zman’s Energy Brain

oil, gas, stocks, etc…

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Waiting Wednesday

Posted by zmann on December 13, 2006

Oil – Waiting On Opec. True, we get inventories today…

  • Crude: Wide Range of Expectations. As of Tuesday analysts expected anywhere from a draw of 2mm bls to a build of 150,000 bls in crude with an average draw of 1.3 mm bls expected.
  • Distillates : consensus is calling for a build of 300,000 bls (which makes little sense given the blast of cold for the period) and,
  • Gasoline inventories are expected to rise, anywhere from a 0.5 to 1.8 mm bls (average of 900,000 bls build) and if we come in over the mid point watch out refiners, it won’t be your day. While crude is likely to hold relatively firm into the Opec meeting, gasoline will weaken on a big inventory build. I’ll be looking at buying more refiner puts on any pop associated with rising oil but falling gasoline. Yes, I know it’s winter but gasoline still makes up two-thirds of production even during this time of year. As utilization cranks back up the oversupply situation in gasoline will reassert itself.

…But the real action starts tomorrow with the Opec meeting. If we get another sizable draw in crude and subsequent rise in prices, the cartel may restrain itself to the lower end of the cut forecast band of 0.5 to 1.5 mm bopd. If we get a small draw or a god forbid a build then watch out for the ministers to try to teach this market a lesson. While I believe they’ll opt for something in the 500-700,000 bopd range, here are some of the latest comments made by those appearing to be less draconian.

  • “I don’t think there will be any cut,” the head of Libya’s delegation, Shokri Ghanem, said today. “No cut, compliance – this is the view up until now from the Gulf members,” the delegate said.
  • OPEC’s research director Hasan Qabazard concurred that if members abided by the deal they struck in Qatar in October, that should do the job of restoring equilibrium. “If we achieve the cuts agreed in Doha, the market will more or less be in balance,” he said.

Natural Gas: Likely to trade with heating oil today and could get a boost from the first 100+Bcf withdrawal of the season tomorrow. Even if we do get a bounce on the triple digit storage number all eyes should quickly refocus on the warmer weather of the next two weeks which should serve to severely dent December withdrawals. Longer term I remain bearish for all the reasons I’ve discussed before.

Analyst Watch: APC to neutral at Goldmann (two days after an upgrade at Merrill) – if they take a beating over this after the 4% drop yesterday I’ll be in for a quick trade on the long side but only if gas holds $7.30 today; Morgan Keegan initiated coverage on the offshore drillers with outperform ratings for everyone; RBC slashed its PT for RIG from $128 to $120 while maintaining a buy rating (talk about about asleep at the wheel!); FBR upped PT on TLM slightly after yesterdays growthy projections from the company.

Last minute trading ideas for Opex/Opec Week:

  • Oil Rising / Falling. SU and XOM long or short depending on your perspective on oil. These two divorced oil about 3 months ago


  • but have remarried recently and are trading quite nicely with the commodity at present.


  • FRO and long or short based on the outcome of the Opec meeting (anything less than 700,000 bopd or less means calls, greater and VLCC rates will remain depressed so I be taking the January 30 puts). Same applies to OMM which is often a little slower to move.
  • EEE – Play on falling natural gas prices and end of year mutual fund housekeeping. Plus there’s no positive momentum in coal prices and coal inventories have just reversed a multi-year decline as seen here: coalinv.JPG Anyway, clean coal with a really terrible chart and no catalysts before year end equals tax loss selling. I’m taking January 10 puts and until year end and then flipping to calls. Don’t fall in love on the short side of this one. Very good management. 2007 should be their year to shine but the stock needs to flush out all the suckers before rebounding.
  • SJT – a royalty trust with a direct connection to gas prices. No surprises here of big discoveries, just a steady monthly payout tied to gas prices and level production. The put spread is horrendous but can be bought on the mid if you’re persistent.

29 Responses to “Waiting Wednesday”

  1. zmann said

    Inventories: All Draws:

    4.3 mm bls crude – lower imports

    100 bls gasoline – down since the refiners aren’t making enough

    500 bls heating oil – light – its that secondary and tertiary demand from a few weeks ago coming back to dilute demand when it really gets cold. No one on CNBC even asked the question!

    utilization: 89.1% – bit of a pullback…how will they make their quarter’s if they don’t operate more than this? and when did the domestic refiners join Opec? They’re helping the cartel to raise prices by extending their maintenance cycles far too long into winter.

  2. Wow refining inched down again.


  3. zmann said

    Very Large Crude Carrier rates continue to fall, now down to $39,770. Combined with the big draw today and the one last week I’d saw there is less traffic since the last cut and people believe in the next one. FRO, OMM, VLCCF, etc all for puts

  4. I am miffed by the refinery util action.


  5. zmann said


    It’s almost comical how CNBC can have a guest comment on gasoline demand obviously still being strong without strongly countering that the refiners have in fact joined their own cartel to bring inventories down and prices up. It boggles the mind as well on the small distillate draw with the coldest weather of the season how we don’t get a bigger number than 500,000 bls but they don’t even touch on it.

    This rally in oil looks weak as does Opec’s position on more cuts. Saudi has repeatedly stated that further cuts would be deemed necessary if supply/demand fundamentals warranted and not because of price. I think the big draws show you that the desired effect is occuring.

  6. I hear you. If refinery util was at 90% we would have had a build in gasoline, and a smidgeon draw on distillates. The draw in distillate was low even with this lame refinery util. Phil said that someone on CNBC actually said we needed the draw down in crude, and were cut short promptly thereafter. Lame


  7. zmann said

    I saw that interview. The guy said that we needed the draw in crude because we were running out of places to store it. When he finished his sentence there was a long pause because she obviously had stopped listening to him and then she said thanks and dismissed the guy. Nice.

