Energy Stock Trader: Tuesday Outlook

Jun.12.07 | About: Swift Energy (SFY)

Swift Energy Corp. (NYSE:SFY) news flash: Finally punting New Zealand.

After years of what can best be termed "distracting if not disappointing results" in Kiwi land, SFY is finally giving up. Should be pretty good for the stock, and I'd bet some Aussie firm will take the project off Swift's hands for a decent sum -- maybe $200 to $250 million for the package. The real benefit is getting SFY back to its knitting along the Gulf Coast. While this is not exactly unexpected news, finally putting it on paper through the hiring of an adviser for the sale should boost the stock.

NOAA [National Oceanic & Atmospheric Administration] Beats The La Nina Drum: NOAA is calling for development of La Nina conditions in the next one-to-three months with this event potentially falling into the strong category at its peak. That would likely mean more hurricanes. Just thought you should know.

Nigeria Watch: MEND releases 13 hostages as an olive branch prior to talks with new president Yar 'Adua.

The Microphone Is Mightier Than The Storm Watch: We got our oil rebound as oil jumped $1.21 to settle just south of $66.

  • Part of the rally was a retracement of the "Gonu was a dud" selloff late last week. I'm told we don't run into first resistance on the July contract until $66.30.
  • The biggest factor was words. I think for now $65 is the new threshold that brings out the OPEC ministerial rhetoric. Yesterday:
  • Iran said that cuts will remain in place at least until the next scheduled OPEC meeting in September, and
  • Asian refiners indicated that Saudi Aramco plans to reduce July shipments by 10% relative to June levels. Saudi Aramco frequents this site and never comments, but I'd love to have confirmation on those cuts guys -- so pipe up! Feel free to use this forum to refute all the naysayers who claim you can't really raise production and that you're peaking as we speak!

Gasoline didn't fair as well, only recovering 1.1%, and is maintaining its new down trend. In short, I think it's headed back to $2 in the next two weeks.

Crack spreads continue to fall except for diesel. The unsustainable crack spreads seen earlier this month are falling in sync with the rally in gasoline stocks. It's interesting to note that while coastal supplies of Ultra Low Sulfur [ULS] diesel appear adequate, diesel prices and their cracks remain inflated. My sense is that these cracks will begin to moderate soon.

Crack spreads 12 06 2007

Early Read On Inventories (from the Bloomberg survey)

  • Crude -- DOWN by 400,000 barrels. Sounds reasonable given higher demand from refiners. As a reminder, I expect flat-to-higher oil prices while downward pressure is exerted on gasoline.
  • Gasoline -- UP 1.5 million barrels. Such a build would actually increase the y/y deficit, since the comparable weak one year ago saw an unusually large build in stocks (not unlike last week). The all important number of course will be utilization, which needs to top 90%, or gasoline simply will not fall and cracks will mount at least a one-week surge. I'll be looking for continued growth in gasoline production, which has recently pushed ahead of year-ago levels despite the lower utilization figures.

Natural Gas, my early read on inventories: No consensus is available yet, and while I was a little low last week, I again think that falling imports could mean we're in for the first sub-triple-digit injection in four weeks.

  • Imports fell again: Last week it didn't matter, but LNG took another dive falling 0.4 Bcfgpd from the prior week to hit 2.4 Bcfgpd. Interestingly, Royal Dutch (NYSE:RDS.A) noted that the Chinese, one of the emerging competitors of LNG shipments, is slowing both their intake of shipments and their construction of regasification terminals due to high and rising international LNG prices. This reluctance to pay up on the part of China means more LNG will be available for Japan, Europe, and the U.S.
  • Canadian imports remained mired at 8.0 Bcfgpd, down 1.0 Bcfgpd from year-ago levels and in line with last week's number.

Natural gas imports 12 06 2007

Weather was a little milder, but pretty much in-line with the prior week.

Electricity -- according to the Edison Electric Institute [EEI], electricity generation was off 2.7% from year-ago levels. Generation has been running high this year at 3.5% ahead of the year to date period for 2006. This is an offsetting argument to my sub-100 Bcf injection prediction, and could very well be tipping the scales towards larger numbers of late as generation has suddenly slowed down.

Analyst Watch: Transocean Inc. (NYSE:RIG) price target upped at RBC.