zman’s Energy Brain

oil, gas, stocks, etc…

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Thursday – OPEC Meeting & Natural Gas Storage

Posted by zmann on March 14, 2007

Today’s topics

  1. Intro w/ oil and gas price action
  2. Natural gas
  3. Opec Meeting Watch
  4. Gasoline picture show
  5. Stock action (inaction in this case)
  6. Odds & Ends

What a whipsaw! All determined by the broad markets with neither the downdraft nor the updraft determined by oil which actually closed at $58.16 after a brief dip below the $57.50 level (my initial target for a pullback from last week). In fact oil trailed around in lockstep after the DJI most of the day which seems normal for an important sector in a choppy until you look at that same chart for the last year. Some credit also has to go to natural gas which retook the $7 level and inspired a small rally in the gassier E&Ps.

I said this in comments yesterday: It [natural gas] did so after the heating oil number came out which was bigger than expected. The expectation is that a big HO draw today means a big gas draw tomorrow. Not always true. The HO relationship with temps is not as linear as is the relationship between gas and temps. I think this rally in nat gas gets reversed tomorrow. Comment: I stick by that.

Natural Gas Inventory Day

  • My expectations: 90 Bcf. Degree days were roughly identical to the prior week (in aggregate) when we got a 102 Bcf withdrawal. Of that number 12 Bcf was a database adjustment.
    • Note: the EIA’s file ng_stor_wkly_s1_w.xls located here does not yet reflect year ago figures from the weekly natural gas report here. I have emailed them to update the database. When they do I’ll update the gas storage page.
  • Street: range of 80 to 140 Bcf, consensus was unknown at the time of this post. I’d bet the over under is 100 Bcf. Below that and you slip towards $7 immediately. Above it and gas may get a small reprieve…say a day or two at most before it again heads toward $6.50.
  • The reason is simple: degree days are expected to fall by nearly half this week. I won’t surprised to see another burst of cold make for choppy trading but I still expect to see lower prices in the second half of March and early April setting up a good buying opportunity in the quality, gassy E&P names prior to summer’s heat and hurricanes.

If we get a 100 Bcf number today and average withdrawals for the remainder of March we’re likely to bottom out with more than 1,400 Bcf in storage. Well above the five year average of 1,232 Bcf but well below last year’s 1,692 Bcf number.

OPEC Watch: The ministers begin the first of a two day meeting today in Vienna. I’ll update in the comments section.

Gasoline Picture Show. We received little help from yesterday’s inventory report in hobbling the 3 legged stool upon which high gasoline prices rest. Utilization continued to slide although according to the companies that’s about to reverse, imports ticked up but only just, and demand ebbed but also only just. Hey, if demand and imports move in the same direction next week (down and up respectively) the stool should start to wobble a bit under the weight of $0.40 of gain in RBOB prices since mid January.

Extended maintenance and snafus are keeping utilization low


Imports may be trending lower but this is after running high to historic norms.


From EIA’s comments yesterday: gasoline imports have also dropped, falling below 1 million barrels per day the last six weeks after averaging 1.15 million barrels per day in 2006. After receiving a lot of gasoline imports earlier in the season, gasoline stocks are relatively low in Europe and refinery maintenance has begun there as well, just as other parts of the world see an increasing need for gasoline. As a result, the arbitrage for shipping marginal gasoline supplies from Europe to the United States diminished considerably, further limiting imports.

Demand actually fell slightly from a week ago but remains elevated for this time of year.


Two charts straight from the EIA’s weekly are very telling of just how much of a rise we’ve seen in gasoline prices this season:



Wow…With Price Action Like That Inventories Must Be Very Low. No, they’re still above average. So what do you think happens if we’ve gotten the pre driving season rally already out of the way and refineries start coming back into service?


Holdings Watch: I took a little TSO put position yesterday – May 90s puts between $3.40 and $3.60 (average is close to the top unfortunately).

