[MrBill]

A place for traders to exchange views on crude, unleaded gas, heating oil and natural gas prices, plus anything else driving markets.

[MrBill]

Today's news compliments of Refco Overseas London

$this->bbcode_second_pass_quote('', 'N')ews:
· US energy secretary Samuel Bodman said the Bush administration doesn’t want to mandate higher fuel efficiency for automakers though it does favor conservation programs. Power should be restored to Gulf refineries over “the next week or so” but it could take 2-4 weeks for a return to normal. He opposes a windfall profits tax on oil companies.

· The Interior Department said Rita destroyed 63 offshore platforms and another 30 fixed platforms were damaged. 13 offshore rigs are adrift, one was destroyed, 10 were damaged and three rigs are unaccounted for. Repairs could run into next year and restaffing unmanned rigs that weren’t damaged could take 10 days. Restoring production to platforms with minor damage could take several weeks.

· Shell Oil reiterated that its Mars 147,000-bpd oil and 157-MMcfd gas production platform in the Gulf would likely remain shut through the rest of the year due to storm damage.

· The US House will vote Friday on an energy bill to increase refining capacity with action in the Senate currently unclear. The Energy and Commerce Committee approved the measure last week. Republicans are behind it while Democrats and environmental groups have raised objections.

· Iraqi Sep oil exports totaled 49.55 million barrels or 1.65-mbpd including 45 million bbl. or 1.5-mbpd in Basra Light crude via the southern oilfields and 4.55 million bbl. or 151,666-bpd in Kirkuk crude via Ceyhan.

· BP cut its full-year output forecast by 3.2% and said Q3 production fell to 3.8-mboed, down 2.8% from 3.91-mboed a year ago.

· MMS update reports 1.350-mbpd or 89.97% of US Gulf oil output still shut-in with cumulative lost production since 8/26 of 46.457 million barrels or 8.485% of annual Gulf output. There were also 342 platforms and 17 rigs evacuated, or 41.76% of 819 manned platforms and 12.69% of 134 rigs currently operating in the Gulf.

· Bloomberg survey shows OPEC Sep output close to a 26-year high at 30.51-mbpd up 100,000-bpd from August though slightly off the 30.54-mbpd produced in Oct 2004, the highest since 1979. Iraqi production rose185,000-bpd to an average 2.06-mbpd, the highest since October. Saudi output was unchanged at 9.58-mbpd while Iran’s output fell 100,000-bpd to 3.98-mbpd.

[MrBill]

$this->bbcode_second_pass_quote('', '
')REUTERS FORECAST FOR ACTUAL FOR WEEK (EIA) YR-AGO CHANGE
WEEK ENDED 9/30/05 ENDED 9/23/05 ENDED 10/1/04
CRUDE DN 0.1 MLN 305.7 MLN DN 2.4 MLN UP 1.1 MLN
DISTILLATE DN 1.9 MLN 133.6 MLN DN 0.5 MLN DN 2.1 MLN
GASOLINE DN 2.3 MLN 199.8 MLN UP 4.4 MLN UP 0.6 MLN
RUNS DN 3.7 PTS 86.7 PCT DN 4.1 PTS UP 5.2 PTS

[SuperNova]

31st is a tricky day to gauge, year end and all that can produce some unrepresentative price action.

Aside from that.... Mr Bill has the right plan, position yourself long cracks for the lowest risk long in the mkt. (IMHO opinion)

[MrBill]

I dunno? I kinda got kicked in the teeth with gasoline dropping so much relative to heating oil and crude after the numbers.

First of all those supply nos. yesterday were an unmitigated disaster. Only offset by quite substantial fears of demand destruction which seemed to have tipped the balance and lower we went. However, I suppose product imports of 4.55 mio barrels also helped to partially explain why the 4.3 mio drop in gasoline stocks and the 5.6 mio drop in distillates did not cause the market to rally? Tough call. Refining runs down at 69.8%. Wow. No wonder crude took a knock.

