zman’s Energy Brain

oil, gas, stocks, etc…

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Wednesday Wrap – Commodities Down Again, Stocks Ease

Posted by zmann on October 11, 2006

Oil: November crude fell $1.01, or 1.7%, to $57.50, it’s lowest close since the last week of December 2005. This is on top of losses of $1.44/barrel on Tuesday. USO fell $1.02 to $52.65 (the lowest close since since the ETF began trading in April). USO’s weekly and daily charts look like a black diamond run at Snowmass. The 12 month strip continues to get whacked, falling $0.87 to $63.40 (this is what the E&Ps hedge with so it being down is kinda bad for them and also acts as a backstop for a lot of analysts forward estimates).
But This Week’s Trading Still Tainted By THE GS PUMP Job Yesterday:

XOI – dn 0.5%, after a 1.7% gain yesterday on GS comments which I won’t mention again except to say that no brokerage should have this kind of sway nor make this kind of bet in the face of such clearly bearish fundamentals. His basic premise is that winter is coming….wait for the big zinger…nope…that’s it…winter is coming. There’s a picture of a GS client under the title BAGHOLDER in my dictionary.

XNG – dn 0.85%, also up 1.7% yesterday – inexplicable in the face of the first real drop in natural gas prices in 9 days. Gas fell $0.31 to $6.16 (critical support for November gas is $6 and it should get outright violated before inventories tomorrow). The 12 month gas strip came in as well falling $0.24 to $7.77. Hedge it while you can guys.

OIH – dn 2.3% , up 2.3% yesterday. At least we came back to par after the GS pump (sorry, still sore about those guys) and I’m still pretty happy with both my service puts on HAL (more on that later) and my driller plays PTEN, GSF and I’m warming up to the rest of the jackups (ESV) . With oil falling to new recent lows, you’ve got to start thinking about positioning for a drop in the deepwater market (DO, RIG) although for now, they remain fairly insulated.

Natural Gas Storage Expectation 65-70 Bcf :

I’ve been saying 65-70 Bcf, and after looking at the final weather results, I’m sticking with it. Since we’re at the old record, that puts us into uncharted territory and likely into record territory in the producing and eastern regions. Wow, sounds like a good reason for the GS Pump (sorry, sorry). Anything less than a 50 Bcf injection and its back to higher gas prices untilthe next week. I’ve seen at least one analyst calling for a 67 Bcf increase.
— Next week I’m betting the somewhat cooler temps coupled with all the stories about how much less you’re going to pay this winter for heating your home will lead to homeowners turning up the thermostat a bit. We never learn. Anyway, I’m going with 45-50 Bcf for next week’s number.

OPEC Watch: Nothing New. Low Prices Bad, High Prices Good. I Don’t Want To Cut, You Cut, No, YOU Cut. Where’s The Saudi, Let’s Get Him To Cut. Heh, Heh, Heh.

–Even if we do wake up to a set in stone cut one of these mornings, I think traders have got the proper mindset now. Is it from quotas or from production and will they abide by the new levels? Probably not.

BP=Big Problems. Why am I not short this pig. Talk about a company with obvious problems. Exploding refineries, leaky pipes, delayed deepwater developments, a long term buyback that never seems to help, daily sub peonas on nearly all of the preceding. What does it take to get me to dip a toe here? And none of it goes away easily or soon. Hmm. Next week I’m playing this with lunatic money into op-ex.
From Fortis’ Downgrade of Land Drillers. “[Rig] utilization should peak in the fourth quarter and then start declining. Combined with excess demand drying up, we think day rates are headed for a material correction. Our estimate for the industry is in the order of 30-35% drop from current levels by the end of the second quarter 2007 before flattening out through the end of 2007,” Fortis Bank analysts said. That PDC got pole-axed for 4% and our play in PTEN definitely caught some collateral damage, falling nearly 3% .


4 Responses to “Wednesday Wrap – Commodities Down Again, Stocks Ease”

  1. Lars said

    Any thoughts on HOC? I jumped in with Oct45 puts a little too soon yesterday and got stopped out @.90

  2. zmann said

    They’re even more overpriced when I first recommended them over VLO. Playing the Octobers is pretty risky and I’d wait for a clear indication on inventories before dipping a toe again. You should be able to watch SUN and VLO for an early read as always but again, I’d wait for inventories to be sure. Anything smaller than 1 mm barrel build will probably be seen as bullish (go figure) and I’ve seen estimates ranging from a build of 1.9 mm barrels to a draw of 1.7 mm.

    In the past 30 days, HOC’s estimates for 3Q and 4Q have dropped $0.24 and $0.11 respectively, for a combined $0.35 but annual numbers haven’t been reduced nearly as much due to some high and late to revise outliers. Consensus for this year is $4.05 but some WS analyst is sitting out there with a $4.73 estimate. Not going to happen. When he revises, it should take this year’s number below $4, which is significant and should result in multiple contraction. This little refiner is priced at 2x VLO for little reason, and while I’m not saying it’ll get cut in half, I would expect a 10% in the next month or so.

  3. Lars said

    Thanks for the info – outstanding blog.

  4. I found your blog very interesting,just setting mine up.hope it does as well as yours

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