Thursday Morning – Oil Review / Gas Preview
Posted by zmann on March 1, 2007
The market is in for another wild ride today so look for any picks in comments once things get rolling.
Brief Oil Review: My comments from this morning are in italics
- Crude Oil – Street Expectations: Up 1.9 million barrels. The change in crude inventories could easily be lower than Street expectations due to the partial week closure of the HSC and potentially could be a small draw on inventories. Actual: up 1.4 mm barrels.
- Comment: if the Houston Ship Channel was closed last Thursday and Friday this could easily account for the smaller than expected number. I’d also note that the HSC has been closed at least three days this week which is lending some support to curde at present.
- Gasoline: Down 1.8 million barrels. With all the refinery outages and an increasing number of local shortages gasoline is moving towards center stage as a key determinant of oil prices. Blending component consumption could easily make this number larger than this which would lend support to crude prices on a normal day. I think the amount of fear in the market will require a much bigger draw than the 1.8 mm barrel expectation to rally/support crude. Actual: 1.9 mm barrels.
- Comment: Crude sold off after the number but rallied later (along with everything else) on Bernanke’s stable economy comments.
- Erroneous Comment Watch: from Bloomberg: ``The demand is there and that will underpin prices,” said Angus Geddes, chief executive officer of Fat Prophets in Sydney. “Inventories for gasoline in the U.S. have dropped to 12-month lows so that’s having a positive impact on prices.”
- Comment: Not Even If I Stand On My Head To Read This Chart (Aussie Perspective) Do I Get “Inventories at 12-month Lows”! Come on Bloomberg!
Maybe the following chart was what he was worried about.
- The above chart could be a problem if you’re a bear as it definitely would lend strength to gasoline prices. That is if they hadn’t already priced this in. Retail level gasoline prices are up 10% ($0.22) nationwide over the last month and have risen even faster in areas in close proximity to one of the handful of refineries currently experiencing technical difficulties.
- Voice Of Reason Watch: “While prices will rise into the summer, the pace of recent gains, and a likely increase in gasoline production, could see the market pull back as much as $4 a barrel before moving higher. We have a slew of clients wanting to buy into this market and we’re telling them to wait. Refineries are going to start coming back on line and you’re still going to be well within the normal range for gasoline supplies.” ~ Bloomberg quoting Excel Futures CEO Mark Waggoner.
- Distillate: Down 2.8 million barrels. I think this is probably a bit light but I’m not sure a “low ball” miss here will prompt much of a rally (at least much of a sustainable one) in heating oil or crude oil this late in the heating season. Actual: 3.8 mm barrel draw.
- Comment: I think they (the surveyed traders and analysts) deliberately bagged the number to get a miss here. History will tell you that draws at the end of the heating season are not strictly linear to HDDs. These guys aren’t stupid they’re just bagging it!
Switching To Natural Gas:
Withdrawal To Decline On Warmer Weather, Nearly Cut In Half From Last Week:
- My estimate: 130 Bcf withdrawal. While gas-weighted degree days fell from 246 in the prior week to 194 last week it was still quite a bit cooler than the CPC original forecast, especially in the New England and Mid-Atlantic regions. Like I said on Monday, this would cause me to bump up my withdrawal estimate. Note I’m expecting a small build in the West region.
Consensus: 140 Bcf withdrawal. Anything over this and I’d expect gas to drift in between $7.25 and $7.50. Closer to my number and you’re likely to get a test of $7.
Odds & Ends
It’s Starting To Warm Up… from the International Herald Tribune: The weather “will turn very warm for much of the area that had one of the coldest Februarys on record,” said Joe Bastardi, lead forecaster at AccuWeather in State College, Pennsylvania. “By the 10th, a major warm-up should be well entrenched over the southern and central plains and the Ohio Valley to the mid- Atlantic.”
…But El Nino May Be Shifting To La Nina Potentially Bringing More Heat And Hurricanes This Summer. A La Nina event appears to be forming. This could be supportive of natural prices as it generally brings more hurricanes and heat to the eastern seaboard and drought in the west. The actual impact depends on if it’s a strong or weak event and whether or not it forms at all or reverses as often happens. From a psychological standpoint it’s certainly gas bullish.
Analyst Watch: TK upgraded to overweight by JP Morgan. HES to outperform at FBR.
Snafu Watch: Imperial oil’s Toronto refinery is back to 50% of capacity.