zman’s Energy Brain

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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:

ju-day-rate.JPG

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

ju-util.JPG

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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12 Responses to “Tuesday Morning – Inventory Prognostications, Jack Up Rates, KBR, and more”

  1. Attacking Mid said

    XOM seems to finally be running out of steam. Other oils are taking notice. SU buyers thought there was going to be a party today, but then they noticed hardly anyone else showed up. If oil takes a turn down, it feels like we could see a big selloff in the oil patch. Keeping my fingers crossed, as I’m still loaded in SU puts. Thankfully, I sold ’em all yesterday afternoon and bought ’em back this morning.

    AM.

  2. zmann said

    I’m playing the 75s myself and think there still is a chance. Tommorow’s pretty important for inventories but epxectations for only a small decline in distillates seems a bit rigged to me. Analysts and traders want bullish disappointments given that they’re hugely long at present.

  3. zmann said

    CERA out saying there’s 3x as much oil as previously thought. That should set Peak Oil theory back about 60 years to 90 years from now. Should be pretty bad for oil prices.

  4. Good article from CERA. It is staggering when you look at the “unconventional” reserves out there. CERA makes a good point about reporting. These “unconventional” reserves out there, which probally make up more than half of the oil out there are not reported.

    I look at tar sands and projects like coal gasification, biodeisel, ethanol, butanol, etc…, And these are things happining now.

    There I go preaching to the choir again 😛

    -SaneO

  5. soccer_F1 said

    Inventory expectations always favor the bulls. And if for some reason inventory builds are higher than artificially high expectations, CNBC will find another oil bull story to repeat ad naseum.

  6. soccer_F1 said

    Israel could run completely on solar power in 30 years

    http://www.autobloggreen.com/2006/11/13/israel-could-run-completely-on-solar-power-in-30-years/

    ===================

    Renewable resources could produce 25 percent of the electricity and motor vehicle fuels used in the United States by 2025 at little or no additional cost if fossil fuel prices remain high enough and the cost of producing renewable energy continues falling in accord with historical trends, according to a RAND Corporation study issued today.

    Renewable sources currently provide about 6 percent of all the energy used in the United States.

    http://www.rand.org/pubs/technical_reports/TR384/

  7. zmann said

    CERA’s article slamming peak oil

    http://www.cera.com/aspx/cda/public1/news/pressReleases/pressReleaseDetails.aspx?CID=8444

  8. zmann said

    UK asks HAL to withdraw KBH IPO. KBH runs a port for the Brits and it seems that they can pull the contract at any time they want.

  9. zmann said

    SU looking pretty weak today. Those high gas prices hurt them pretty badly and with the capital budget they’ve just laid out, NG is going to have to fall or SU will be looking at delays for the ramp in 2008 and the bigger one in 2010-2012.

  10. zmann said

    HAL IPO delayed until Thursday due to UK issue.

  11. […] Crude is expected to build 1.2M barrels and a small draw on distillates is expected.  As Zman properly points out, the pump crew makes a big deal about a year over year demand increases but neglects to mention that last year’s demand was depressed by 2 hurricanes that disrupted the country for weeks! […]

  12. Ethanol said

    *wonders how cold it\’s going to get today*

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