  8. Funny, I love hearing we are running out of places to store it. Yeah I know this, but the traders are unwilling to accept this.

    I am wondering if another port wasn’t closed or something, because that drop in imports was unusually high. Even if the previous OPEC cut was 100% complied with. That is still only 300K a day cut for us ( at 25% of OPEC cut ) that is only a 2.1M barrel draw. Hmmm…..

  9. funny looks like refining util is rotating between PADDs. This week it was my boys in the midwest doing their best to jack crack spreads. 😛 Midwest crude stocks up, products down.


  10. zmann said

    taking VLO 55 Ps and BHI 75Ps, missed my trade on APC.

  11. zmann said

    adding to SU 80 position as well

  12. zmann said

    This energy market looks stalled as they wait for Opec. Even last time it was a disappointment withing hours of the announcement.

  13. zmann said

    Reversed on the APC and am taking puts – it’s had its bounce – let the downgrade take it to 45. The Dec 45Ps are a dime now.

  14. Jon said

    Speaking of no place to store oil, I wonder what kind of day rates the tankers get when they are used for storage. GMR’s 3Q report commented that the tanker fleet growth had been absorbed, in part by the use of tankers for storage by Saudi Arabia and Iran.

  15. zmann said

    Jon – I dunno but I do see a lot of announcements for tanker conversions to FPSO and FS and also some announcements for change of ownership prior to completion of construction. The guys who run these fleets aren’t exactly scrambling for more capacity after having spent the last few years ramping it up.

  16. Attacking Mid said

    Will someone please tell CHK there’s a rally going on!!! Somehow “they” know I have a bunch of calls I need to dump by Friday.

    The market had to remind me today what an amateur trader I am…. at 10:30 EST, I decided to cover my short SU puts and buy calls (needed to free up margin). Literally the second after I covered, but before I could buy the calls, SU jumped over $0.60. Right idea, really, really, really bad timing :^(


  17. zmann said

    Hear ya bad timing…but the right idea is more than half the battle.

    I don’t trust the gassy stocks to go up much more for now. Everybody’s expecting a mongo huge draw from storage tomorrow and we are sure to pop a bit on it but the weather is tropical afterwards so December looks like it’ll be a weak one as draws go. So that’s 2 months of winter down with no sizable draw and only 3 left and you start looking at the historical scenarios and you say to yourself, “self, we’re going to have a lot of gas on hand at the end of March” and self turns to you and nods with a smile.

  18. gungagalonga said


    Have you been able to execute any SJT Puts? I had been looking at HGT also as an opportunity, but you reminded me to look at SJT. The spread is wild…

    Both should announce their respective distribution numbers in a few days. This will be for Oct prod and pricing and should be reflective of the weakest recent ng prices.

  19. Jon said

    Aren’t those FPSO/FS conversions mostly the single-hulled tankers? They’re trying to find something to do with them other than scrap them all. FRO is converting one to a heavy-lift vessel.

  20. zmann said

    No – I’m pondering the Jan 40s but no bites on my limited term offers on mid of late.

    How weak have rates on those western land rigs gotten?

    Also, do you have a prediction for tomorrow? I really haven’t put a lot of work into my “big” number prognostication. For now I’m going with 125.

  21. zmann said

    Jon, yeah many are although it limits you as to where you can put it. You’ll never see one of those single hulls in the GOM.

  22. zmann said

    Lehman reiterates neutral on Anadarko after the Goldman hold this am. I think this one breaks on down on any weakness in the group. Goldman will be pumping everything but this.

  23. gungagalonga said

    On storage, I think it will be closer to 155-160 b’s.

    The cold has also lingered a bit longer than I expected, so it may be followed up by a 60-65 draw the follwoing week.

    On rigs, I’m starting to hear of people getting phone calls that rigs are available. Not that thet’re getting lots of calls about free rigs, it’s just a big turn around from the recent trend of not getting calls returned from rig outfits when trying to schedule something. These are small Permian Basin operators.

    Overall, the land rig market still seems very healthy, just moderating to a more balanced, helathy level.

  24. zmann said

    hear ya healthy levels

    I hope lots of analysts think like you and call for a giant number (and then we don’t get one). I’ll be in Texas this weekend so I’ll run some traps with the locals.

  25. zmann said

    In a report today, the International Energy Agency, an adviser to 26 oil-importing nations, maintained global demand forecasts for 2006 and 2007. It said China’s 2006 oil demand growth will be 5.6 percent, down from a previous estimate of 6.2 percent.

  26. zmann said

    Eni SpA said it restored production at the Okono/Okpoho offshore fields in Nigeria over the weekend, bringing back 55,000 barrels a day. Rebels are slacking off close to the meeting so as not to embarass the home team.

  27. zmann said

    Goldnman comments on APC downgrade today:

    analyst Murti said that, while he expects the company to make new discoveries in the deep waters of the Gulf of Mexico, Anadarko’s past and current production problems at Gulf fields such as Marco Polo, K2 and Constitution would dampen investor enthusiasm for future successes.

    “We view new 2007 guidance as disappointing and are concerned about the company’s ability to execute on its production growth plan both onshore the United States and in the deep water Gulf of Mexico,” he said.

    Murti downgraded the stock to “Neutral” from “Buy” and cut his price target to $53 from $62, noting that the stock no longer seems inexpensive compared to competitors of a similar size.

  28. walter said

    No place to store it? On CNBC? – pretty funny!

  29. zmann said

    APC capital spending: sorry didn’t post yesterday

    The company also forecast a decline in capital spending, to between $4 billion and $4.2 billion in 2007 versus an estimated $4.9 billion to $5.1 billion in 2006.

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