zman’s Energy Brain

oil, gas, stocks, etc…

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Monday Wrap

Posted by zmann on October 23, 2006

Without Opec To Talk It Up, Oil Takes Another Dive: December crude dove at the open and closed down $0.48 to $58.85, a new 10 month low. USO fell $0.49 (about 1%) to close at another record low of $52.27.

Natural Gas Rally Faltering: Gas attempted to carry forward with last week’s mongo super rally but quickly failed. I’ve switched to watching the December contract as we’re only 4 days out from November expiration and things often get a little whacky in the last week before contract expiry.

–December gas closed down $0.37 at $7.77 as traders begin to look beyond this week’s unseasonably cold weather (expected 106 HDDs are 15% colder than normal and up from 81 in the past week).

–Changing thoughts to 35-40 Bcf injection this week (from 45-50 espoused in last post) and,

— If this week’s forecast holds, estimate 30-35 injection for next Thursday. See updated gas chart (link) showing peak storage now expected to be 3,560, still within the bounds of my previous forecast of a 3550-3,600 Bcf peak.

–This 6-10 day graph shows country-wide warming (red=warm) so a third injection is very likely at this point.

610day.JPG

Tanker Rates Weaken. Physical tanker freight rates for Very Large Crude Carriers (VLCCs) working the benchmark Middle East-Japan (TD3) route settled at W85 on the Baltic Exchange on Thursday, the lowest level in more than six months, and were talked at W75 on Friday. Freight rates for VLCCs on the TD3 route have already fallen by about 34% since September 21, and are about 12% below year-ago levels – from the Gulf Times. While tanker rates haven’t broken down, the trend is negative.

HAL Conference Call Comment: “No sign of driling slow down. Any slow down would be short lived”. Sounds similar to what the home builders said when asked a year ago about a housing bubble, “Bubble? The only bubbles we see are in our champagne glasses”. After a strong open, hal gave back all of its gains before a late day rally in crude dragged the group higher.

Articles like this irritate me: Stay the course with energy holdings.

–The author says to stay in your energy stocks while explaining that the high crude inventories in this coutry (and I assume he knows they are high elsewhere) are due to seasonal factors and nothing more.

2-yr-oil.JPG

Yes, inventories are at highs not seen since 1998 but who cares, we’ll burn off that surplus while oil prices remain high?!

This is not a seasonal bump that’s gotten a little bit out of hand. This is greed. Greed on the part of Opec who continued to pump too much oil for far too long. They got used it to it and now they need it to stay high to support giant ego advancing projects and in some cases growing militaries and extremism. Furthermore, there is no reason why the high cost of extracting oil from tar sands should justify the overall high price of WTI. That’s why a barrel of oil in Texas is not a barrel of oil in Canada or Dubai. That’s why there is such a thing as a differential from place to place to place.

–In 1998, the same “supply always short of demand” fundamentals existed. Heck, we’re always about 30 to 50 years from running out of the stuff.

–In 1998, we hit inventory levels just about as high as these.

–And in 1998, WTI was $12 per barrel while the heavy oil out in California was $8.

–And it was a dark time to have owned the energy stocks

–Note that the author normally writes about insider transactions, not energy. He made two picks DVN and DWSN (a land based seismic firm), both of which he already owns. So he looks to be out of his league and fairly biased.

–He notes that we could dip into the lower 50s on oil or even into the 40s yet he doesn’t have an upside target for oil. So why should I BUY these stocks if the main thing they sell may take another leg down? Why not sell now and buy lower? Hmmmm.

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