Posted by zmann on February 23, 2007
Oil Traded Higher After U.N. Report Confirms Iran Still Toying With The Atom. Big surprise. The initial reaction to the oil inventory report was a spike followed by a modest sell off. Then oil reversed course on the Iran news and traded a tad over $61 before closing at $60.95. The crude market remains buoyed by multiple refinery, oil field, and pipeline difficulties and rising geopolitical tensions in Iran and, more importantly, in Nigeria. Here’s a quick review of the yesterday’s oil inventory numbers:
- Crude: up 3.7 million barrels. Much bigger build than Street expectations. Refinery utilization fell to 85.2% versus a Street expectation of a rise to 87%. Gotta wonder why they thought it would rise with the dearth of restart announcements and the recent fires but this lack of consumption on the part of refineries and a small uptick in crude imports are behind the inventory build.
- Gasoline: down 3.1 million barrels. Also much bigger than expected draw down. The decline was attributable due to a combination of blending component consumption as refineries take on inventories in preparation to maker more gas (1.8 mm barrels) and the aforementioned lack of refining capacity coming back on line. Blending component imports also witnessed a sharp drop in imports. On both a total inventory and days of supply basis we remain well stocked for gasoline. However, until news hits that refinery restarts are occurring I’d expect gas to defy the fundamentals.
- Distillate: down 5.0 million barrels. Bigger draw than the Street expected. This was the “bigger” number I’ve been talking about for three weeks. As weather warms up secondary and tertiary sources of heating oil demand will continue to refill their tanks. Furthermore, diesel demand was sure to pick up given the relief from the last several weeks of snow covered gridlock. Over-sized withdrawals relative to expected declining degree days are likely for the next two to three weeks.
Natural Gas Withdrawal Was Essentially In Line With Expectations. The EIA reported 223 Bcf were consumed last week versus my estimate of 210 and Street consensus of 229 Bcf. In comments just before the number (when I finally found a consensus estimate) I wrote: Consensus 229. So maybe the under for gas prices is 220 and over is 230 with little immediate change on a number in between. And gas traded flat to down with the middling report until taking its direction from crude as it rallied on the U.N. report. On the day, gas closed up a whopping $0.08 and remains range bound.
I underestimated the East Consuming Region’s gas demand but otherwise came pretty close…
…But the net impact of 13 additional Bcf taken from storage is minor. I’m bumping my target for next week from 90 to 100 Bcf as I’d rather be conservative than miss the East again. My estimate will change again (probably very slightly) when actual HDDs are released next Monday morning.
I’m Still Banking On Trough Storage Close To 1.5 Tcf. Those smaller end of February withdrawals leave us with gas in storage of just under 1.7 Tcf at the end of February. Average March weather puts at trough storage of around 1.42 Tcf. The wicked cold scenario would leave us with 1.172 Tcf. Anything under 1.4 Tcf at March 31 and I’d give up on gas going sub $5 this Spring (maybe not even sub $6 but it can be surprising how fast a series of tiny, end of season withdrawals, can suck the life out of gas prices).
If I’m Right About February and March Comes In As Average You Get The Following:
Odds & Ends
Analyst Watch: TK cut to neutral at Bear Sterns. Bear cited industry headwinds, valuation, and a lack of near term catalyts as reason for the downgrade and reduced its 2007 and 2008 estimates.
Bad Idea Watch: BP employee (manager of regulatory affairs) deleted subpoenaed files regarding the Texas City refinery fire. She says she doesn’t remember doing it but the judge has ordered them to produce the deleted files by today.
Errata: An ever-so gracious reader on the SeekingAlpha site pointed out at least two of my mistakes in Wednesday’s post. I erroneously stated that TK and GMR were at or approaching all time highs when in fact I meant to say they were hitting or about to hit 52 week highs. I regret the error and any confusion it may have caused.