Odds & Ends

STEO Watch: If you don’t read the EIA’s short term energy outlook you should. Here’s the link. The price estimates move around as oil and gas prices do and I’ve found them to be utterly worthless beyond the next few weeks in predicting price. No offense meant but they stick pretty close to current prices with an eye towards what’s happened in terms of direction over the past month. However, the data they keep up with is phenomenal.
Briefly, they expect the OPEC surplus to increase in 2007 and 2008 to 2.0 mm bopd from 2006 levels of 1.3 mm bopd yet they expect oil prices to be up relative to last year on higher demand in 2007 and again in 2008. This is inspite of the fact that early year demand came in lower than expected and that non-Opec supply is growing faster than expected (Caspian Sea, Russia, Africa, Brazil, and even the United States). That’s a head scratcher. Growth in demand is expected to slow as well. Hmmm.

And here’s their thoughts on gasoline inventories:

Total motor gasoline stocks are projected to be at the upper end of the normal range throughout the forecast period. Nevertheless, continued demand growth pushes inventories (measured in terms of days‐of‐supply) steadily lower, setting the stage for an increase in gasoline margins and retail prices. Comment: Who do these guys work for? I mean, steadily lower? That’s the red line in the last graph. Does that look steadily lower, especially given the season? These are smart guys but sometimes you’ve got to stop contradicting yourself or trying to make the data fit the scenario and just say things don’t make sense, are irrational, overblown etc, etc.

Analyst Watch: I’ll update in comments.

END Watch: Back down to $2.11 after 2 days of very little volume. To me this one is fire and forget (or at least check infrequently). Either way I hate to be that guy at the poker table who only points to his recent gambles when they’ve immediately paid off.

64 Responses to “Thursday – OPEC Meeting & Natural Gas Storage”

  1. El Diablo said


    RE: gasoline days of supply, what is the ‘demand’ number (denominator) that is used in that calculation? Is it a prospective or historic number? What was it last year–i.e. have both the numerator and denominator changed?

  2. ramana said

    Coming after a few days….as always…very insightful, z

    – Ramana

  3. nltd said

    Wow…With Price Action Like That Inventories Must Be Very Low. No, they’re still above average. So what do you think happens if we’ve gotten the pre driving season rally already out of the way and refineries start coming back into service?


    My question has to be: What do you think the people running refineries will be motivated to do? It appears increasingly to me that they are making a mini-OPEC play with the price of gasoline. Recent events have made them more aware of their pricing power, and they’re using it more. Those EIA charts, particularly the first one, say to me they’re getting better at this game. Why wait until driving season to get the price up if you can get it up sooner? Why can they do it even with no real drop in inventories? Simply a matter of selling the PERCEPTION to the market that inventories are too low. So with actual inv. NOT lower, they sell that the number of driving days of supply is lower. That it’s only one day less hardly matters. They can get a HEADLINE that says “GASOLINE SUPPLIES LOWER GOING INTO THE DRIVING SEASON.” You aren’t supposed to read and dig like Zman does to understand the macro view, and apparently, most don’t.

    Next ? Are they fooling the traders of the commodity? Or are they just playing along, taking their cut where they can get it?


  4. nltd said

    Gee, got so intense right away, sorry. Good morning!


  5. zmann said

    THANKYOU GOLDMAN – APC CUT TO SELL. Couldn’t have gotten me out of a bind there emore if you’d tried. Love to to see the reasoning to go that far and hit them with a sell rating. Seems pretty harsh even to me given management’s ability and the stock’s low valuation to its peers. Maybe they said they didn’t need GS’s help doing the next deal! LOL.

  6. zmann said

    OK, this is really too much. COP cut to neutral at GS. My two biggest postions, APC and COP get cut by guys who I had considered to be perma bulls. The sky is falling. Ha, ha, ha,ha,ha,ha,ha,ha,ah,aha,aha,ah,ah,h,h aaahhhhhhh.

  7. mike said

    zzz – have you accessed Phil’s site today? Is it down – can’t get on. I’m short MRO and nervous. I almost went short on COP at close but underbid puts by .05. You good w/ your TSO position?

  8. nltd said



    Still having server problems, gonna use comments at above site today. I’m trying to get registered so can comment. Also have email in to Jared asking if there’s a shortcut to being able to see comments over there.


  9. zmann said

    Morning Everybody

    EL D
    Denominator would be 4 wk trailing demand. Last year’s number would have been about 2% lower.

    I thought I’d never hear from you again. mon cheri, glad your still a reader!

