zman’s Energy Brain

oil, gas, stocks, etc…

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Monday Morning

Posted by zmann on October 23, 2006

Opec Watch: They came, they saw, they cut. And oil traders didn’t buy it. As I have written repeatedly in the last 2 weeks since the rumor of meeting surface it was “buy the rumor, sell the news.” Opec’s credibility has been shot by acting like a hydra while attempting to convey the mixed message of the need for oil to be priced at levels more than double those three years ago while the cartel is increasing surplus production capacity (link).

Putting My Money Where Typing Is: Targets For November. My Bias remains Negative for oil and gas prices and the XOI, XNG, and OIH. Targets are pretty stupid in a vacuum. New data comes in and I re-evaluate my bias. At present I remain negative on the commodities (and therefore select companies that either sell them or sell services to those guys). The negative bias on the commodities is almost entirely based on supply demand fundamental but, and to a much lessor extent, technical-analysis plays a part as well. So why not lay out my current thinking for November?

Crude Oil: Lower. The December contract is holding to a tight range between $59 and $63. If the Iran things blows over like it has the last several times then oil should tumble Tanker loadings  remain high.

Natural Gas: Much Lower. More on this below but I expect natural gas to fall to $5.25-$5.75 by this time next month from a current ridiculously high $8.10 on the December contract. Watching for the turn in gas and then into puts on APC, BBG, EOG, KWK, and LNG.
XOI – hinges on the DJIA and not oil. The linkage is dumbfounding until you realize that the go, go market rules XOM (at least until earnings) and that until fund managers see a precipitous drop in the big dog, there won’t be a capitulatory sell off in energy complex.

Current Picks: Puts on XOM (Nov $67.50), HAL (Nov $27.50), FRO ($35), and PTEN (Nov $20) and SU ($65). I paired my gassy stock puts back and am watching closely for a turn in natural gas before re entering puts on APC, BBG, EOG, KWK, LNG, and SWN.
Priced To Perfection Club: XOM, OMM, SLB (see comments Friday),: these are stocks that have not seen their stock prices suffer and need strong beats on earings.
On Hold: Refiners – crack spread recovery could continue well into winter months, earnings for most are due out next week so I’ll put together a white paper by the weekend.

CFTC Shows Short Covering– new update-link- shows short covering over the last three weeks has been behind recent strength in natural gas prices culminating in a buying frenzy. Natural gas prices advanced an unreal 27% in the last week. This exceeds the percentage record increase for September to December.

Tet In Baghdad. From this weekend’s headlines. We’ve Lost the Battle for Bagdad and Bush: I Won’t Change Strategies In Iraq. If things get further out of control, the situation in Iraq could become more supportive of oil prices than anything else going on right now as the fragile but growing (estimated at 2 mm bopd currently) Iraqi oil supply is threatened.

Holding Watch: HAL beats top and bottom line. At first blush the quarter looks a little strong but I wasn’t looking for a miss so much as an indication that things on both the energy services side and at KBR has seen their best days for now.
Analyst Watch. BBG, SWN, and While I have no opinion on NFX at this time, they did lower production guidance (delays, not misteps) last week so while it bears watching I’ll probably stay away from those guys on the put side.  Jefferies cut its target on NE by 10% and Goldman picked up the weird-energy group (solar, clean coal, etc) with a Neutral rating, which probably will remain that way until spring when all of the sudden, fear of summer heat and high electricity bills will prompt an update.

Non-Opecies Have Don’t Plan To Cooperate. My thanks to Soccer for his summary of non-opec plans which pounds home the point that Opec is less important than they think they are.


6 Responses to “Monday Morning”

  1. zmann said

    Linkage between XOM and USO completed non existant.;range=1y;compare=dji+uso;charttype=line;crosshair=on;logscale=on;source=

    How long will it last? Maybe it snaps back Thursday with earings but maybe SU is just a better way to play falling oil prices. Shell story today demonstrates heavy oil cap costs continue to spiral out of control.

  2. zmann said

    Gas could see support off colder than antipated weather over next week or two. Prior to this morning’s CPC degree day release, I was targetting another 50 ish bcf injection with heating demand staying roughly equivalent to the prior week. Data shows a 33% increase over the prior week’s estimate and going up 25% for the week ended Oct 28.

    Not exactly a bullish way to end the injection season. We could be looking at a draw in three weeks which would leave storage short of my 3.6 tcf target but still amply supplied with a 2 month bonus.

  3. gungagalonga said

    Morning Z. Nice comments and site.

    I heard unconfirmed rumblings of another H-fund blow-up late last week. This may have contributed to the random volatility and the rampant buying.

    The 6-10 day outlook remains bullish on degree days. However, I agree, when/if we see that moderate, things will collapse in a hurry.

  4. zmann said

    Yea, I saw that on the hedge fund collapse too and will do a little digging for it.

    6-10 day map:

    Thanks for the comments. BTW, HAL made bullish on the conference call and it has been selling off ever since despite the earning and revenue beats

  5. gungagalonga said

    Oops, meant the 5 day forcast, thanks. You always knew how to correct me.

    Most in the service sector seem to be saying they’re not seeing a slowdown yet. Other than Canada pulling back.

    Weatherford and Hal both had bullish comments on the current market, but were cautious depending on this winter. I think Weatherford said 300 new rigs have been ordered?

    Wonder what this will do to production capacity over the next year?

  6. your blog is very helpful, thank you so much

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