Friday Morning – Volatile Week & No Help For The Fundamentals
Posted by zmann on January 25, 2007
Natural Gas Inventory Report: 179 Bcf withdrawal vs my 165 Bcf. But like I said yesterday, you needed a REALLY BIG NUMBER to support gas at $7.50. Apparently that wasn’t it. Gas fell $0.52 to $6.90. Don’t forget the February contract falls off the board next Monday which, combined with the recent jump from $6 to $7.50, may exacerbate the decline. To get away from the effects of contract expiry I’m now watching the March contract, now at $6.91, and I’d have to say that we are in for a test of $6.19, the lowest level March 2007 contracts have ever traded at, by next Friday.
Where we stand on storage:
- Storage as of January 19, 2007: 2,757 Bcf
- Max storage for this week in history: 2,494 Bcf (2006)
- We remain 10% above year ago storage levels and a whopping 21% (472 Bcf!!!) above the 5 year average. One minorly bullish point (very minor) is that the trajectory of the surplus to last year is declining on the recent cold weather spell and this could continue through mid February.
- The average withdrawal for January is 563 Bcf with a range of 436 to 810 Bcf. I think the recent cold snap could make up for the smallish withdrawals at the beginning of the month and approach or slightly exceed the 563 number.
- 10 Weeks of Winter Remain (Roughly) And The Coldest Ever Such Period Saw Withdrawals of 1,280 Bcf. A repeat of that would still leave 1,477 Bcf in storage at the end of March.
- That’s well above the 5 yr average trough level storage (end of March) of 1,025 Bcf (excluding 2006’s warm and Katrina impacted levels). However, yesterday’s withdrawal was by no means the largest in history for that particular weak so if we’re going to see that coldest of all winter withdrawals in the remain time frame it’s going to have to get colder and stay cold through March.
To illustrate that last rather long winded paragraph more clearly please peruse this historical depiction of gas withdrawals in the final 10 weeks of winter.
…and then please examine this history of annual trough storage levels. Note the high / low for 2007 is well above the mean trough level.
The blue bar above represents the worst case for gas storage levels before the injection season begins (if history has anything to say about it that is)
Oil Fell Below $55 As The Phrase, “Wait a minute, 2027 Is 20 YEARS Away!” Echoed About The NYMEX Crude Pit. The “Bodman Show” Rally on Tuesday was just silly and the follow through that turned a blind eye on Wednesday to another set of blatantly bearish numbers finally ran out of steam today. Conviction really failed when March crude crossed $55 and selling continued through the Nymex close with the contract ending down $1.14 to $54.23.
Oil’s Cooked. The trend is not your friend. Here we have a 2 year chart the USO ETF, a proxy for WTI. Although USO has been trading since April of 2006 volume has recently accelerated on oil’s decline and the ETF’s recent secondary. I’m not a technician but that’s an ugly supported by pretty bad fundamentals.
And This Is The Index Of 15 Big Oil Companies Whose Top and Bottom Lines Depend on the Price of the Above.
The two look pretty similar through October 2005 but then oil flattened out and began falling while oil stocks, supported by seemingly low trailing valuations and a skyrocket the size of California’s GDP with which to fund buybacks, continued to move higher. At some point either oil has to go up or the stocks must come down. On a forward basis they are no longer cheap. Again, I’m a fundie guy but even I can see a chart that’s running out of steam and that to me is exactly what the XOI looks like now. I can also tell you that only chart more parabolic than the XOI chart above is one of service and drilling costs which has shot the moon. So if what you sell is sucking wind and the cost of getting it out of the ground
is has been rising exponential what does that say about the out year’s earnings?
Holdings Watch: No new bets today. Just watching the old ones and considering taking a little off the table prior to the close today. “The Week Ahead” picks from Monday did pretty well especially if you paired back longs on Wednesday when I bailed on the longs in favor of common sense but I’ll have a Summer this week.
Analyst Watch: MUR upped to outperform at Bear Stearns (that’s two upgrades in a week – I guess everyone figures that the most of the expensive of the “mini-majors” has all the bad news out of the way), BJS cut to neutral at Credit Suisse.