Oil -- up big. Apparently Greenspan's comments of three weeks ago are history. The economy is not slowing, and many are even seeing rate cuts in the offing within the next few months. I'm not in that camp... But back to oil:
- Up a whopping $2.08 yesterday to $61.69.
- XOI [Amex Oil Index] rallied as well and is up 6% this week.
- Grudging Bullishness Watch: In comment's yesterday I offered up some calls on liquid names, and after further reflection EOG Resources Inc. (EOG), Suncor Energy Inc. (SU), Energy Select Sector SPDR ETF (XLE), and ExxonMobil Corp. (XOM) should perform well if oil advances to $65. Let's see what it does with $62 first.
Refiners -- I still have puts in the game, but I'm not adding more until they start to perform. I'm hearing more people talk about crack spreads having peaked, but that was before a $0.04 rise in gasoline prices today. Still with the number of refineries healing themselves every week, gas prices should be do for a bit of a pullback.
- E&P: Adding a name on the long side today: Carrizo Oil & Gas Inc. (CRZO). See yesterday's comments, and add to it the stock is technically strong, close to some potentially catalytic news in a new shale play, and is doing very well with its late entry into the Barnett. As far as acreage goes, they have the most per share of anyone in shale plays. Finally, it was just picked up by a new Jefferies analyst who's a pretty smart guy, and that firm likes energy. If I'm wrong and we get no shoulder season pullback in gas, at least I'll be long one of the quality, lower-cost gassy names with massive upside potential. Other more known growth entities that fit that bill are of course Chesapeake Energy Corp. (CHK), Southwestern Energy Company (SWN), and Quicksilver Resources Inc. (KWK). This will be a 33% scale-in, and only executed once I get a handle on what kind of day we've got going. I'm in process on one of my ZEB Reports here, but feel comfortable enough to dip a leg in the water for now.
Oil movements say compliance is faltering. Shocker! Roy Mason of tanker tracker consultant Oil Movements says OPEC exports will be up 100,000 bopd by April 7 for the four-week average. Mason estimates week to week exports are nearly double that (190,000 bopd). He says compliance reached a peak of 1.1 mm bopd, but is below 1 million bopd at present. He then cited tanker freight rates going up because of more oil being on the high seas. That should sound pretty familiar to my regular readers.
Oil Movements went on to note that "all of the increase was to Western refiners and sourced from the Gulf producers." Sorry Venezuela but you're just not up to the task of cheating right now. And he's not alone in his summation that OPEC is cheating. According to Upstream, Lloyd's Marine Intelligence Unit said last week that OPEC exports had crept higher since the end of January.
OPEC head al Hamli said "compliance with production limits exceeds 60 percent." Comment: He's handling this better than the last OPEC president did (who no doubt had the folks at MEND on speed dial oil), but controlling all the members must be like herding cats when oil is over $60. People watch those tankers and this story will circulate more and more in coming weeks.
Fair and Balanced Bullets From Snafu (thanks largely to El D):
TSO's 166,000 bpd San Francisco refinery back on line.
- Royal Dutch Shell (RDS.A) to reopen 187,000 bopd pipeline in Nigeria.
- Asia demand to rise according to Chevron Corp. (CVX) and OPEC (see note below).
- According to a report issued by the American Gas Association [AGA], domestic natural gas reserves increased for the eighth straight year in 2006 and now exceed 205 Tcf, their highest level since 1978.
- And I'll throw in the EIA's report showing that natural gas production grew 3.0% in 2006. If you strip out the Katrina losses in the end 2005, gas production still grew 1.6% YoY. I'd point out that 4Q shows declining production in the Gulf of Mexico, but that the final numbers are likely to be revised higher as the data firms up.
Natural Gas -- 17 Bcf build (earliest build EVER recorded). Traders yawned and closed gas up. Gas treaded water after the early season build in inventories, and was quoted up a nickel most of the day until oil really took off. The May contract finished up a $0.17 (I guess one for each Bcf added to storage LOL) to close at $7.435.
My EIA database goes back to 1994, and there are no builds in storage for this week or of March. We now have 1,533 Bcf in storage, which is the 4th highest tally for this week of the year.
The 2006 / 2007 withdrawal season ends not with a bang but a whimper:
... And the May contract couldn't have cared less:
At 10:52 I wrote this in comments:
This reaction to what would normally be a wildly bearish storage number is why I've gotten more neutral. I'm not in the "if you can't beat em join em" camp, but I think natural gas has a floor under it of around $6.
So as we start to build storage 3 weeks early this year and people say, "Wow that's a lot of gas in storage," prices will fleetingly dip below $7 and may get as low as $6 before a series of events become clear. Halliburton Co. (HAL) reinforced this with their slowdown talk the other day, and it goes something like this:
1) Prices fall to near $6,
2) N. American gas rig counts retreat slightly,
3) A small number of E&P companies squawk very loudly about shutting in some production, saying they'd rather keep it in the ground then sell at these prices,
4) A tropical wave forms in the Atlantic,
5) La Nina strengthens and threatens a hot summer,
6) Prices zoom back to $7.50 plus by late April. [probably should have written $8]
Meanwhile, E&P companies (and not just the small ones) continue to record double digit gas volume growth.
The preliminary read on this week's weather looked like a carbon copy of last week, and I think if anything temperatures have outpaced forecasts. Look for another build next week. My old 1,400 Bcf target looks safe, as it's unlikely to be reached.
Gas remains exceedingly full for this time of year (and the Y/Y storage deficit is about to get cut in half).
Future Excess Capacity Watch: OPEC said today that it expects Asian demand for oil to double by 2030. To meet this demand:
"OPEC expects to increase its supply from 30 million barrels a day at present to 49 m/bpd by the year 2030, with much of the new production heading for Asia, an area with limited petroleum reserves of its own."
OPEC went on to downplay Asia's fledgling efforts at establishing viable biodiesel industry. Comment: I really hope China surprises OPEC on this one.