Energy Stock Trader: Thursday Outlook

by: Steve Zachritz

Where are the bulls? Just three week ago, the TV and print business media avenues were jammed with smiling faces, the sounds of clinking champagne glasses, and comments like "14,000, that's easy, I'm looking for 15,500 baby!" "Housing bubble, schmouzing bubble!" As always, what sounds too good to be true probably is. The market looks like it wants to try on 12,500 to 12,600 on the Dow for size. Dow futures were down 100 points at post time. Makes you want to punch that Ditech ad guy. I'll bottom fish in September and October calls next week but not now.

Tropics Watch: Hurricane Dean -- max. winds near 75 mph. A fairly compact storm, Dean is moving almost due West at a quick 24 mph. The track takes the storm south of Cuba and straight towards Cozumel when sustained winds are expected to reach 135 mph.

Tropical Storm Erin: Coming ashore this morning in south Texas with a little wind and a lot of rain. A non-event for producers. Not so good for water-logged Texas.

Natural Gas

  • My estimate: 25 to 30 bcf injection. More heat combined with about a 1 bcfgpd rebound in imports, primarily LNG.
  • Consensus: 19 bcf.

Either way, it seems we should put a small dent in the recently-created YoY storage surplus as we come up against last year's injection of 30 bcf.

Oil Falling Back Again: The worm has definitely turned here. For months all we heard from the perma bulls was, "yes storage may be high in the U.S., but it's low everywhere else, and demand is about to rally." Now crude is trading off with the declines in global stock markets despite sharply declining U.S. inventories.

Expected vs Actual oil inventories 16 08 2007

Quick notes on yesterday's oil inventory report

Crude: despite another big decline inventories still remain well above the average range for this time of year.

Gasoline: Inventories should be falling this time of year, and are now just below the average range for this time of year. Refinery utilization may remain lower than what many analysts and traders think is normal for this time of year at 91.8%, but gasoline production increased to 9.271 mm bpd, which is a RECORD for this week of the year (and 30,000 bpd ahead of the comparable week's gasoline make a year ago). You probably won't see or hear that anywhere else -- but it was a record. Imports continued to run high at 1.2 mm bpd, while demand started to succumb to seasonality.

I bet that in the future, utilization continues to remain lower than historic levels as the refineries consume higher percentages of sour and heavy crudes, which leads to greater downtime -- not to mention the aging infrastructure. That said, the mother of invention is necessity, and through blending and other means the refiners have done an admirable job meeting demand this fall.

Distillate: Smaller-than-expected rise, and we remain in the middle of the average range of inventory levels for this time of year. At 4.1 mm bpd distillate production ran 200,000 bpd over last year's levels.

Hugo's The Boss Watch: Chavez proposed "legislation" that would include natural gas in the list of resources being "reclaimed" by the Venezuelan state. In other news, Chavez proposed scrapping term limits (gee, I wonder why) and reducing the maximum work day from 8 hours to 6. That last one reminds me of high school, where one guy running for student body president promised everyone free coke machines in the lunch room. Talk about a landslide. Decades later and we still haven't gotten our cokes.