So, still long unleaded and short WTi. I am thinking of buying WTi and selling heating oil, but I am not sure? The spread between unleaded and heating oil looks attractive at -11 cents, but this may be seasonality kicking in? I may also buy Brent as it is looking cheap at $2.75 under WTi and I think we may find some support here around 59.50? But, at the moment, just sit on my hands until I see some sort of a reversal.

[MrBill]

Daily news compliments of Refco Overseas London

$this->bbcode_second_pass_quote('', 'N')ews:
· A fire at Algeria’s Skikda oil terminal appears to be under control following a blast Tuesday in an export terminal of the plant.

· PEMEX cut crude oil production from the Campeche Sound in the southern Gulf due to Hurricane Stan but it expected to resume operations Wednesday. Output is normally about 2.8-mbpd or more than 80% of Mexico’s 3.4-mbpd in total output.

· Reuters survey shows OPEC Sep output rose 20,000-bpd to 30.17-mbpd though OPEC-10 output fell 10,000-bpd to 28.12-mbpd because of declines from Nigeria and Iran.

· MMS update reports 1.300-mbpd or 86.66% of US Gulf oil output still shut-in with cumulative lost production since 8/26 of 47.756 million barrels or 8.723% of annual Gulf output. There were also 304 platforms and 7 rigs evacuated, or 37.12% of 819 manned platforms and 5.22% of 134 rigs currently operating in the Gulf. #

Refinery news:
· Citgo expected to restart its 410,000-bpd Lake Charles, LA refinery later in the week after power supply was reestablished. The boiler was to be refired Wednesday.

· BP expects to restart steam generation at its 437,000-bpd Texas City, TX refinery by the end of October, followed by a restart of gasoline-producing units.

· Valero shut an FCC unit at its 135,000-bpd Houston, TX refinery Tuesday night for needed repairs seen taking 10-12 days, resulting in 40,000-bpd of lost gasoline production and 10,000-bpd of lost distillate production.

· Exxon Mobil’s 557,000-bpd Baytown, TX refinery has reached normal rates again.

[SuperNova]

Some would argue Gasoline season is over and the focus should be on Heat... hence the hard fall on Gas, plus it is exhibiting more demand price elasticisty.... if you believe it all changes that quickly, which I don't.

Not sure I would want to sell heat cracks!!... Heat stocks are slipping, and will slip more yet I think.


Spreads... tricky but here are some options.


The Brent/WTi differential - the 'Arb', I'm already there on that... but to be honest it isn't really performing right now.

Alternatively... with X/Z brent @ -82 and X/Z WTI @ +15 you could trade the box

Or.... X/Z WTi @ +15 and Z/F WTi @ -50... you could trade fly.

[SuperNova]

SuperNova Page

Nothing special... but I keep most my links on this page for conveniance - A good number of sources of mostly free data here. If anybody wants thinks I've missed something worthwhile then please send me the link.

[MrBill]

Excellent. Thanks for the links!



I am looking for a crack spread calculator or spreadsheet just so I can keep a better eye on back of the envelope refining margins, if anyone has one? Thanks.


Gasoline is still plumbing the lows here at 1.8700, but heating oil really has not dropped much below 1.9800? Nat gas is so high, it is just heading the other direction compared to the oil complex at the moment. Guess you're right, the driving season is behind us and now it is time to start thinking about firing up the furnace this winter.

Tell me does APR06 heating oil look cheap at 1.9520 compared to MAR06 at 2.0155? What no demand for diesel next spring?

[SuperNova]

Don't think H/J is in focus yet... if you've got a view then you might be able to get value now. I notice the crack spread there is approaching $3 also... WTI is flat 6 months out.

Not something I've looked at right now.

[MrBill]

Those weekly nat gas stocks look quite decent? +44 BCF vs. 46 expected? Not much movement in the futures though?

[SuperNova]

Not my thing but I would perceive as bearish....

Notice how the S&P hasn't rallied on crude declines over the last couple of weeks.

