zman’s Energy Brain

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Tuesday Wrap – Oil Down $1.50, stocks up a lot

Posted by zmann on October 10, 2006

Today’ word: Disgusted. The commodity call remains correct but the stocks continue to defy logic.

Oil fell $1.37 to $58.59, closing levels not seen since July 2005 (USO closed down $1.08, at 53.54 – the all time interday low of $52.46 was reached 10/4/06 so we’re still pretty close and could break down any day). Natural gas started to falter but eaked out an 11 cent gain to $6.54.

Stocks shot the moon on a favorable note from Goldmann saying that a “perfect storm”, to use a much overused phrase, had conspired to boost inventories to record or near record levels but that everything would be OK with:

a) — a normal winter – why he thinks we’re going to have one is beyond NOAA, me, and everyone who’s ever heard of El nino,

b) — that demand would outstrip non-opec supply (since when?), oh you mean growth, I dunno but I think I saw non-opec additions of 1.6 mm bopd in 2007 expected between Russia,Brazil, GOM, Canada. Meanwhile, demand estimates, last I saw were headed lower, and

c) — that inventories oil and natural gas inventories would come back into balance when the perfect storm ends,

so BUY ENERGY NOW (on Oct 4th I predicted one or two analysts would try to be heros and upgrade the group, I just thought it would happen a little closer to options expiration).

And that’s exactly what the lemmings did. XOI up 1.7%, XNG up 1.8%, OIH up 2.3%. Our favorite puts got slammed. I listed them below only because it’s therapeutic and I can track my pivot points better here than on all these post it notes.

APC suffered a Goldman upgrade from neutral to Buy and the stock steadily advanced 3.5% on the day, cutting our Oct 40 puts by67%. Still like this one (they overpaid for their recent acquisitions) but won’t add more until the Goldman fanfare dies down. PP: 41.45, 41.32, 41
ECA – up 0.9% – PP 44.74, 44.56, 43.58
EOG – up 1.6% – PP 62.10, 61.90, 58.49

GSF – up 2.7% – PP 46.55, 45, 44.26

HAL – up 1.1% – PP 27.12, 26.48
MUR – up 0.8% despite a Goldmann downgrade. Do people even read the reports? XOM rallied on its downgrade as well.

PTEN – up 2.3% – old CEO gets 25yrs for stealing $77 mm. Guess what, the guys who didn’t notice this was happening for years are still there.

SU – up 2.2% -PP 66.67
SWN – 3.7% – PP 28.67, 27.23, 26

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One Response to “Tuesday Wrap – Oil Down $1.50, stocks up a lot”

  1. zmann said

    HOC went absolutely nuts with the energy rally today, up 7.7%. I like the Oct $47.50 here. See updated crack spread chart today. Spreads may have put in a bottom but are well off recent highs and earnings expectations have not fallen hard enough yet.
    I really think this got mixed up with the news on HOC of TSX which hit it big with a well in Uganda. Stranger things have happened.

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