zman’s Energy Brain

oil, gas, stocks, etc…

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Wednesday Morning – Oil Inventory Day

Posted by zmann on March 14, 2007

What’s driving gasoline prices higher? RBOB is up $0.40 in the last two months. A confluence of three events are forming what the MSM habitually refers to as a perfect storm: low refinery utilization, low imports, and strong contra-seasonal demand. I prefer to think of gas prices as sitting on top of a three-legged stool. Solve any of the three problems and the crushing weight of above average gasoline inventories brings prices toppling down.

  • Utilization Is Depressed By A Plethora Of Snafus. The first is the unusually low levels of refinery utilization the US is experiencing at present. We’re in the first of two maintenance seasons for the year and things haven’t gone well. At present utilization is only 85.9% (below the three year average of 88% but above last year)  due to several high profile refinery fires and extended maintenance cycles at several large facilities.


  • The second factor is falling finished products imports. This is a function of: 1) logistical issues with the the Houston Ship Channel and 2) reduced tanker loadings. As you can see in the following chart, gasoline imports have been declining in recent weeks during a period in which they are normally rising. This is worth close monitoring since a reversal here could quickly lead to a reversal in gasoline prices.


  • Demand has been unusually strong year to date.   Enough said, it’s true. People buy more gasoline when it gets close to $2 per gallon and they have very short memories.

The relatively low levels of gasoline production and the reduced imports with three months left until the beginning of the U.S. driving season have induced a panic stricken atmosphere in which reality and perception have diverged by a country mile.

  • The sad thing is is that the mainstream media portrays the situation as especially dire despite the fact that gasoline inventories, at least before today’s report remain above the average range. If you don’t believe check out the energy portion of our site today to see a nice set of graphs pull directly the government showing current gas and oil stocks.
  • My Thanks to El Diablo for his vigilance as he posted a great set of headlines portraying the rocky situation with Nigerian rebels and the threat posed by Iran’s nuclear defiance. The funny thing was that those headlines were from March of 2006! Even the accompanying stories could have been complete cut and pastes.

The Truth is that inventories remain above average, not just crude but gasoline and heating oil (need proof?) and my sense is that as the snafus sort themselves out we’re headed for a test of the $55 level in the near term, say 1 to 2 weeks, unless today’s numbers show a significant decline in crude again or the gasoline number is just atrocious…something over 2.5 mm barrels.

Oil: Down nearly $4 in the last four days .In my book, yesterday’s failed attempted to retake $60 translates into the statement, “what was support now becomes resistance.” Now more than ever I think we make a move on $57.50 and then $55. Inventories, if hinky, could give a bit of a boost but the writing is on the wall between moderating weather, a gasoline situation which is at just about the worst I can imagine right now and an OPEC meeting where nothing will happen.

Expectations from a variety of surveys for today’s inventory report looks like this:

  • Crude: up 1.9 to 2.0 million barrels. The alleviation of the supply bottleneck at the Houston Ship Channel should help bring this number back into positive territory after last week’s surprising withdrawal.
  • Gasoline: down 2.45 million barrels. Should this number come in as expected gasoline inventories would still be above average for this time of year. A bigger than expected draw here would likely send crude back up over $60.
  • Distillate: down 1.8 million barrels.…We could still get a big number here from secondary and tertiary demand sources but i’s unlikely to be oil price moving unless it doubles the expected draw.
  • Utilization: rising to 86.3%.

So What Hasn’t Felt The Sting Of Falling Commodity Prices Yet?

  • The refiners for one which are touted daily as the best buys on the planet despite the huge run the group has experienced since the beginning of the year. Crack spreads are up, no doubt about but the multiple expansion feels overdone here. When reformulated gasoline (RBOB) cools there will be some profit taking to say the least.


The rest of my put picks from Monday have performed pretty well. I know it’s only two days in a rotten market but the variances in the performance of the different categories (taken from Monday’s post) demonstrates that in many cases the sell off has been a thoughtful process and not just a “sell the sector” event. The damage has been worse where you would expect it to be: the higher cost producers.


Odds & Ends

OPEC Meeting Watch: No one expects them to do anything. Ministers from Qatar and Algeria have repeatedly commented over the last couple of days that no no further production cuts are necessary.

Analyst Watch: CVX upgraded at DB

36 Responses to “Wednesday Morning – Oil Inventory Day”

  1. zmann said

    AXC to be added to the S&P/ TSX index next Monday.


    SFY analyst meeting today:

    groth of 7 to 10% is pretty good for these guys, reserve growth of 4-6% is less good.

  2. zmann said

    Help – if you get email delivery please let me know what time you got your email notification today (with time zone). Thx.

  3. Kevin said

    I’ve been following your site and comments for a few months now and you seem to have a consistently bearish sentiment. Tell me, must be getting crushed with your puts and shorts because even though you have data that may persuade you to take on those positions, the oil market has been moving away from you. GL.

  4. mike said

    Kevin: I keep seeing this verbatim quote & wondering where you’re coming from. I’ve been ff. Z & cp to Phil’s site and making $$ consistently on their short picks using puts!!!

