Energy Stock Trader: Friday Outlook

Includes: APC, END, EOG, HAL, SPR
by: Steve Zachritz

Oil: Look for a little early bullishness as we close in on records and news that production from Total S.A.'s (NYSE:TOT) Dalia field offshore Angola was cut in half from normal levels of 220,000 bopd due to pump problems. Production is expected to be back to normal in a day or two, but in this bullish market any spark is a fire. Speaking of sparks and fire, Husky’s (HSE) 147,000 bpd Lima Ohio refinery is operating at 25% of capacity following an electrical fire. Crews are assessing damage to an electrical substation prior to determining when the refinery will return to full capacity.

Other potentially 'bullish' items:

  • Weather Watch: Same as yesterday; a couple of tropical waves moving about in the Atlantic but no serious development yet.
  • Nigeria Watch: Lebanese businessman was killed in an apparent botched kidnapping attempt.

Natural Gas Inventories Are Now 16% Above The Five Year Average, and Only 3% Below Last Year’s Record Levels.

  • Storage as of July 13, 2007: 2,692 Bcf (updated July 19, 2007).
  • Max storage for this week in history: 2,763 Bcf (2006). At present gas storage is easily at it’s 2nd highest level in history for this date.
  • We are now down 3% (71 Bcf) relative to year-ago storage levels. As you can see from the charts below, the Y/Y deficit has fallen pretty sharply from its early March peak when it stood at a bulging 17%.

  • We are now 16% (374 Bcf) above the 5 year average which includes 2006’s record levels (see third chart below).

Looking ahead, here are some quick stats for the period running from the middle of July through the end of October (the traditional end of the injection season):


As you can see in the table, average injections from now through the end of the traditionial injection season get us to very comfortable levels of storage. Even the minimum level of injections, which occured last year, and is therefore in both the 3 and 10 year scenarios, gets us to a quite comfortable level just under 3.3 Tcf which by historic standards is “full”.

The record short interest on the part of the non-commercials will be supportive of prices, but apparently only once covering is induced by either sharply lower injections or a storm.

Where we are now:



Stocks of Interest:

ConocoPhillips (NYSE:COP) Watch: Conoco is considering modifying it’s gulf coast to process heavier crude from Canada. Makes a lot of sense when you notice that the more important light oils like Louisiana Light Sweet and Nigerian Bonny Light are already trading over $80/barrel.

Endeavor International Corp. (NYSE:END) - Drills another duster at its Emu prospect. This was said to be riskier than the last dry hole and true to expectations, it was. Dead money until earnings when they could raise production guidance for the year, but I’m not counting on it.

Anadarko Petroleum Corp. (NYSE:APC) starts production from massive Independence Hub. On time, on budge. This will be a huge plus for Gulf of Mexico volumes, which have recently begun to arrest years of falling levels. The world’s largest offshore gas producing facility, Independence will ramp towards ultimate capacity of 1 Bcfgpd by year end.


  • Halliburton Co. (NYSE:HAL) -- Sold the 4x position in the July $35s for $1.05, up 36%. Could have held out for much better gains by afternoon (would have been a double), but a weird gas number would have wrecked the position. I'm looking to add August calls here on  any weakness.
  • EOG Resources Inc. (NYSE:EOG) -- Bought July $75s for a trade at $1.00 as the smallish gas injection report hit. This wasn’t as risky as it sounds. Last bid: $1.45.

    Analyst Watch: Spirit AeroSystems Holdings Inc. (NYSE:SPR) -- several price target increases.