Thursday – Big Gas Draw Day But It Should Already Be Discounted
Posted by zmann on February 8, 2007
Oil…Third Strike And You’re Out! Oil was up $0.75 going into the inventory report and began a session long slide from there to close the day down $1.17 at $57.71. The drop may only be temporarily but this was not the big move through $61 many technicians were looking for to carry crude to $65.
In T. Boone parlance I’ll say that I think we’ll see $55 before we see $60. At that point Opec starts squawking again but I think once the cold subsides in the northeast we test $50 again. Yesterday, the National Weather Service predicted that below-normal temperatures will persist in most of the U.S. through 2/20 so I’ll have to be a little patient. As we approach that date traders will unwind an avalanche of recently acquired long positions as the simple fact that the US is amply supplied for the driving season and crude in general takes sway from the weather.
My quick review of yesterday’s oil numbers:
- Crude – Expectation of a million barrel increase was met with a 400,000 barrel draw. The draw is explained by a combination of lower imports (9.547 mm bopd vs 9.967 mm bopd last week) and slightly higher refinery utilization. Crude inventories remain well above the five year average and the US market remains well supplied for current demand. Click on the chart below to get a better view.
- Gasoline – Expectation of a 1.4 mm barrel increase. The number came in at almost twice that with a 2.6 mm bls increase. I took additional puts on VLO and a first tranche of puts on TSO in the wake of this number. Despite the fact that demand continues to creep up (we’re running 1.8% ahead of year ago levels this week) and that refineries have been conducting more maintenance than usual gasoline stocks continue to build quickly. This much gasoline in storage this time of year has got to weigh on prices soon.
- Distillates – Expectation: withdrawal of 2.6 to 3.3 million barrels. I said it could be much bigger and though it blew out the top end of the range with a 3.7mm bls draw it wasn’t the gargantuan number I was leary of. How the street arrived at smaller number than the preceding week can be explained by: 1) the fact that most analysts are leaving it to their research associates who do the simple degree day math, and 2) the fact that they want to low ball the number because sell ratings don’t generate trades (at least not as many as a coverage universe full of buys) let alone banking. In summary, Winter is nearing completion and there’s no shortage here.
Natural Gas Inventory Day.
It appears that $8 is the ceiling for the recent run in natural gas prices, much like $60 is turning into the top for crude. While I’m confident that today’s pull from gas storage will be the biggest of the season it will have to enormous (240+) to push gas above $8.
- My Estimate: 230 Bcf. The producing and eastern regions saw the coldest weather of the season to date by far while the western gas region was only slightly warmer. Unlike last week, were the overall high degree day total misled analysts into overestimating demand, this week’s season high 258 HDDs will yield a season high withdrawal and the first breach of the 200 Bcf mark.
- Street Consensus: ??? Bcf. Sorry no news stories published so far with estimates. I’ll have to get it from CNBC this morning.
Impact: anything over 230 Bcf and we may embark on a short lived rise over $8. The cold in January served to completely erode the YoY storage deficit and the transition between surplus and deficit has historically led to spiking gas prices. In this case gas is already up 18% in the last 3 weeks so most of the transition is already discounted into the price of gas. Last year March saw some late season sizable draws from storage so if they’re not repeated this year, our trip into YoY deficit status may be very brief…which should send gas back to $6 territory.
Next Week It’s Unlikely Withdrawals Top The 200 Bcf Mark. Traders at the NYMEX are no doubt preoccupied with the cold in the northeast but I’d point out to them that this week has seen a veritable heat wave through the core of the producing region with temps hitting the mid 70s across Texas and reaching temps 20 degrees above last week well into the nation’s mid section and South Atlantic regions. Next week’s HDD tallies, when they arrive on Monday are sure to fall from the early read of 254. You’ll know by looking at the March natural gas contract which will be down if I’m right in pre market trading Monday. At that point, analysts, who are probably drooling another over the prospect of 220+ Bcf withdrawal next week will be forced to curb their enthusiasm.
While it’s still pretty cool, the West and Producing Gas Regions are enjoying an extended respite from colder than normal temps.
Odds & Ends:
Nigeria Watch: After agreeing to meet with two oil unions that threatened to strike last week, a move that would virtually shut down Nigerian production, Nigerian president Obasanjo skipped a meeting with them saying he had other more pressing matters of state. Smart. Meanwhile a French oil worker was kidnapped yesterday which should set the unions back on the strike path PDQ.
PTSG Up 17% Yesterday As IPAA Attendance Announcement Is Announced. The key thing to remember here: Easy come, easy go. If I bought in at $0.90 when I originally mentioned this single digit midget on January 30th, I’d be very tempted to take the 41% gain and run for the nearest T-Bill, CD, mattress, etc. The potential is enormous but so are risks in investing in bulletin board listed pennies so go in with only your, well, mad money. They speak at the Independent Petroleum Producer of America (IPAA) small cap conference this morning just before the open. You can listen live or check out the replay of the webcast here.
NFX Reports 4Q Brick.
- Expected: $0.97 EPS, $530 million revenue.
- Actual: $0.86 and $427 million. I gotta say I’m shocked the Street could be this far off. Some of the earnings miss will be forgiven since it’s based in part on the timing of hurricane related expenses from last year. However the top line miss is a Street blunder.
- These guys have already announced timing related production delays and 2007 should be a much better year in terms of operating costs and production growth than 2006 (much of the bad news is behind them). In fact G&A and other cash costs fell on a YoY per unit basis. It was really just the LOE which jumped and that will come back down soon.
- Reserves up 14% – all organic. 111% reserve replacement. Not a world beater but that wasn’t expected this year. All in finding and development costs surged to $2.18/Mcfe and I honestly don’t know if this big an increase was anticipated by the Street. I’d guess not. You can always tell if it will be perceived positively or negatively if the press release contains the calculation or if you have to do the math yourself. In this case I did the math. On the other hand, some of NFX’s peers like PXD are reporting F&D costs north of $3/mcfe ($18 / barrel).
- 1Q Guidance probably won’t please since it’s down sequentially:
- 4Q production:67.9 Bcfe (81% gas),
- 1Q Estimated production range of 59.4 to 66.2 Bcfe
- Costs look much better however with LOE tumbling
SFY Reports A 4Q Beat
- Expected: $1.06 EPS, $156 mm revenue
- Actual: $1.16
- 2007: expect to grow production 7-10%, reserves 4-6%
- Their ops in New Zealand are really declining pretty quickly and with the slowing growth of domestic production they’re estimating another sequential decline in production.
- Costs appear well contained.
- All in all, they just had a great year but it’s hard to get too excited about near term guidance. Just watching for now.
AXC presenting at Scotia small cap conference 2/14. Very interesting company. More soon.
MRO had a couple of sizable discoveries offshore Angola with TOT.
Analyst Watch: APA upgraded by Opco to buy, SU cut to underperform by FBR, CNQ cut to hold at FBR (FBR taking the Canadian stocks down, probably over all the dire capex budgets and comments of late about weak prices). Note TLM got cut the other day.
Other Stuff I’m thinking about right now. Coal is probably headed lower soon. I’ll have a piece out on coal over the next week or so but for now know that inventories remain high but coal prices ran up with natural gas prices. BTU and ACI should roll over here as coal comes in.