Gee, it didn't feel like an up week.
Crude and products got spanked. Despite a second week of much bigger-than-expected draws on crude stocks and a surprising dip in refiner make, which yielded a draw in gasoline and a smaller-than-anticipated build in distillates, prices of all three fell this week. Blame a bunch of guys who just couldn't pass up making one more bad home loan (ok, it was probably more than just one loan).
- Refiners buy gas to prep for hurricane season. There was a bit of a recovery in RBOB on Friday, and this may be part of the reason. According to an OPIS (Oil Price Information Service) statement highlighted by the EIA Daily report, refiners are buying gasoline in advance of a possible increase in GOMEX tropical activity. Specifically weather models are citing August 19-22 for potential hurricane development in the Gulf.
- MEND is back. On Thursday the Nigerian rebel group threatened more attacks on energy facilities and on Friday they kidnapped a British oil worker.
Natural gas broke out. You can see the breakout came with the gas storage numbers on Thursday, and then ran Friday with all the tropic fear stories (see below).
- 42 Bcf injection (I was 45-50 and the Street was 53 Bcf). This touched off a nice rally on Thursday which continued into Friday as activity in the Gomex began to heat up.
The natural gas daily chart broke out of a two-month range on Friday.
Over the next few weeks, I expect the YoY storage surplus to decline as summer has finally arrived. Note the rising injections a year ago from this point forward in the chart below.
We'll need to keep a close eye on LNG send-out volumes on Monday, as we've now seen two weeks of sharp declines. Could it be the magic number for imports is $7 now?
CFTC shows natural gas short position retreated slightly from record levels. The net position fell as the result of a small build in the longs and a good sized decline in the number of shorts. Sustained heat and/or a storm and the cover here will likely send natural gas prices substantially higher.
Heat Wave Watch: The U.S. Southeast saw record electricity demand last week from Texas to Florida and north to Virginia. Souther Company, TVA, Duke Progress Energy and SCANA all reported record demand according to the EIA.
Forecasts show continued heat: Red Dawn.
There's a rather explosive piece on the tropics from Accuweather... Looks like a made-for-CNBC graphic to me!
The story John Kocet references is here. This is the one we've been watching for the last several days.
Oil: Back over $72. Technically it's probably due for a small bounce. Here are some items that will likely be supportive at least for the first hour of trading.
- Nigeria Watch: Rebels released a kidnapped oil worker for medical treatment but he died. MEND and other gang activity appears to be increasing again.
- Hugo Watch: A PDVSA oil rig exploded on Friday according to Reuters. Hugo is trying to increase production by using the army to operate rigs. Guns and oil rigs don't mix.
- Ahmed Watch: Ahmed fires Iran's oil minister Kazem Yaziri-Hamaneh. Reuters sources speculated that Ahmadinenejad is trying to increase his control over Iran's oil interests which will probably translate into rasher statements from the country regarding its use of oil as a weapon as well as on the price of oil being too low. I've often noted Iran's ability to turn on a dime from dove to hawk. Getting ready for more consistent hawk in their oil talk.
Natural gas surges. Gas is making a push towards $7 (up another $0.12 this morning to $6.95) on a combination of heat and increased tropical activity. Shorts have got to be getting concerned in their crowded little theater.
Heat Wave Watch: Cooling degree days last week soared to 91. The Climate Prediction Center's early read calls for CDDs of 88 this week, but looking at the forecasts for many of the more gas-centric regions it appears that even high gas demand for cooling load is in the near-term cards.
Tropics Watch: Also Heating Up. -- tropical waves are moving across the Atlantic Basin, and the bright dot at right definitely has some convection to it. Here's what the guys at Accuweather are saying about this one developing into something threatening later this month.
Earnings We Care About This Week: Slim pickings. If you know of one I should care about but missed please comment or email me. Thanks.
Analyst Watch: GlobalSantaFe Corp. (NYSE:GSF) and Transocean Inc. (NYSE:RIG) to buy at Jefco. Marathon Oil Corp. (NYSE:MRO) upped to hold at FBR. VAALCO Energy Inc. (NYSE:EGY) upped to hold at RBC. Overseas Shipholding Group Inc. (NYSE:OSG) raised to outperform at Credit Suisse.