zman’s Energy Brain

oil, gas, stocks, etc…

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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.

24 Responses to “Thursday Morning”

  1. gungagalonga said

    Z… My call is a 5 Bcf draw.

    This is based on a recently Windexed crystal ball…

  2. zmann said

    Hey Gunga, thanks for playing! I think I said 5 the other way on Tuesday so I’m stuck with it but I like how you try to set this market up for a fall. Maybe you should be on the sellside. Cheers.

  3. zmann said

    Anybody see Liz on CNBC say the expectation is for a 1.5 Bcf draw. How do you get a 1.5 Bcf draw? Has she done this before? Can’t she question the teleprompter?
    As to trades, this Russian thing is not good for LNG (the company). Increased competition for LNG (the frozen stuff) has already reduced shipments in 2006 relative to 2005 so there is less need to add the 3 facilities these guys are building/planning. The stock is up 3 bucks this week (15%) with nat gas prices and a naive Lehman overwight initiation so a disappointment today in gas, if that’s what you can call it could kill this little run.

  4. zmann said

    LNG in on DEC 30 puts at $2.20.

  5. gungagalonga said

    Hmmm… looks like the EIA is either out for donuts or just pausing for “effect”…

  6. zmann said

    injected 5, drew 4 in the east (like I said, it wasn’t that warm),

  7. gungagalonga said

    Nice call Z.

    Have you done this before?

  8. zmann said

    Gunga, shhhhh. I could ask you the same question since you often beat the crap out of my number. Ah well, even a blind squirel like me finds a nut every so often.

  9. gungagalonga said

    Or is it that… “even a drunken sailor finds a port every now and then…”

    Looks like the market is taking a little brush to the chin, only down 15-20 cents, but off the day’s high by 25-30 cents.

    Likely just looking forward to next week with this current, albeit minor, cold snap drifting south.

  10. zmann said

    Here ya drunken brush to the chin.

    Hey, maybe I’ll send CNBC a link to this site so they’ll know what to say.

    New Prudential coverage of refiners came this am with all neutral ratings. All but HOC weak and I punted my SUN at the close.

  11. zmann said

    Took XOM 75 calls for $0.15 (dicey but they look to rally it off the bottoms daily with the buyout and when was the last time you remmeber XOM being down, come on?!)

  12. zmann said

    It’s still warm
    1-5 day forecast:

    6-10 day:

  13. zmann said

    Gas storage page update. Even if we have the coldest winter in the last 16 years, storage only falls to just below the middle of the five year range. The warmest would put us well above the mid.

  14. Attacking Mid said

    Sold my SU and DVN puts hoping for a mid day rebound for a reentry. Hit a triple on most of those DVN Nov 70’s. I like triples in one day!

    Z – I knew as soon as you posted that you took those XOM calls that my puts were about to score ;^ ) (Only cuz I’ve been there, done that too many times myself!)


  15. zmann said

    Hey AM, Glad I could be of assistance. ;-

  16. Attacking Mid said

    Could you buy some more now? I just bought as many Dec SU 80 puts as I could afford.


  17. zmann said

    Oil diving pretty hard now, down $1.46 to $57.30. Need to break old low of $57.05 to get the stocks depressed though as they’re not responding yet. I pulled a DD on XOM for a dime to make sure that the group gets whacked though!

  18. Any idea what is driving oil down?


  19. zmann said

    I think its the realization that “demand” has not been rising as was thought. At least that’s what I’ve saying since about 1:00 yesterday so I’ll got with that. Oh yes, and I bought XOM calls for the first time in a month this am, and then I double d down.

  20. zmann said

    wow, oil broke $57. Stocks still in disbelief except XOM which I have mixed feelings about since I have higher calls and lower puts. “kind of like watching Larry Wildman drive off a cliff…in my new Maserati”

  21. zmann said

    Last week we get a draw of 7 when 4 is the expectation and CNBC bangs the “much bigger than expected gong” all day long. Today we get a build instead of a draw and it”s “wow, what a shocker…but it’s about to get cold and here’s a bullish analyst to say so”. CNBC, I’ve lost all respect for you’re energy trading reporting because you’ve lost all semblence of unbiased reporting.

  22. Attacking Mid said

    Z – there are about 15,000 of those XOM calls available for a nickle! If this keeps up, you might be able to get the $72.50’s for pennies.

    I’m only watching SU for now, and judging by volume, there just aren’t any sellers to speak of. If we could get some of the institutions to make a decision to cut and run, then I think we’d get a good old fashioned fire sale.

    For now, I think it’s just a case where the bulls haven’t realized the market’s turned on ’em.


  23. zmann said

    I don’t think it has turned on them yet, at least not for XOM. SU is way, way, way ahead of itself here and should fall back to about $60. The weakness in gas is holding them up a bit today but that stock is going to get its capital budget squeezed very soon.

  24. Attacking Mid said

    Wow! Someone just bet $245,000 on SU Dec 75 puts. Meanwhile, I’m the big roller on the 80’s making up almost half the daily volume.


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