zman’s Energy Brain

oil, gas, stocks, etc…

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Thursday Morning – Oil Review / Natural Gas Preview

Posted by zmann on March 8, 2007

EIA posts bigger than expected withdrawals of crude, distillate, and gasoline and prices run wild. Given the size of the inventory declines it’s clear that the recent “fog out” at the Houston Ship Channel is responsible for a majority of the break between estimates and reality. Next week we are likely to see a sizable build in crude inventories. Oil and gasoline prices spiked up on the unexpectedly large withdrawals.

  • Crude: down 4.8 mm barrels. I thought is would be closer to the high end of the range which was a build as I had thought the backlog of tankers at the HSC had been worked through. According to the EIA:
Due, in part, to delays at the Houston Ship Channel, U.S. crude oil imports
averaged less than 8.9 million barrels per day last week, down 650,000 barrels
per day from the previous week. 
    • 0.65 mm bopd X 7 days = 4.55 mm barrels. It’s not gone. It didn’t sink in the GOM. It has been worked through and will show up as a surge next week.
    • So I missed by a “country mile.” Of course so did the guys who get paid $MM to do this. By the way, some of the suggestions I got via flaming emails last night are not anatomically possible. Jeeze.
  • Gasoline: down 3.8 mm barrels. Refinery capacity actually fell 0.2% to 85.8% and according to the EIA the mix of gasoline vs distillates also weighed on inventory levels.


The EIA estimated yesterday that gas prices will rise another $0.40 between now and the beginning of the driving season. My thoughts is that gasoline prices have already had an extra-seasonal rally that will mute the normal run up towards the driving season (unless things stay broken and imports continue to fall- which I really doubt).

  • Distillate: down 1.3 mm barrels. And really ceasing to matter much given the time of year(unless you drive a diesel or ship things from place to place, then it’s not so good).

On to the natural gas inventory numbers:

  • My expectation: 75 Bcf withdrawal. Last week was a very normal week as temperatures go this time of year. Gas-weighted HDDs of 170 were 2 above normal and 2 below the comparable week a year ago. We got a pull of 85 Bcf then but supply and demand were both still pretty hinky from Katrina. Also, the east was a lot colder in the year ago week than it was last week.


A 75 Bcf withdrawal would leave storage at 1,662 Bcf for the end of February, down 229 Bcf from a year ago still pretty full (4th highest on record for a Feb. month end) as shown below:


Consensus expectation: ??? Bcf withdrawal. I’ll let you know when I see it on CNBC. I think it’ll take a number below 80 Bcf to move gas out of its current $7.25 to $7.50 trading range and to make a serious run on $7. Conversely, a number of 100 Bcf or higher would probably move my estimate of the Spring floor price up to the $6 to $6.50 range.

Odds & Ends

Analyst Watch: nada

Opec Watch: All of the talk from Opec ministers seems to indicate no further production cut will occur at the March 15th meeting.

Holdings Watch: Getting Ready To Make Further Short Moves. The broader market is called up strongly this morning after yesterday’s Beige Book showed a broad slowing in the economy’s growth rate. Odds of a rate cut by July have increased further this morning as jobless claims seem to confirm what the Fed has been saying. With the market going one way (up) at least for the time being (I think we’ve got more correcting to do) and oil and natural gas looking toppy (at least to me) I’ll be looking at adding to current and entering new put positions later in the day (after natural gas inventories come out). But I’ll be very selective and chintzy with my bids.

Snafu Watch: Northstar back online. From Upstream – Oil giant BP has resumed production at its offshore Northstar oilfield in Alaska, three weeks after a pipeline leak prompted the field’s shutdown. Comment: That’s 47, 000 bopd off the snafu list…let’s see if anyone notices.


48 Responses to “Thursday Morning – Oil Review / Natural Gas Preview”

  1. Dave said

    I have a position in PLLL. I may add some apr 20 calls today.

  2. zman said


    I’ve got no special insight there. Don’t know management haven’t looked at the most recent couple of quarters.

