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The major energy agencies need to communicate better. The International Energy Agency [IEA] and the U.S. Energy Information Administration [EIA] really need to get each other's phone numbers. Just Monday the IEA raised its outlook for global oil demand and the trading god's at Alaron were making the rounds of I-told-you-sos in their daily piece. This was well orchestrated, with bullish Saudi and Iranian comments regarding production levels, who are apparently on the IEA's speed-dial list. Now it's my turn...

EIA Chops Global Demand Forecast (yet again). Way back at the beginning of the year I said this would happen, and there you go. For a third time Tuesday evening the EIA lowered its estimate of 2007 global oil demand by 100,000 bopd to 85.9 million bopd. 2008 was seen at 87.5 million bopd (up 1.6 mm bopd) -- also down 100,000 bopd. Notably, the EIA boosted demand for both the U.S. and China (consumers #1 and #2), and still got lower numbers. Hmmmm. Read the EIA's latest Short Term Energy Outlook [STEO].

Your Tax Dollars At Work Watch: The EIA was busy yesterday. Here are the most useless numbers you'll hear for quite some time: 13 million barrels and 87 Bcf. This is the amount of production EIA projects will be cut by in 2007 due to hurricanes.

Nigeria Watch: Up 98,000 Bopd. Enersis S. A. (ENI) resumed production of 98,000 bopd at its Brass River oil export terminal, which had been shut after three of its supply pipelines were bombed May 8.

I Couldn't Agree More Watch: "The gasoline crisis fears are being wrung out of the market," John Kilduff, vice president of risk management at Man Financial Inc. in New York, said yesterday. "Without continued refinery upsets prices will move lower."

What's important today? Ah yes oil inventories.

Latest Bloomberg and Reuters Survey Estimates

Crude: Expected stocks DOWN 200 to 500,000 barrels.
Gasoline: Expected stocks UP 1.5 to 1.7 million barrels. If it's...

  • In line RBOB will trend with the oil prices,
  • Lower than 1.5 it may mount a small rally (unless it's flat or a draw and then all short bets are off), and
  • Over 2.0 and you'll see gasoline running for around $2.05 in short order.
Distillate: Expected stocks UP 1.5 million barrels.

What I'm looking for in gasoline:

  • Utilization: The fall to 89.6% last week took everyone by surprise. Especially those of us take a somewhat more than back-of-the-envelope approach to tabulating the comings-and-goings of refinery capacity in the U.S. That week looked up slightly. This week, announced increases outnumber announced downtime by a little over 3-to-2. Therefore, I expect utilization to nudge back above 90%, and if the numbers of the last two weeks filter through, we should see a number north of 91%.
  • Production: Production didn't really slide last week (unless you consider a number like 36,000 on a base of 9.2 million a slide) despite the drop in utilization. If we get the rebound in utilization I'm looking for, gasoline production will likely crest 9.3 million bpd.
  • Imports: Look for another big import week given that prices remain pretty high and many ships were rerouted from New York to the Gulf Coast to take advance of the regional arb. Probably another 1.5-ish mm bpd were imported. Seasonally this number should start to fall off soon as Europe, which is short on gasoline itself, competes for those imports going into summer.
  • Demand: Still climbing, but the rate of y/y growth continues to slow.

While the continuing availability of imports remains a concern, the "two steps forward and one step back" process of getting the U.S. refining industry back on its feet following the longest maintenance/problem-plagued turn season in history is in full swing. The gasoline stock scenario no longer looks nearly as dire as it did six weeks ago, as seen in the graph below. The slope of the blue line over the last six weeks has been quite impressive. The bit of yellow at the end of the blue line represents a middle of the road, 1.6 mm barrel increase in stocks.

Gasoline Stocks With This Week's Consensus Projection

Gas Stocks 13 06 2007

Holdings Watch:

CALLS

  • Petrohawk Energy Corp. (HK) -- sold remaining position at $3.60 for a 50% gain in 7 weeks.

PUTS

  • Tesoro Corp. (TSO) -- added July $57.50s for $2.70. The June $120 Marathon Oil Corp. (MRO) and TSOs (now $60s) are starting to come slowly back to life.

The Phil & Zman Show MAY BE LIVE on MN1.com today at 9:25 CT. The host of the show is on vacation so there's some doubt.

Source: Energy Stock Trader: Wednesday Outlook