Energy Stock Trader: Wednesday Outlook

Includes: BPG, CRK, NE, RAIL
by: Steve Zachritz

Oil: Rebounded on the confirmation of news that MEND had indeed bombed three pipelines in Nigeria and promised in an email sent to Reuters that they will continue to explosively express their disgust with both outgoing president Obasanjo and president elect Yar'Adua. Some things never change. Between the pipelines shutting down, the Brass export terminal, and the shuttering of a Chevron Corp. (NYSE:CVX) operated flow station the prior day, Nigeria is suddenly producing nearly 200,000 bopd less than last week.

Message From Qatar: It's the refiners, stupid. Short term discombobulations aside, here's a Gulf Times story in which the oil minister of Qatar says the oil markets are oversupplied and that customers don't need an increase in OPEC production since there is no spare capacity to refine it.

Oil Inventory Report Estimates: (from the Platts Survey)

  • Oil: up 500,000 barrels. I've seen estimates ranging as high as a build of 2.2 million barrels.
  • Gasoline: up 200,000 barrels. Here's why this number is of no particular use: On the high side you've got John Kilduff at Man Financial looking for a whopping 900,000 barrel increase (and I might add, a 2+ mm barrel increase in crude). On the low side, the smart fellas at Wachovia are looking for another drop in gasoline stocks, this time by 500,000 barrels. The other 10 to 12 usual suspects are somewhere in between, so this isn't a close race but a midpoint average. I'd guess the over/under number in determining the direction of RBOB is an increase of 400,000 barrels. Anything less and we rally a bit and visa versa. The press will tell you that gasoline stocks have fallen for twelve weeks in a row. I'd tell you that's the norm, and not the aberrant failure of our aging refining sector nor the realization of some matchstick conspiracy theory.

Gas stocks 4mnths 09 05 2007

  • Natural Gas: Thursday's gas inventory INJECTION could top 100 Bcf.
    • HDD -- fell to 39 from 49 in the prior week when an injection of 87 Bcf of was reported.
    • CDD -- registered a slightly warmer than normal 17, but it really shouldn't have much of an effect just yet. In general I've found that owners of newer, better insulated homes with more energy efficient heating and cooling units are the early adopters of AC in the Spring. The rest of the U.S. will sweat a little and hold out as long as possible before flipping that switch.
    • In the year-ago period 85 Bcf was injected, so we might eat into the YoY storage deficit but not meaningfully so.
    • The over/under for gas prices is likely to be 100 Bcf.

Holdings Watch

Comstock Resources Inc. (NYSE:CRK) -- Added the June 30s for $1.05. Great numbers but even better conference call.

Noble Corp. (NYSE:NE) -- Took a double helping of the June $90s since the group was down again, and by all metrics business is booming. That, and I've been underexposed to service of late, with only my May $32.50 Halliburton Co. (NYSE:HAL) calls in place.

FreightCar America Inc. (NASDAQ:RAIL) -- Dumped the second half of my position for an 85% loss after selling the first half for a 130% gain almost a month ago. I'll very likely add a June or July call position here as I think its run is far from done.

Stocks: Took a toehold position in BPI Industries Inc. (BPG), the little Illinois Basin CBM minnow, at $0.81 after watching it fall 36% over the last two days on the announcement that it wasn't completely satisfied with one of it's pilot programs. Not for the faint of heart.

Analyst Watch: FBR cuts Bronco Drilling Company Inc. (NASDAQ:BRNC) to underperform. UBS cuts Norsk Hydro ASA (NHY) to neutral.