zman’s Energy Brain

oil, gas, stocks, etc…

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Monday Wrap- Commodities Get Thrashed, Stocks Shrug

Posted by zmann on October 30, 2006

Commodities Take A Beating. In comments this morning I said,”if products start to creep back down at a faster rate than crude, which I think is overdue” then HOC could get slapped. I wasn’t expecting the powers that be to take me so seriously and get on with it today but hey, cool.

Oil Gets Popped 4% … December crude fell $2.26 per barrel on a warm weather expectations and the LOOP reopening story. People are now talking big import numbers for Wednesday. USO hit $51.86, its second lowest interday level on record before closing at $52.00. Gasoline got crushed falling $0.076 (5%) to $1.48 per gallon the biggest single day drop since mid September. Heating oil fared little better getting pounded for $0.065 (4%) to $1.67.

…And Natural Gas Got Smacked Falling 5%… Take that T Boone. That’s $0.88 (10%) in the last three days on the December contract so I don’t want to hear any journalists or traders trying to explain this drop away as a simple roll-out issue. The 12 month strip now looks like this so kudos go to CHK for their enviable hedge position. Good job guys. For the rest of you E&Ps who chose to go more naked into the abyss of 2007, good luck guys. I’ll be very interested to see EOG‘s hedges (only 50% at last summary) for 2007. More on them later.

…And The Stocks Could Not Have Cared Less. From a commodity day, you couldn’thave asked for weaker performance but the oily XOI drifted off 1.5% while the gassy XNG fell a paltry 1%. It appears that Goldman is beating the snot out of Lehman on the energy call this fall. How long can the stocks defy the falling prices of that which they sell? How much funny money is in this market, controlled by 32 year olds who have the ability to lose $6 billion in 10 trading days? Apparently lots.

Important Quote For This Point In The Wrap: The Market Can Stay Irrational Longer Than You Can Stay Solvent.

Holy Reversing Crack Spreads Zman. Sorry but I couldn’t resist. With the larger than commensurate drop in product pricing crack spreads broke out of what had been a fairly narrow (stable) trading range in the $7s. I’ve been staying away for the refiners through earnings which start tomorrow with VLO. Much more of this and they’re going to have to rescript the opening comments of their conference call.
crack1030.JPG
CFTC Shows Longs Starting To Get A Little Fearful But It’s Early, Just Wait And See. Forgot to throw this out there for the weekend but the CFTC showed a decline in both the long and short non-commercial positions, but net long positions remain near record highs (indicating a ready supply of sellers when they decide this market is out of steam.

cftc1030.JPG
Of course, XOM shrugged off the selloff in oil, gasoline, and heating oil, and a much weaker than expected economy. If you watch minute charts (I’m an addict) you can see that every rest in between legs down on oil was met with rampant buying in XOM. See what I mean. XOM is like the millionaire poker play at the $5 table. He’s in every time, no matter how bad the hand.

Cheniere Watch – I saw a comment somewhere that it was a good thing for LNG (the company) that some Russian LNG (liquefied natural gas) project was no longer going forward. If you’re an investor in LNG, you want more facilities shipping the stuff here, not less.

Analyst Watch: pretty quiet but it’s Monday and weekends are precious

— DO– hold to buy at Deusche (stock fell 3% ha, ha) while FBR cut its target price by 15%

— BHI – also got a slight TP reduction from FBR

Holdings Watch: Everything we have puts on pulled back a little but nothing to right home about except for SU and PTEN which put in respectable 2.5% losses. PTEN is breaking down before earings which is interesting. Took a little HOC position (puts of course in front of earnings and because I like them short at 2x VLO which announces in the morning.

EOG – earnings tomorrow. Watch for unbelievable growth in Barnett Shale gas volumes. If they don’t show then I’d expect a 2-3% drop in the name for the week (barring a reversal in gas back to new hedge fund crazed highs). With a good chunk of their natural gas production growth coming form Trinidad, whose pricing is primarily tied to bunker fuel (oil prices), these guys could start to feel some pain during the fourth quarter. If EOG is damaged by its quarter, you’ll have a few minute to take puts on APC and DVN who’re in the same boat.

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14 Responses to “Monday Wrap- Commodities Get Thrashed, Stocks Shrug”

  1. Jon said

    Zman,

    Well, HOC can’t be slapped down fast enough for me. I’m still holding some near-worthless Nov puts in these refiners (I know, I should have covered like Phil) so if they come back even a little I’ll at least feel better.

    I would comment more but really you cover things pretty well! Belive me I read every post you make.

    Jon

  2. Arindam said

    Good stuff, zman. Any idea why ECA is holding up in this environment? Are they as well hedged as CHK?

  3. zmann said

    Arindam,

    Good question? Their Q was pretty lackluster (weakish production growth, lowered guidance, drilling less) and while they’re hedged its not as stout at CHK. They’got about 40% of total production hedged at about $8/mcf.

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