zman’s Energy Brain

oil, gas, stocks, etc…

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Thursday Morning – The Calm Before The Storm

Posted by zmann on October 12, 2006

Natural Gas: This is it. Call Guinness. The headlines Friday from every newspaper, magazine, and obscure energy blog will trumpet “Natural Gas Inventories Reach Record Levels”.

— to be clear I’m expecting an injection of 65-70 Bcf for the week ended October 6, 2006.

–I believe consensus is 67 Bcf.

–the 5 year average injection for this week is 65 Bcf (what a coincidence we’re all so close).

–anything less than 60 could prompt a re-rally as traders try to spin themselves into believing they’ve been right for the last week and a half. Notice their confidence waned yesterday.

— I’m also looking for natural gas to retest $6 early, before inventories, with a critical move through $5.76 if inventories come in above 60 bcf. Less than that and gas will move closer with oil and heating oil today. More than 70 bcf and there won’t be enough room in the door frame for the crush of traders getting out.

–But who knows, it’s just a survey, a sampling, not a tally.

–We’ll certainly exceed the old record in the Producing region (668) and we’re already there in the West. The east will be very close to a record as well but if not this week, then next for sure.

–speaking of next week, based on a preliminary read on weather and barring a sudden bought of demand creation I calling for injections of 45-50 Bcf. That gets us half way through October and leaving us with 2 to 3 weeks of continued injetions. See the chart on the gas storage tab for my pretty “back of the envelope” math on how we reach 3.6 Tcf by month end.
Remember, oil inventories are out at the same time today so it’s going to be confusing for several minutes: oil expectations range from a build of 1.9 mm barrels to draw of 1.7 mm bls (Fimat who are usually pretty good). Anything less than a build in oil and in heating oil could set off a nice rally. Well, not so nice for my puts but I have to be honest.

Stocks that should get hit hard (1 to 3%) by a move back into the mid to upper $5s on gas include: APC, BBG, ECA, EOG (requires negative, not just flat oil or they won’t care), ECA, KWK, SWN and of course the whole group if gas slides to $5.50. SU should make further headway back towards my near term target of $60 today (maybe dn another $2) if oil stays in the $57-$58 level.
Analyst Watch:

–Bear Stearns ups TSO to peer perform. Not a bad call given the stabilizaiton and rebound in crack spreads. Plus, it’s not much of a limb to go out and say, “ok, I’m not telling you to buy this stock, just hold it if you already own it.”

–Prudential ups CHK to overweight saying its a great company (I really couldn’t agree more) and that the recent pullback makes for a good entry point. OK, wait a minute. When did Prudential go to neutral on CHK. Oh yea, August 19, 2003. So our boy at Pru missed the ride from $10 to $40, the stock slides slow to $29 over the last 12 months and he says now its a buy. Now, he establishes a $38 price target. Now, with energy prices having put in a pretty good peak, and starting to really falter? Now, when drilling activitiy is at a peak? (and CHK strategy relies on being a very active driller, and when). Nice gamble guy, I guess it’s only OPM. Actually, I hope he pops it at the open because guys like me will be there around inventory time to pick up cheap puts if prices go south. Pru is not Goldman.

–FBR just cut their price target on CHK from $44 to $41, stays at outperform, which, with the stock at $29 I guess you have to. Man, they should have talked to Pru first. This is more of the “marking to market” for 3Q and 4Q oil and gas prices that’s going on quietly. Sshhhh, don’t tell anyone. The level of apathy in the face of fundamentally bearish commodity prices (that’s the stuff these E&P guys sell) is saddening.

–JP Morgan cuts TOPT from neutral to underweight. Looks like someone expects less oil traversing the seas. Wow is this call late. IPO at $11 in July 2004, peaks at $22 and slides to $5.70 and now you say sell. Ouch. Not that I disagree with the pesimistic call on tankers. I just might take a harder look at OMM or TNP, both of which I’m happy to say has options, and are near their all time highs. Or FRO, whose chart still looks like it’s teetering to me. I’m not advocating a trade, yet, but will do more homework over the weekend. Maybe these high-flyers are insulated from a slow down in shipping oil? We’ll see.

