has a
    great management team and generates much cash flow that can pay for future
    expansion.
    Peter Thiel, the founder of PayPal who now runs Clarium Capital Management,
    said that the economy needs science and technology to drive innovation and that
    companies like Microsoft Corp. (MSFT) will actually perform better if
    innovation lags.
    “Almost all [existing technology-focused companies] have basically become a
    bet against technology,” Thiel said, adding that it unfortunately “might be a
    good bet.”

    -By Joseph Checkler and Alistair Barr Dow Jones Newswires
    05-28-09 1110ET

  96. 96
    zman Says:

    NG at $3.96, up 9%, making that run on $4 today it seems.

  97. 97
    zman Says:

    I think I’ll start taking some weight back off the table this afternoon or in the morning.

  98. 98
    rseidman Says:

    Z: Your view please, on HES.
    It’s really moved today

  99. 99
    rseidman Says:

    Regarding Hes, it looks like it’s near a breakout

  100. 100
    zman Says:

    RS – I don’t have one right now, not too fond of the min-Major set in general right now, HES, OXY, MUR, but with regard to HES, its just not something I can add value on.

  101. 101
    isleworth Says:

    NG closing at highs of day on very high volume!

  102. 102
    zman Says:

    Isle – yep, and oil going out near $65. Resisting the temptation to sell down some positions.

  103. 103
    zman Says:

    RRC conference not webcast, just flipping through slides, don’t see anything new.

  104. 104
    BirdsofpreyRcool Says:

    VTZ — per your earlier comments re: tsy auctions. HeadTrader can’t believe the markets reacted to the auction either. Like z said, flavor of the day (hour, moment).

  105. 105
    zman Says:

    Volumes in energy land a bit better but its still pretty scattered. Stocks ran up post oil numbers and have been hanging out, hinging with the broad market. Get the feeling a lot of people are sitting on the sideline in dismay. We are still below the recent highs from two weeks ago with significantly higher oil prices. If, and its a big if, we get an amenable market, its likely E&P has another leg up left in it. So, while I’ve been buying into the post earnings weakness, I will start dribbling calls out into this new found strength. Not yet but soon.

  106. 106
    RMD Says:

    Someone passed on a heads-up rumor a week or so age that MMR’s Ammazzo was unproductive. Good call. Thanks.

  107. 107
    zman Says:

    Nutbag watch:

    http://news.yahoo.com/s/ap/20090528/ap_on_re_as/as_koreas_nuclear

  108. 108
    BirdsofpreyRcool Says:

    TechTrader… rare, end of day comment, suggests going long here overnight for a rally tomorrow morning. 60/40 odds of a rally tomorrow morning. But only 50/50 for holding onto that rally into close.

    Just passing it along. Extremely rare call, on his part.

  109. 109
    zman Says:

    We get another shot of supply data from the EIA sometime tomorrow and rig data, otherwise pretty quiet in the energy space for Friday.

    On the economic front we have:
    GDP revision for 1Q09,
    Consumer sentiment,
    Chicago PMI,

    Bet that sentiment reading comes in strong.

    Agree with tech trader on the read and plan my first sales to coincide with a morning rally.

  110. 110
    zman Says:

    Najarian was on pumping E&P stocks earlier. Funny how oil rises and then the talking heads come out of the woodwork as energy bulls. What happened to buy low?

  111. 111
    zman Says:

    Considering uprisking the PXD June calls (selling the $25 calls and adding the proceeds to the $30s), not having a lot of luck splitting the spread and don’t feel like paying up.

  112. 112
    zman Says:

    Beerthirty.

  113. 113
    BirdsofpreyRcool Says:

    z — thanks again for that WRES report. very good.

  114. 114
    Wyoming Says:

    http://www.epmag.com/eletter/epbuzz/20090528/

  115. 115
    zman Says:

    Wyoming – which one to read from that link?

    BOP – just trying to be clear on why I like it. I simply think the pound down was overdone. I don’t know management and wasn’t that impressed with the 1Q call. But the assets are there and with higher prices, the stock should mount a modest recovery.

  116. 116
    Wyoming Says:

    They are OK to read, Both ways is alright, Middle finger in the commentary (scroll down) was decent.

  117. 117
    zman Says:

    Gotcha thanks.

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