Energy Stock Trader: Thursday Outlook

Watch Out for Putin Watch: Vlad and I have something in common, and it's not just our love of the New England Patriots or bling. He also thought the House's cutely named NOPEC Bill allowing the U.S. government to sue OPEC was irretrievably naive. He added that it's a violation of international law. Note to Congress: You do not want this guy siding with OPEC. In the past he has turned down repeated invitations to join the cartel. The only thing worse for the U.S. than Canada joining would be Russia.

Oil Inventory Report Review: Was that a bullish report? CNBC ran the caption "Don't get mad, get rich trading energy". And then they went on to say how the numbers were uber bullish yada, yada, yada. Gasoline prices shot lower just after the numbers, went as high as 3 cents to the plus side shortly after them and during CNBC's "groundbreaking report from the floor of the NYMEX" ...and closed off a penny. Big whoop. However, the chart looks tired to me. Were it not for import delays (because there are so many tankers chasing the highest prices in the U.S. and thus clogging the Gulf Coast's offloading capacity) the build in gasoline would have been twice what it was!

• Crude Oil -- up 2 million barrels. Who cares. We've got a ton, and still it probably goes higher in price short term as the refiners consume it and certain unnamed pipeline operators have more technical difficulties in delivering it.
• Gasoline -- up 1.5 million barrels, higher than the expected 800,000 barrels. Yesterday I argued that the late-week drop in consensus expectations for the gasoline build (they cut expectations in half from Monday afternoon to Wednesday morning) meant traders were getting short and were trying to bring expectations down to create a bearish number. More probably, they were not getting short but had taken profits and were trying to create a "dip buying event."

Utilization & Production Are Both Finally on the Mend

Utilization rose to 91.1% - its highest level since the beginning of the year, though it's still at the low end of the historic range for this time of year, and only slightly ahead of the post-Katrina wasteland of May 2006.

Production trended higher with utilization which, as you can see from the second chart below, isn't always the case.

* Gasoline Imports were off slightly this past week. Imports fell from the prior week by 233,000 bpd. If they had remained at the prior week's level this would have added 1.6 million barrels to storage (0.233 mm X 7 days). Put another way it would have more than doubled yesterday's stock build!

Scoop Watch -- Late Addition: Here's a benefit of reading the EIA's nightly situation report. It sometimes contains gems not covered in their report for which they've had a week to prepare (this week they quoted Shakespeare but left out the following):

Tankers Delivering Gasoline to U.S. Gulf Coast Facing 2-3 Day Delays. The tanker backlog is attributed to seasonal gasoline stockbuilding before the summer driving season and to more than 16 tankers that were diverted to the U.S. Gulf Coast from the New York Harbor in the past few weeks to take advantage of higher prices in the Midwest.

I was just saying how cracks were on fire in the Gulf Coast and Midwest, and here we have evidence that there's a ton of gasoline on the way. It's just trying to find the most profitable way of getting into the U.S. market.

I wrote the following headline before finding out about the tanker delays. It's late and I'm not reposting, it but I guess say "glitch in the system" still applies.

Demand ticked up slightly and is running 2.6% ahead of last year at this time.

Gasoline stocks are pulling out their recent nose dive.

Vader Watch: "Inventories are growing but we are still in big trouble with gasoline supplies," a vice president of risk management at Alaron Trading Corp. in Chicago, said yesterday. "Supplies should be much higher going onto the Memorial Day weekend."

I seriously think they should play that Darth Vader march music, you know, "DOM, DOM, DOM, DUM DE, DOM DUM, DE DOM" every time they introduce him on CNBC.

Distillates rose 0.5 million barrels versus an expectation of a rise of 900,000 barrels. I don't talk much about distillates this time of year, but they've become so overpriced because of the situation with gasoline that it's worth mentioning.

I ask, why has this inventory profile...

...produced this price pattern?

That's a $1.55 to $1.95 run (25%) in three months at a time when stocks have been more than comfortably high, and at a time when heating oil prices are normally falling. Granted that oil has run up about the same amount in the first five months of the year, but still we're pretty far ahead of the game storage wise. If anyone has any good ideas on how to play the forthcoming retrenchment in heat prices (aside from futures) I'm all ears.

Natural Gas Inventory Preview:

My expectation -- 100 to 110 Bcf injection. Cooling load backed off a bit and heating demand picked up slightly relative to the week before when we got an injection of 95. However gross imports were up 0.3 Bcfgpd for LNG and 0.7 Bcfgpd via pipelines from the north, so that's an additional 7 Bs. The over/under should be 95 this week.

Holdings Watch:

Puts -- added Marathon Oil Corp. (MRO) June 120s for $4. High risk / high reward "too far, too fast" play. I'll be looking at more plays among the independent refiners today, including some old friends that kicked my teeth in the last go 'round, but have come "too far, too fast."

Stocks -- Westside Energy Corp. (WHT) took an opening position at $3.17. Continental Resources Inc. (CLR) continues to perform well out of the gate.

Comments

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great round up (once again) by the way did you see Stuart Staniford's paper on Saudi Arabia and Gas Prices? He posted it on TheOilDrum.Com it's definitely worth a look, very in depth research etc.---Patrick Kerr of Oil Gas Futures