Too Good To Be True
Oil at $120 was bullish for the equity markets but it appears it was too good to last. The EIA inventory report on Wednesday morning showed gasoline stocks fell by 3.5 million barrels as refiners cut production due to weak demand. Crude inventory levels fell only -100,000 barrels and much less than the -1.5 million barrels expected. Still the drop in gasoline was just enough of a bullish news event to trigger some massive short covering. That produced a +4.58 gain to close at $126.77.
Some of that short covering urgency came on news that Iran's supreme leader, Ayatollah Ali Khamenei, said Iran would continue on its nuclear path despite a deadline set by world powers in the dispute over Iran's nuclear program. Since the Ayatollah is the real power in Iran that is a pretty good sign they are not going to give a satisfactory answer by the August 2nd deadline imposed by the U.N. committee. Siding with Iran more than 100 nonaligned nations backed Iran's right to peaceful uses of nuclear power.
There were also some refinery issues traders were dealing with. BP said it had to cut run rates at its Texas City refinery due to mechanical problems. Tesoro reported problems at its Los Angeles refinery and it was not clear if it was earthquake related. Valero said it was going to cut gasoline production by an average of 330,000 bpd at its 16 plants.
Hess Corp (HES) reported profits that increased +62% and inline with analyst expectations. Revenue rose to $11.7 billion from $7.55 billion in the comparison quarter. Tesoro (TSO) reported earnings that fell -99% to only $4 million compared to $443 million in the comparison quarter. Crude oil prices pressured margins at all refiners and Tesoro's lack of scale made it vulnerable to the higher prices more so than Valero. Both HES and TSO rallied in after hours trading.
Flowserve (FLS) beat the street by a mile with earnings of $2.13 compared to analyst estimates of $1.49. Flowserve builds valves for the oil, gas and water markets. They said business was booming and raised full year guidance to $7.50 from $7.20 per share. Shares rose +6.91 in after hours trading. That was in addition to a +$8 gain in regular trading.
Energy earnings scheduled for Thursday include APA, CRR, CHK, CNX, DWSN, D, ENB, XOM, GW, HP, HOS, IMO, MRO, MEE, PTEN and REP.