  3. zmann said

    Tooks some COP 65 puts for $0.30 in true gunslinger fasion.

    Anybody see the consensus for the gas #?

  4. zmann said

    EL D greatly added to the Snafu tab late last night. Good stuff!

  5. Dave said

    PLLL pulling back I may get stopped out of stock before I buy the puts…lol

  6. Dave said

    PLLL pulling back I may get stopped out of stock before I buy the calls…lol

  7. Dave said

    Another one of my double posts….I meant calls

  8. zmann said

    CNBC on gas withdrawals: range is 97 to 99 Bcf vs my 75 Bcf.

  9. zmann said

    I’d bet anything even close to my number sends gas for a $7 test.

  10. zmann said

    This is not my week for estimates: 102 Bcf

  11. mike said

    zzz – so you bailing on all puts cop included?

  12. zmann said

    Mike – took out my service puts (BHI and SLB) – maybe a bit hasty but I’m getting more cautious on the short.

    Holding the COP and hoping to be even (but it’s only hoping).

    Man that number looks funny based upon the regional breakdown of degree days. The Street pegged it using the straight line math (the aggregate degree days) but usually that doesn’t work as well. I’m looking into it.

  13. zmann said

    Still have the APC 40s as well. Setting stops just in case.

  14. Ahh don’t let it bug you z. Everybody has an off week here and there. Like Tom said yesterday, some of those high paid guys are wrong 90% of the time and continue to keep their jobs. Your track record is very good, and 95% of the people who frequent this site appreciate you insight.

    BTW sorry to hear someone is flaming you d/t differing opinions.


  15. zmann said

    Sane – didn’t care about the oil number as much yesterday because inventories are pretty damn full as I laid out in this morning’s post. When refineries get back up and running later this month and imports start flowing again (soon?) that situation will sort itself out.

    As to the gas, it doesn’t really matter if I right or not (that sting in the back of my neck is just pride f’ing with me) but the storage numbers have come down too far too fast. This is putting in a higher floor for gas than I expected. I’m not going to continue to fight the speculators or argue that gas is going much lower (still think $6-$6.50 when it warms up) so it’s time to start preparing to get on the long train. I’m not running out and buying stuff b/c I don’t move that fast and think oil will sell off post Opec meeting.

    The stocks haven’t really done much either way (up or down)for the last half year and this situation, if oil doesn’t fall too far, is setting up a coiled spring effect. Sure, you have negative CFPS comparisons for a few quarters but the macro picture is inching towards more towards the postive side.

    The flaming is fine…comes with the peanut gallery territory that is the free internet.

  16. Dave said

    oil stocks going negitive ?

  17. zmann said

    yep, oil and nat gas off pretty hard today.

    Even on COP and holding it and APC. Dumped TK.

    Now I’m hoping for one last wash out (may take a couple of weeks) before I start buying things. My sentiment is straying out of bearishness towards neutral/slightly bullish territory.

  18. Bills said


    I won’t rub in your prediction on NG today, promise. I was expecting 90-93 myself.

    That said, I think you need to dig a little deeper into the gasoline problem, which is affecting other distallates, such as diesel. The refinery problem is one that is not going to go away, in that we don’t have enough refining capacity to begin with and many mid to large refiners have been offline for extended periods of time. Dont look for help on the import side either, as I believe there has been gasoline and diesel rationing up north for almost a month now, well before heating season ends, or the beginning of shoulder season.

    Well, given your bias, with the seasonal to warm weather coming in next week, you’ll probably short energy as much as possible and be surprised both when it turns cold (again!) and when the clearing of two days of fog can’t clear up global energy shortages.

    Gas has a hard floor at 6 bucks, oil 50 bucks. Upside is anybody’s guess and impacted by things we cannot accurately predict at this time.

    Regarding demand growth – yes, charging 3x more for a commodity than a few years ago with same consumption implies demand growth. If Big Macs were 10 bucks, would you ever buy one? How many would? how about if steak were $30/pound? How many people would cook out as often?

