zman’s Energy Brain

oil, gas, stocks, etc…

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Monday Morning – Weaker

Posted by zmann on March 12, 2007

Commodities Test Critical Support: Oil- $60, Natural Gas- $7.

  • Oil: Falling. $60 Floor Failure. As the refining industry snafus sort themselves out and OPEC prepares to meet in Vienna oil is starting to retreat. I’m looking for a pullback to $57.50 and then into the mid $50s. Timing is critical. If crude falls through $55 early this week look for sharper rhetoric and even “promises” of production cuts later in the week from the more brash members.  This could lead to some very volatile trading late in the week. It’s funny how it’s not all about the money and until it is all about the money.
  • Natural Gas: Falling. $7 Floor Failure. After trading off $0.30 in the last three days of last week, gas repeatedly touched $7.00 in the overnight market, finally breaking through into the high $6s early this morning. This is gas’ lowest level since late January and it looks to me like we’re in for a bought of shoulder season weakness, potentially making a run on $6.50 in the coming week or two.
    • Last week’s heating degree days were expected to be roughly in line with the prior week (177)  which produced a 90 Bcf withdrawal (102 officially but that included a database adjustment.) As of 8 EST last week’s HDDs were still not posted so I’ll have them in comments later today.
    • This week’s early read from the CPC predicts HDDs fall off a cliff to 106 numerically reflecting the following map.

Why all the commodity price weakness? Two words: Red Dawn.

red-dawn-a.JPG

The Week Ahead: Last week the stocks failed to track the commodities lower. I’ll be taking a hard look at new or additional put positions in stocks that are:

  • elevated on the gasoline run: HOC, TSO, WNR, and VLO. The first quarter is going to be great true but a lot of that upside is already factored in to the large moves these stocks have all had.
  • gassy and still conducting asset sales: APC
  • gassy and bought more gas at too high of a price: COP
  • gassy, buying assets today, and not as well hedged as it’s peers: CPE
  • gassy, well hedged but looking toppy: COG, CHK, KWK, and SWN; warning: just a trade…great management, low cost producers, but susceptible to a slide in gas prices.
  • higher cost producers like SGY and EPL which continue to break down after failing to get hitched last year. “Declining commodity prices” and “exploring strategic alternatives” are  two phrases that don’t mix well.
  • HES, MUR, and MRO.
  • Check with Phil at PSW for options plays on these names.

Odds & Ends

I posted a mostly financial Addendum to the END report this weekend.

HAL Moves Headquarters to Dubai.  Halliburton is also considering listing its shares on one of the middle eastern exchanges. Getting closer to state owned oil companies or further away from the Democrats in the nick of time?

Opec Watch: Opec meets Thursday. Everyone pretty much expects them to stand pat which means nothing if oil punches below $55 by meeting time. Opec is voicing confidence in oil prices with statements like the the one from Algeria’s oil minister this weekend, “oil prices will remain at their current level until the end of 2007 because of strong demand and Iran’s standoff with the West over its nuclear program” ~Upstream.

Refinery Watch: Two more fires over the weekend. One in Volgograd, Russia and the other at the Puerto La Cruz facility in Venezuela. No word on damage although the Russian thing looked pretty epic for a time. Probably limited impact on prices unless you’re in Cuba.

Analyst Watch: nada.

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12 Responses to “Monday Morning – Weaker”

  1. Dave said

    Zmann I noticed over the weekend that on friday MUR had over 6100 mar55 calls go off. Also that NE had 4700 mar75 calls & 7900 mar80 calls go off. Do you follow these stocks. I’ve heard something about Seadrill looking at NE.

  2. zmann said

    I’ve heard rumors from time to time on both NE and WFT.

    MUR remains expensive in part because of the recurrent rumors of takeout. I’ve even hear WMT might take them out if you can believe it (they sell a lot of Murphy gasoline). To me it’s a question of who would MUR’s size matter too and do they want to do it if oil and gas prices are falling. Timing really impossible to say, most likely someone taking a guess.

  3. Dave said

    Thanks Zmann. I’ve heard of the rumors on MUR and about four others from time to time. I took off most of friday and can’t tell if these contracts were on the ask or bid. Anyway I find it fun to track these odd front month contract trades. ( time on my hands )

  4. zmann said

    Dave – I’ll probably forget to watch those volumes. Let me know if they continue to build. Smoke …fire.

  5. zmann said

    PTSG at $1.60. I can’t emphasize enough to play with profits here.

  6. zmann said

    Posted by Joe on another part of the site:

    Another supply interuption?

    Bakersfield.com News Alert
    Large well fire erupts near McKittrick
    A well fire whose flames and smoke can be seen at least 20 miles away erupted Monday morning in the oil fields near McKittrick, Kern County firefighters said.

    No one was reported injured, but nearby offices are being evacuated, Kern County Fire Capt. Doug Johnston reported.

    One oil field worker, Jason Dennan, at Belridge near Lost Hills said he could see the smoke and flames from about 20 miles away. Johnston said the incident was reported shortly after 6:30 a.m. and he was on his way to the scene near Reward and Franco Western roads.

    He said he did not know if it was an oil or natural gas fire, but it was in the middle of an oil field.

  7. zmann said

    Tom – Can I get your thoughts on OIH and END?

  8. zmann said

    Western nations offering compromises on Iran sanctions:

    http://news.yahoo.com/s/nm/20070312/wl_nm/iran_nuclear_un_dc

    net negative for oil prices as it isolates US policy

  9. Dave said

    An odd day. Wonder if we will get some programs towards end of day ?

  10. p.wilmington said

    Anyone have a clue as to reason for the sharp upward move by TSO, up $1.85 at fifteen mintues to the close.

  11. tom2oc said

    Z, sorry it’s late to see your post but OIH is the same deal again, above 140 is bullish using 139.75 as stop and below is bearish using 140.25 as stop. A move to 150 or 130 is about to get under way. Could go both ways.

    END is too a small company to do a TA on it. Sorry.

  12. zmann said

    hear ya Tom, NICE CALL, TOOOOO SMALL!!!!

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