zman’s Energy Brain

oil, gas, stocks, etc…

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Archive for January 24th, 2007

Wednesday – Oil Inventory Day

Posted by zmann on January 24, 2007

Oil Rallied Strongly Yesterday (up $2.46) To Hit $55 (Nice Round Number) In An Over-reaction to Energy Secretary Sam Bodman’s comments regarding plans to double the Strategic Petroleum Reserve’s capacity. Sam is now officially the 12th man on Opec’s offensive line. How do you say you want to double the storage capacity of the Strategic Petroleum Reserve to 1.5 billion bls in one breath and then go on to comment that this will have no impact on the oil markets or gasoline prices? Here’s the plan and its impact:

  • Double SPR capacity to 1.5 billion barrels and fill it by 2027.
  • Currently there are 688 mm bls in storage and the SPR has a capacity of roughly 750 million.
  • If we assume it takes 3 years to add the additional storage loading facilities and associated pipeline infrastructure that leaves us 17 years to fill it up or 884 weeks.
  • If we straight line the fill that “creates new demand” of 850,000 bopw (or 120,000 bopd).
  • The good news in all this is the coincidentally timed expansion plans announced by the Saudis last Thursday. With the extra 1.7 mm bopd they should be easily able to handle both the growth in our SPR, expected global demand through the first 3 years, and a number of announced/rumored national petroleum reserves being more quietly created in China and elsewhere.
  • The oil market didn’t suddenly become tight overnight. Besides, in the two years a new administration crush oil prices and be a local hero by putting a halt the expanded SPR fill!

Oil Inventories still expected to rise as refiners gear down for more maintenance. As long as fog didn’t shut the HSC again we should see healthy builds in crude (as the mini-cartel of US refiners take another blue flu week) and gasoline (as consumers stay off the icy roads).

  • Crude: up 1.3 million bls – I think it’ll be bigger since refining capacity is expected to be down again to 87.5%.
  • Gasoline: up 1.7 million bls
  • Distillate: down 250,000 bls – I said earlier that we shouldn’t see wouldn’t be a big withdrawal but that seems like a really low ball estimate to me designed to disappoint in favor of the bulls. As always this time of year, this is the number that will drive crude unless the overall crude number is very large or very small.

Holdings Watch: Sitting tight on further action until the oil pendulum stops swinging like a metronome. We still haven’t managed 2 straight days of gains in crude this year and early action . Volatility is of the charts and the stocks remain disconnected from the price action in crude.

XOI- Up, Up and Away. Over the last two sessions the oily XOI smashed through what had seemed like a top at 1,130 and accelerated it’s gains on Bodman’s comments ultimately rising 2.4% to 1,156 on Tuesday. As the chart below indicates, the large cap oil-centric energy stocks are flat since the beginning of the late summer commodity sell off and oil, as measured here by the USO, is down 35% making the disconnect readily apparent. I’m told the stocks are cheap but the timeline of that comparison is relatively long. Pare it back to the last 5 years and you get a very different (pricier) picture. Thankfully data on earnings, reserve replacement and finding and development costs will start to play more into the moves for the next two weeks although I wouldn’t be surprised to see another 3 to 4% technical rally from here.

xoi-vs-uso-012307.JPG

Natural Gas: We’re up 22% in four days! Tomorrow’s column will have all the juicy details but lest you think I just watch the Street for guidance I’m looking for a draw of 165 Bcf from Thursday’s inventory report. This is just under the 168 Bcf draw reported in the first full week of December. I even had to pad my math a bit to get it that high because it just wasn’t cold enough in the right areas to yield greater demand. Ok I just checked the newswire and I’m seeing no consensus but a range fo 150 to 190. Honestly, I produced my number yesterday…I promise.

gas-price-detail-12307.JPG

Earnings Season: In General Here’s What They’re Up Against. Pretty Ugly Comps Except For The Well Hedged Or Geographically Fortunate (TSO)

4q06-price-deck.JPG

Compliments of Citigroup and a good friend of the blog although I did the 10 key myself.

SU Plant Fire At #2 Oil Sand Upgrader. If you have any of these puts remember that it’s always safest to sell the initial drop (if any) and re-establish on the bounce. Three out of four times this tactic saves you a lot of agony. If it’s one of those other times you can cast stones at me on the About tab. Just an FYI, these guys report on the 25th and their production levels and gas costs should be in line with estimates so I wouldn’t expect much downside unless they say there will be significant downtime due to the fire.

Analyst Watch: OXY upgraded to buy at Goldman, RDS.A upped to neutral at HSBC.

Odds & Ends: 

COP Kicks Off YE 2006 Earnings Season: $1.91 Vs. Expectations Of $1.96. Don’t be fooled by the impairment charge…it was expected so you’re looking at a good solid nickle miss. More on this in comments but nothing earth shaking so far from the PR.

President Calls For Increased Vehicle Mileage. The president’s plan is to reduce gasoline consumption through a combination of increased fuel efficiency (4% per annum for cars and trucks with 20% achieved by 2017) and increased ethanol blending (which is old news and really stinks if you like corn tortillas). I have always espoused that US energy policy must embraced a combination of advancing efficiency standards and greater access to domestic resources. Sadly, in a move that is contrary to his party’s Ed Bagley Jr ways, John Dingle, dem from Michigan, is already taking a “not in my backyard stance” by saying the president’s goals “drip with questions”. Here’s a question for Dingle: Do you seriously mean to tell me that the US carmakers can’t boost efficiency by 20% in 10 years? If that’s the case then you better let us drill ANWR, and off the coast of Florida down towards Cuba, and in all the restricted parks in the Rockies. Honda can build a humanoid robot that walks, runs, and dances but we find it hard to get a Buick to go from 28 to 34 MPG over a decade. That’s just sad.

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