Well that’s enough for the morning, time to make some coffee and do some reading.

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48 Responses to “Thursday Morning – The Calm Before The Storm”

  1. zmann said

    EPL terminates planned merger with SGY, tempting to see if I can pick out those $0.20 SGY 35 near puts at the open. EPL has agreed to pay $8 break up fee vs the original $69 million agreed upon fee.

    EPL may stay independent, may got to buyout from Woodside.

    SGY will need to find out how to grow production again without all those juicy EPL drilling prospects.

  2. zmann said

    This is the second failed merger attempt for SGY this year. Speaking purely from the oustide, it looks like once EPL got under the hood, they started looking for ways out.

  3. Jon said

    Zman, what’s your est for gas inventories? I imagine one reason TSO & HOC have held up is because gas prices have not come down as fast as crude, but how long will that last?

    Jon

  4. arnie said

    Hey Zman
    Nice blog. Cannot access Phil’s site this am. Same with you?
    Arnie

  5. Jon said

    Arnie, same here, Blogspot’s down, this is a crisis!

  6. arnie said

    If you have his email. Why not offer him to use your blog for the day till his works??

  7. ramana said

    Phil’s Blog is down….
    the Energy complex is all gearing up for what I have no idea !!!

  8. zmann said

    phil’s blog is still down. Market is going for 12,000. Its complete meatball out there. Energy stocks up on nothing but a bet on inventories. Can’t believe how well XOI is holding up on the Goldman coments from Tuesday.

  9. Tom2oc said

    GREAT BLOG!!!

    Congratulations and thanks for sharing your oil expertise.

    I reviewed a lot of oil charts last night and I was suprized to see how some of them looked very strong technically despite the terrible fundies. If the inventories are not too bearish for oil I think there is a possibility for a tradable dead cat bounce.

    Will be watching VLO HES OIH if reaction is positive on inventories.

  10. Tom2oc said

    Also, I wanted to post the crude chart but the POS Blogger system is down this morning but XOIL is right on a support level.

    TODAY is the moment of truth for oil. Either a sharp bounce or a dive.

  11. wajih said

    wow….all of oih up strongly..

    xom 67.10!
    vlo 50.72
    sun 64.37

    the insanity continues…
    great time to buy some more puts!!

  12. arnie said

    zman
    do you recomend buying more Oct put XOM VLO?
    Arnie

  13. zmann said

    Got that $6 test on gas and holding. I feel like I’m missing something…the XOI has recouped all of its losses from yesterday leaving it up despite a $2.50+ decline in oil. wow.
    GS must be pounding the table again.

  14. zmann said

    arnie,

    Not until after inventories (45 minutes to go). why gamble. they’re up so much this am that if I’m right you’ll have plenty of bargains to choose from

  15. Tom2oc said

    AAPL testing resistance of a downtrend line dating back to 9/29. Will probably go over it.

  16. zmann said

    Oil move this morning: Probably further bullish brokerage comments on the sector. Have not been able to confirm. These are huge moves on little volume.

  17. Tom2oc said

    I’ll send a note to Phil to join here while Blogger is down. I’ve got his email.

  18. Tom2oc said

    AAPL zoomed through that trend line as expected.

  19. Tom2oc said

    For the last 5/10 days or so I observed that the oil patch is simply following wherever the market goes no matter what the crude price does. Reason why I never included a energy component in GOAX even if it’s a huge part of the market.

    And also reason why I’m quite concerned with this overbought insane market since whenever it reverses for real, the energy sector will follow it by go down twice as fast on the POS fundies and this will add fuel to the correction (no pun intended).

    Just my 2 cents.

  20. Phil said

    Is everyone frozen out of Blogger or just me?

  21. Tom2oc said

    All Blogger frozen

    Phil, cancel those legal fees going on. Your whole portfolio is doing ok now. CME up $6. LOL!

