The EIA posts bigger-than-expected withdrawals of crude, distillate, and gasoline -- and prices run wild. Given the size of the inventory declines, it’s clear that the recent “fog out” at the Houston Ship Channel is responsible for a majority of the break between estimates and reality. Next week we are likely to see a sizable build in crude inventories. Oil and gasoline prices spiked up on the unexpectedly large withdrawals.
- Crude -- down 4.8 mm barrels. I thought is would be closer to the high-end of the range, which was a build, as I had thought the backlog of tankers at the HSC had been worked through. According to the EIA:
Due, in part, to delays at the Houston Ship Channel, U.S. crude oil imports averaged less than 8.9 million barrels per day last week, down 650,000 barrels per day from the previous week.
0.65 mm bopd X 7 days = 4.55 mm barrels. It’s not gone. It didn’t sink in the GoM. It has been worked through and will show up as a surge next week. I missed by a “country mile.” Of course so did the guys who get paid $MM to do this. By the way, some of the suggestions I got via flaming emails last night are not anatomically possible. Jeeze.
- Gasoline -- down 3.8 mm barrels. Refinery capacity actually fell 0.2% to 85.8%, and according to the EIA the mix of gasoline vs. distillates also weighed on inventory levels.
The EIA estimated yesterday that gas prices will rise another $0.40 between now and the beginning of the driving season. My thoughts are that gasoline prices have already had an extra-seasonal rally that will mute the normal run-up towards the driving season (unless things stay broken and imports continue to fall -- which I really doubt).
- Distillate -- down 1.3 mm barrels. And really ceasing to matter much given the time of year (unless you drive a diesel or ship things from place to place, then it’s not so good).
- Natural gas -- my expectation: 75 Bcf withdrawal. Last week was a very normal week as temperatures go this time of year. Gas-weighted HDDs [heating degree days] of 170 were 2 above normal ,and 2 below the comparable week a year ago. We got a pull of 85 Bcf then, but supply and demand were both still pretty hinky from Katrina. Also, the east was a lot colder in the year-ago week than it was last week.
A 75 Bcf withdrawal would leave storage at 1,662 Bcf for the end of February, down 229 Bcf from a year ago still pretty full (4th highest on record for a Feb. month end) as shown below:
Consensus expectation -- I’ll let you know when I see it on CNBC. I think it’ll take a number below 80 Bcf to move gas out of its current $7.25 to $7.50 trading range and to make a serious run on $7. Conversely, a number of 100 Bcf or higher would probably move my estimate of the spring floor price up to the $6 to $6.50 range.
Odds & Ends
OPEC Watch: All of the talk from OPEC ministers seems to indicate no further production cut will occur at the March 15th meeting.
Holdings Watch: I'm getting ready to make further short moves. The broader market is called up strongly this morning after yesterday’s Beige Book showed a broad slowing in the economy’s growth rate. Odds of a rate cut by July have increased further this morning as jobless claims seem to confirm what the Fed has been saying. With the market going one way (up), at least for the time being (I think we’ve got more correcting to do), and oil and natural gas looking toppy (at least to me), I’ll be looking at adding to current and entering new put positions later in the day (after natural gas inventories come out). But I’ll be very selective and chintzy with my bids.
Snafu Watch: From Upstream - Oil giant BP plc (NYSE:BP) has resumed production at its offshore Northstar oilfield in Alaska, three weeks after a pipeline leak prompted the field’s shutdown. Comment: That’s 47, 000 bopd off the snafu list... let’s see if anyone notices.