Oil Inventory Report Review
Slightly smaller than expected draw in gasoline prompts modest declines in crude and gasoline prices.
Crude -- up 1.1 million barrels vs. expectation of up 1.5 mm bbs. June crude fell for the third straight day settling at $63.68.
Gasoline -- down 1.1 million barrels vs. expectation of down 1.3 mm bbs. June gasoline eased back to $2.22 on the slightly less bullish report.
Utilization & Production -- utilization increased to 88.3% but production fell by nearly 130,000 bpd to 8.536 mm bpd. That’s actually higher than the year ago week, when 8.47 mm bpd were produced.
Imports -- rose from 1.039 mm bpd to 1.164
Demand -- up ever so slightly.
Gasoline stocks now stand at 4.7% below year-ago levels. Taken together with demand, that year-to-date has run 1.9% higher than last year, the days supply metric has fallen to 20.8 (or just above where it was at the end of last summer).
Natural Gas Preview
My expectation -- 65 to 90 Bcf injection: Heating degree days fell by over half from the prior week (which saw a withdrawal) to a reading of 44, the lowest level recorded this year. That’s roughly one-third below normal and year ago levels when 53 Bcf were pulled from storage.
CALLS -- Chesapeake Energy Corp. (CHK), EOG Resources Inc. (EOG), Newfield Exploration Co. (NFX), Southwestern Energy Company (SWN), and Valero Energy Corp. (VLO) (see refinery sale comments below) each had better than 3% days yesterday. This resulted in doubles for positions taken on Tuesday in CHK, EOG, and SWN. My Halliburton Co. (HAL) position is also inching higher.
PUTS -- for the most part, another drubbing:
- My ill-fated and soon to be abandoned put position in Anadarko Petroleum Corp. (APC) actually made a little headway south today. This is an old position and I’ll hold only as long as the chart continues to fall. No way I want to be short them after May (other than for quick trades).
- TSO continued to kick my teeth in. I added May $120 puts in the morning on the initial rise. See more on TSO below for earnings.
Quicksilver Resources Inc. (KWK) -- good quarter
- Earnings: a little light at first glance, but operating cash flow rose 16%. Analysts were probably off on the cash/deferred split on taxes or underestimated the DD&A rate as revenues came in spot on with consensus.
- Production: up 21% YoY and 5% sequentially (on a daily basis).
- KWK’s Barnett Shale production has risen 125% over the last year and accounted for just over a quarter of total company production, up from 15% a year ago.
- LOE per Mcfe rose 10% to $1.69/Mcfe from $1.54/Mcfe in 1Q06. This is up from 4Q06 of $1.52/Mcfe
- Guidance: production is expected to be up ~ 25% in 2007, double digit growth comment about the next several years.
Tesoro Corp. (TSO) -- miss: $1.67 vs. expectation of $1.86. Stock is off $6+ pre market.
Sunoco Inc. (SUN) -- miss: top line disappoints due to extended maintenance. After backing out a gain, bottom line of $0.70 is less than half of expectations. People weren’t happy, selling the stock off 4% in after-hours trading.
Valero Energy Corp.'s (VLO) Lima Refinery was sold to Canadian oil sands producer Huskey. The tab came to $1.9 billion plus the odd $200 million in associated working capital (oil inventory).
From the things you should know file: From EIA: Over time, WTI production has dropped sharply to levels currently averaging no more than 400 thousand barrels per day, a relatively thin volume to represent price movements in a 15 to 16 million barrel per day U.S. market that increasingly depends on heavy, sour crude oils. Comment: Maybe we should use a global basket price and price it in euros.
Service Costs Not Going Down Soon: Great article from the Houston Chronicle about why service costs are rising and why they’re not likely to retrench soon.