  19. Raj said


    Are you there? Are you getting into OIH puts now this pos has again bounced back from 140 level?


  20. zmann said

    Bill – I’m not so static in bias as you’d like to think. Did you read my previous posts? I’m actually turning a bit more positive and took several put positions off the table today. If you can’t beat em, join em. I’m waiting for one last shakeout but said that over the next several weeks I’ll be looking at long positions. I know you want to put me in a box on sentiment but I do evolve with new data.

    That said, the gasoline stuff is overblown. I know supplies are short in Toronto and maybe that jades you a bit.

  21. zmann said

    Demand growth: just not as high as you think. Sure there’s gassification of new regions of N. America but there’s also destruction on the industrial side.

    Net net, gas demand has not risen much over the last decade as Diablo showed in his post yesterday. High prices are inhibiting that growth. Plus you’ve got higher than ever before contriubtions from coal fired and nuclear generation.

  22. joe said


    The hdd data you use is for the week ending saturday yes?

    And the gas report is for the week ending friday…so it would make sense that they can be this far off estimation even if everything else is equal and your estimation based on hdd is spot on.

  23. tom2oc said

    Raj, I got out of the puts this morning for a peanut profit after inventories. Only to go see it go back down after…. and shoot up after. It’s too wild. Also as per that TA on big oil I posted on the blog, if crude ever goes above 62.50 it might start a run to 65 and 70. Hell I don’t want to be holding any oil puts if that happens. I’m thinking of that 2 way volatility play I talked about yesterday but not sure too yet. Right on 140 is a good place to open such a play and options are getting cheaper now with VIX crashing.

  24. tom2oc said

    Raj (or Z), if you’re a member of Phil’s site, you should check with him to see what strategy he would use if was to believe like I do that either OIH goes up big or down big from this level. Strategy needs to be 100% neutral bias though. Let me know. Thanks.

  25. zmann said

    Joe – that’s true and thanks for the out but that’s a lot to miss by for just one day. It’s possible but I think there’s something else that played into it. After all, my method is only slightly better than back of the envelope math which actually works pretty well most of the time. I think there were serious shut in gas somewhere I’ll read more about it in a bit from the EIA. Who knows maybe they did a catchup on storage and didn’t say anything about —wouldn’t be the first time.

    As Bill puts it so well “it doesn’t matter what I think”

    Storage is lower than I’d like at this point and that’ll be supportive of gas prices. I still think they’ll fall…just not as much which should be pretty supportive of stocks (also expected to fall a bit more but then I go long what I think are the good ones).

  26. Hey z, what about gas cycling on the draw?


  27. zmann said

    I thought of that but it’s pretty hard to tell. We have a few gas company readers who I’d love to get input on that but they’re quiet types.

  28. zmann said

    Does anyone use RSS delivery of this site. I think it’s broken, can anyone confirm?

    Also, is email deliver working? If so, did you just get today’s new post?


  29. Dave said

    got todays post

  30. zmann said

    dave – via RSS or email? Did you get the END post that just went out?

    Wow, COP just fell off hard. That’s odd.

  31. Got e-mail and rss is working for me


  32. zmann said

    Thanks Sane – did you get the END post in your email and RSS as well?

  33. I haven’t gotten the END post in email, but it is showing up on my rss feed. Sometimes it takes a while for the email to go out I have noticed


  34. Dave said

    closed out my oil stock calls and TSO, PLLL, still have GLbl & GMR

  35. Dave said

    Zmann e-mail

  36. zmann said

    Thanks guys.

  37. Henry said

    z, love the site for it’s perspective though my bias is and has been for 35 years mostly longish…(yes, i remember 1/86 and 11/98)

    that said, your earlier comment to Bill of “i’m not so static in bias as you’d think” is somewhat disengenuous…if cl/nat gas go up it’s always due to some form of manipulation, while when things are bearish, it’s always fundamentals…hmmm

    when raymond, browne and tillerson say crude should be 15-20 bucks lower, it tells me not to play poker with them

  38. zmann said

    Ah Hah! They did do a catch up at the EIA!