  22. OloMedik said

    Phil – yours is definitely slow – but it is more accessible than it was 30 min ago 🙂 Other blogger sites I know are slow as well, but do load up.

  23. zmann said

    We’re all frozen out man. I’ve created a post for you at top so feel free to post there.

  24. Phil said

    I’ve been shorting all morning!

    Just grabbed PEG $60 puts for .80 – no idea what ran them up so I couldn’t resist!

    15 minutes and I have my finger on the OIH calls in case things go bad…

  25. Phil said

    CME up $6 – oh Tom, ignore that process server then….

    😎

  26. Jerrod said

    k…who is nervous?…i am afraid if it is just at expectations oil goes up 5! kind of tempered that OPEC is off the table…sorta…i guess….hey could anyone make sense of what those idiots were trying to convey to the market?

  27. Tom2oc said

    Phew, I’ll cancel my lawyer too. LOL!

    QQQ High so far 41.88 which is very close to my 42 target and COMP 2326 is right at the top of my potential kiss zone. Let’s see what happens from here. Will be looking at the closing numbers only to re-assess the situation.

    Wow, this market is at a CRITICAL juncture!

  28. Phil said

    Damn, I called the apple relief rally this morning after checking out Sony’s lame line!

    Z – I’m not smart enough use another post but I will try to get it up on my site, it’s super slow but I finally got a window.

  29. zmann said

    Phil,

    I’m not doing this but maybe your protective calls though inventories would be wise. They’re looking for reasons to rally the stocks and if we eake out a $0.20 gain in oil, the complex could be up 2% by day’s end. Again, I hate to lose money as much as the next guy but am a little longer term oriented that most here I think.

  30. zmann said

    ECA looks weak in a “strong” group. Continue to think that one tests to $41 near term

  31. Phil said

    Wow – 1 in 3 Americans think the price of oil is being manipulated for political purposes…

    I have to go have a serious talk with 1 in 3 people!

  32. Phil said

    Z – I pasted my day’s blog into the comment over there but it didn’t seem to work – any suggestion?

    EIA in 3 mins! So exciting….

  33. Phil said

    OIH calls getting cheaper into inventory…

  34. zmann said

    Injection = 62 bcf – a little light
    Gas was stuck at $6.03 pre announcement

  35. Jon said

    Phil,

    You need to have that talk with the other 2…

  36. zmann said

    big build of 2.4 mm bls, much higher than expected. they’ll probably focus on the big draw in heating oil.

  37. Jon said

    Wow, SGY likes being out of the EPL deal.

  38. zmann said

    phil,
    I dunno, try pasting it into a comment.

  39. Phil said

    2.4M barrel build, gas build 300k but an unexpected draw in distillates – refinery turnaround I imagine.

    Gas stocks were not up much so they can go up on this but I imagine it will still lead to a sell-off with record highs in storage.

  40. Tom2oc said

    looks like the initial knee jerk to inventories is up. OIH VLO and USO all higher now than before.

    USO moving higher now.

  41. Phil said

    hey i’m back up!

  42. zmann said

    jon, SGY lost in the energy maelstrom today. It was expected and so maybe nobody cares today but long term, SGY just lost access to a huge seismic data base and good group of drilling prospects.

  43. ramana said

    VLO Up…OIH Up and moving rapidly up…pray why?

  44. Jon said

    I took some SGY Nov 35 puts, glad I didn’t get the Oct 35’s.

  45. Tom2oc said

    USO back now.

    Broad market partying again.

  46. Tom2oc said

    If GOOG can go under 0.35% and pull AAPL down with it we might have a reversal. Gee I wish we get a key reversal day on fake breakout in DJI. That would be THE TA event I’be been waiting for for the pullback.

    Crossing my fingers…

  47. ramana said

    VLO $1 up OIH up $1.85 !!

  48. Tom2oc said

    Phil, can’t access to your blog from my side. Is it back?

    Phil/Z, ADM Nov 40 puts for 3.60 look good on the weak TA intraday I see out there in the 37.10/37.20 zone. What do ya think?

    Tx

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