zman’s Energy Brain

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Monday Morning – Weaker Oil

Posted by zmann on November 13, 2006

The Week That Was: Commodities Mixed, Stocks Up. After a technical test that drove oil briefly over $61, Friday selling left the commodity little changed on the week (up $0.44 , 0.7%). More amusingly gas, after that CNBC designated “much larger than expected draw of 7 Bcf”, ended the week down a dime at $7.80. The XOI added 2% despite a modest mark down on Friday on light holiday volume.

Oil This Week – Down an early $0.50 to slip below $59 after a brief overnight rally died out. $58.50 remains the next nut to crack and we should get there this week as long as Nigeria holds together and traders don’t buy the story Opec is selling about the last round of cuts let alone new ones. Again look for refinery runs to be up towards 90% utilization with this week’s report easing demand on products. The oil market looks to be going back to trend this week without the benefit of more data (which it should get today from Opec lift allocations for December) however weather is not still not cooperating- it’;s hot, damn hot.

Not exactly an energy trader’s dream for the third week in November:

weather1114.JPG
Natural Gas- We Should Get A Build This Week. Heating degree days show that last week was indeed hotter than originally forecast. Look for a build in inventories although given the time of year (shoulder season) and the squirelly looking data out of the EIA for the last 3 reports don’t ask me to give a number just yet.
Kremlin Watch. BP Pays The Putin. One of BP’s joint development companies, BP-TNK, just settled a back taxes claim with the Russians for $1.4 billion. That’s thought to be the largestback taxes bill every paid by a Russian oil company. Comment: it won’t be the last. BP is getting smacked for $1.20 in the pre market and the other Majors, including XOM, are taking notice with early but so far more modest drops. You can be sure that the cash hungry Kremlin is going to produce similar bills for all its energy partners in coming weeks or even days, just like it has found reasons to renegotiate contracts with them all over the last 2 months.

Analyst Watch: COG upgraded to aggressive buy, ESV to sell, GMRK to hold, GI to sell. That’s a little more negative than normal for the start of the week but given the recent run up not surprising. I’ll get more enthusiatic when we get another Lehamn type downgrade of the sector. ESV does look to get spanking the pre market trading and it’s notable that several drillers are starting to get downgrades now.

Holdings Watch:

APC has sold another deepwater discovery in the GOM. They’re getting good prices for these things and I cheer anyone who can piecemeal monetize an acquisition so quickly after making it. Comment: While I think they overpaid for the assets of Western Gas and Kerr and the timing was unfortunate (peak ’06 oil) Hackett is shrewd and there are better shorts in the oil patch.

Opec Watch: Mixed Signals. Saudi plans to open the spigots for Asian refiners in December. That’s a little surprising after last week’s announcement from Opec’s biggest member that further cuts would be needed at the December cartel meeting. Note that Kuwait has already told customers to expect full allocations next month in contradiction to recently its announced 4% cutback.

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4 Responses to “Monday Morning – Weaker Oil”

  1. ramana said

    When OPEC talks its amusement time. Good one on Saudis and Kuwaitis, zmann.

  2. zmann said

    SU finally breaking back down. I’m full up or I’d wade into the 80 Dec puts here.

    Oil is holding above my $58.50 target pretty well but also below $59 so far this am. CNBC mentioned that liftings for Euro clients look like last month. Unchanged is not down and traders are noticing. Posturing by Opec and trouble with rebels will slow the decent but fundamentals don’t support this price.

  3. zmann said

    Jon,

    Just saw your question re crack spreads over in the suggestion box:

    The trend is not their friend as seen here
    http://charts3.barchart.com/chart.asp?sym=F0Z6&data=A&jav=adv&vol=Y&evnt=adv&grid=Y&code=BSTK&org=stk&fix=

    I’ll do an update of the crack spread table today but heating oil and gasoline declines are starting to outpace those of crude. The refiners had a pretty good run last week and are due a pullback here.

  4. zmann said

    XOM buying itself on any dip is like the Us refilling the SPR no matter what the price. You’ve got to wonder if the dollars couldn’t better be spent doing something more useful like find more oil.

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