    N – now that’s a list of questions.
    1) refinery motivations: make more money

    2) conspiracy? tempting to say yes but they don’t have problems on purpose…maintenance is running slower than expected

    3) they can get prices up because they’re not the ones doing it. hedge funds and hot money in the commodities see an opportunity to gain leverage and they squeeze. CNBC adis and abets with its constant panic in the streets drumbeat

    4) the traders know what’s up but they’re too busy cashing in to go against the tide. hey, I think gaso should be up but just not this much. Now as things come back on line it should peter off.

    Hit me with some more questions… I get bored when nobody talks back. Thanks.

  10. mike said

    thanks N

  11. Dave said

    Mike….server problems at Phils

  12. El Diablo said

    Refineries could be taking a page out of the ‘Enron’ playbook, if so, the long-term result will be the same: jail. In the midst of the ‘California power crisis’, Enron, Reliant Energy, and Dynegy traders all ‘ordered’ power plants taken down for ‘maintenance’ at key times so price spikes would be exascerbated. Investigations uncovered the activities, traders went to jail. In this day of easily traceable communications, AFTER the California fiasco, and with Democrats in control of congress, one would have to be more stupid than greedy to try this.

  13. nltd said



    If you go to Seeking Alpha you CAN see comments without registering…don’t think you can MAKE comments without though…

  14. zmann said

    Mike – yes, site down.. GS flipped from sell to buy as I’m sure you saw. What month are your puts?

  15. zmann said

    END 10 K filed. Will dice it tonight.

    Mike: TSO, pretty happy with them for a start.

  16. zmann said

    EL D – Thanks but I think a fixing scheme is hard to prove here. If you had a fire and it takes awhile to get it up and running that’s understandable. I f you lump a little more maintenance into the your turn for no other reason than the other guys are down right now and you see leverage on prices, well , that’s being a bit of a shmuck but it’s not illegal.

    However, you make a good point given the Dems control of congress that refinery heads could be called to testify, even if nothing comes of it, this summer. Congress loves to hold useless, grandstanding hearings, especially before an election.

  17. mike said

    zzz MRO april 90 puts – time to stop out you think?

  18. nltd said


    Thanks for reply. So if I understand right, you think the refiners just (more or less innocently) cash in on the actions of the “big money” in the commodities market? Of course all the traders HAVE to do whatever the market dictates…we must learn to do the same or get our heads handed to us. We’re really left trying to estimate/guess what the big money is up to in each marketplace, aren’t we?


  19. zmann said

    Mike –

    MRO – I’d sell half if it breaks $94.50. GS tends to hammer and remhammer their clients on new buy rated stocks and a switch from one end of the spectrum (sell) to the other (buy) takes a lot of conviction for the analyst.

    On the other, it looks like the energy group wants to come in a bit and you’ve got time to let it. Again, I’d sell half.

  20. zmann said

    N – pretty much. And yes, I fell like an idiot for not going long the refiners when we saw the 3rd fire in two weeks. Next time that happens somebody yell at me , call me names for not paying better attention ! That was a huge move and I screwed the play on it up completely.

  21. El Diablo said

    The Enron traders knew that their phones were recorded and that their emails were archived. Didn’t stop them. They had no fear. They made a basic risk management mistake, they underestimated the risk of getting caught. Can you believe that these smart people didn’t think there would be an investigation when power prices went from $40/mwh to $1,200/mwh? Even very ‘smart’ people will always do very ‘dumb’ things when large gains are at stake, primarily by underestimating the risk of getting caught.

  22. nltd said


    A while back I looked at charts for refiners 3-5 years back and didn’t see much motivation for trying to short them this time of year. If I remember right (I know, should have taken notes) some of them (maybe most) took a dip late Feb-March. Other than that they’re awful strong in the spring. Given the early run up in gasoline prices if I understand right, you’re betting on that dip any day now?


  23. zmann said

    EL D – arrogant aren’t they?

    N – exactly.

  24. zmann said

    115 Bcf – in line with consensus. Pretty big if you ask me. Everyone of these bigger numbers is raising the floor for natural gas prices just that much more.

    I’d really like to see the database for historic numbers to see if they made another adjustment …this is awefully large.

  25. zmann said

    RBOB down $0.04 today. It’s a start. I didn’t know GS was neutral on TSO…they reiterated it today as a neutral.

  26. zmann said

    END – insider buying showing up post K. Always nice to see insiders put money where mouth is.

