zman’s Energy Brain

oil, gas, stocks, etc…

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Thursday – Oil Review & Gas Preview

Posted by zmann on February 15, 2007

Indications: Oil up $0.04 Natural Gas up $0.02 (and meaningless until after inventories)

Oil Review: All Categories Show Withdrawals: Gasoline Bigger Than Expected, Heating Oil Less. The result was an initial WTF? from traders as oil began a five minute ill fated rally which quickly failed to levels below the prior day’s lows. Crude settled down $1.06 to $58.00. Street consensus estimates in bold with comments in italics

  • Crude – Estimate: UP 0.6 to 1.6 million barrels. Down 600,000 barrels. We remain well above the five year average for this time of year. The downtick inventories this week was attributable to a modest rise in refinery utilization which was partial offset by higher imports and domestic production. I see you cheating again Opec.


  • Gasoline – Consensus Estimate: UP 2 million barrels. Actual: down 2 million.
    • 1) Three-quarters of the decline was attributable to consumption of blending components. In past years this activity has occurred at the beginning of the switch to increased gasoline production in preparation for the driving season some 3 months away. Said switch is actually a misnomer since we’re talking about a few percentage points change in the ratio of gas vs distillate production.
    • 2)This was the 2nd week of higher prices on the wholesale level. Many gas stations are only keeping the bare minimum of gasoline on hand, and in many cases they are opting for weekly refills to keep their inventories at only 10% of capacity. Anyway its forces them to continual mark their inventories to market and avoids the losses many of them suffer with rapid swings in wholesale prices. When they see prices start to recover many of them bump up their minimum inventory a bit and that could explain some of the unseasonal timed draw on stocks. I’d also note that many consumers are doing the same thing with their cars getting five bucks at a time. If they see prices start to creep up maybe they get $10 to buy a little time.
    • Cash gasoline prices rose another penny on the news after an $0.08 increase on Tuesday over the Valero fire. This rally won’t last.


Closing comment on gasoline. So why are the refining stocks doing so well right now? The short answer is that although the recent (last summer) cracks are probably not going to be that lucrative again for quite some time the companies are cash flowing nicely and product prices have taken a strong bounce over the last four weeks. That HOC valuation looks way out of line but I’m not going there this week and as for the rest I’ll wait for a clear signal from crude.

  • Distillates – DOWN 4 to 5 million barrels. I think this number could be a lot bigger than this. Actual: Down 3 million. OK, so I was right last week and am happily wrong this week. Heating oil fell a nickel on the news.



Note: If we get average withdrawals from distillate inventories through winter’s end we still don’t break the mid point of the preceding chart.

Valentine’s Day Massacre For The Shorts. There’s nothing worse than having all of the commodities from oil, to heating oil, to natural gas and even coal fall while the underlying issues for your entire portfolio of put options go against you. Ok, there are worse things but I really hate it when that happens.

The Street continues to love the stocks; fundamentals be damned. Yes earnings estimates are coming down due to lower commodity prices and higher operating costs and yes valuations on a total enterprise value per Mcfe continue to climb (more on that soon), and yes production growth continues to be a problem and yes the best crack spreads for a good while are the ones in the rear view mirror. What was my point? Oh, right. buy, Buy, BUY.


Gas Storage: Expecting The Biggest Withdrawal Of The Season. This should come as a surprise to no one since last week’s mega HDD number of 267 deserves a mega withdrawal to match. In the East Consuming Region we had extreme and ubiquitous cold and while the western region enjoyed a slight break from the blizzards of the last few weeks stories of well freeze ups should bolster withdrawals there as well.

  • My Estimate: 245 Bcf. Biggest of the season and driven by the eastern region. I went back through the decade looking for a colder period in the east and stopped in January of 2000 when the region saw it’s largest ever storage withdrawal of 171 Bcf. Degree days then were a whopping 1,243 vs this week’s even more massive 1,325. I’d think twice before going against the gassy names tomorrow at least until inventories are reported as there could be substantial upside to my estimate.


  • Street Consensus: 252 Bcf.

So the over/under is 250 Bcf. Beat the number and gas makes that long awaited run on $8. Even if it makes it, the current forecast makes today’s number the season’s peak for withdrawals. Then it’s time for the hangover. If we miss the number to the downside, then we shoot back through $7 and the hangover is much more painful. Either way, nothing about the pre report trading matters so don’t be fooled by it.

One last thing, we’re due some better comps in coming weeks as there was some late season demand last year. However, this week is up against a tiny withdrawal in the year ago period. This means that for a time, however brief, we are boldly surging into YoY deficit territory which the media (you know who you are and how conflicted you must be) will only be too happy to highlight every 15 minutes.

