Energy Stock Trader: Wednesday Outlook

by: Steve Zachritz
Oil Inventory Report Expectations:
  • Crude -- down 1.2 million barrels. Bloomberg reports that not only do we have a glut of oil at Cushing, but now we have one at the LOOP (Louisiana Offshore Oil Port) in the Gulf of Mexico. Storage facilities there are running close to full and scheduled deliveries may be delayed.
  • Gasoline -- UP 200,000 barrels.
o Utilization -- I'm looking for a smallish rise to ~ 91%.
o Demand probably dipped slightly -- the small decline in demand reported last week does not a trend make. With the Nor'easter squarely in last week's demand picture I expect another small decline in gasoline demand in today's report.

Noreaster Apr 16 25 04 2007

o I'd guess it would be heavily discounted given the scale of the storm.
o Imports -- need to stay above 1 mm bpd to provide real relief to the tightness.
  • Distillate -- up 400,000 barrels.

New production in Nigeria has offset shut-in production of 587,000 bopd: According to the EIA, production from new fields in Nigeria has offset production shut-in by civil strife in the country. EIA went on to say that should shut in production return (which is Shell's plan by the end of 2007), Nigerian production would reach 3 million bopd.

Nigerian oil production looking up?! Shell production started falling in September 2004. From what you read in the papers and see on TV, you'd think the country's oil production would be another down and to the right chart.

Nigerian production 25 04 2007

Earnings Watch:

Baker Hughes Inc. (BHI) beats Street after guiding estimates lower over the two months. Baker sees strong international growth (20%ish) and single digit growth in the U.S. if drilling activity remains flat with 1Q levels.

ConocoPhillips (NYSE:COP) reported $2.12, but after backing out a $0.29 gain from asset sales the $1.83 falls short of consensus of $1.86 and down from $2.34 a year ago. The drop was due to a combination of lower oil and gas prices and higher taxes and operating costs. R&M improved with U.S. outperforming international operations. Outlook: pretty vague. They that the mention the JV with EnCana Corp. (NYSE:ECA) is progressing well and that total E&P volumes will be down seasonally in the second quarter.

EnCana Corp. (ECA) -- hit by hedge loss.

Hess Corp. (NYSE:HES) -- EPS falls 47% on the back of lower commodity to $1.17 (in line with expectations). Its worldwide average oil price fell $2.56 to $50.74 a barrel. Its average natural gas realization fells > 25% to $5/Mcf. Production continued to rise, however, and earnings from the R&M segment nearly doubled. More on these guys later.

Smith International Inc. (SII) reports after the close and should post another strong quarter. I'll be interested to see their take on U.S. drilling activity going forward.

Holdings Watch: Added to my Petrohawk Energy Corp. (NYSE:HK) June call position on crude slump inspired dip yesterday.

Broken Record Watch: With violence in Nigeria and workers threatening a strike in Belgium, there is fear "that the goal to get gasoline supply where it needs to be before the summer driving season is looking less and less likely," Phil Flynn of brokerage Alaron Trading Corp. wrote in a Tuesday morning note. Comment: Less hype, more numbers.

Snafu vs. Pseudo Snafu: Headline from the EIA's April 20th issue of the Energy Assurance Daily: Traders Report Production Cut at Shell's 156,000 b/d Martinez Refinery Due to Pipeline Shutdown. On April 19, Shell indicated that the shutdown of the ruptured 20 inch line had no impact on refinery operations. However, on April 20, traders in the area were cited by Reuters as saying that an increase in gasoline prices in the area was the result of a cut in production at the refinery stemming from the pipeline problem. Comment: Busted.

Analyst Watch: Whiting Petroleum Corp. (NYSE:WLL) and St. Mary Land (NYSE:SM) upped to hold and buy respectively at Sun Trust. Core Laboratories N.V. (NYSE:CLB) got a small price target boost.

Alaron Watch Day #6 -- Oil fell back $1.30 yesterday to close at $64.58. The U.S. average gasoline price remains under $3. Four days left Flynn.