zman’s Energy Brain

oil, gas, stocks, etc…

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Wednesday Wrap

Posted by zmann on November 1, 2006

Crude Inventory Report Fails To Impress The Bulls- The 2 million barrel build in crude, well short of expectations, sent crude skyrocketing. For about 30 minutes. Then it fell to new lows on the day. We had a pretty decent decline going until BP, from here on to referred to as Broken Pipe, announced it had damaged a lifeboat on a platform in Norway and had to shut down 100,000 boepd. What a shock, BP bails out oil just as technically tests were ab out to happen.
The stocks, which trade more on perception than reality, had a much worse day than commodities because fund managers, seeing oil trade lower, can find no positive catalyst for the next few days. By the way, in comments I had a nice reversal on XOM for you day traders out there. That Nov 70 call looked like this today and would have been an easy 25% gain given Exxon’s inability to let the stock settle on its lows.

The XOI remains out of sync. It peaked with oil in August, had a lousy September but recovered those losses in October. It is comprised of 15 stocks representative of Big Oil and Big Gas and, up until recently, it tracked the price of oil fairly well.

But not last month. The two diverged and diverged hard on the belief that winter was coming. Yes its true, winter is coming. Goldman Sachs says so.

So Ignore this: (sorry about that ugly chart again, I’ll build my own soon)


and this:


and buy this. That’s what THEY say and so far THEY’VE been right.
Natural Gas Is Focusing On The Near Term Weather. It’s cold everywhere, but it won’t last long:

Crack spreads have fallen through $7.00 per barrel on the 3-2-1. I’m lifting my restriction on taking more puts on the refiners (I’d already cheated with a position in HOC but everyone is fair game now).

Heating oil spread’s are falling quickly… HO spreads are down about 20% in 10 days.
…and Gasoline spread‘s have been decimated. Those dots are tiny but if you look close they’re falling out of bed. Moreover, the out months are worse (here’s a table of January, now in contango). Spreads have fallen from $4.33 to $1 in 5 days! No wonder the refiners are starting to look played out again.

Note: these charts and tables represent Nymex same month crude inputs so the sour crude spreads are higher but will have a similar pattern. HOC generally produces around 60% gasoline, maybe a little less now but that gasoline chart is the one to keep an eye on for them.

When you believe something is too good to be true, you’re either probably right or short. Check out these barge drilling rates, courtesy of PKD. They provided a table of rates and they’re pretty proud of them but when put up against oil and gas it makes you wonder whether this kind of asymptotic growth is sustainable (actually I know it’s not but some people might wonder):


Barges drill for the smaller, lower capex stuff from the transition zone to the deep shelf but not really for the big kahuna oil pools like those found in the deepwater. They are the water breathing canary at the bottom of the Gulf of Mexico. If activity starts to slow, they will be the first to drown.

One Last Thing: Many E&P names will speak at Merrill’s Global Energy Conference on Thursday so look for pumping in many of these names. Click here and then click conference agenda.


5 Responses to “Wednesday Wrap”

  1. Soccer_F1 said

    A possible Shell-BP merger?

  2. zmann said

    gheit is pretty smart. could be onto something there.

  3. Jon said

    Today BP could stand for Busted Platform.

    Still hoping that HOC will drop soon, but I’m afraid I bought puts too soon 😦

  4. zmann said

    Me too. Unreal performance out of it today. Wonder what it takes to wake up to the reality of lower margins.

  5. walter said

    thanks for the comments on refiners!

    good blog- much appreciated.


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