zman’s Energy Brain

oil, gas, stocks, etc…

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Monday Morning – Welcome Back Everybody!

Posted by zmann on November 27, 2006

Wednesday was slow, Friday was dead.

Opec Watch:

  • “Saudi Oil Minister Ali al-Naimi said yesterday Opec would cut oil output again when it meets in December if recent supply curbs failed to balance the market. Oil prices were not a decisive factor, said the oil minister of the world’s top oil exporter and Opec’s biggest producer.” My question is what other than price is going to tip them off over the next two weeks that supply and demand have stabilized? This could mean that in the near term, smaller crude builds could yield weaker oil and vice versa as traders start to anticipate Opec’s Dec 14 action.
  • Kazakstan (not a member) says its Kashigan oil field to peak 25% higher than expected at 1.5 mmbopd by 2010, another signal that non-Opec production is not only becoming increasingly more important but that it’s also growing faster than previously thought. Expect the biggest increases from Russia and Brazil next year.
  • Ecuador (also not a member) -Correa won the presidency Sunday and is looking for readmittnce to OPEC (they dropped out in 1993). Correa is a leftist/isolationist and close personal friend of Chavez and has said he wants to strengthen the Ecuadoran national oil company…so expect production to fall. Ecuador produces about 535,000 bopd. This is probably not so good for OXY who got Ecuadoran oil production when they acquired Vintage Petroleum in late 2005.

Weather – Cold Snap Approaching. One more week of warmer than normal temps and then an artic air mass will bring the coldest air of the season though the mid west and into the deepsouth. Natural gas longs rejoice! Of course this won’t save gas prices but it’ll buy another week’s time.

Oil – January crude is off $0.50 at $59.40 and continues to trend lower. Reversal would be anything above $61.40 and new lows on the contract would be below $57.80 so we’re right in the middle now. Silly trading on Friday left the contract up just shy of a buck last week despite the 5 million barrel build in crude reported Wednesday. More trouble from Nigeria Friday was the culprit then and it along with Opec and the cold front will lend support here so I’m expecting range bound trading $58-60 through Wednesday when we get another look at inventories and refinery utilization.

Natural Gas – Still Too Expensive But If You Can’t Beat Em… Despite CNBC’s best efforts to put a bullish spin on a draw of 1 Bcf after the second coldest week of the year so far, January gas ended down $0.36 for the week at a still ridiculous $8.28. On the continued strength I like APC, CHK, SWN, KWK. The problem is that the continued strength is unwarranted. Still these make good short term trades and Thursday’s inventory report is unlikely to upset the bulls since they’re the ones setting the bar.

Analyst Watch: MRO -slight price target bump from FBR

Holdings Watch:

Refiners – Still like ’em short here: heating oil cracks were down last week as the 1.2 mm bls draw met expectations and while gasoline was up on the week it’s strength really should be fleeting as utilization cranks back up (some day). The refiners are caught between the proverbial rock and hard place. Margins have eked back up because they’re cranking out less product and inventories have come off recent high levels (though they’re still above average) propping up product prices. If they don’t get their units back on line soon the quarter is going to slip and earnings numbers will have to come down. When they do, margins will slip unless crude continues to slide (which Opec is determined to forstall) and the quarter is again in jeopardy. Finally, when they do increase utilization, crude is likely to strengthen but without real winter weather products may fall behind, again pinching margins. I’m sticking with puts on VLO, TSO, and HOC.

Oil Plays – I’m not playing other than quick trades and a standing put in EOG that would cause me to lose sleep save that the position is small. Although it’s the least hedged sizable player in natural gas it trades with oil like glue in recent weeks. True it has outperformed oil over the last 2 months but not to the degree of its big brother XOM.

Gas Plays – REALLY not playing until this weather gets out of here. Except for the gas names mentioned above which I may be long but probably not short at any given time over the next two weeks, I’m still holding puts in LNG (the company) and think SU‘s 4Q numbers are getting severely squeezed at this point by the combination of low oil and high natural gas prices.

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15 Responses to “Monday Morning – Welcome Back Everybody!”

  1. Jon said

    Mornin’ Zman!

    From the “You Just Can’t Beat ’em” category. Here’s one more way they are double and triple dipping by selling you “hot fuel”. (Oh, but in Canada they are compensated for “cold fuel”)

    http://www.kansascity.com/mld/kansascity/15370193.htm

    And this guy fills in many technical details:

    http://www.users.qwest.net/~taaaz/AZgas.html

  2. zmann said

    Iraqi pipeline bombed. This is a refinery supply line, not a main export or terminal line but it’s piking crude along with the cold weather.

    http://seattlepi.nwsource.com/national/1107AP_Iraq_Pipeline_Fire.html

  3. zmann said

    test

  4. zmann said

    Been locked out for a while now. Pipeline bombing in Iraq has got oil up now. It’s a refinery supply line, not a terminal line but that, more opec sabre rattling, and the approaching cold in the US have spiked oil this morning.

  5. zmann said

    MRO is up with XOM, oil and the group, and is approaching its all time high on the back of a market perform reiteration this morning with a price target that was upped $3 to a price that is $5 below current levels. Hmmmm.. This is a volatile one that will suffer from the same dynamics I mentioned this morning for the refiners and will be hurt if oil or gas fall. Somnething to think about on a nonsense move up here. More details can be found in last Wednesday’s reading.

  6. zmann said

    There goes oil back down…told it you it was just a refinery supply line and not an export impacting event.

  7. zmann said

    Sudanese rebels apparently overran a small oilfield (10,000 bopd out of the contry’s 500,000 capacity) this morning. Both sides claim victory but both also said capacity there (Abu Jabra) was severely damaged. Talisman and Lundin are long gone from Sudan leaving behind only state oil companies so there’s no impact to public companies other than a supporting role for oil.

  8. walter said

    Looks like VLO will end 2006 flat. Tough year after blockbuster 2003- 2005.

  9. zmann said

    Walter,

    Just wait for 2007 if you think this is tough. That MRO is getting pretty tempting up here too.

  10. walter said

    Yeah, MRO looks ready. And VLO, wow- that stock might spend a good part of 2007 in the $40`s

  11. zmann said

    CNBC has mispriced oil all day. It’s up a few pennies but they’re showing the combined price of Friday and today as today’s change. Not too bright really. Traders are desperately trying to close crude at or above $60 but it remains locked in a downtrend below $61.40.

  12. just shiv said

    MRO – buy or sell?

    I am holding puts

  13. Personally, I dont understand how people dont get this but thats another story

  14. james said

    That makes me so happy to hear!!! Good luck

  15. I absolutely love your blog and find many of your post’s to be precisely what I’m looking for.
    Does one offer guest writers to write content for you personally?
    I wouldn’t mind writing a post or elaborating on many of the subjects you write about here. Again, awesome site!

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