[SuperNova]

Don't get it but mkt rumours that funds are selling oil?? (across the complex or crude specific I dunno)... also some rumour about a copper mkt squeeze???

[MrBill]

Hey, how is it possible to change the subject above? Hmmm?

Yes, the stock was weak even before Katerina & Rita. It was strange as we had strong growth and low inflation, but the market just didn't trust how robust the economy was for some reason, and then of course Katerina laid it all bare for all to see.

[SuperNova]

I assumed you changed the topic title.... haha... come on then who did it own up

[MrBill]

No, it must be someone who disapproves of trading oil. They likely do not realise that when I sell I help the price to go lower? Maybe that is what they are upset about? They want to see $200-300 to validate their own predictions? Hmmm?

[CARVER]

I'm glad I decided to buy Silver (Long Turbo's) insteadof Brent Oil (Long Turbo's) yesterday. Now it's up 15%, while those oil Turbo's I was looking at hit their stop-loss.

I have some question: What happens when:
- the refineries and chemical plants come back online? (Strikes end in france) I would assume oil demand to go up.
- gasoline prices go down? People start topping their tanks again in case it is temporary. Also it does not have to come down a lot for people to see it as cheap again. As long as it is a fast jump down (or a continues decline).
- people come to realize it ain't worth it to conserve gasoline, they don't save that much money and would rather cut back on something else. I would think that most people that conserve start very ambitious, but will find it very difficult to keep it up, unless there is no other choice. By experience these people will also come to know all the less pleasant sides of conservation.

- When are the IEA partners going to stop releasing their reserves on the market? (And when are they going to try to fill them again?) Would they stop when say China is going to fill their Petroleum Reserve?
- A few speculators start buying again and the price goes up a bit again, others might jump in as well driving the price up again. (Which might be happening at the moment).

[MrBill]

Hello Carver, welcome to Profiteer's Corner, where evil people meet to try to control the movement of the market and make sense out of random changes in direction. Don't let anyone tell you we are innocent commodity traders who cannot influence the final price, supply or demand, but can only aid in price discovery. Obviously, our motives are far more sinister.


Basic supply & demand would say that as a price goes higher it rations demand & vice versa. Some say gasoline demand is very inelastic, so this does not hold true. I have to disagree. Higher prices cut demand at the margins. Taking fewer unnecessary trips, better trip planning, using smaller vehicles, not letting your auto idle (for instance in cold climes for heating or warm climes for a/c, less just in time delivery (especially in places like Tokyo), teenagers not cruising up & down mainstreet because they are bored, etc. are all ways demand is decreased when the price gets too high.

How high is high? Well, in the USA $3 is high, where as in Europe they pay up to $6 and they still drive cars, lot's of them if you have ever been stuck in a 50 km traffic jam on the A5/A3 in Germany. I don't think there is any point at which people stop driving. They just seek out alternatives. But, if you have to wait for a bus when it's dark & freezing out, like you say, you may decide to drive anyway and cancel that trip to the movie cinema instead. Demand destruction is not just about fuel, it is also about what we give up to be able to afford to drive. Put it another way. If you can afford a $50.000 car you can afford $5 per gallon for gas. You just may choose another one next time you have to replace it, which is why Toyota will one day be the largest car company, and the most profitable in the world.

But I digress. Katerina & Rita are destroying a lot of demand right now. However, that demand will come back later (2006) during the rebuilding. Ditto for chemical companies. Assuming they make something that people need or want to buy, demand will shift from right now to later. Only an actual reduction in demand (still possible) would result in less raw product being refined.

However, if you remember the run up in prices this summer you may have been confused (I was) as the stocks & inventory report showed a comfortable build in supplies. The market was more worried about strong demand and what if something like Katerina happened? It was a classic case of buy the rumor and sell the fact. The worst possible scenario came to pass and low and behold gasoline is down 20-25% from its peaks. Why? Well, now the market is no longer concerned about supply. There is lot's of crude slopping around. But they are worried about that reduced demand. Keeping in mind that prices are 50% higher than last year. Therefore, they worry, quite rightly, that if more demand disappears there will be no reason to have such a price premium as supply & demand are no longer on a knive's edge.

