On On The Money, T. Boone Pickens said the following (I'm paraphrasing):
TBP: Oil will test its high ($78) before year end. Demand is increasing and price has to move up "if supply is not growing." Comment: "If supply is not growing?" Spoken like a politician with that if in there. Supply is increasing outside of OPEC. Inside OPEC, spare capacity is growing. The weak dollar, a spate of refinery outages, and the lingering fear premium from the actions of cash hungry zealot(s) is what has been driving oil and don't you forget it. Finally, he should read my posts: Didn't I just point out that demand growth got trimmed for the second time in two months in Wednesday's piece?
Global Supply Not Growing? It Looks Like It's Growing To Me.
Let's break it down by the big players. The following is a table of the major players in the global oil production arena.
- To be considered a big-12 player, you had to produce 3% or more of the world's oil. Sorry Angola but don't worry, you're growing fast and Norway and Venezuela are trying hard to give you their spots at the table.
- First note that Saudi Arabia was unseated last year by Russia as the dominant player. Saudi is under production curtailments, so it's not their fault. Russia is pressing ahead full bore with its new found love affair with capitalism.
- The U.S. has been sliding for a long time, but has done well (you can't see it here but I'll show you later) in arresting the slide post Katrina.
- The rest is fairly self-explanatory, although Mexico has it's own set of problems right now so that number is fairly meaningless -- it will continue to slide until they allow outside investment.
- Note the small-fry contingent are growing faster than the big boys, some of whom are limited by production (again Saudi) and some of whom suffer from neglect (Venezuela).
Let's also take a look at some more recent data. Maybe that's where the "if supply doesn't grow" comment comes from. I broke these down by relative size so the charts wouldn't get too busy. Note how easily Saudi Arabia was able to turn on the taps in May of 2004 -- that's 1 million bopd in about two months.
And even the EIA thinks global spare production capacity will rise.
Ok, enough of that, back to the interview with T. Boone.
TBP: We've got to use more nuclear power, but it must be built on budget. It's safe and it's cheap. Comment: I couldn't agree more about building more nukes and their safety. Uranium however has shot the moon of late. I wonder if it's too late to buy Cameco Corp. (NYSE:CCJ) -- nuclear fuel and USEC Inc. (USU) -- nuclear bombs to fuel?
CNBC: Coal? TBP: Yes, coal. Comment: Absolutely agree. It provides ~50% of U.S. generation now and it's gotten a whole lot cleaner.
All alternative energy has a chance now. Comment: If you think oil is going to top $78 soon then yes, a lot of the alternative energy plays become viable when oil is over the $60-65 level. However not all. Some of the smaller ethanol companies just won't make it. Especially the ones that have changed their names more than once in the last five years ;->.
Final Comment: This was played up all day as a big interview with T. Boone Pickens talking oil with Melissa Francis. What hypsters. He was there to talk about shareholder activism, and they spent less than five minutes talking energy. I agree with everything he said, but it was all pretty vague and they left out natural gas almost entirely -- though he did mention that natural gas will be a major transportation fuel some day which jives with Mayor Bloomberg's statement about curbing NYC emissions yesterday.
Digesting Yesterday's Oil Report: A much larger-than-expected draw in gasoline sent gasoline prices soaring to a fresh 7-month high of $2.1587. Oil tried to rally as well, but ultimately closed barely positive and was only saved from a closing in the red by a last minute "saved by the bell" rally which left May crude at $62.01. On to the survey:
- Crude expected up 1.6 mm barrels; actual up 0.7 million.
- Gasoline expected down 1.3; actual down 5.5 million barrels. This morning I said: For prices to not spiral out of control (too late) we need two things to happen: 1) gasoline imports topping 1.1 mm bgpd and 2) utilization moving on up and eventually past 90%. I have a hunch gasoline imports come in closer to 1 mm bpdg this week while utilization will tick up to 87.5%.
Comments: Imports failed to improve, instead falling to 0.953 mm bgpd. Utilization jumped to 88.4% but I have it backing off below 88% again next week based on announced shut downs. Despite the higher utilization, distillate output grew while gasoline output fell to 8.531 mm bgpd, it's lowest level since April 21st, 2006. Of course, that's pretty normal for this time of year, but with all the extra demand it makes for tight supplies.
Gasoline demand continues to rise unabated by higher retail prices. Last week demand increased to 9.363 million bgpd, a 2.5% y/y clip. U.S. gasoline prices averaged $2.80 per gallon retail last week, and the EIA put out a nifty chart showing that the demand response probably won't come until we hit $3 gas.
- Distillates expected down 900,000 barrels; actual up 100,000 barrels. Natural gas actually train died off on the build, which is pretty silly given the fact that gas is much more tied to cold weather (at least on a week to week basis) that heating oil is. That being said I think the current lofty levels of gas are unwarranted anyway.
Natural Gas: I don't have a number today. It's the should season and strange things happen then. A wild guess would be a draw of 30 to 50 Bcf, but I really didn't spend any time on that (well, enough to type this but not much).
Dissecting The STEO: The EIA was very busy this week and not just with oil. In their Short Term Energy Outlook they laid out a call for higher natural gas prices brought about by concerns over "extreme" summer weather. This call for higher prices flies in the face of subsequent paragraphs in the STEO which delineate higher production, higher LNG imports and lower gas demand for electricity consumption relative to last year. Way to join the hurricane mania bandwagon boys!
- Domestic Production Growing: They expect nat gas production to rise in 2007 and 2008 citing a recovery in the GoM and a higher rig-count on shore.
- LNG Still Expected Up Big: They also show a massive pop in LNG and state that 1Q07 preliminary LNG shipments rose 47%!!!!!!! A similar bump in LNG shipments is expected in 2008 relative to 2007 yielding LNG imports north of 1 Tcf.
- Curiously they skip mentioning our biggest source of imports -- pipelines from Canada. You'd think you'd make mention of it if you're projection high gas prices since most analysts expect a high single-digit to low double-digit percentage decline as gas production falls on lower Canadian rig activity and more gas is consumed by the oil sands plays.
Holdings Watch: I'm liking Newfield Exploration Co. (NYSE:NFX) more and more as a long term buy. Exceedingly adept management, three potential near-term development catalysts, a leadership position in the Woodford Shale (and some mongo wells there), and a long list of other positives including a strong balance sheet and some significant exploration potential. This is not the typical option play, as I have no idea what happens today or this week or this month with the stock. Although, by the time of the conference call in late April they should have some pretty good news from the Woodford as they fine tune their technique.
Pay the Piper Watch Follow Up: Regarding Chevron Corp.'s (NYSE:CVX) 1Q
warning update yesterday, the stock was down 0.6% but only after most of the sector started to roll over. Initially, no one cared at all, much like ConocoPhillips (NYSE:COP)'s update last week. Western Refining Inc. (NYSE:WNR) however, did get roasted in the wake of the FTC blocking their merger with Giant Industries Inc. (NYSE:GI) and a broker downgrade to sell.