zman’s Energy Brain

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Archive for February 22nd, 2007

Thursday – Dueling Inventory Day

Posted by zmann on February 22, 2007

Zero Hour = 10:30 EST. Simultaneous oil and gas inventories. Both represent what is probably the last gasp for real winter demand before we enter the lull of the shoulder season (although maybe I’m being a bit hasty as March is still a winter month). To the numbers:

Oil inventory expectations from a plethora of surveys in bold:

  • Crude: up 700,000 barrels. Not such an important number unless it comes in way out of line. I’ll be watching imports more closely for clues as to Opec’s compliance discipline.
  • Gasoline: up 100,000 to down 900,000 barrels. This number is a crap shoot this time of year. Witness last week’s “unexpected” 2 mm barrel draw attributable to increased consumption of blending components, not an increase in demand or decrease in imports or throughput at refineries. Try predicting that!

The important thing to know about gasoline right now is that it’s becoming increasingly important as we head towards the driving season (about 3 months from now)…and we’ve got lots of it. Click here to see how-full-inventories-are.JPG . Once the discombobulation caused by multiple refinery snafu and pipeline breaks are behind us gasoline should settle down given the shear volume of it on hand.

  • Distillates: Down 2.5 to 3.5 mm barrels (I think most are around 2.9). Oil-weighted degree days were still pretty high at 299 and I’d remind readers that the potential still exists for a much larger “end of season” or “top off the tanks” series of draw downs. Prices are pretty robust and will remain so until traders are convinced we will end the season above the midpoint of the 5 year range.

I think we’ll either get a big draw now or it gets drawn out over the next two months. I wouldn’t be at all surprised to see a 3.5 mm barrel pull today.

It’s the potential for a home wrecker-sized withdrawal that keeps me from adding to energy sector put positions right now.

2003-ho-example-3-022207.JPG

Last of the Big Kahuna Gas Draws For The 2006/2007 Winter.

  • My Estimate: 210 Bcf.
  • It Was Still Cold Last Week. Last week’s gas-weighted heating degree days of 246 were off recent peak levels but were still 23% above normal and were still the second coldest week recorded this winter in the East consuming gas region.

gw-hdd-vs-storage-022207.JPG

  • Consensus Estimate: Still had not seen one by time of publishing
  • The over/under is likely to be 200 Bcf. If the report is over 200 Bcf (pretty likely) gas may get a little breathing room. Way over and we break $8 in a rally that will quickly run out of steam. Under 200 Bcf and we start punching daily new lows until we get to $7, then it’s back to closely scrutinizing the forecasts for March.
  • Next Week We Should Fall From Triple to Double Digit Withdrawal Territory. My estimate: 90 Bcf (+/-10) . With HDDs falling to 166 the immediate impact will be a much smaller withdrawal.
  • February 2007 Was A Big Demand Month, As Februaries Go. The five year average withdrawal for February is 573 Bcf, so assuming I’m close to the mark this week and next and assuming average demand in the final four days of the month, February demand should total roughly 700 Bcf. Here’s what the math on the month looks like:

feb-gas-table.JPG

This would yield February ending storage of 1,718 Bcf (the fourth highest Feb end reading in history).

  • Finally No Matter What March Throws At Us, Trough Storage Will Still Be Pretty Comfortable. So what does March look like?
    • The five year average withdrawal for March is 227 Bcf.
    • Going back to 1994 the high and low for March demand are 522 and 142 Bcf respectively.
    • Trough storage generally occurs around the end of March +/- two weeks. Average trough storage is just over 1 Tcf.
    • Based upon my estimate for February end storage of 1,718 Bcf: So an average March yields trough storage of 1,491 Bcf. This is pretty much in line with my 1.4 to 1.5 Tcf in storage and should serve to put a damper on gas prices.
    • The wickedly cold scenario yields storage of 1.2 Tcf which still doesn’t support current $7+ gas prices! To be honest if March forecasts start looking like that kind of an Arctic beast I’ll go long CHK, SWN, KWK and a few others while I wait for April.

Odds & Ends

Analyst Watch: nada.

New Holdings Watch:

  • TK – penny miss to par depending on who you ask. Estimates ranged from $0.98 to $1.24 with 13 analysts posting numbers. Costs look pretty high but guidance given on the conference call this morning will guide written opinions later today and tomorrow.
  • GMR – In line with estimates. Announced $15 special dividend that was well liked by Street in after hours trading sending the stock up 10%. This is why I don’t do earnings plays and why I always scale into position (and why I shy away from front month contracts).

Great Bloomberg article on the rising cost of hydrocarbons.

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