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Equity trading closes at 1 pm ET today.

CALLS

  • Interoil Corp. (NYSE:IOC) -- Bought July $22.50s for $2.15. Last bid $3.50.
  • Halliburton Co. (NYSE:HAL) -- Bought July $35s for $0.75. Last bid $0.70. The Oil Service HOLDRs ETF (NYSEARCA:OIH) looks like it plans to test 180 again very shortly, and as I've said before, I like being long one of the lower multiple core components of the index if I think it's going to punch through to new highs. While I'm a little nervous about natural gas prices due to the increasing level of imports (see below), I'm content to build a position here or trade it quickly again if I get another good swing.
  • EOG Resources Inc. (NYSE:EOG) -- No action other than once again the stock opened poorly with oil, and then recovered with oil before closing at the HOD. Cost here is $1.45. Last bid $1.50.

PUTS: No action except to watch the refiners hold firm with falling oil and rally with it later in the day despite underperformance from gasoline. Distillates continue to be stronger than one would expect as heating oil inventories remain a concern.

STOCKS: No action. Waiting on natural gas to get cracked before going long more of my favorite names.

Oil: After a brief dip in the morning the August contract rallied to close up $0.41 at $71.09. This action is looking a little tired and very technical.

Nigeria Watch: Eni (NYSE:E) restarted ~50,000 bopd of production from two fields.

Tanker Watch: Rates for VLCCs back down to January lows. Stocks don't really seem to mind. Tanker watchers attribute the slump to OPEC cuts, high U.S. inventories and a glut of capacity.

Crack spreads resume slump. Once again not stating this stuff for filler or my health (well maybe for my health) as gasoline once again was outdistanced by oil and closed up $0.059 just short of $2.25. According to a Reuters survey, at least half a dozen refineries were in the process of restarting in late June and into early July, representing 3% of U.S. refining capacity. Simply stated, that should keep oil aloft while driving gasoline lower.

Cracks 03 07 2007

Early Read on Thursday's Oil Inventories (from Reuters)

Crude -- expected DOWN 700,000 barrels.

Gasoline -- expected UP 300,000 barrels. Utilization is expected to be up another 0.9% to 90.3%. Late last week the bull camp was saying utilization was going to hit the mid 90s this week! But alas, that was so last week -- when we really needed an excuse to top $70. Now permabulls like Flynn and Addison Armstrong (who may get his own watch if he repeats himself any more on CNBC) are once again banging the holiday driving demand drum. Never mind this week's report doesn't actually include the holiday, and that the week containing Memorial day, the biggest driving day of the year, was a complete bust just a few weeks ago. Who needs logic when you've got the media on your side!?

Distillates -- expected UP 200,000 barrels.

Natural Gas -- temps up but imports rose as well.

Cooling Degree Days: 68, in line with prior expectations of 68 and up from 59 last week. Essentially in-line with year-ago levels and about 10% warmer than normal. This jives with Edison Electric Institute data which showed generation was up 3.9% relative to the prior week. This week's CDDs are expected to climb slightly to 71.
Imports rally to third highest level of 2007. Both LNG and pipeline imports from Canada were up. LNG notched its third highest level of the year last week with 3.16 Bcfgpd, while imports from Canada marked a modest (but almost certainly short-lived) recovery reaching 9.3 Bcfgpd.

The combination of higher imports this week and milder weather next does not bode particularly well for natural gas prices this week, as I'll be looking for a return to triple digit injections. Of course storms are a possibility and we are tracking a minor wave slowly turning its way across the Atlantic. Here's another report showing a the same wave and another forming off Mexico. No development is expected at this time, but clearly it's time to start watching more carefully.

One Offset To Inventory Weakness: I think MMarkkk pointed this out a few days ago when citing a Natural Gas Week article, but all the rain in Texas and Oklahoma has gone from being a minor headache to a major problem for gas producers in the region. I haven't seen a press release so far, but the rain does seem to be slowing down drilling and field work -- and more rain is forecast. Look for some "get out of jail free pass" PRs prior to earnings.

Gastar announces two well completions. Late yesterday GASTAR EXPLORATION (NYSEMKT:GST) announced two more Bossier single zone completions that will add a combined 8,000 Mcfgpd net to the company; fairly significant when compared to total company 1Q07 production of 14,100 Mcfepd. These wells are both restricted by temporary high pipeline pressures downstream from GST's sales point. Completion operations on a third well (which had not previously been deemed a success) are said to be in "finalized" but encountered delays due to the previously mentioned inclement weather. I still like this one at these levels and remain long.

Bill Barrett Corp. (NYSE:BBG) Added to the S&P 400 Midcap Index. This may provide a nice entry for puts going into earnings, but there's still plenty of time until and I'm behind on my research so no action just yet.

New York natural gas production flattening. Short article from Forbes about the high growth in New York state gas production over the last few years with a quick piece on the growth brought about by the Trenton Black River wells and how that's now leveling off. Comment: Though it's a small piece of production, New York's story is not unlike a lot of states that are not traditionally known as oil or gas states, but that have recently undergone a surge in production chasing elevated gas prices. After the initial easy stuff is drilled up and the wells have declined by 50% in the first six months, you've got to say, "Ok, what else do you have?"

Exxon downplays Venezuela pullout. After the close, ExxonMobil Corp. (NYSE:XOM) indicated that its failure to work out a satisfactory deal with Venezuela would not have a material impact on the company's finances nor operations. Both XOM and ConocoPhillips (NYSE:COP) are continuing compensatory talks with the government.

Chavez downplays XOM and COP pullouts. This is the one thing the two sides have in common. Chavez called the two firms vampires and said he'll replace them with a laundry list of state-owned oil firms including, Brazil, Belarus, China, Iran and Russia. This is easier said than done, given the capital and heavy oil technical expertise that is leaving. Moreover, these countries stand to get burned by Chavez's daily shifting winds. The Chinese are still stinging from the cancellation of a deal to produce 100,000 bopd of Orimulsion, a cheap fuel produced from Orinoco heavy oil, for China's power plants. Chavez may hate the U.S. but he loves its money, selling over half his daily production to the U.S. Without U.S. expertise, that percentage is very likely to rise as Venezuela's production continues to fall.

Have a great and safe 4th of July!

Source: Energy Stock Trader: Tuesday Outlook