Obviously, gas imports from Europe and releases from the SPR have also helped cool prices. I am guessing that they will not replace stocks until much, much later. They will not want to stir-up incremental demand. However, this will naturally make them more vulnerable to another event like Rita or Katerina and I am sure there are a few sleepless nights at the EIA. China has indicated they will fill-up their own SPR from domestic production, not imports. They are worried about buying at these high prices today when it may not be necessary until later when prices may have cooled. Especially if high energy prices actually cool economic activity and their own exports grow at a slower pace.

I am still short crude, long gasoline, but I have also increased my heating oil long. The whole complex looks heavy right now, but as I have already taken my hit in the gasoline, now I hope to see some short covering & profit taking ahead of the weekend, and I may still have the chance to leg out of my spread position at a profit? I hope so in any case.

Cheers.

[SuperNova]

Spreads held firm on the crude yesterday despite the sell off... the gap on a WTI will prove good support/resistance today I suspect and good starting point for anynoe crazy enough to trade flat price

Cracks on heat will be first to rebound I suspect as this holds the most potential for the winter.... and I still think the problem is there. Implied demand is arguably down a 2-3% but much of this could be attributable to the logistics problems produced by K & R as from price based demand destruction.


Friday Bounce/Profit taking...

More later

[MrBill]

Headlines compliments of Refco Overseas London

$this->bbcode_second_pass_quote('', 'N')ews:
· Colonial Pipeline increased capacity due to power restoration with diesel, kerosene and heating oil at 80% but gasoline at 100%. It normally ships 100 million gallons/day to Atlanta and the East Coast from Houston.
· A blast hit the northern Iraqi oil pipeline and repairs were expected to take five days.
· IEA executive director Claude Mandil said an emergency oil stock release might not be necessary if US oil demand continues to slide. “What’s not clear yet is if the demand destruction is simply logistical and therefore not long-lasting, or if it could be more long-term.” The IEA will likely see through its decision to release up to 60 million barrels of crude oil or products to make up for production lost to Katrina.
· Louisiana’s oil production is at 18.7% of capacity or 38,053-bpd out of an estimated total capacity of 203,139-bpd in the state’s 38 southern parishes.
· EIA reports US crude oil proved reserves fell by 2% in 2004 due to a 9% decrease in the Gulf of Mexico though onshore reserves in the lower-48 states grew by 0.1% due to rises in Wyoming, Montana, North Dakota and Texas. But Alaska and California recorded declines in addition to the Gulf. US new field discoveries were the lowest in 12 years with 71% of crude oil production replaced.
· Oil Daily estimates global demand fell to 82.6-mbpd in September down 610,000-bpd from August and down 100,000-bpd from a year earlier. Global supply was seen at 84.9-mbpd, down 220,000-bpd from August but up 720,000-bpd from a year ago.
· Oil Movements report OPEC exports rose 540,000-bpd to 24.88-mbpd in the four weeks ending Oct 22 with the majority of the oil headed west to European and US refining centers.
· MMS update reports 1.202-mbpd or 80.16% of US Gulf oil output still shut-in with cumulative lost production since 8/26 of 48.959 million barrels or 8.942% of annual Gulf output. There were also 289 platforms and 6 rigs evacuated, or 35.29% of 819 manned platforms and 4.47% of 134 rigs currently operating in the Gulf.
· Dow Jones survey shows OPEC Sep output steady from Aug at 30.44-mbpd with Iraqi output rising to 2.07-mbpd from 1.92-mbpd in August.

Refinery news:
· Chevron’s 325,000-bpd Pascagoula, MS refinery restarted two weeks earlier than expected and should reach normal rates by the end of the month.
· Shell said some power was restored to its 285,000-bpd Motiva refinery in Port Arthur, TX