Tropics Watch: 92L and 93L moving across the Atlantic. Accuweather
sums it up pretty well here.
EIA Oil Inventory Preview (estimates from the Reuters
survey)
ZComments:
- The drawdown on gasoline stocks is likely to be larger than forecast
as production remains flat at best and demand picks up relative to last
week. Do I think another bigger than expected draw on gasoline stocks will stem
the tide of dollars flowing away from crude? No. If we get a large draw and
gasoline prices spike up a bit I think it will only provide a day’s worth of
relief before gasoline and crude resume their march lower.
- On the distillate front, the build is typical for the season and I
would not expect a surprise here, or maybe just a slightly lower than expected
build.
- Ultra low sulfur diesel (ULSD), diesel with a sulfur content of less than 15
parts per million which is what cars and trucks drive around on, makes up about
60% of current distillate stocks
- In aggregate distillate stocks are 6.6% above the five year average (as seen
in the table above). Maybe we see some pickup in this segment of demand as we
have seen in gasoline.
- U.S. average retail diesel prices have fallen only 30 cents in the last
three weeks and despite the excess quantities in storage price remain 55% above
year ago levels. I assume blame higher exports for that. about
- DistilIate production remains high to year ago levels since that’s where the
margins have been.
- In other words, the U.S. has a more than adequate amount of distillate in
storage (see chart below) and while we may see a smaller number soon I would not
expect a reversal of the seasonal building trend.
Natural Gas closed just about flat at
$8.33 yesterday. This morning gas is trading flat to slightly down and
will almost certainly try to $8 no matter what happens with crude post inventory
numbers. Below $8 and I think we will begin to hear rumblings of capital budget
decelerations (slower well hookups) and perhaps regional curtailments out of
some E&Ps who would rather wait and sell gas for better prices later.
- Production From First Floating LNG Facility Goes To Japan.
Mitsubishi has agreed to take all of the output from the Progress LNG plant
offshore Nigeria for 15 years beginning in 2011.
Stocks We Care About Today.
Why I Own What I Own: The Dance List for
2H08 Return To Good Graces. A number of subscribers have requested a
list of what I feel are names that will "come to life" (more than the rest) when
the sun once again shines on the Energy Patch. I’m choosing to break this out
into E&P (names that are oily, gassy, large, and small) and Oil Service (I
talk more about oil service tomorrow but the names their are SLB, HAL, NBR,
RIG). As always when looking for dance partner there are pros and cons to weigh
and ultimately you have to answer the question, what’s this costing me compared
to my other choices.
Finally to take an analogy a little too far, I’ll
rank them by performance growth in the back half of the year, assuming oil and
natural gas prices don’t completely fall out of bed which is akin to the
building where the dance takes place blowing up. For greatest near term price
appreciation I think these will do better than theirs in the event of a return
to stability in the group:
- Large Caps: (EOG), (CHK)* - See WIOWIO and Reports pages
for thoughts on this one…nothing has changed in my opinion here.
- Mid Caps: (HK), (SD), (CLR), (PXD), (SWN), (NFX)*provide
the most upside in terms of stock price appreciation among the mid caps;
- Small Caps: (WLL), (PQ)**
- Risky little wallflowers that may blossom. (GMXR), (BEXP)
Note 1: (CHK) And (NFX) Gets
Asterisks. I think they too will do well but they often lag in terms of
performance. For example, while CHK will often grudgingly move higher with a
green group due to reasons listed in the next section, the large cap peer I have
grouped with them, EOG, can really fly when the group comes into favor.
Note 2: PQ Get’s Double
Asterisks. I like this more as an equity than an options play. The
others I generally like from both equity and call option perspectives.
Note 3: This is just my opinion
and I obviously could be completely wrong but I obviously don’t think so. This
is my way of telling you what I’m thinking.
