zman’s Energy Brain

oil, gas, stocks, etc…

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Thursday Wrap

Posted by zmann on October 19, 2006

Opec Watch: The Saudis came to town and said they support the million barrel cut (from production, not quotas) and that another cut may be needed at the regularly scheduled meeting on December 14. Oil was modestly higher on the “news” but surged strongly after Europe closed and we should have played SU long into it. It’s amazing what American traders at the Nymex can do once they’ve got those pesky Europeans rolled up for the evening. Crude closed up with the USO ETF trading up $1.12 at just under $54. I’m not overly concerned unless the USO closes over $55 as the trend is still down and most of all, the world is still awash in oil.

Natural Gas Shrugs Off 53 Bcf Injection. I was at 45-50 Bcf and the consensus of analysts was at 48, so the actual number was anything but bullish. We’ve now got 3,442 Bcf in storage, record levels in all three storage regions, and are 13% over year ago levels. As you can see here we remain on track, given average injection levels, to peak close to 3.6 Tcf. And no one cares.

–Already having risen 20% this week, the November contract went on to rally shortly after the storage report, closing up $0.32 , to $7.12 (so we’re up about 25% this week because no one has ever seen this much gas in storage. ever. I mean it).

–Weather is actually very similar week to week (2 degree days warmer)  so I’m sticking with my range of 45-50 Bcf for next week’s number. It looks like a few more nukes are offline for refueling this week or I would have bumped it to 50 to 55 bcf. I suspect the November contract (and the 24 month strip for that matter) will correct hard just prior to close of contract on October 27th.

– We now have a 391 Bcf surplus storage to last year’s levels. Coincidentally, the 5 year average withdrawals for November and March (the first and last months of the withdrawal season) are 162 Bcf and 228 Bcf respectively, for a combined 390 Bcf. I love it when math makes it so easy! So we’re starting the winter with the equivalent of two of the five consuming months’ gas consumption totals already in our pocket.

–I just can’t help showing this chart again:

gas-prices-101906.JPG

Holdings Watch:

MMR got crushed but not all at once so you had plenty of time to take the Oct 17.50s for $0.20. MMR ultimately fell $1.50 ,(8.5%) leaving the puts at $0.85 bid for a nice inter-day 4x. Imaginary pat on the back for imaginary profits since I didn’t execute on my own thoughts this morning. wahhhh. Note to self: stop taking showers during market hours. Perhaps more importantly than me making $ on their misfortune is the tone it sets for the E&P earnings season. Commodity price escalation is no longer there to save you if you screw up. Ok, it’s there a little bit via this week’s rally in gas but not for long. Anyway, production profiles are going to be more important than ever from here on out.

SWN rallied 12% in two days (18% on the week) after giving a very favorable update of their Fayetteville Shale activities yesterday. More drilling locations, bigger total reserves (9.8 Tcf!), etc, etc. It doesn’t get any better than this so I’m looking for an entry point for puts when it gets toppy and natural gas starts to falter (could be tomorrow but I’m betting it’s next Wednesday prior to inventories and gas futures expiration.

OMM fell 3% on that Bof A downgrade this morning. I took FRO puts as a proxy with the stock even for the day. FRO is more expensive on forward earnings than OMM and most of the other tankers and is a high profile name. Earnings there will slide as Opec reduces the need for its services (theoretically, assuming that the cartel cuts back 1 drop).

XOM – the madness continues. Took 70 Oct puts (don’t try this at home) for $0.50 and then later (not much later mind you) for $0.35. Apparently the phrase “always bet on black” means by calls on oil. Anyway, we’ll know soon how it went as the stock took a pretty hard bounce off $70. Great company but its a buck off its all time highs. I don’t think so. Of course, as always, “the market can always stay irrational longer than you can stay solvent.”

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6 Responses to “Thursday Wrap”

  1. Jon said

    The madness continues with the refiners, too. With falling prices for unleaded and crude, are the crack spreads still increasing this week?

    I see HOC got an “outperform” coverage from an analyst and TSO restarted the Hawaii refinery (funny, the stock didn’t decline when they shut it down). These two are even diverging up from VLO.

    -jon

  2. SoccerF1 said

    OPEC to cut 1.2 million barrels

    http://biz.yahoo.com/ap/061019/qatar_opec.html?.v=15

    No indication as to who cuts how much.

  3. zmann said

    Soccer, see my latest post. Everyone is cutting about 4% which leasves the Saudi taking on a little less than a third of the total. Not too good for credibility.

  4. zmann said

    Jon,

    Crack spreads are up about a buck. Crude and heating oil are flat as of Thursday’s close for the past week but gasoline rose 2%. This drove the 3-2-1 crack spread up almost a buck from last week (up 14%) and it may be up a little more for sour crude guys like VLO. Even so, spreads are well off their highs for the majority of the last 12 months.

  5. Personally, I have been going to hawaii every year since my family bought a time share on maui. I love it. i dont understand how people cant just go once. Io fell in love with it!

  6. Hawaii Lover! I prefer Bermuda, take the guess why? 🙂

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