  27. zmann said

    Need a volunteer for five minutes. Please email me if you’ve got 5 minutes to spare at Critical mission involved, sorry no pay or benefits….maybe a t-shirt if you can help me out over the weekend though. wow, that sounds interesting. first come first serve.

  28. Fred said

    Don’t forget the time changed earily this year starting the driving season off with a bang.

  29. zmann said

    Yes, that true. What’s worse, the time change was supposed to save us money.

    However, Congress used a study from the 1970s which came to the conclusion that we’d save 100,000 bopd from oil fired electricity consumption. Someone forgot to tell them that between then and now oil fired generation fell of a cliff compared to other sources.

  30. zmann said

    EIA says they do interpolate year ago numbers listed in the weekly report and that’s the discrepancy between the numbers. I say bullox to that. The numbers used to match and the year ago change was a reliable number as well.

  31. nltd said

    Gee whiz Z, are you the least surprised that our US of A Congress is 30 years behind the times? What the heck is their average age? Given that most of them spend (almost) every waking moment working on getting re-elected, how could we expect better?

    Tried to use your link to email and it failed. My end or yours?


  32. nltd said


    Found the problem…period at end of sentence came along with the link and goofed it up.


  33. zmann said

    Not that it matters but the EIA is saying they’ve been calculating year ago numbers by linear interpolation and that they have been doing this for over 2 years. Fine. There was no 12 Bcf adjustment. Their data base shows the actual reported number and the weekly table shows an interpolation. Sorry for the diatribe. It’s not important. Gas appears unmoved by today’s number which is all that really matters. EIA says gas is likely to trough around 1400 bcf if weather is average. That should serve to pull gas back into the mid $6s soon.

  34. zmann said

    N – check your email and thanks if you can help.


  35. zmann said

    March madness. No volume. zzzzzzzzzz

  36. nltd said


    From Phil:

    OPEC meeting was fastest ever with no action taken now and none until September planned.


  37. zmann said

    They must be worried about global demand or they think prices should be much higher than here to not consider INCREASING production before September.

    Thanks N. Let the cheating begin!

  38. Jon said


    BTW, in case you were still checking, the e-mail update showed up today at 0736 PDT. I thought I’d let you know since the same RSS update arrived at 2249 PDT the previous day.


  39. nltd said

    I’m surprised no immediate bullish reaction I can see here…not looking at farther out months, but still unusual. Seems like they’d be jumping on this to pump. Were they actually expecting a cut here?

  40. zmann said

    Thanks Jon,

    I posted a little after midnight my time just to see how slow the email delivery is. That’s about a nine hour lag but there’s little I can do about it it turns out.

    We’re moving to the new site on Monday come hell or high snow. I strongly encourage everyone to re sign up with an RSS link. The RSS is almost instantaneous. Sign up for the email too but be warned that it’ll stay really slow.

  41. zmann said

    They’re watching the T Tech and Stanford games. lol

  42. zmann said

    END looks to be firming up a bit. Sorry for the play by play. I’ll stop but I’d like to get a technical read from Tom. I think he said he doesn’t read midgets but I’d like him to try.

  43. zmann said

    Is there a way to reach Tom? I don’t see a way to comment on his site.

  44. zmann said

    Nat gas back through $7

  45. Jon said

    Tom is offering his services if you e-mail him:

  46. nltd said


    Check your email and over yonder…


  47. zmann said

    Thanks Jon,

    Stocks looking a bit weaker now. Failed attempt to rally the xoi earlier along with the dji is allowing this mornings downgrade of COP to start to work again.

    APC probably has a bit further to fall soon as it’s a sell at GS and gas is below $7 again.

    HOC and TSO changed places in terms of gains today but TSO is now coming back down with gasoline.

    Oil going back to $57.50. My next target is $55

  48. zmann said

    N – I see. Comments over there.

  49. zmann said

    Hows that for 5 minute gratification. TSO rolls over, APC starts to work and COP plunges through $67. Of course it didn’t hurt that crude raced lower into the close.

  50. OilPro said


    any comments on what’s going on w/BQI

  51. zmann said

    AM – you out there? Question for you on BQI?

    It’s obviously oversold but I haven’t red today’s PR yet. I’m not in and not ready to play. AM knows them pretty well and hopefully he’ll respond.

