zman’s Energy Brain

oil, gas, stocks, etc…

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Archive for November 16th, 2006

Thursday Morning

Posted by zmann on November 16, 2006

Crude Up Early. The December contract is trading up $0.42 or just over $59 per barrel as I write this. Opec is reiterating it’s threat to cut production at the December 14 meeting in Nigeria and traders are said to still be digesting yesterday’s large draws on products.

Product Demand Is Not Accelerating. Contrary to what CNBC, Bloomberg, and every analyst with a keyboard is screaming from the roof tops the large draws of late on products inventories do no represent increased demand.

–EIA explains “high demand”. In its weekly petroleum status report, the EIA foucsed on two factors in explaining recent high demand despite a lack of winter weather. First, secondary and tertiary sources of demand for distillates have taken advantage of recent low prices to stockpile inventories. These inventories are not measured by the EIA but will lead to a slower draw down of EIA measured inventories when winter arrives. Second, exports to south Anerica are running higher than usual (this goes back to Chavez’s inability to meet his contractual obligations with customers including Cuba- he’s been buying gasoline to send to Cuba!).

–LOOP closed due to choppy seas. Details are sketcyhy but the LOOP was closed again for part of last week reducing oil imports by as much as million bopd.

–Refinery maintenance cycles are running long. Normally refinery maintenance would be wrapping up this time of year so refiners can concentrate on producing a greater percentage of heating oil (their winter mix). This year, high inventory levels and low prices have incentivized refineries to take their time with the process making them defacto cartel members. Somebody call Pelosi.

Natural Gas Inventories Today. Up early as well but it’s inventory day so everything before 10:30 is meaningless. As I wrote on Tuesday I’m expecting a small build in inventories today. Analysts however are expecting anywhere from a small draw to a build of as large as 40 bcf. Given the distribution of warmer temps last week but the coolness of the north east, I’d shy away from that big number. It does however drag the consensus injection upwards playing nicely into the bull’s hands.

I’m not playing the gassy names until after the report. Maybe an hour or two after it. Hopefully we get an injection of such small size that it disappoints resulting in a pop in the stocks. Once that happens, APC, DVN, EOG, LNG, BBG, and KWK puts come to mind. I’m shying away from SWN and CHK as their organic growth stories and hedge positions remain too good to bet against.

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