Odds & Ends

No picks this morning and only maybe after inventories. Stocks are on steroids with the broader market. Take heart though. This weekend I’ll endeavor to find a few good longs which is a sure sign of a top.

Earnings today: BHI (sell the initial dooms day response), COG, XEC, ECA, NXY

Kathmandu Gets 1st Snow In 63 Years. Now that Exxon has embraced global warming can we at least change the name to something more descriptive? We’ve got snow piled up to record levels in New York and now it’s sleeting in Nepal? Global warming seems off the mark. Even Rapid Climate Change is hard to grasp since no one has that kind of attention span. I propose Geographic Climatic Transference Syndrome. It simply means you’ll get weather unlike any you’ve ever experienced, it may be bad but it may mean you can ditch the snow tires. It’s also a catch all so the media doesn’t have to stop running stories about it’s when the headline doesn’t match the their desired outcome.

Analyst Watch: ACI PT cut from $45 to $41 at RBC.

19 Responses to “Thursday – Oil Review & Gas Preview”

  1. GGas said

    My est…232.

  2. zmann said

    Reuters 252 with another estimate up at 260. Hard to say but less than 250 and the fact that that much is already priced in should pressure gas prices.

    OIH looks poised to roll over here on the BHI miss. Man that took a bit of patience but it appears the service stocks just bounced off the 200 dma from beneath!

  3. WDKING said

    hmmmm are we playing the estimate game?

    Sorry Z slow morning, i’ve got 267, hope im wrong!

    I see temps late february @ above 5 degrees celsius (sorry yanks, thats way above norm for us ) here in Toronto, I guess 6 week winters calls for 8$ gas!

  4. zmann said

    I will seriously send anyone a tshirt if they peg the withdrawal once (twice in a row for Ggas and Gunga).

  5. zmann said

    259 Bcf – a touch high for my liking but generally in line with consensus. East set a new all time record while the Western warm up meant little gas came out of storage.

  6. Stephen said

    Also RIG downgraded and DO target price reduced.

  7. Oil Pro said


    Any picks for Puts or waiting it out

  8. help said

    Pls buy calls, oil stocks are going to jump up

  9. zmann said

    Thanks Stephen…I sometimes miss a few so please continue to point them out.
    Things you have not heard from a service company say in awhile (except for some of the drillers):

    From the BHI CC:

    *** 1Q EPS to be between $1.08 to $1.10, Consensus $1.20

    *** The short-term outlook for its North American market is not clear, so the Houston-based company said it will not yet forecast its 2007 earnings per share.

  10. zmann said

    Oil Pro – I’ve still got my full contingent and am still holding the BHI’s. I may have been short on the estimate but the over / under call still makes sense meaning gas is saved from a dive through $7 today. As it’s crept back up, so have the stocks.

    If you can get BHI puts over $66 today I’d take em. I’m looking hard at ECA’s numbers – not too impressed so far

    and NXY – why a split? I just don’t get that. Lot’s of growth but that’s been well telecasted as a former soccer coach used to tell me about my throw ins. Yes it’s impressive but future growth is increasing coming from higher cost bitumen produciton. Hmmmm.

    COP if we can get gas moving back towards $7. That’s a nasty piece of news for them on the govt scandal this morning…Could cost them big bucks cleaning up refineries much sooner than expected.

  11. zmann said

    Help – is that your prediction for the group or are you asking that I buy calls thus furcing the stocks down? LOL.

  12. help said

    lol if one of us buys calls forcing others to make money I am all for it.

    Somehow I sense today the stocks will be up – xom, oih etc. maybe not green but much more than the opening price

  13. Henry said

    ECA is showing resilence in the face of earnings miss and most competitiors down 1% or more…


  14. joe said

    do you calculate HDD yourself or is there a source for that?

  15. zmann said

    Ahhhh Comcast. Offline for the last 2 hours. There’s a company I should short!

    Joe – It’s caluclated by the Climate Prediction Center into 9 regions and I just roughly apportion it to the three gas regions.

  16. umagumm said

    Oil rallied big while you were off. Didn’t that happen the last time you were bumped (Elk Hills)?

  17. zmann said

    It’s a curse. There’s nothing like losing you’re connection and watching oil drift and then soar higher when you can’t trade. I’m sticking it out on the BHI puts but I haven’t seen a transcript of the call yet. Stocks didn’t get as big a boost with the oil jump as I would have expected. I’m getting DSL as a backup next week.

  18. It still never ceases to amaze me, the 2 o’clock oil pump.


  19. zmann said

    Neil tells me CSFB just downgraded BHI. Looking for the note.

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