zman’s Energy Brain

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Archive for December 6th, 2006

Wednesday Morning – Waiting For Inventories

Posted by zmann on December 6, 2006

Oil Easing Slightly Ahead of Inventories. January crude is dipping below $63 early this am but will probably hover close to that mark until 10:30 when consensus calls for a build of 560,000 bls of crude (with a broad range of draws and builds) and a draw of 860,000 bls of distillate. Most analysts expect gasoline to show a small build but that’s of little importance at present unless it just balloons and I really doubt that’ll happen.

  • As this is the second to the last inventory prior to Opec’s Dec 14 meeting we need a Goldilocks number- not too big, not too small for both the crude build and the distillate draw. Large builds although short term bearish would increase the likelihood that Opec will act so be careful of getting whipsawed with the initial reaction today.
  • I would be surprised to see a larger than expected draw in distillates since the majors and independent refiners continue to drag their feet on annual maintenance turns and utilization will almost certainly remain below 90% in this report.
  • We’ve had 3 reads on the US manufacturing economy in the past week CPM, ISM and factory orders yesterday – all lower than expected. It’s OK though because I saw a comment from the Nigerian president of Opec that the cartel wasn’t concerned about high prices impacting demand from their largest customer. I don’t care what he says, if these keeps up demand slows.
  • Most opecies are calling for a 500,000 bopd cut at their meeting next week. If they get the same 60% participation in announced cuts that will bring total reductions to just under 1.1 mm bopd (just shy of the original production cut of 1.2).

Natural Gas To Focus On Distillates Today, Inventories Tomorrow. After losing over 10% of it’s value in the last 5 days, natural gas is likely to trade more in line with heating oil early today than on weather forecasts. Tomorrow’s withdrawal closes the books on a pretty lame November (as withdrawals go) and traders appear to be buying into my line that even the coldest winters would only get you back to average and we don’t appear to be on track for one of those.

dec5trough.JPG

Forecasts for next week continue to moderate which should pressure prices after inventories as we transition from this:

from-this.JPG

To this:

to-this.JPG

Analyst Watch: Yawn. PQ upped to buy, WTI initiated as an ADD at Caylon. No comment except that the option spreads are huge on both and that any pop PQ gets will be short lived if gas trades sub $7. Nothing like changing your rating to a buy with falling gas prices and the stock touching all time highs.

Holdings Watch: SU is officially late with its monthly production report. Any number below 265,000 bopd negates the possibility of attaining the high end of the 4Q projection production range.

VLCC Rates Got Hammered Yesterday. I guess someone believes Opec will cut as VLCC rates fell $3,330 to $47,280 well below the $50K psych support it’s been teetering on. If it holds for more than a day look for OMM, FRO, TK, TNP and crew to get shelled (further shelled in FRO’s case).

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