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Oil, Gasoline and Natural Gas are all again coming under pressure this morning. This pressure is the result of a changing tone in OPEC which now back to fretting over whether or not the global economy can continue to bear the burden of such high oil prices AND continue to consume oil at such a breakneck pace. Today Iran’s oil minister said OPEC stands ready to inject more oil into the market if need be. Probably not Iran personally, since they their own set of issues, but OPEC in general. They’ve said this more subtly for just about ever, but they’ve dropped the “it’s your refinery capacity stupid” line. As to natural gas, see below.

I know it’s only Tuesday but we’re at a pretty pivotal time this week for natural gas -- so why wait until the morning before the number to spill the beans? The final nail in the coffin for the old natural gas record for this week in history, set waaayyy back in 2006, came out yesterday with the revelation that natural gas imports soared last week. Gross imports rose 1.7 Bcfgpd week to week which would give you 12 additional Bs relative to last week’s 65 Bcf number before you even consider weather.

  • LNG Hits A Record 3.8 Bcfgpd! That’s double year ago levels. Until recently there’s been a fire sale on in the UK and therefore little demand for imports, so a lot of LNG that would normally be bound for Europe showed up at U.S. regassification sites.

lng-072307.jpg

  • Canadian Imports inched back up to 9.4 Bcfgpd.  Still not falling through the floor as just about everyone expected. It’s got to fall off hard at some point with the dearth of drilling up there, but so far they like our high prices.

When you consider the weather was a bit cooler we’re exceedingly likely to hit a new record for gas storage for this week of the year. Cooling degree days fell to 72 from 76 in the prior week, not doing Man/Bear/Pig any favors.  In the year-ago week, CDDs hit 103 and, as such, we recorded a small (7 Bcf) withdrawal from gas storage.

Taken together with those fat imports, I’d look for a number around 80 Bcf. But really anything over 64 Bcf and we’re in record land. Gas will need a storm or a mongo heatwave in the very near future to hold a range of $5.75 to $6.  In the chart below, the blue segment shows the divergence from year-ago change in storage. This would push storage into a 1% SURPLUS to year ago levels and back up to a 17% surplus to the 5 year average.

gas-sto-with-inj-072307.jpg

Of course if $6 breaks, look for the curtailment announcements to hit the presses. Next week’s weather is small comfort with 77 CDDs expected. If that number comes in as expected and imports remain elevated (and there’s a distinct possibility they will), the YoY surplus could easily grow to 3% next week. Recall that we were last in surplus territory in early January before more winter-like weather set in. This re-emergence into surplus could drive prices briefly into the $5.75 to $6.00 range.

We bounced off $6 yesterday as expected, but given the stuff outlined above we may go lower still soon. The August contract hit $6.001 before a very modest, eh, increase to $6.039. So we ended the day down only $0.40 or 6%.

Ok, enough of that…on to oil.

Crude oil retreated slightly yesterday after OPEC said it was worried about the high price of oil’s impact on the global economy. As in, if the economy slows down, all those American and assorted other folks won’t buy as much oil.

Gasoline: Man what a one hit wonder last week’s recovery was for gasoline. The perma-bulls put out some spectacular notes last week in unabashed “I told you so” fashion. I just said “it was the imports stupid,” and while the refiners have weakened, crack spreads have weakened further still. If August RBOB takes out $2.08 today, look out below!

Holy Falling Crack Spreads Zman! This is my favorite chart of the week! No wonder the analyst community is starting to turn more pessimistic. It only took them being bludgeoned with the data for over two months but at least now they appear to be  starting to catch up to what you and I already know.

cracks-072307aaa.jpg

This is how Upstream summarized BPs’s beat for the 2Q this morning.

UK supermajor BP today posted a 1% fall in quarterly post-tax profit to $6.1 billion as lower output and refinery outages outweighed near-record refining margins.