  52. zmann said

    Surprised how badly they’re beating the COP down into the close. Lehman and one other reiterated buys but the GS downgrade has all the power. 1000 pound gorilla in the corner.

    APC appears immune?!?

  53. Attacking Mid said

    BQI – This PR was unexpected. Likely in response to the ridiculous selloff in the stock. The PR sounded as if everything is going on schedule, on budget, and possibly they are encountering some positive surprises based on where they’re allocating their 8 drilling rigs.

    They said they are entertaining numerous stock analysts onsite today (how they coaxed a group of analysts up to that tundra is incredible). Additionally they are bringing in several institutional investors for onsite visits soon. Hopefully, this will spur additional institutional interest which should provide some upward thrust to the SP. Also, it should calm the wild swings we’re seeing lately.

    Management’s goal is not necessarily to take this company into the production phase, but rather to prove out the resources, then JV with larger, production-capable companies. Of course, there’s always the possibility of having to deal with a buyout offer that is too lucrative to resist ;^ ) BTW, a poison pill was adopted last year to prevent anything hostile.

    At these prices, I believe the risk/reward relationship is compelling. If it bombs, you lose 3 bucks. If it soars, you could hit a 2-digit-bagger. Such is the life and times of speculative stocks. It’s quite likely they will be able to eliminate the complete failure scenario as early as next fall, so the speculative level of the stock should be reduced significantly at that point (assuming they continue to be successful).

    As you know, I’ve been following this stock for about a year, and I’m heavily committed. The punishing drop it has incurred recently has been WAY overdone in my opinion, and I truly believe we’ll look back 7-8 months from now and think, “if only I’d loaded the boat back in March”. My boat is loaded with options, and I will continue to roll as needed.

    In summary, everything is rosy except the current SP. But then, isn’t that the time to buy?


  54. zmann said

    AM – thanks. I’ll most likely be long in April but I want to see it trade sideway a little while and make sure that oil holds mid $50s.


  55. zmann said

    Interesting failure for oil today. Closing at roughly $57.50 with RBOB rolling lower by a nickel. Big move down in a day based on big move up over the last 2 months.

    I’m getting more long term neutralish with bearish sentiment for the next 3 to 4 weeks. What’s that mean, not a lot of new shorts and raising cash. Still things like COP, SU, APC could get tagged for another 5%. TSO and its peers could easily drop 15% and no one would be hurt if they owned them for more than 2 weeks.

  56. mike said

    zzz so you’re still hot on the TSO puts? Worth buying in now?

  57. zmann said

    yes, but I’m in the May’s to give me a little breathing room.

  58. zmann said

    N – my deepest thanks.

  59. Dave said

    Thanks for the posts. A very informational site. Tomorrow should be wild. I’m looking for a ramp up. imho Got to go….I hear the tinkle of cocktail glasses !

  60. REgards said

    Zman, Great blog info. I have been reading your comments to Phils blog before you even started your blog. Thanks for all this work. I plan to enter April oil puts tommorrow. Which in your opinion are the best to short? THanks .. I will contribute when I can add value ..

  61. zmann said


    I like the TSOs and VLOs here and maybe, if you can buy it right, WNR (nasty spread).

    APC probably has more room to fall and I like the COP in here. PTR and PBR if you like to play fast and loose. SU for pure oil.

    I’d probably wait til the close or at least after lunch as march madness and typical expiration day option pinning action should make the market a dull boy in the afternoon. If you can stand it, wait until Monday to save yourself the 2 days of TMV your going to loose. I don’t think you miss much unless the broader market melts on Monday. Which is really not my bag.

    That said, CPI is the most important thing to the stocks right now for the very short term. Notice they haven’t cared a wit about oil or gas but follow the DJI and S&P around by the tail.

    Also, realize that I’m getting the sense that the stocks will pull back but that it’s just a trade before a higher leg (except for the refiners which I think will be subject to some profit taking and soon)

    Thanks for the compliment on the sight. Glad you like it. Ask any questions you’ve got. It helps me learn too.

  62. REgards said

    Thanks .. will post my entries ..

  63. nltd said

    You’re entirely welcome, Z.


  64. Back down to $2.11 after 2 days of very little volume. To me this one is fire and forget (or at least check infrequently). Either way I hate to be that guy at the poker table who only points to his recent gambles when they’ve immediately paid off.

    Totally agree with you there!!

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