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Crude trades quietly ahead of report.

I'm moving on to watching the May contract today. The talking heads will be no doubt spin that the new contract is $2.50 closer to $60. Newspaper reporters penned headlines last night like Crude ends higher ahead of inventory report. April crude quietly went off the board at $56.73, up $0.14. May traded off $0.45 but still closed at $59.25. In fact, the entire 12 month strip ,save the April contract, was off slightly yesterday. But there’s that headline -- almost promising bullish delights in the report!

Sad but true quote watch:

Now that May has taken over, it will interesting to see if prices rise in the near term.

Flynn of Alaron Trading

I see. Oil is now magically worth $2.50 more than it was yesterday! I guess that means I can bump my $55 near term target up to $57.50, huh?

Still, the early Spring and Summer months have become more contango-ed since the OPEC-no-action-Vienna-driveby-meeting last week.

Crude Inventory Report: Everything that happens before 10:30 is meaningless. That’s not to say that what happens afterwards carries a lot of weight with reality either, but at least we’ll have some more data in hand.

Key takeaways today: Crude will likely weaken slightly if we get a second week of rising imports AND increased refinery utilization. If we get a price elastic demand response in gasoline consumption, then it’s time to dip another sacrificial toe into refiner puts. You know the names.

Survey says (Reuters):

  • Crude -- up 0.8 million barrels. This can change to down very quickly. For instance, a 1% increase in refinery utilization relative to last week would consume 1.2 million additional barrels per week, all other things being equal. The survey also expects a rise in crude imports and an unspecified increase in refinery utilization.
  • Gasoline -- down 1.7 million barrels. Much less and gasoline starts to falter.
  • Heating Oil -- down 1.3 million barrels. Not that it matters, but this still could be quite a bit larger than this.

For those of you considering dabbling in the refiners, I’ve constructed a table with data courtesy of Tesoro and the EIA which lets you know what you’re up against. And I still think the stocks, especially Western Refining Inc. (NYSE:WNR) at this point, are overdone.

Refiners 21 03 2007

I’ve added a Crack Spread page for easy reference.

Halliburton Co. (NYSE:HAL) to miss 1Q estimates -- hey, that’s no reason to leave the country! They indicated a slowing drilling environment in Canada and the Northern U.S. were to blame. This had the effect of tanking the Oil Service HOLDRs ETF (NYSEARCA:OIH) for 75% of the prior day’s gain, garnered from the TODCO (THE) acquisition. What a difference a day makes!

So who else gets hurt by a decline in Canadian and northern U.S. drilling? How about Precision Drilling Corp. (NYSE:PDS), Canada’s largest drilling contract?

San Juan Basin Royalty Trust (NYSE:SJT): I posted a little piece on San Juan Basin Royalty Trust last night on the ZEB Reports page. Like all my reports, I’ll continue to add to it as my thoughts change and new data comes in. It’s a good proxy for trading natural gas prices, but production of the assets underlying the trust is slipping, making it a longer term put play. Maybe ConocoPhillips (NYSE:COP), the new operator in town, can arrest those declines. Maybe not.

Analyst Watch: Matrix ups my favorite service company, CARBO Ceramics Inc. (NYSE:CRR), from Sell to Hold, and downgrades Forest Oil Corp. (NYSE:FST) from Buy to Hold. HAL's price target cut, but Buy rating maintained at Goldman and Calyon.

Source: Energy Stock Trader: Wednesday Outlook