    Thanks ZZZ!!!!!!!!!!!!!!!!!

  5. zmann said

    Kevin – true on the bearish sentiment although I’ve gone more neutral…see last Friday’s posts. And some crushing of puts to be sure. Right now I’m look for some seasonal weakness in nat gas to provide opportunities to go long quality names in the coming couple of months. Where I’m bearish, like the refiners I go with longer dated options and have done Ok. Thanks for your concern and I hope you find the site useful.

  6. dave said

    Good Morning Zmann……. another fun day. Can hardly wait till 10:30 !

  7. zmann said

    Thanks Mike… I’m not 100% bullish or bearish ever and it really depends on the sub-sector – E&P, refining, service, majors. Apparently my writing comes off as monolithiclly (sp?) bearish. That’s not my intent. However, I expected weakness this week and got it as a short term move goes.

  8. zmann said

    Dave – after last week I can wait. LOL. Notice I took a more wait and see approach which I suppose is lame except the weekly numbers are a pretty stupid thing to try and closely predict anyway.

    TSO really waiting for the number this morning. Lots of profit protection fear there.

  9. zmann said

    WordPress is having technical difficulties today.

  10. zmann said

    Mike – what does ff and cp mean from your post above?

  11. mike said

    zzz – I haven’t taken you as mono….(?) bearish. Watched your calls on PTSG END & others soar to the long side. Just keep calling them as you see ’em. I’m here b/c I want to know both sides of the market.

  12. zmann said

    Thanks Mike. I wouldn’t say END soared yet though. We’ll see and good luck to you.

  13. zmann said

    That looks short term bullish. Smaller than expected crude build, 2.5 mm bls draw on gasoline and a bigger than expected draw in distillates (which shouldn’t surprise anyone).

    They may run oil here for a little bit.

  14. dave said


    Received the Zman’s Energy Brain @10:53 EST by e-mail

  15. zmann said

    Crude up 1.1 mm bbs – a little light

    Gasoline down 2.5 mm bbs – pretty much in line, maybe a tad big

    Distillates down 2.8 mm bbs – about 1 million extra which shouldn’t surprise anyone. We’re fine there, no danger of running out.

    I erroneuously reported that gasoline imports were down. I misread that. Gasoline imports rebounded.

  16. p.wilmington said

    Email came at 7:53 pst.

  17. zmann said

    Thanks Dave…that’s terrible. It was posted at 9:16. RSS is much faster but I’d wait to sign up. This site is moving to a new home next Monday.

  18. zmann said

    Here’s to pounding one’s head against the wall. Taking the May 90 TSO puts for $3.30 limit.

    Rebound in gasoline imports should combined with higher refinery utilization (some day) to reign in gasoline prices.

  19. Jon said

    Hi Z,
    Got the e-mail at 07:52 (PDT).

    I’ve also been getting the same RSS feeds over and over, including comments from Tuesday.


  20. zmann said

    Thank P – that’s completely lame. The new site won’t be pretty at first but it should work. I’m quickly running out of my alloted space here and can’t do everything I’d like due to wordpress limitations. Plus their servers are overtaxed.

  21. zmann said

    Sorry Jon – WordPress and I think Feedburner are both having problems today.

  22. zmann said

    Quietly falling…even COP is off with the broad market making a dash lower.

    Oil is getting popped again.

  23. dave said

    Just got back from lunch. What happened…GOOG, GE not down much. Markets were up when I left !

  24. zmann said

    Dave – Me too. I was working on a little project and looked up to see all my oil puts in the green.

    COP and TSO starting to work now. APC looking pretty shaky here.

    Nat Gas reaction could be pretty bad tomorrow…probably last of big pulls – estimates range from 80 to 140. I’m going with 95 for now until I really dig into the numbers tonight. I don’t think we’ll do more than 100 either way and the 80 is probably a bit aggressive. This week there’s really no demand so next Thurrsday’s report will be very small.

  25. dave said


  26. zmann said

    see your test]

  27. dave said

    Got to love options expre. Think we can get a pump up on thursday. Or even today ?

  28. zmann said

    Maybe but I doubt it will be as boring as most expiries with the Opec meeting and rumors flying and such. Got a little TSO may put action in the port now but I have to pay up a bit.

  29. dave said

    Zmann, I checked my e-mail. Got the energy stock traded @ 11:46 est.

  30. dave said


  31. help said

    Pump or dump?

  32. zmann said

    Dave – funny

    Help – oil? numbers were modestly bullish except that we saw a bit of a recovery in gasoline imports. I was surprised initially at the sell off but then saw that it was just all commodities trading in lock step with the markets.

    COP is slapping me around today.

  33. zmann said

    …since natural gas reclaimed $7 territory. It 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 tommorow. 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.

  34. dave said

    Help….Pump…..Ramp up the markets so you can sell the front month call options you bought on mon/tues. It seems to happen for the last couple of option expre.’s

  35. dave said

    Zmann and everyone thanks for your posts and info.

    Tom2oc thanks for the youtube post and aapl & xray ( from the other day ) all the posts great !

  36. tom2oc said

    Dave, my pleasure. Especially today, that Miss Q danced to perfection!

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