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Dean vs. Campeche Watch: Still waiting for platform checks. Round one looked like it went to Campeche, as judges ExxonMobil Corp. (NYSE:XOM) and Valero Energy Corp. (NYSE:VLO), both of whom draw heavily on oil imported from Mexico to supply their Gulf Coast refineries, said they expected no impact on makes as they'll just pull from stored crude. After the close yesterday, Shell announced reduced production at is Deer Park refinery in the wake of shut in production from Mexico (this is what's got crude and RBOB rallying a bit this morning).

Nigeria Watch: According to Bloomberg, traders say the Forcados terminal may ship three 950,000 barrel loads in October. The terminal has been shut since early 2006.

Crude Oil Report: Build In Crude! Big Draw In Gasoline!

Crude: Up 1.9 million barrels. Bit of a shocker since the last several draws had been much bigger than expected. Analysts had been looking for another large draw this (2.8 mm barrels) which makes you wonder about the value of the whole estimation process since they often get this more wrong than economists trying to predict the jobs report.

Gasoline Stocks Dove 5.7 Million Barrels. Double ditto the above statement, as the Street was looking for a 0.9 million barrel draw, and got a figure six times that amount. 

  • Utilization/Production:

    gasoline-production-081707.jpg

    Production reached a record level (for this week of the year) of 9.287 million bpd, despite the fact that utilization continued to languish at a seemingly lazy 91.6%. This was the lowest level for utilization in the 2000s, so either its being measured wrong, or it should just get a lot less fanfare than the production numbers.

  • Gasoline Imports Fell Sharply:
    gasoline-imports-082207.jpg

    This is volatile, and usually I'd say it means little, but it's likely shipments to the U.S. have gotten a little less attractive as wholesale prices have fallen. Record imports played a large role in reducing the strain on refiners this outage plagued summer.

  • Gasoline Demand Hits All Time Record:
    gasoline-demand-082107.jpg

As imputed by the EIA, demand hit 9.762 million bpd last week, an all time record. I say imputed because the EIA has no way of actually measuring demand, and has some other parts of the equation missing as well. That number looks a little fishy since this is the time of year when demand falls off, but it's possible that everyone driving around with one gallon of gas in their tank like my brother in law upped it to two. 

Natural Gas Inventory Report Preview: 

  • My number: 35 to 40 Bcf. Last week saw an injection of 22 Bcf, but imports were lower and heat was higher. The midpoint of my range would yield a small erosion of the YoY surplus given last year's 57 Bcf build.
  • CDDs: Registered 83 last week, which is lower than previously thought, and, more importantly, down sharply from the prior week's reading of 91. Although humidity was probably higher than expected -- so maybe it's nearly (but not quite) a wash as far as people running their AC. Next week this number is currently set to slide to 79, but I think that probably gets revised up a little.

imports-stacked-082207.jpg

  • Imports: Increased to a 2007 high of  13.8 Bcfgpd. This alone would result in an additional 12 Bcf over the prior week's levels.
  • I went back through my historical data, and if you got four of these mongo imports numbers back to back it would exceed all of the monthly averages for combined imports from Canada and LNG in history.
imports-range-082207.jpg

  

  • Here's another way to look at those imports: Here we see 10 years of data broken down by its seasonal pattern. The yellow square is the first half of August 2007. That massive 13.8 Bcfgpd number from last week figures in prominently to making this the highest August import month in history. Note that 13.8 Bcfgpd is above the peak winter months on record. I think at levels below $6, some of this gas gets diverted to Europe and Japan.
  • Consensus: 30 Bcf. Which, of course, is the number you need to watch. Has the recent dip taken into account a slightly bigger number? I'd guess so, but I'm in the minority on that view. Given historic builds between now and the end of the injection season we remain on track to hit 3.5 tcf-ish.

Potential Hedges If We Get Another Leg Down: Quicksilver Resources Inc. (NYSE:KWK), Southwestern Energy Company (NYSE:SWN), Cheniere Energy Inc. (NYSEMKT:LNG), XTO Energy Inc. (XTO), and United States Natural Gas ETF (NYSEARCA:UNG).   

Holdings Watch: Dipping another couple of toes in and setting pretty stops so they don't get quickly hacked off. I left my two foreign oil picks, Petroleo Brasileiro S.A. (NYSE:PBR) and PetroChina Company (NYSE:PTR) along, and watched them rally another 6% and 4% respectively. Oh well, can't kiss all the girls. Both should have further to run / retrace, and I'll watch them closely for an opportunity to enter. Adding insult to injury, this morning PTR beat and said the second half would see more volume growth… feeling caught a little flat footed there, but will likely add a small call position if it doesn't run too strongly out of the gate. 

CALLS:

Valero Energy Corp. (VLO) Bought the September $65s for $2.40.

Tesoro Corp. Tesoro Corp. (NYSE:TSO) Bought the September $50s for $1.70. 

Transocean Inc. (NYSE:RIG) Bought the September $105s for $1.80.

PUTS:

Quicksilver Resources Inc. (KWK) took a position in the $35 Septembers for $0.40.  

What I'm In Now…Relatively Little. 

open-options-082207.jpg

Odds & Ends

Analyst Watch:  Massey Energy Company (NYSE:MEE) to Buy at UBS, price target bumped slightly at Cantor. This is another global reach dry bulk carrier in the business of transporting, among other things, coal.

Pinnacle Gas Resources (PINN) Watch: Remember these guys? I reviewed them the week of the IPO and said I wasn't playing. That was the same week Continental Resources Inc. (NYSE:CLR), which has done pretty well, went public. At the time I said they were coming at twice the price (or so) that I would have expected. Well that problem is solved. Still no options, but this may be one to play when natural gas recovers.    

Tropics Watch: All quiet on the Southern front.

Upcoming Events Watch: Lehman Energy Conference - begins September 5th.

Source: Energy Stock Trader: Thursday Outlook