zman’s Energy Brain

oil, gas, stocks, etc…

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Archive for November 7th, 2006

Monday Wrap / Tuesday Morning

Posted by zmann on November 7, 2006

Wow, What a day?! The Dow, the Nasdaq, Oil, Energy Stocks (XOI up 1.3% / XNG up 0.2% / OIH up 1.6%) all went soaring today because:

— Bill Gates bought a hotel,

— Villagers overran another pumping station in Nigeria,

Opec said it’s about to cut production again,

— a fed governor said the economy looks good for a rebound and inflation is still tame

— Republicans looked likely to retain control of the Senate, no, Democrats looked likely to take it, no, well, you get the idea…

Pick your favorite reason and buy, Buy, BUY

Only Dow components CAT and WMT were down. The index itself was up a whopping 119 points or 1% with everyone’s favorite oil company outpacing its index modestly.

Contrary to analyst, hedgie, and popular opinion, XOM is not cheap but nevertheless it finally got that closing all time high today of just under $73 per share.

— that’s a market cap of $425 billion or roughly equivalent to the combined market caps of MSFT+INTC+GM or GE+BA.

–forward p/e of 13x seems reasonable when compared to those other guys and in light of growth expectations of…..oh yeah, that’s right, negative 2%. hmmm.

–Funny that WMT was off today since it’s the only component in the Dow that comes close to the kind of daily sales Exxon rings up. WMT has seen slowing sales which is yet another sign that the economy is on edge. However, Exxon and the other Oil Majors appear to be immune to this anemic US economic performance.

–I’ll do an update of the XOM page tonight and if you think I’ve got it in for them you’re wrong, I just think it’s overbought. It’s a great company that has gotten out of sync with that which it sells.

–I really have a problem with SU where it is and oil prices but that’s a different can of worms.

Oil should back off a bit today as we approach what should be another crucial and I’m guessing (but that’s really all it is) sizable crude inventory build. We should have refiner capacity utilization running north of 90% again so draws in products should be smaller. Then there’s that pesky warm weather forecast for the December contracts to contend with. Anyway, like I said, if the Nigerians don’t give us a dose of fear daily, oil should back off.

–Inventory Day Analyst Predictions: Crude inventories are expected to rise 800,000 barrels while gasoline inventories are expected to be flat and distillates are expected to be down 800,000 barrels.

–The Movement for the Emancipation of the Niger Delta (MEND) is now conducting Operation Black November. They’re still just a bunch of impoverished villagers who Shell and AGIP could appease with a little more humanitarian effort, like TLM did in Sudan in the late 1990s.

–They’ve shut down 50,000 bopd at an AGIP pumping station and won’t leave until their demands are met.

— 2 oil workers kidnapped late last week were freed this morning.

Ok, There Were A Few Exceptions To The Everything Was Up Statement
Nobody noticed little old natural gas falling 5% today to $7.49.
Maybe they saw my map yesterday and started to bail out of that short position.

— Both the XNG and FUM turned out modest gains on the session despite the fact that they are composed of gassy companies. Since natural gas didn’t simply follow in the footsteps of oil, this gorwing divergence between the gas and the gas stocks could come back to bite them if inventories remain mired near record levels.

–For exposure to gas I like bets against BBG, CNQ, EOG, and KWK.

–If I had to own a gassy stock right now it would be CHK or SWN.

–If Pelosi wins control of the House, look for RISING oil and FALLING (oil) stocks on Wednesday. Here’s a Rigzone story that is in line with my vision of things to come if the Democrats do win back Congress. Granted, the energy efficiency measures are positive however the idea of dis-incentivizing deepwater drilling is as absurd as the windfall profits tax. My somewhat obvious play here remains HAL which will see itself behind the biggest panel of microphones ever found in one place should the dems win.

HAL Investigated By UN For Overbilling Iraq for Fuel Trucks. The news of the day is an investigation of gasoline tanker rental rates and usage in Iraq. The UN say HAL charged $25,000 per month apiece for 1,800 trucks since 2003, many of which have been idle. On top of that, gasoline delivered in these trucks from Kuwait, which charged $1.13 per gallon was marked up by HAL to $8. The cost of security?

Tankers Floundering- the tankers are treading water here waiting on further data points from Opec. With Saudi Arabia now sounding off about further production cuts there should be further near term softness in tanker rates. Our positions in OMM and FRO were essentially flat despite the big run in energy stocks over the last two days.

Prop 87 Looks Too Unsure Of Victory or Loss To Play. I didn’t pull the trigger on BRY or OXY yesterday and both rose with the group. With voter turnout expected to be light in California and with the Anti 87 campaign having spent roughly 2x the dollars I’m waiting now until Wednesday morning on this one. If the measure doesn’t pass, this will be a loadstone off BRY. If it does, I can step into both names before analysts have much of a chance to pound the table (if they do at all).

APC earnings and guidance too merger sullied to play. The mishmash of asset divestitures relative to new guidance leaves me sitting on the sidelines for now. The conference call may shed some light but I won’t trust the initial reaction until a few days have gone by.

Analyst Watch: none

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