Monday Means More Earnings

If you missed the weekly wrap check it out. It was rich with data, closed position performance last week, and a look at what the current ginormous short natural gas position could do to gas prices if we see some weather soon (either heat or tropical in nature).

I plan on treading pretty lightly through earnings season. So far this strategy of waiting for the leaders to report and playing the laggards has worked pretty well in oil service. We’ll see how the market reacts to (VLO) leading off the refiners this week. E&P, as always, is a more case by case sector and I’ll be discussing stocks of interest to me as the week and month progress. See the “earnings I care about section below” for names I’m looking forward to hearing from. I do have a toehold in some names that have not yet reported but they at the cheap end of the spectrum and/or have stories and management teams that can turn a conference call into more than just a “yada, yada, yada we did x” event.

Tropics Watch: Four tropical waves are marching across the Atlantic but none of them appear ripe for development at present. A low pressure system northeast of the Bahamas is tracking towards the northeast, cold water, and its quick demise.doom.

Oil - Off a little this morning after beating the trail to record highs for little apparent reason last week except that traders wanted, well, record highs.

Canada Watch: Here’s a fly in the ointment… The National Energy Board (NEB), Canada’s version of the EIA reports a Canadian oil pipeline bottleneck is looming. NEB says spare oil pipeline capacity will be exhausted in the fourth quarter and no new capacity will be ready for at least 18 months (that’s 2009 kids).

….And It’s Probably Not Good For (SU). T Boone is hardly back from China and what does he have to hear but that his favorite stock (at least if his money talks) is facing constrained capacity.

• They’re scheduled to add about 85,000 bopd, or 32% to their production capacity in mid 2008 but NEB indicates that shippers will be forced to share capacity which translates into curtailment.
• Their last presentation doesn’t really address capacity other than showing a map of pipelines coming down from the Fort McHenry area I assume to demonstrate just how much access they have to the the oil thirsty U.S. market. Unless they plan on trucking it about a million miles which I really doubt or figure out a way to stick it in all those half empty natural gas pipelines I don’t see away around them missing the capacity bump that all analysts must have in their numbers right now. No doubt this will impact all Canadian crude producers but I can think of now one more dependent on growing oil volumes that Suncor.
• To be fair (SU) is a complex company with reaches in wind and ethanol and natural gas. But the market isn’t always fair and a pinch on pipeline capacity could very like put a pinch on profits.

CATS Scratch Watch: (BP) confirms this morning that the Central Area Transmission System (CATS) which carries gas from North Sea will remain off line for repairs until at least September (it’s been down since July 1). Somewhat bullish for Brent prices and crude in general since you can’t just flare all that associated gas and continue to produce oil. Silver lining is the boost to UK natural gas prices which have been ailing. As long as you produce gas that somehow gets onshore without going via CATS that is.

Gasoline - Still trending away from oil which rallied last week on the Cushing “news” last week and the EIA’s trepidation with regard to future shortages caused by OPEC inaction (in the same week that OPEC signaled that they in fact would act) drove oil higher. RBOB continues to languish due to the fact that days supply is flat, with production is rising and imports hitting record levels last week. Combine that with the fact that we’re at peak driving demand now and apparently the only thing about to run out of gas is gas prices.

A Word On Cushing, OK Stocks And Their Impact On Oil Prices. Ok, Four Words. Give Me A Break. Here’s one explanation from Upstream regarding last week’s big crude rally (it was a popular refrain along with “the EIA is panicking” last week):

oil traders zeroed in on data showing that supplies at the Cushing, Oklahoma, delivery point for Nymex-traded crude fell 1.4 million barrels.

How About Some Pictures (please take note of the scales on the following graphs): I would have gone further back on Cushing but the government didn’t break it out of PADD II until April 2004.

Earnings We Care About This Week: I have positions CALL option positions in (SWN), (VLO), (OII) and long GSX shares as of the time of this posting. Be advised that the (GSX) is a long term hold and has nothing to do with this earnings report.

Monday Watch: APC should have a pretty good call Tuesday morning. They’ve exceeded asset divestiture/debt pay down schedules without sabotaging future potential and here’s my suggested list of bragging topics for the call:

• the startup of the Independence Hub (on time, on budget) which will add 1 Bcfgpd gross (61% wi) to their production profile by year end,
• the new JV with (CHK) in West Texas,
• another quarter of record production in multiple onshore U.S. basins,
• the fact that with U.S. gas prices at somewhat depressed levels all onshore programs are economic down to high $4/mcf  Henry Hub.

I’ll be taking a look at the August $50 calls today but will be pretty careful with my dollars given the market’s new found infatuation with gravity and its ability to swamp even the most well built of boats.
Odds & Ends

Analyst Watch: (HK) upped to overweight at JPMorgan - interesting move with earnings next week. (XOM) from hold to buy at AG Edwards. (MEE) cut to under-perform at FBR. FBR also upped its target on (BHI) from $90 to $96 (seems odd) and on (DO) from $117 to $139 (seems like a good idea).

Just When You Thought They Were Coming Around Watch: from Upstream~ “I do not imagine that, at its next regular annual meeting, OPEC would put the issue of changing its output level on the agenda,” Oil Minister Kazem Vaziri-Hamaneh was quoted as saying on the Iranian oil ministry website.

July 30,2007