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: 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.