Oil is flying high again this morning over another kidnapping in Nigeria. Since the fundamentals are being ignored at this point (see oil report review comments below) hype and technicals are 100% in charge. Crude looks as though it’s hell bent for $75
Gas Report Preview.
The Street: 70 to 90 Bcf injection.
Over/Under: Anything under 80 Bcf will be seen as bullish, over 90 will be perceived as bearish and in between and $6.50 becomes even better suppor but we trade sideways.
My Estimate: 90-100 Bcf.
- Cooling Degree Days: 68, in line with prior expectations of 68 and up from 59 last week. Essentially in line with year ago levels and about 10% warmer than normal. This jives with Edison Electric Institute data which showed generation was up 3.9% relative to the prior week. This week’s CDDs are expected to climb slightly to 71.
- Imports Rally To Third Highest Level Of 2007. Both LNG and pipeline imports from Canada were up. LNG notched its third highest level of the year last week with 3.16 Bcfgpd while imports from Canada makred a modest (but almost certainly short lived) recover reaching 9.3 Bcfgpd.
Oil Review:
Alaron Watch: Going into yesterday’s oil report Alaron expected a pretty bullish report. Before the report perma-bull Phil “I Never Met A Barrel I Wouldn’t Want To Pay More For” Flynn wrote: The weekly inventory reporting from the Department of Energy will be exciting again! Look for crude to be down 2.0 million, gas to be down 1.0 MB and distillates down 2.0 MB with runs up 0.5%.
How about this for getting it wrong!
- Crude: UP 3.1 mm Bbs (the Street had expected a draw of 700,000 barrels)
- Gasoline: UP 1.8 mm Bbs (6 times the Street’s expected 300,000 barrels!!!)
- Distillates: UP 1.2 mm Bbs (also 6 times!!!!!!!!!!)
- Utilization came up 0.6% (which Flynn later in the day termed a disappointment)
Oil Sank With The Report Then Rallied. In a nutshell the report showed much larger builds than expected.
Up, Up, and Away. Is it a bird, a plane, why no, it’s oil storage!
Nine Year Highs Going On 14 Year Highs. How can you say it’s a function of low refinery utilization and therefore demand when gasoline produciton is cranking? (see below)
Gasoline Resumes Building Inventory Levels: RBOB rallied $0.0199 to close at $2.28 despite what should have been viewed as a surprisingly large build in inventories. Yesterday on MN1.com I indicated that we could see a bigger build in stocks given the lack of significant production growth last week despite a big surge in utilization. Production of 9.4 million barrels is the highest so far this year and ahead of 2006 and 2005 levels.
Imports Rebounded. The bulls are using this small bounced in imports to claim that imports saved the day and that without these high levels inventories would have dwindled again. But they didn’t. They’ve been arguing for weeks that only imports are “saving the day” despite the fact that production continues to rise week after week after week.
Demand: Where’s The Holiday Boost. Oh yes, there wasn’t one. Demand grew at 1.2% year over year which is down from recently levels of 1.4% and 2% earlier this Spring. The permabulls were expecting, or at least said they were expecting a big boost in demand due to driving over the July 4th weekend. Why it didn’t happen: 1) holiday in the middle of the week is bad for big trips, 2) lots of rain kept people in doors, and 3) the holiday will really be in next week’s numbers but I don’t expect a big surge in demand then either.
And Gasoline Inventories Continue To Recover. Despite this recovery, the permabulls continue to call for $4 gasoline.
And Distillates…
Odds & Ends
Analyst Watch: (BP) and (RDS.A) from Hold to Buy at Deutsche and (UDRL) to hold at BS.
Suncor Watch: (SU) signed a deal with the union covering 2,100 of its 4,000 employees at it’s mining and upgrading operations. Workers get a 7% pay raise in the first year and 6% raises in each of the next two years. That stock has gotten awfully lofty. Time for another look once oil calms down.
Holdings Watch:
CALLS:
- (IOC) sold July $22.50s for $4.70. A 119% gain since Monday. I may have taken them off the table a little early but I wanted to be out before the next drilling report. If it’s good I’ll take $30 strike calls upon the news as the reaction is likely to carry the stock well into the 30s. If bad I’ll take puts around the current level as the stock will likely retest the lows around $19.
- (EOG) calls. Continue to hold with a slight gain.
PUTS:
- (TSO) bought July $57.50s for $1.80. Last bid $1.50. I also own the $60 Julys here with a cost of $3.20 and a current bid of $3. The refiners fell in the first few hours after the oil report but then uncommon sense prevailed and oil and gasoline rallied in what some traders termed a “gamed” holiday volume market.
- (HAL) took a lashing early; apparently on further accounting concerns. I’m considering a DD here as I think the OIH remains strong and eventually punches out to a new high of at least 185 in the very short term.
Format Watch: In August I’ll be moving to a slightly more structured format. The basic outline will look something like this:
- Intro
- Crude Oil & Gasoline Section
- Natural Gas Section
- Equities Of Interest (if any)
- Special Feature (if any)
- Holdings Watch
- Odds & Ends
The Special feature section will be an occasional download on coal, ethanol, solar etc. The Equities of Interest section will give updates on stocks I’ve reported on and am thinking about taking a position in as well as have links to new reports. If you have anything else you’d like to see now is the time to speak up. All requests will be looked into. At present we’re working on getting a live streamer for crack spreads and an automated system for position changes. As we transition to a subscription site I want to make sure that you, future subscriber, get more than your money’s worth!
If you’re on the fence about subscribing let me offer two options to you: 1) if you’ve been around for a while at the zmansenergybrain.com site (as a registered user) you’ll be eligible for a discounted rate when the site goes pay, and 2) portions of the site will remain free with an abridged daily post (probably the daily intro and the odds and ends section). Picks, the data tabs (crack spreads, natural gas storage, company specific reports, current holdings etc) and the ability access site commentary will be limited to site subscribers.
If I don’t speak with you in comments today, have a great weekend!
July 06,2007
Did you like this article?
Submitted By 
's
