Raymond James Energy Market Overview (1/18/07 pre-market): Where is the oil market going? As oil has paused in its rapid descent, there has been no shortage of commodity bulls calling the recent market movement a short-term correction. Interesting note: two of the most famous oil bulls, Jim Rogers and T. Boone Pickens, have recently reaffirmed their belief that oil is currently cheap and the market will rally and eventually continue its rise to $100 per barrel.) Today, all eyes will be on the DOE petroleum inventories report, where consensus is predicting a build in crude oil supplies for the first time in seven weeks. Even if there is a build in petroleum inventories, the market movement may be muted by all of the recent cold weather, which will impact next week’s inventories.
On a separate note, IEA cut its forecast for 2007 global oil demand to 85.77 million barrels a day. The agency now forecasts global oil demand will rise 1.6% this year, which is less than the 1.7% growth predicted just a month earlier. The IEA also estimates that OPEC production for the month of December fell by 155,000 barrels a day to 28.76 million barrels a day. With Angola joining OPEC, the IEA believes OPEC’s 2007 spare capacity will reach 3.8 million barrels a day. On the supply side, the IEA cut its estimate of non-OPEC oil production this year to 52.3 million barrels per day (including output from new OPEC member Angola), 300,000 barrels a day less than previously expected. Most of the downward revision is accounted for by Norway, Mexico, Canada, Cuba, and Ecuador. Since initiating its 2007 non-OPEC supply forecast of 53 million barrels per day last July, the IEA’s estimate for non-OPEC supply has been revised down by a total of 700,000 barrels per day to 52.3 million barrels a day.
On the natural gas front, prices are also higher as the markets wait for the weekly EIA natural gas storage report, to be released today at 10:30 a.m. EST. We are expecting a withdrawal of 74 Bcf, or a range of 69-79 Bcf. Traders using ICAP are looking for a withdrawal of 80.5 Bcf, which may be a bit aggressive (and could be setting the stage for disappointment).
Seadrill (SDRLF/$15.19) Awarded Record Newbuild Contract. Intraday yesterday, Seadrill announced it has been awarded a contract by Husky Oil China Ltd. on the Chinese continental slope for the 7,500-foot newbuild semi-submersible West Hercules. The contract has a firm duration of three years, with estimated contract value of approximately $580 million, which equates to a dayrate of approximately $530,000 (including a mobilization fee, which will likely be amortized over the life of the contract).
Key Energy Services (KEGS/$15.15/Market Perform) Reported December 2006 Rig Hours. Key reported December activity levels. The company’s rig hours came in at 201,704 with 19 working days. Adjusted for working day differences, rig hours were up 4.8% sequentially and up 1.3% y/y. Trucking hours for the month were 185,330. Trucking hours were up 3.2% sequentially, when adjusted for working day differences, and were up 0.3% y/y. All in, it appears to have been a solid month for Key; however, we are still waiting on restated financials for 2004, 2005, and 2006.
Energy Transfer Partners (ETP/$51.30/Strong Buy) and Energy Transfer Equity (ETE/$30.86/Strong Buy) Announce the Departure of CFO. After the close yesterday, Energy Transfer announced that its CFO, Mike Krimbill, would resign for personal reasons. Based on our conversations with the partnership, it was simply a personal decision to spend more time with his family and potentially pursue other business opportunities in the future. Given Krimbill's holdings in the two partnerships and lack of recent sales activity, we do not believe that his departure was any harbinger of accounting issues to come for either ETP or ETE. Mr. Krimbill was formerly the CEO of Heritage Propane, which merged with Energy Transfer back in January 2004.
Interesting Article: China, IEA Near Pact on Strategic Oil Reserve (WSJ, A4). The IEA is working with China's National Development and Reform Commission to increase the transparency of the country's plans for its strategic petroleum reserve (SPR). Doing so could potentially ease volatility in global oil prices. China and the IEA are currently inking out details of non-binding agreements to share information related to both the intended use and release of emergency stockpiles of oil. Also being discussed is the size of China's SPR, and some analysts believe it will build crude oil storage capacity of 100 million barrels. China is the world's second-largest consumer of oil, after the U.S., and it depends on imports to meet its needs. |
