Questar shuts in a little gas over low prices

Questar Corp on Tuesday said its Questar Exploration & Production Co. unit had shut in production on a portion of its unhedged natural gas output from the Rocky Mountain region due to low natural gas prices equal to 2.3 bcfe gross for October
The company, however, raised the unit’s total production outlook for 2006 to 127 bcfe to 129 bcfe, from its previous view of 126 bcfe to 128 bcfe.

I don’t expect a lot of sizeable curtailments but will monitor them.

They’re giving gas away in Britain

 Must be nice. Too bad they don’t take LNG imports there. It would free up sometanker loads and we could take any excess they have. Oh well

http://www.theherald.co.uk/features/71341.html

Domino #2- Lehman sees the light at the end of the tunnel and its a train

That’s 2 Dominos. Lehman just chopped the E&P sector to negative. Price targets coming down across the board. This is the “marking to market” call I’ve been waiting for , not just for 3Q but for as least the NTM as well, given the sharp price target reductions I’m seeing amongst the E&Ps. Believe me folks, it’s just gettig started. wooo hooo, get off the tracks.

The fact of the matter is, another 20 or so analyst teams from bulge bracket to bucket shop have got to do the exact same thing. It’s math and these teams are busily cranking new price decks through all their models while simultaneously writing price target/eps reduction first call notes. Its a time consuming process but they will all do it, sooner rather than later. Believe me, those analysts are watching their dreams of buying a GI Joe with the Kung Fu Grip for their kids for Christmas circle the drain.

OPEC cuts of meaningful size unlikely

Yesterday a guy from Platts explained how Saudi Arabia can rebalance the OPEC basket oil weightings, shifting the OPEC price higher, and thereby turning potential buyers away. In this way, they don’t announce a production cutback but effectively produce less due to lower demand. tricky, tricky, tricky. Looking for a source for this change in weighting which should occur (if it does) Tues or Wed.

Either way there are stories out about how OPEC is now more disfunctional than ever . They completely ommitted quota talk in last meeting’s press release so I don’t believe there is a statement coming in the near term and am holding my oily puts. Also, what happened to the oil price band mechanism? The last one I remember was like $25-$35 but I’ll have to check.

Anyway, Saudi has been producing well over quota for most of the last 12 months (although its production has been coming down) because other members couldn’t keep it up with their shares.  With fewer buyers above $60, are they more likely to take a five dollar hit (selling oil for $55) or officially take down production (remember, it’s been dipping anyway) in a meaningful manner (1.5 mm bopd). Taking the production would mean shouldering a much greater financial burden than that $5 drop.  Also, when you move from saying that a commodity is in tight supply to one in which you admit that production needs to be curtailed, you lose pricing power. In that event, any “pop” in oil prices has historically been fleeting. In that case Saudi is both taking the price and the production hits – not something you want to do when you’ve 5,000 hungry princes to feed.

Perfect Storm Tuesday

JP Morgan wacked the offshore drillers this morning (must have been looking over my shoulder last night as I was writing that Jackup rates are peaking). Then Merrill cuts the energy sector to underperform. Then COP says it will miss on top line, and that worldwide refining margins will down significantly. Can you say perfect storm?

COP warns over 3Q- Prudhoe & Refining Margins Hurt

COP Tuesday said it expects production for the third quarter to come in about 5% lower than the previous quarter due to the issues with the Prudhoe Bay oil field in Alaska and planned seasonal maintenance in the U.K. and Venezuela. The company also said it expects worldwide refining margins to be significantly lower than second-quarter levels, while worldwide marketing margins are seen as coming in significantly higher on a sequential basis.

- maybe those refining margin comments will crimp XOM’s style

Doesn’t Play Well With Others

Rummy. Now you’ve got Rumsfeld making not so nice about Venezuelas’ arms buildup at a meet-n-greet in Nicaraugua. How many fronts does this cat need? The leaders of Venezuala, Iran, and North Korea (to keep the list nice and tidy) are like the guys whose eyes you don’t meet on the orange line in Boston. You certainly don’t get up in their face and yell, “nice gun, what’s it for?”

Analysts Raise 2007 Oil Price Forecast

Oil Analysts Raise 2007 Forecasts as Demand May Outpace Supply. That’s the headline on Bloomberg, I don’t make this stuff up. They’re worried about having been too low on their estimates the last 5 years so now they’re upping their #s for 2007. YTD they were $10 too low so will next year turn out to be $10 too high? BTW, they’re estimating $65 in 4q06 so we all better step up and buy some barrels.

Couldn’t be more ironic that November crude fell $2.35 today.

COP warns over 3Q- Prudhoe & Refining Margins Hurt

COP Tuesday said it expects production for the third quarter to come in about 5% lower than the previous quarter due to the issues with the Prudhoe Bay oil field in Alaska and planned seasonal maintenance in the U.K. and Venezuela. The company also said it expects worldwide refining margins to be significantly lower than second-quarter levels, while worldwide marketing margins are seen as coming in significantly higher on a sequential basis.

- maybe those refining margin comments will crimp XOM’s style

Look, the first analyst domino to fall:

Merrill Lynch downgraded the energy sector to underweight, saying near-term negative cyclical trends are outweighing the longer-term positive secular trends. “Cyclical negativity has set the stage for the sector to underperform, given the combination of fundamental headwinds and the sector’s strong outperformance the past four year, thereby forcing investors to look for growth and momentum elsewhere,” said Merrill’s U.S. sector strategist Brian Belski. Among fundamental headwinds, Belski said earnings growth has turned negative, margins appear to have peaked and pricing power has evaporated. On a macro basis, Belski said increased commodity price volatility, inventory levels that are running above U.S. demand and slowing global economic growth is weighing on the sector.

Gee, I wonder what tipped him off?! Like I’ve been saying, he’s the first out the door and now the doorway won’t be wide enough! It’s “mark to market” time gents and for the first time in a very long time, its time to take those numbers down- a sliding commodity price environment hurts doesn’t it?!. Don’t be the last guy around with over zealous price targets, price decks, and eps and cfps estimates!