zman’s Energy Brain

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OPEC Monday – Sis, Boom, Blah

Posted by zmann on October 9, 2006

Clear as mud. That’s where we stand now that six of the eleven cartel members have made it clear that they plan to cut a million barrels of production (to 26.5 mm bopd), sometime soon, although, we’re not sure who is cutting how much. All because crude has fallen 20% in 2 months. Remember in August these same guys said they were very concerned over overly tight markets after BP’s mismanagement of Prudhoe Bay. Then OPEC was talking about all the excess supply they had brought on the market since 2002. Word of advice, keep your whole care to yourself.

For its part, oil drifted higher in the morning, peaked just after lunch up $1.54 at $61.30 (it’s best level in 4 whole trading days) and then ended the day up fourteen cents @ $59.90. Talk about much ado about nothing.

XOM for their part, never bought into the rally and ended the day down almost a buck. Part of this was attributable to Putin continuing to turn the screws on them but I think it was more part of the “selling the news” syndrome. How does it get more bullish from here? They cut 2 mm bopd? I really don’t think so. Saudi Arabia alone has over 5001 Arabian Knights to feed. Love puts on MUR, SU, HOC here on falling oil.

Natural gas rose, yet again, peaking around the same time as crude and ended flat on the day. Not good. While EOG traded more with oil, itis still the most leveraged larged cap E&P to natural gas prices. APC, whose management is undoubtedly growing tired of explaining how it is that they didn’t overpay when they paid 50% premiums for Western Gas and Kerr McGee back when oil $75. Also finding fault with current levels of SWN, BBG, ECA, and DVN. LNG is hilariously overvalued here. I’m looking for a big correction in gas this week so the only thing holding them up will be hopeful investment banks.

Look for the parade of analyst downgrades and estimate and price target reductions to begin again this week. So far, activity on the downgrades has been pretty light but I’ll post a spread sheet showing the increasing velocity with which estimates are coming down among the E&P, refinery, and drilling names. It’s been quiet but it’s been happening. More later.

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