zman’s Energy Brain

oil, gas, stocks, etc…

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Archive for December 20th, 2006

Which Way Wednesday

Posted by zmann on December 20, 2006

Energy Stocks: The XOI, XNG, and OIH each enjoyed almost perfect 50 retracements of Monday’s losses. Today is critical in establishing whether or not Monday was just flukish profit taking inspired by sector downgrades or the beginning of something more serious (and overdue).

Oil: “Expectations” call for a draw in crude of 1.7 mm bls. If inventories only fall that much I’m finding a hat to eat. With the Houston Ship Channel shut for 3 days during the reporting period (it was shut Monday night the 12th and the report runs through the 15th) and shipments from Opec are off a bit, not as much as they’d like you to have believed but still off (see below), the chances are good it will be bigger than 1.7. As I said on Monday, I think we will continue to trade in the $60 to $64 range through year end.

It’s hard to peg weekly numbers. In late February 2006 the HSC was closed for 2 days over fog and we got a 1.6 mm bls build. My point is a lot of things go into making these numbers up and the guys who get paid lots to do this often get it completely backwards and not always on purpose. Of course there’s always next week when we’ll have 3 days and counting of downtime for the HSC.

HOWEVER, huge numbers at 10:30 (a 3+ mm bls draw on crude or over 1.5 mm bls on distillate) could of course force that test of $65 that I think we need to have and fail before crude can really head lower. Right now we’re stuck here. If they break us out of the band to the upside of $65 (and not just a tick but I mean resoundingly) I won’t have to eat any hats but I will be taking on CALLS WITH TIGHT STOPS in popular, volatile, and highly liquid oil heavy names like CVX, XOM, MRO, SU, VLO, and BHI as a hedge against my belief in gravity and the law of supply and demand (although COP is cheap there’s a reason and it’s gas and it’ll be a drag on the stock if I’m right on that commodity so it’s out).

If we stay below $65, I sit tight on my puts and DD where necessary, mostly likely in MUR and MRO.

Highlights From Opec’s Report On November:

  • Opec delivered 0.65 mm bopd in November less than Oct. The plan called for a cut of 1.2 mm bopd.
  • Non Opec supplies grew 0.9 mm bopd in 2006 and are expected to grow 1.8 mm bopd in 2007 (the highest growth increase since 1994).
  • Chinese demand fell by 1.08 million bopd in October (no Nov # available) to 2.9 mm bopd (that’s what I call volatility!).
  • Venezuela failed to comply with the cuts it pushed for in October. Once a cheater, always a cheater and the news bodes poorly for other member country compliance after they somewhat reluctantly followed the lead of Venezuela and Nigeria.
  • Opec is very worried about demand in 2Q07. Demand naturally slips in 2Q and it coincides next year with several planned project startups of non-Opec fields. They have a cool graph of this on page six of the full report.
  • Opec expects global GDP to decline from 5.1 this year to 4.4% in 2007 with declines in the EU, US, Japan, and OECD.
  • Finally, from the “You Call Yourself An American?” File, I find it interesting that of the US, France, Germany, Italy, UK, the European 16, and Japan only the US saw refinery utilization fall from October to November. There are Cartels out in the public eye and there are cartels formed by the mutual consent of American refiners to slack off.

Natural Gas: What can I say? Gas fell below $7 but then rose on sympathy with the almost completely unrelated commodity of crude oil (which rose because of all those tankers floating about in the GOM). It’s hot and I think gas would have failed to at least $6.80 today were it not for the sugar plum dreams of oil traders. Still, short interest is on the rise, the longs have begun to throw in the towel, and the gas chart and any one of the next 3 weather forecast periods tell you all you need to know.

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