zman’s Energy Brain

oil, gas, stocks, etc…

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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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47 Responses to “Wednesday – Oil Inventory Day”

  1. zmann said

    More on COP – expects down upstream production 1Q relative to 4Q…didn’t eleaborate on size but said that production from the JV w/ ECA will be more than offset by unexpected downtime in the N. Sea, and reductions in volumes from Libya and Venezuela over reduced quotas (something you’ll be seeing a lot of this quarter).

    They also said they’ll be spending 75% of their prev. announced buyback in the 1st quarter.

    No F&D results yet.

  2. zmann said

    Chemicals unit income down by 1/3 on volume and price for olefins and polyolefins. This comes on the heels of a very strong first 9 mos and this arena positively made the quarter for XOM in 3Q.

  3. zmann said

    From Soccer on Phil’s site:

    “At the end of this decade, in the year 1980, the United States will not be dependent on any other country for the energy we need to provide our jobs, to heat our homes, and to keep our transportation moving.”
    – President Richard M. Nixon, November 1973

    “Beginning this moment, this nation will never use more foreign oil than we did in 1977, never.”
    – President James E. Carter, July 1979

    “Tonight, I ask Congress to join me in pursuing a great goal. Let us build on the work we have done and reduce gasoline usage in the United States by 20 percent in the next ten years.”
    – President George W. Bush, January 2007

    At least Bush’s sounds even remotely attainable.

  4. Raj said

    Z,

    Are the inventory numbers out yet?

    R

  5. zmann said

    ** Crude up 0.7 mm bls

    ** 4 mm bls build gasoline – not surprising as everyone was iced in, right?

    ** Distillate UP 0.7 mm bls – holy cow!!!

  6. zmann said

    National City guy on CNBC just said we’re going to $45. Small head fake going on now (over the smaller than expected crude build which may turn out to be imports) but I expect to end the session quite a bit lower after yesterday’s strong numbers.

  7. wow distillate build Nice

    -SaneO

  8. zmann said

    That COP post earnings rally died. EOG getting crushed along with most of the oil puts from Monday’s piece.

    Now we just have to get through nat gas tomorrow which is after the recent run needs a withdrawal of 190+ just to support current levels.

  9. ok excuse me if I sound a tad bearish here, 87.4 Refining util, with a slight build in crude, imports down, and build in distillates, and gasoline, Hmmm….. Everything is above the upper end of the average range.

    -SaneO

  10. zmann said

    Coals starting to back off after what has been a pretty good 5 or so trading days. They die with gas tomorrow if the number is light.

    BTU looks like it wants to break back down through $40.

  11. zmann said

    Sane – you know the bears alway have a home here! Notice the domestic cartel suddenly needed to perform more maintenance? It’s a little early to be thinking about making the gasoline switch so the only consideration must be price. Their volumes for 1Q are going suffer for this just like they will in the third quarter. I suspect margins will start to deteriorate soon on the west coast which will hurt TSO.

  12. Attacking Mid said

    Aha! I can almost reach my pants back. Shirt appears to be still lost over several mountain ranges.

    Naked in Colorado.

  13. zmann said

    AM – still got your SU’s?

  14. zmann said

    Oil and stocks languishing down here.

    Goldman upgraded OXY this morning and I’m sure they’re out telling everybody that today’s numbers are meaningless and to buy the group. Maybe Bodman will go ahead and triple the SPR to support oil here.

    Disavowing all my long calls at this point from Monday’s “week ahead” picks. They’ve run and they’re done.

  15. Attacking Mid said

    SU, VLO, ECA, EOG, UPL for puts…. BQI and AAPL for calls.

    Still quite a bit of time, though I’d like to be able to lighten by tomorrow afternoon. Friday’s have simply been put killers as of late, and you always lose some time value from Friday to Monday.

    I’m thinking these companies are going to have to lower guidance for 2007 given the outlook for commodity prices. Hopefully that will result in some significant “readjustments” to share prices.

    AM.

  16. zmann said

    Adding a second set of EOG $60 putters here for $0.35. It’s had a nice bounce after the post inventory sell off, up about 1% off the low as they try to re-rally oil.

  17. zmann said

    AM – Agreed, most of them will have to come out and give guidance now COP limited theirs to 1Q, not full year.

    SU reports tomorrow. Beyond the 4Q #’s which should be ok, can’t see how they report any upside to known targets. The fire’s impact hast not yet been quantified although it doesn’t sound too bad since the unit is still running , albeit at reduced capacity. The question becomes how long to ramp it back up to full.

  18. zmann said

    You might consider some XLE 54 or 55 calls for the weekend you know. I agree with you on the pattern and it’s a lot easier for something to break or blow up over the weekend than for peace to break out.

  19. zmann said

    We’re back we started on oil prior to inventories. Amazing.

  20. Attacking Mid said

    I doubled down on both my 60 & 65 EOG’s yesterday. The 65’s nearly got to even at today’s lowest point, so I’m hopeful that the next downdraft should get me into the green overall on EOG. Some of my others need some serious movement, as they’ve become significantly OTM (I prefer ITM or at least ATM options).

    AM. (still can’t quite reach my pants back yet)

  21. Attacking Mid said

    Why are the refiners holding up so well? Shouldn’t the inventory report have weakened them?

    AM.

