zman’s Energy Brain

oil, gas, stocks, etc…

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Archive for November 14th, 2006

Tuesday Morning – Inventory Prognostications, Jack Up Rates, KBR, and more

Posted by zmann on November 14, 2006

Oil Inventories Tomorrow. Estimates call for crude to climb 1.2 mm bls and distillates to retreat by half a million. Reporters keep pointing to almost 9% higher YoY demand without mention of the demand crushing hurricanes of last year. Oh well, I’ll mention it. Not only did those hurricanes shut in all GOM production for weeks but they literally killed demand in the US. Let’s keep it honest fellas.

Weather Calls For A Build In Gas Inventories Thursday. HDDs of 87 vs 120 for normal (that’s 27% warmer than normal). Last week’s inventory report we had 123 HDDs which yielded a 7 Bcf draw. In other words, we’re getting a build. How big is the question and I think analysts will deliberately aim too high.
— The closest recent weather was the week ended October 21 with 81 heating degree days. We got a draw of 19 Bcf then which I insist included an adjustment that the EIA never owned up to in the year ago period. This was a catchup which made it look as if demand had suddenly accelerated.

— Most analysts will probably guesstimate a range of flat to 30 Bcf with consensus coming in somewhere above the mid point. These guys are almost uniformly bullish on gas prices here and it makes no sense to be accurate when you can throw out a high number forcing the outcome to be bullish. We’ll know more about consensus by tomorrow afternoon but I wouldn’t be short a lot of gassy names going into inventories.

— Here’s the problem for a big injection. The New England and Mid Atlantic regions were still pretty cool last week and the dramatic swings in gas inventories have been coming from the Eastern consuming region. Three weeks ago when we got that 19 Bcf injection, those regions were much warmer. As such, I’m going with a projection of 5-10.

— I think this week is set up perfectly for a bullish CNBC rant on the half hour all day long with the draw being “much smaller than expected”. I hope I’m wrong about the short term but I’ll bet they spin it bullish despite the fact that we have record amounts of gas in storage and aren’t chewing through it a decent pace despite the date on the calendar. In November, gas withdrawals averaged 162 Bcf for the last 5 years so we better get with it.

Jack Up Day Rates Gone Wild. Rigzone did an interesting study on Jackup day rates. Day rates for the sub 300′ water depth (WD) crowd has recently accelerated to levels within almost 90% of the rigs than can work in greater depths. As seen in the figure below rates have advance strongly in the last 6 years and accelerating over the 2 years by 128% and 86% for the sub 300′ and over 300 ‘ classes respectively.This is simply not sustainable unless commodity prices continue to make new highs:


But the higher dayrate increase for shallower jackups appears to be somewhat unjustified given the lower utilization of these rigs:


Rigzone concluded that sub 300′ rates will be falling as soon as late 2007 and into 2008. Who does this hurt? GSF, ESV
Africa Watch: Everybody Wants To Tax Big Oil. Senegalese president Abdoulaye Wade is calling on African nations to institute a tax on foreign oil profits. The “Wade Formula” would cap oil company profits at 20% when oil is over $29 barrel. I’ll bet this gets backing in Washington. While a tax on Nigeria hurts most Shell and AGIP, a similar tax in Algeria would be a slap in the face to XOM.

Holdings Watch:

KBR set for IPO Wednesday morning. Price range:$15-17.  This may be a “buy the rumor, sell the news” event for HAL especially if the it fades at the open.
One Last Thing: I’m confused about the seemingly schizophrenic behavior of Energy Secretary Sam Bodman. Bodman now says, “I can’t tell you that I’m dissatisfied with where it all is, but we’ll see,” referring to the way OPEC has administered its latest series of production cuts.

–I’m sorry but in September he railed against OPEC saying “the US consumer is going to need all the oil they can get this winter”.

–On October 1 he said we wouldn’t begin refilling barrels borrowed from the SPR to help keep fuel prices low over the winter. But on CNBC on October 10th Bodman said he thought we could begin “adding a few barrels back”.

— Funny also how the Saudis originally talked oil lower in September and even into October saying that high oil prices were hurting the poor countries of the world. How nice. That was before they decided to back the cuts and said the price of oil should be higher. I guess all that lower price talk worked a little too well and too fast.

–Saudi just released its 2005 GDP growth: 6.5%. Um, that beats us pretty handily so why are we supporting these price cuts when it’s pretty well acknowledged that $60+ oil is shaving at least a percent off our own GDP? Hmmm.

— So now we’re cool with the cartel acting like, well a cartel and bilking the world for a few extra bucks per barrel despite near record high crude inventories. What gives? Maybe it’s that the election is over and it’s time to return favors. I dunno. That seems a bit conspiracy theorist to me.

– As to Bodman, for an MIT grad and former head of Fidelity he seems to have a very bad memory. Or maybe he just hopes we do.

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