zman’s Energy Brain

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Thursday Morning – Forget Opec, Today It’s All About Gas

Posted by zmann on December 7, 2006

Natural Gas Inventory Day And It’s Another Bag Job. Consensus: withdrawal of 14 Bcf according to Bloomberg which sounds like a bag job when you consider the weather was pretty close to matching the prior week when we had a 32 Bcf draw.

  • I haven’t seen the range of estimates but I’ll bet it’s dragged up by a few shameless participants who are “long but expecting a build”.
  • Brother if you’re expecting a build, you shouldn’t be long! I’m calling for a draw of 20-25 bcf as I stated on Monday. If we get that 14 number I’ll be pretty happy as that certainly isn’t good for gas. It will also serve as reminder that this is only a survey.
  • Comparison of degree day readings to implied change in storage shows the withdrawal should be bigger than what those surveyed are “expecting”


Remaining Winter Withdrawals (December through March) – We’re in no danger of running out of gas this winter. In fact, we’ll be hard pressed to get back to average trough storage levels .


Analyst Watch: SFY and PPP cut to sell at UBS and Deutche respectively. NFX PT taken up substantially at Caylon.

Holdings Watch: SU reports November production at 257,000 bopd, down from 261,000 bopd in the prior month. Probably a non event news item as their average 2006 production should fall in the middle of their projected range. They had a shot at the high end before this number but that’s not possible now. They should need to guide expense higher soon as natural gas has stayed well above their 4Q target of $6.75.

EOD = LOD for XOM. Man when people want out, they want out. Exxon fell 2.3% yesterday the second largest single day decline this year (just shy of the one it experienced in mid November before the stock vaulted to new highs). This sell off came on high volume as well: 30 million shares vs average volume of 21 million.
  • Strangely it wasn’t anything the company or an analyst or Opec or a democrat senator from California said. It wasn’t the Russians either although that should be (but has not been) cause for concern.
  • It wasn’t the lack of production growth growth at the worlds largest energy company.
  • But it was a change from the day in, day out advance the stock has exhibited over the past 3 months.
  • XOM is up 36% YTD and just in the last month it’s market cap has grown an eye popping $35 billion.
  •  Over the past month its forward multiple has expanded by a full point to 12.25x.
  •  Its peers (BP, COP, CVX, TOT, REP) trade at 9.8x
  •  15 out of 22 analysts rate it a BUY. The other 7 have it at HOLD.
  •  and everyone’s favorite chart – XOM’s complete divergence from oil since summer.


             Odds and Ends:

            Cramer, the schizo, on XOM (this week):

            December 5 – “you can’t go wrong owing Exxon” and “clearly going to $80”

            December 6 – “Boo the bad Exxon Buyers” ” Their impatience made this stock overvalued

            Nigerian rebels attacked an AGIP production platfom taking 3 hostages. Pretty good chronology here of the rebel’s activities. Buys little buggers.

            Iranian production problems. There’s a good article in Business Week, sorry no link, about Iran’s lack of investment in oil infrastructures and its inability to grow production as a result. The government has hijacked oil revenues to support massive government aid programs. Moreover, the Iranian government has done a poor job of attracting foreign investment  with overlong negotiations and unattractive economic terms. Energy subsidies, especially for gasoline, have yielded spiralling energy resource demand and as such, they are a net importer of gasoline and natural gas despite massive reserves.



            11 Responses to “Thursday Morning – Forget Opec, Today It’s All About Gas”

            1. zmann said

              SU, ECA, and MRO getting flogged.

              XOM flat after 4 mm shares. Not a great sign this early the in the day. Lot more sellers than usual.

            2. zmann said

              VLCC rates flat today at $47,880.

            3. gungagalonga said

              Ok Z, I’m with you on the 20-25 bcf draw. It will be benign at best for the ng market. However, I think traders will get past this and focus on the likely 100+ draw reported next week. The expected warming trend may override this however…

              On the macro bullish support side, do you sense that the Canadian rig count drop and moderating Canadian storage and production picture may be an early sign that the worst is over?

              Me, I’m buying MRVC! Back it up!
              (my apologies for the bad historical trading reference)

            4. zmann said

              11 bcf draw. wtf that’s small. good point about next week’s weather. However, I don’t think the number tops 100 Bcf on a 200 Hdd week, maybe, maybe not.

              Re Canada down rigs atributaqble to service cost backlash and weather. – they’re sending less gas of late south of the border – what’s up with that. maybe we should invade.

              MRVC – you’ll never learn

            5. wow only 11bfc. As usual CNBC trying hard to spin.


            6. gungagalonga said

              Nat Gas holding well despite the not so impressive draw.

              Could indicate a near-term commodity price bottom is closer than not.

            7. zmann said

              Agreed Gunga – not so impressive draw, very impressive hold up. Think you’re right – they’re salivating over huge potential draw next Thursday. Of course by then, they’ll be worried about how warm it’s become.

            8. Bill Fraser said

              What happened to the 30 cf draw

              Goes to show you we are well supplied and everyone should be short

            9. zmann said

              Hear ya Bill,

              That and my math is admittedly back of the envelope. It’s an extrememly complex equation (North American Natural Gas Supply and Demand) measured by a survey. Still, I we are well stored, production is not falling off a cliff, and gas is too high.

            10. Duckman said

              The draw was a little lame given the weather. We had injections in the East, which makes sense when it was almost 70 for a few days.

              However, the NG bull is dead. The forecast is too warm for December and that makes it unlikely that the rest of winter would provide enough of a draw.

              This means that we would probably end up w/ 1600-1700 BCF at the end of winter and would mean $5-$6 pricing.

              You can’t trust the current pricing, there is too much hot money. The real selloff won’t come until later when we get a look at the Januart forecast. If there is no blizzard then it will crack all at once.

              I would but some service names on the selloff at that point. We still 10% more rigs/yr just to keep flat on production.

            11. zmann said

              Hear ya dead bull. Nice, to have you on board.

              In case you haven’t noticed I’ve been bearish for quite some time now. Gas but oil as well. Storage and the cheap and growing shale production don’t justify current prices.

              Next week maybe a bit bouncy as trader anticipate the 100+bcf number Gunga commented on earlier. I’ve done some quick math for Friday’s piece and that 200 HDD week is going to burn through a lot of gas. Hopefully we stay below 125.

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