Thursday – Gas Forecast & Oil Review
Posted by zmann on February 1, 2007
I’ve added snap to my site. That’s not a commentary on my writing but the service snap which allows you to hover your cursor over hyperlinks to get a quick 2″X2″ callout preview without actually clicking through. If you’re like me and don’t like squinting at a tiny chart of oil you’ll just click on through but now you have the option to briefly check out the link. Let me know if it’s useful or annoying. Thanks.
Natural Gas. Gas didn’t rally with “surprise draw in distillates” ( see oil discussion below) yesterday morning and it failed to rally with the Fed’s rate inaction yesterday afternoon. I guess 10% in one week is enough. Anything less than 200 Bcf today tanks it…at least for a couple of hours. Then less cooler heads will probably prevail. I’m staying away from additional gas based shorts until traders start to wake up and smell, well, all the gas.
- My Estimates: 200 Bcf this week, 210 next week. Despite the slight drop in degree days I’m expecting a bigger withdrawal from storage today…
- …Because the degree days were in all the right places to foster sizable demand.
- Consensus Expectation: I think around 200 Bcf.
As you can see, the cold has forced me to up my January estimates:
- January Average Gas Withdrawal: 563 Bcf so we’re going to bust that.
But even after all this cold gas storage remains within 20 Bcf (0.8%!!!) of record highs. Traders may rally gas for a time but it dies a week before the frost melts (basically when the first warming trend is forecast which will probably occur in the first or second week of February).
Oil Reversed Course After
What Appeared To Be Bearish Numbers Were Reported. After starting day off in the red, oil sold off on the inventory report, rallied five minutes later, traded sideways through a long lunch, started to sell back off and even went negative again and then soared when the Fed decided to do nothing. Bloomberg said it best with,“Oil jumped almost $1 in 15 minutes after the U.S. Federal Reserve cited firmer economic growth in six-weekly review of interest rates. Oil jumped 7.6 percent in the past two sessions, the biggest two-day increase since December 14 and 15, 2004 when gains were spurred by below-normal temperatures and falling stockpiles. Ah…of course distillate stockpiles are the only ones falling and this is the first time in 6 weeks but what the hell…buy, Buy, BUY!
Yesterday regarding inventories I wrote the following (in italics).
Consensus estimates for today’s inventory report are:
- Crude: Up 1.2 mm barrels. Actual number: UP 2.7. More than 2x expectations.
- Gasoline: Up 1.6 mm barrels. I wouldn’t be surprised to see a noticeably bigger build here. Actual number: UP 3.8 mm bls!!! Also a more than 2x beat…talk about noticeably bigger!
- Distillate: Down 2.6 mm barrels. This would be the first drawdown in inventories in the last 6 weeks but it would leave inventories ABOVE the upper end of the historic inventory band for this time of year. Distillate down 2.6 mm bls. For what’s it worth CNBC (Can Not Bash Crude, ) reported this was a bearish number since expectations were for a 2 mm bls draw. Hmmm … I guess that would be the case if you take the number from one of the guys standing in the pit around you and not from the Dow Jones survey I use! Bloomberg was apparently looking for a draw of only 2.1 mm bls but I think they include an outlier that DJ doesn’t bother to call anymore.
- Refinery Utilization: Down 0.1% to 87.3%. Down 0.3% to 87.1%. Our own grass roots Cartel hard at work (well, actually not working that hard) getting ready for the driving season.
And the reaction to all of this was a BULLISH one. Traders are hell bent to test $60 oil.
Energy Player Quote Watch:
“The last two weeks we had the same pattern, we closed higher even though the numbers were bearish,” said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. “The psychology of the market has changed. Any dip is seen as an opportunity to buy.”
“The heating season is effectively over,” said Eugene X. Hodge, a managing director at John Hancock Financial Services Inc. in Boston, who manages a $4.3 billion oil and gas company bond portfolio. “Attention is shifting to gasoline and the driving season a few months ahead.”
Crude inventories are now 10% above the 5 year average as we head into the seasonally slow demand period that is Spring. It does make one wonder whether the weather and Opec “cuts” will lend staying power to crude.
Let me just say now that I’m not predicting $20 oil. Please don’t sell your gas station if you own one before talking with your financial adviser. Please don’t get that second mortgage to buy puts on Exxon either. I’m just saying that I don’t think the V shaped recovery crude is enjoying will last past $60 nor hold that level. If the days of supply chart for crude didn’t mirror that inventories chart I wouldn’t even bring it up. And things are different now. You’ve had inflation. You’ve got a terror premium. You’ve had demand growth. You’ve got hedge funds long massive positions in commodities. You have over a billion Chinese who dream of per capita oil consumption just 1/10th that of the average soccer mom. I understand all that. I’m just saying I don’t think the move has legs.
Gasoline demand for this time of year actually looks pretty healthy. Here’s one for the bulls. We may have high inventories but we also have high demand. Gas prices have fallen and the consumer has responded with increased demand: implied gas demand is up 2.3% YoY. Of course gasoline prices are down 8% versus a year ago but I can’t really rain on this parade.
Odds & Ends:
HES Receives Warm Reception On Luke Warm Results/Guidance. The stock tried and did pullback several times during the day but couldn’t dodge the euphoria of the Fed’s decision to do nothing and the stronger than expected 4Q GDP numbers. I covered most of the numbers in yesterday’s column but I’d reiterate that these guys are expecting a 4% boost in production levels and a 20-30% boost in cash costs. And everyone sees that as normal. I’ll watch and wait a little longer (maybe as long as 2 weeks before acting) but either the service guys are going to have another banner year or energy producer earnings are going to retrench a bit.
EEE Investors Grow Tired of “detail-less” PRs. Apparently the market agreed with me this morning. In comments I commented on their PR having no teeth. The stock was up 4% on the open and closed down 12%. Less testing more selling should management’s new mantra. In this case they weren’t testing the product but their “coal refinery” concept. Either way, it seems that everyone wants to see results. Someone obviously knew something was coming out as the stock repeated the pattern of past instances where it ran up prior to a “PR just around the corner” only to have the hopes and dollars of new entrants crushed back to reality. To be honest, I really like the new management team. They are class act and if anyone has the skillset to get clean coal burned everywhere it’s them.
Nigeria Watch: The heart of the problem in Nigeria is graft. The good news is that the next president isn’t known for that and is far (on the northern border of Nigeria in Katsina state) from the region (the delta) that is. Excellent article on the graft issue from Reuters.
I have more on today’s earingings in comments.