Thursday Morning – The Calm Before The Storm
Posted by zmann on October 12, 2006
Natural Gas: This is it. Call Guinness. The headlines Friday from every newspaper, magazine, and obscure energy blog will trumpet “Natural Gas Inventories Reach Record Levels”.
— to be clear I’m expecting an injection of 65-70 Bcf for the week ended October 6, 2006.
–I believe consensus is 67 Bcf.
–the 5 year average injection for this week is 65 Bcf (what a coincidence we’re all so close).
–anything less than 60 could prompt a re-rally as traders try to spin themselves into believing they’ve been right for the last week and a half. Notice their confidence waned yesterday.
— I’m also looking for natural gas to retest $6 early, before inventories, with a critical move through $5.76 if inventories come in above 60 bcf. Less than that and gas will move closer with oil and heating oil today. More than 70 bcf and there won’t be enough room in the door frame for the crush of traders getting out.
–But who knows, it’s just a survey, a sampling, not a tally.
–We’ll certainly exceed the old record in the Producing region (668) and we’re already there in the West. The east will be very close to a record as well but if not this week, then next for sure.
–speaking of next week, based on a preliminary read on weather and barring a sudden bought of demand creation I calling for injections of 45-50 Bcf. That gets us half way through October and leaving us with 2 to 3 weeks of continued injetions. See the chart on the gas storage tab for my pretty “back of the envelope” math on how we reach 3.6 Tcf by month end.
Remember, oil inventories are out at the same time today so it’s going to be confusing for several minutes: oil expectations range from a build of 1.9 mm barrels to draw of 1.7 mm bls (Fimat who are usually pretty good). Anything less than a build in oil and in heating oil could set off a nice rally. Well, not so nice for my puts but I have to be honest.
Stocks that should get hit hard (1 to 3%) by a move back into the mid to upper $5s on gas include: APC, BBG, ECA, EOG (requires negative, not just flat oil or they won’t care), ECA, KWK, SWN and of course the whole group if gas slides to $5.50. SU should make further headway back towards my near term target of $60 today (maybe dn another $2) if oil stays in the $57-$58 level.
–Bear Stearns ups TSO to peer perform. Not a bad call given the stabilizaiton and rebound in crack spreads. Plus, it’s not much of a limb to go out and say, “ok, I’m not telling you to buy this stock, just hold it if you already own it.”
–Prudential ups CHK to overweight saying its a great company (I really couldn’t agree more) and that the recent pullback makes for a good entry point. OK, wait a minute. When did Prudential go to neutral on CHK. Oh yea, August 19, 2003. So our boy at Pru missed the ride from $10 to $40, the stock slides slow to $29 over the last 12 months and he says now its a buy. Now, he establishes a $38 price target. Now, with energy prices having put in a pretty good peak, and starting to really falter? Now, when drilling activitiy is at a peak? (and CHK strategy relies on being a very active driller, and when). Nice gamble guy, I guess it’s only OPM. Actually, I hope he pops it at the open because guys like me will be there around inventory time to pick up cheap puts if prices go south. Pru is not Goldman.
–FBR just cut their price target on CHK from $44 to $41, stays at outperform, which, with the stock at $29 I guess you have to. Man, they should have talked to Pru first. This is more of the “marking to market” for 3Q and 4Q oil and gas prices that’s going on quietly. Sshhhh, don’t tell anyone. The level of apathy in the face of fundamentally bearish commodity prices (that’s the stuff these E&P guys sell) is saddening.
–JP Morgan cuts TOPT from neutral to underweight. Looks like someone expects less oil traversing the seas. Wow is this call late. IPO at $11 in July 2004, peaks at $22 and slides to $5.70 and now you say sell. Ouch. Not that I disagree with the pesimistic call on tankers. I just might take a harder look at OMM or TNP, both of which I’m happy to say has options, and are near their all time highs. Or FRO, whose chart still looks like it’s teetering to me. I’m not advocating a trade, yet, but will do more homework over the weekend. Maybe these high-flyers are insulated from a slow down in shipping oil? We’ll see.
Well that’s enough for the morning, time to make some coffee and do some reading.