  22. Should have.

    After yesterdays pump job they are probably trying to defend like mad.

    -SaneO

  23. me said

    We now have a spring driving season and apparently it will pump prices back to $60 !

    “I think we’ll consolidate in these low 50s. I think that’s the fair value of crude right now,” Cordier said, adding that the spring driving season could bump up prices back toward the $60-a-barrel level.

    http://biz.yahoo.com/ap/070124/oil_prices.html?.v=11

    Oil and natgas are totally stupid right now. Fair price for oil now should be $40. Natgas about $5. I can’t wait for contract expiration in February.

  24. Attacking Mid said

    What’ya think….. are we going to see a pump into the NYMEX close? I sold my EOG 65’s in anticipation of such, but will buy ’em back on a pump.

    AM.

  25. zmann said

    Sorry for the delay. Really long reboot. Buy AAPL, sell MSFT. You heard it here first!

    I’m going to even pretend to understand today’s action. Fundmentals be damned, Goldman is in charge of this show and they are pumping.

  26. I hear you z.

    This kinda reminds me of last fall, when we were getting completely bearish inventory reports, but yet they still managed to pump oil up. If I remember correctly though, thursdays, and fridays afterwards would have a little selling, and then there would be a big selloff on monday.

    -SaneO

  27. zmann said

    You remember correctly on the Thursday/Friday thing.

    On another subject: the games being played with oil have nothing to do with the stocks’ “cheap” valuations.

    For instance, COP just said negative revisions to multiple projects are going to cost them one quarter of a billion barrels of reserves (roughly 2.5% of total reserves). COP produces about 2 mm boepd worlwide or almost 3/4 of a billion barrels per year. So now you’ve got to add back 1 billion barrels just get to 100% reserve replacement next year. These guys can’t do that without more acquisitions.

    They basically said not to worry because they think they can add some back through the drill bit. Suuuuurrrreeee.

    Yet the Street is happy b/c the company says it plans to increase dividends and stock buybacks.

    I’m just not buying into this move in oil or the stocks. So no calls and no puts until things make a bit more sense to me.

  28. zmann said

    This pump is all attack Iran fever. As such I’m not interested since that’s pretty false support. Even though it can go on indefintely a couple of dovish comments from the sub sub undersecretary of state can drop oil like a rock. Just too big a gamble with my $.

  29. Attacking Mid said

    I’m thinking MS and Dell…. I just bought my HS Senior a top-of-the-line Dell laptop for Christmas, only to just discover that the school he’s leaning toward REQUIRES us to buy another specific Dell laptop (that’s a significant step down from his, but twice the $$). Oh well, my laptop’s about at the end of its lifecycle, so I guess I’ll be getting his hand me down. Raising kids is amazing sometimes!

    AM.

  30. Lame

    -SaneO

  31. oops….
    The lame wasn’t directed at you AM, Lame to the Iran fever 😛

    -SaneO

  32. zmann said

    Check out the pump into the close. WTF?

    Days supply growing. Crude in record storage territory. Heating oil just pissed away a high demand week of winter…And oil is rocketing.

  33. zmann said

    I’m betting the stocks don’t buy this but instead fade into the close. May take a day trade or two on the put side but am making NO REAL BETS (my wife hates that word BET anyway() until things make more sense.

  34. Attacking Mid said

    Gee, SaneO…. I thought you were referring to my boring story :_^ ( ;^))

    Call me a fool, but I bought back my EOG 65’s. Managed to pull $0.25 out of my basis, so at least something’s going the right direction for me!

    AM.

  35. This is an example of manipulation at it’s finest level. The worst part is is that it is right in font of everybody.

    -SaneO

  36. AM,

    My daughters computer ( imac ) died a couple of weeks ago, and I just bought a new imac about 6 months ago, so I had one of the rare opportunities to buy myself the latest and greatest 24″ imac and give my daughter mine. Makes my life easier to have an excuse for my wife on why I need a new computer 🙂

    ( My boring story )

    -SaneO

  37. Attacking Mid said

    So, how do I get an avatar and smilies?

    AM.

  38. zmann said

    AM – I think you have to open a blog account but I’m really not sure. Could USO and the stocks be peaking after the NYMEX close? Very strange. Usually not a lot of activity in it after 2:30 est.

    XOM and COP and probably a lot more of the majors broke back over their recently broken 50 dmas today. ;-

  39. You need a blogger account for the avatar.

    -SaneO

  40. zmann said

    I’m thinking abuot using that pic I have of the nigerian rebel with the thumbs up sign for mine.

  41. zmann said

    Global Warming = Increased Terroristic Activity. LOL

    http://news.yahoo.com/s/nm/20070124/sc_nm/climate_security_dc

  42. talking about grabbing at straws

    When you gonna print those t-shirts with the rebel on them? 😛

    -SaneO

  43. zmann said

    Another reason for up oil. Jet hijacked in Sudan. Landed in Chad. No one hurt.

  44. zmann said

    T-shirts – that’s a couple of clicks away. $25 / pop and I’ll even put your name on the back in that curvy word art.

    Man the trading day just died on the vine. Paint drying very slowly now.

  45. Another reason for up oil……. My cat is shedding

    -SaneO

  46. Oh wait no I mean allergies up……

    Argh I need sleep……..

    -SaneO

  47. zmann said

    avatar test

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