Thursday Mornng – Waiting For Opec To Exhale
Posted by zmann on October 19, 2006
Opec Watch: Ministers Gather In Doha, Qatar. At $55.27 the Opec blend of crudes is approaching the lowest levels of the year. Opec has continued to provide the mixed message of:
a) tight world-wide supply/demand fundamentals (prices need to be high because there’s ever growing demand) and
b) increasing OPEC surplus capacity (we’ve got lots of the stuff, and we can produce even more). Scratch head here.
This chart of the Opec Basket of crudes, taken directly from Opec’s web page, represents their “emergency”
That looks pretty bad. Until you look at this.
They should probably take that last one off the web page. People might get the wrong idea.
Can you say overbought? Come on guys face facts:
–Non-opec supply continues to advance, demand growth has decelerated in the US, EU, and Asia resulting in inventories levels that are above the five year average for crude and products. You’ve had a nice run but there has been no significnat degredation in supply nor pronounced “China Effect” in demand.
–Middle Eastern unrest remains high but honestly, the terror premium is pretty played out. Repeat after me, Iran needs our $ morn than we need their oil.
–And Saudi Arabia, at a third of Opec production, has repeatedly indicated its desire for lower prices. Notice the lack of comments from them of late. They’re much more concerned about heading off a Shiite proposal to divide Iraq while working to quench sectarian violence in their neighbor than they are with artificially propping up oil prices so Iran can continue to strenghthen its military.
–Algeria says it will cut a maximum of 50,000 bopd towards the proposed 1 mm bopd cut. That’s about 2.5% of their production versus a 3.6% cut for Opec using September numbers so they’re not really onboard either. Algeria’s oil minister commented yesterday that a reasonable price for the Opec basket is $50 to $60. Algeria, though one ( of the smaller Opec producers, has orchestrated a production boom in the last few years via foreign oil company participation and their voice should add weight to Saudi’s towards moderation.
–Iran, Venezuela, and Nigeria, troublemakers that they are, want cuts to be taken from quotas, not actual production since they are unable to achieve production levels near their allotments due to lack of investment, negligence, and rebels respectively.
Today’s Big Energy Event: Natural Gas Inventories. Estimates range from an injection of 40 to 70 Bcf with consensus at 46, according to a Bloomberg survey of 15 analysts. 70, are you kidding? Note to analysts: Stop trying to drag consensus higher to force a miss. Have some dignity.
Gas Price Are En Fuego North of the Border. The 20% price rise in US gas futures this week isn’t without company. Alberta prices have shot up 42% in the last 2 days. Canada ships about 10 Bcfgpd south of there border so expected colder weather next week here has lit a fire under prices.
– B of A cuts OMM (one of my priced to perfection stocks) from buy to neutral. I guess it does matter to tanker day rates if less oil is sloshing around the world’s oceans. Unfortunately I did not have a position here yet but will watch for an entry on the put side after the Opec dust settles.
–Ouch. HSY reports $0.78 vs $0.81 expectation, little light on the top side as well. For 4Q, expect sales to be in line with previous guidance but slightly below plan on earnings. 2007 looks to be in line. I’ll continue to watch this one after the conference call. Should get whacked over the headlines, dumping the November calls for a possible entry.