Holdings Watch:

CALLS:

  • EOG Resources Inc. (NYSE:EOG) -- took an opener in the August $70s for $4.20. I feel that a Sell rating was unwarranted here, and meant to trash the stock. Last bid $3.90.
  • Newfield Exploration Co. (NYSE:NFX)  -- also took an opener here in the August 50s for  $1.30. Unlikely to add more before the gas number on Thursday but if the E&Ps get shelled again prior to Friday I may double up as I really want to be in for the earnings call on the 26th. Last bid $1.15.
  • Halliburton Co. (NYSE:HAL) -- so much for Cramer’s 50/50 shot of this being a miss. I’m up 30% on my roll-forward position taken Friday, and will add more on the way up, not on the way down. Setting a stop at 20% profits because gas can take this one down short term, and there’s no reason to give back profits when you can sell with every intention of buying the name back again by week’s end. They’re still table-pounding cheap to their peers, and with the buyback and improved outlook they have a little momentum built up in the shares.

Many thanks to Cody yesterday for writing this blurb regarding the (HAL) conference call so that I didn’t have to:

Co. has been experiencing a good recovery from the frac market slowdown this past winter. They are expecting activity levels in equipment utilization rates to continue to increase throughout the rest of this year, as their customers work toward achieving their 2007 production goals. They’ve seen a slight deterioration in pricing, less than 5% in the first half of this year, and this could continue during the second half of the year. Their expectation is that activities will remain high for the balance of the year. They remain very bullish on their ability to grow Eastern Hemisphere operations for the balance of this year and throughout the rest of the decade. Co. will continue to take advantage of low valuation to buyback shares aggressively. Co. says the large contract win that they had last year in Norway is progressing well, and the customers beginning to award the co. new work outside of that contract. Co. says the realtime operation center established earlier this month in Saudi is providing a “significant contribution” to their overall performance. They now believe the project will reach its peak during 1Q08.

PUTS: No action

  • The refiners started off miserably, recovered and even looked strong for much of the day before selling off hard into the close…again. Still holding puts on Tesoro Corp. (NYSE:TSO), Western Refining Inc. (NYSE:WNR) and Frontier Oil Corp. (NYSE:FTO) here.
  • Nabors Industries Ltd. (NYSE:NBR) -- for a big stock in a sector with a mega merger that was popular on both sides of the trade and left the Oil Service HOLDRs ETF (NYSEARCA:OIH) 2.3% higher on the day at a new all time high, NBR sure did shrug it off, closing essentially flat on the day. It’s the differentiation of land versus offshore (especially deepwater) that’s coming into play. Baker Hughes Inc. (NYSE:BHI) already warned over Canada and NBR, by not participating in this rally, along with National-Oilwell Inc. (NYSE:NOV), may be giving you an idea of how it’s going to do come earnings this evening.

Earnings Watch. The week so far:

2qeps-072307.jpg

Tuesday’s Earnings

BJ Services Company (BJS) -- 3Q earnings of $0.57 appear to be a cent ahead of consensus which is below year-ago levels due to weakness in Canada. Revenue came in just above the Street. 4Q guidance is $0.60 to $0.62  vs. Street at $0.62.

Smith International Inc. (SII) -- the bits and mud company comes in right in line top and bottom line. Issues 2007 guidance that straddles current expectations.

ENSCO International Inc. (NYSE:ESV) -- not yet released but should be BMO.

Nabors Industries Ltd. (NBR) -- post close. Conference call tomorrow.

Analyst Watch: Chesapeake Energy Corp. (NYSE:CHK) check downgraded by Fortis to hold, . GlobalSantaFe Corp. (NYSE:GSF) downgraded to hold at Jefferies,  FBR ups its price target for HAL from $40 to $45.

Up And Coming Nutbag Watch: From Reuters ~ Ecuadorian President Rafael Correa has come up with an unusual solution. Correa wants wealthy nations to pay Ecuador $350 million a year in exchange for leaving an estimated 1 billion barrels of oil under the ground in the pristine Yasuni rainforest.

Source: Energy Stock Trader: Tuesday Outlook