The story of Thursday: bigger than expected draw in crude and heating oil and a bigger than expected build in gasoline stocks. All three close higher. Stocks rally on the oil numbers despite a minor loss for the broad markets.

Today's Post

A) The oil report review

B) The gas report preview

C) Stocks of Interest

Commodity Watch

• Crude Oil: February crude closed up $1.16 at $91.24 after a surprisingly large draw on crude stocks.

  

  Click to expand this chart of what appears to be crude building a base.

• Mexico Port Closures: The EIA reported that all three of Mexico's export points on the GOMEX reopened on Wednesday following a brief closure due to storms.

Oil Report Review (expectations were from Bloomberg)

Crude oil stocks fall 7.6 million barrels vs an expected drop of 1.5 million barrels… The much larger than expected decline in stocks was driven by a sharp drop in imports (down 950,000 barrels per day) and it appears fog in the Houston Ship Channel was the culprit as the Gulf Coast region witnessed the preponderance (5.8 million barrels) of the decline. The EIA says that fog closed the HSC for 78 hours last week and closed it again for a few hours Wednesday.

…or as I like to show it in my "all pauses so far are just another bump in the road lower" chart…

…and here's another way to slice it.

Crude days of supply defined: For those of you that don't live and breath crude here's another way of slicing the data which attempts to take into account storage relative to demand. Generally you don't get big moves in the ratio but I thought I'd show it this week as we are starting to trend lower. So when people at Christmas parties say to you "man, oil sure is pricey, doesn't seem right with inventories roughly even with the five year average!" you can quickly retort with "have you considered looking at days of supply?"

Crude Imports: Last week's reported import levels were obviously impacted by Gulf Coast port closures. Even so you can't point to imports and say, "There it is! There is the big bump from OPEC having raised production rates/quotas!" Just hasn't shown up yet or being consumed largely elsewhere? Too early to say but I think its a combination of both. This number will no doubt rebound next week.

Gasoline: Saw a much bigger than expected build of 3.0 million barrels.API also confirms a large build in gasoline stocks. How the the build occurred is yet again a bit of a mystery as production fell by only a little less than demand did week to week and the increase imports simply would . Ah EIA numbers.

• Production: Fell 43,000 bpd week to week to 9.112 mm bpd. Utilization at refineries dropped 1% to 87.6%.

• Imports: increased by 120,000 bopd, nearly erasing the drop from the prior week. Nothing out of the ordinary here and definitely no surge from imports seeking high U.S. prices.

• Demand eased by 60,000 bpd week to week and was 2.1% below year go levels but is still 1.2% above the 5 year average. Not bad when you consider that prices are still running 29% above year go levels at the pump.

• Gasoline Stocks…Rebuilding. Gasoline stocks now stand at 102% of year ago levels and 97.6% of the five year average.

Distillates: Bigger than anticipated draw at 2.0 million barrels.

In case you're wondering the heating oil chart looks like a mirror image of crude oil with support at $2.45 and resistance at $2.70 and last sale at $2.60 on the February contract.

The heating oil portion of distillates looks much more dire than overall distillate stocks:

What's the best play? Probably Sunoco (SUN), Valero (VLO) and Frontier Oil (FTO) and maybe companies that make insulation as people in the northeast are simply not going to believe their heating bills this winter. I'm not currently in any having not yet rolled forward and having been a little leery of the gasoline numbers but if this winter persists in smashing heating oil stocks I will be compelled to get ba

Natural Gas Storage Preview

Two words: easy comps.

• My Number: 120 Bcf vs 85 Bcf in the year ago period and 146 last week
  • Imports were up 1.1 Bcfgpd week to week and were in line with the comparable week last year.
  • But it was much colder last week than a year ago. Gas weighted HDDs came in at 192 which is just slightly under the prior week but well above the 146 recorded for the second week of December 2006.
  • This withdrawal should put us even with year ago storage levels and the next two reports should drop us well into (by 75 to 125 Bcf) into year over year deficit by year end.
  • This is nothing to write home about but it should keep gas above $7 with any large variances in withdrawals relative to expectations popping gas back towards the mid $7s or even $8.
  • The net short position of speculators has become increasingly large (bearish) in the last few weeks (its been larger than normal all year but it's getting bigger again.

• Street Consensus Number: 132 Bcf.

Stocks of Interest:

Swift Energy (SFY) Runs Away From Kiwi Flop. Swift finally punted on its New Zealand venture selling the largest of its few discoveries on the island for $87.8 million to Aussie Origin Energy. They expect total proceeds of $110 to $120 million when the last of their NZ assets are sold, hopefully by early next year. In my mind this is the best thing they can do in the line of "getting back to one's knitting". The NZ venture has been a troubling 5 or 6 year period for these guys who are otherwise good operators in the U.S. gulf coast region.

Back in October I wrote:

FTO Refinery Fire Update: FTO said its smaller refinery (52,000 bpd in Cheyenne) will be running at 23 to 30,000 bpd capacity for the next 3 to 4 weeks while repairs are made following the December 15th fire. Knowing could provide a little relief to this stock. They should still be enjoying wider differentials between WTI and the heavier crudes they process.

Graph of WTI versus Canadian Hardesty Heavy shows that the differential between the two is exploding giving (FTO) cheaper feedstock than most refiners.

Petroleo Brasileiro (PBR) Sees Higher Output In 2008. Capex was announced as in line with previous five year plan and domestic production was seen growing 14%.

• Ominous for the Globe but Good News for Oil Bulls  »
• Spreading Oil and Natural Gas: A Post-Labor Day Plan  »
• False Data Clobbers the Markets  »
• Energy's Loss Is the Financials' Gain  »
• Natural Gas Inventories Continue to Rise  »

Zman

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