    This time last year we had 1,887 in storage. And the storage withdrawal in the year ago was 85 Bcf (the guy on CNBC just after the report thought so as well). At least, that’s how it read as of last week.

    Now the data shows storage a year ago 1,899, 12 Bcf higher and that the withdraw in that week was 97.

    From the EIA note this afternoon:

    As of March 2, stocks were below the 1,692 Bcf in storage at the end of last year’s heating season, yet still exceeded the 5-year average by 194 Bcf. On the week, withdrawals from storage totaled 102 Bcf compared with the 5-year average withdrawal of 117 Bcf and last year’s net withdrawal of 97 Bcf for the same report week.

    go here and download their database because it hasn’t changed yet. The excel spreadsheet still shows the 85 bcf pull last year, not the 97 they have in today’s report.

    the excel file name is ng_stor_wkly_s1_w-2.

    So the real number is 90 and I still missed but not by that much!!!

  39. zmann said

    Henry thanks. I’m glad you like the site. First, I’m just a guy who want to understand the industry, not bash it. I’m about as far away from tree hugger status as you can get.

    I have just been offering a counter view to the buy, buy, buy mentaility and I really did not try to be disingenious (don’t even know how to spell that). I’ve been bearish for a lot of reasons but I occasionaly have pointed out some underlying, longer term trends that make me want to sign on to the bull band wagon.

    Not the least of which is the high rig count it takes just to maintain production here. GOM production, if the EIA is to be believed after the MMS problems has really sucked.Onshore things have been looking up but I think it takes $7 plus long term to maintain or increase activity. I really didn’t think that was the case before but apparently that is so.

    Anyway, many apologies for any overriding slant I have (I have a hard stomaching these gas prices I’ll admit b/c when I followed the stocks for a living when were talking about $2.50 gas as a big event, then $3, $4, and $5 fell so quickly…just hard to adjust I guess).

    Now, I’d ask a favor. I got what you don’t like. What do you like so I can concentrate on better information flow. What areas am I neglecting besides more company specific research which I’m slowly adding?

  40. mike said

    What’s the scoop on “e-mail” you mentioned?

  41. zmann said

    you can subscribe to get the post notification by email (click on the blue link at upper right). I thought it and the RSS feed were broken but they are now working.

  42. Henry said


    you’ve forgotten more than i’ll ever know…’all the science i don’t understand’

    i follow charts, money flow and intuition…and i do know some elephants(e.g. Mobil’s Arun field in early 70’s) came to fruition because of the intuition of geologists…

    keep up the good work…

  43. Dave said

    Zmann and everyone thanks for the posts.

    Tom2oc your posts on your site quite helpful, thanks for the chart on MGM.

  44. Raj said


    Yes, I am a memeber of Phil’s site. I saw somebody did cut and paste your comments on Phil’s site and raised the question. Below is what Phil commented:

    Posted March 8, 2007 at 2:07 pm | Permalink
    OIH – will do!


  45. zmann said

    El D – this is for you.

    Weather tab started.

    Also I added a ZEB reports tab with links to my long term buy ideas.

  46. tom2oc said

    Thanks Dave, Raj and Phil!

  47. nltd said


    Just occurred to me to ask:

    Why are we short refinery capacity? Is it purposeful on the part of big oil to keep finished product prices high? It sure doesn’t appear to be an unprofitable part of the business…or is it just LESS profitable than other parts of the business? Seems like if big oil doesn’t want that part of the business, others would step in.

    It isn’t crazy enough we depend on all kinds of undesirable regimes to supply us with crude, we also import refined product, and are subject to ANOTHER raping there…

    Do you know of much in the way of new refining capability in development now?


  48. Bryan said

    We definitely need to be looking at ways to increase yields with more efficient oil drilling products.

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