Freakout Friday – Looking For A Reason To Fall Part #1
Posted by zmann on November 10, 2006
IEA Cuts Demand Forecast For 2006, Maintains 2007 Outlook. Minor down tick in US demand for the first three quarters, but up in the fourth. Should be no big deal but it’s got oil off $0.80 early. Takes full year 2006 to 1.1% demand growth. 2007 forecast remains the same at 1.7%. This is a pretty weak reason for a pullback but after the move we’ve had it may serve as a bailout for recent put buys for longer repositioning.
Angola Bears Watching. Angola, a large, non-opec and growing source of oil met with Russia over the last week to talk about strengthening economic ties between the two. Russia has been helping Angola rebuild infrastructure damaged during the country’s long running civil war. Comment: look for increasing oil production here to pay for these efforts. They’ve passed Nigeria in oil production and are one of the largest importers of oil to the US.
It’s Hot, Damn Hot. 3 weeks ago, the energy bulls argued that winter was coming and that it’s arrival would rescue depressed oil and natural gas prices from high inventory levels. While they’re spot on correct that winter will come I don’t concede the last point. As we venture into the winter months, now even the weather is not helping their cause. This week will go down as one of the warmest in the record books and next week promises to be only slightly less tropical. I’m on the sidelines until I see this irrational behavior begin to wane.
–Next week should show a natural gas build in inventories, one of the latest on record but not unprecedented, (we got one last year two) and could serve to turn sentiment and the price of gas downward.
–On the oil front, distillate inventories have been aided by the refinery maintenance cycle which is drawing, ever so slowly, to a close. Without the aid of colder weather, look for a smaller draw but probably not a build next week. Killing the momentum is all that matters and after 5 weeks of declining distillate inventories this could do just that. Oil is trying to break its down trend and another buck will do it so we’ll see if the impact of warm weather arrives in time.
Holdings Watch: Everything was up again yesterday although the rally looked to be getting long in the tooth an hour or so before the close. What’s obvious is that the amount of money flowing into the energy sector is like an avalanche, and further put buying is ill advised. Minor rises in commodity prices are met with fanatical buying while downticks in oil and gas (even fairly sizeable ones) are scoffed at with lots of obvious dip buying.
– Many of the drillers closed lower on the session (although not PTEN which had a mega rally over the last 2 days despite that Weil downgrade),
— SLB closed lower but HAL was up due to Cramerization. Don’t’ expect that to last,
— XOM made a new record high(what a shock, I could just repaste this bullet everyday but the typing makes me think about ). I saw several comments yesterday that XOM has just lagged and is only now getting the move it deserves. I address that over the weekend but for now I’ll just say those people are driving by looking in the rear view mirror, and
— SU shot the moon despite the fact that gains in natural gas prices (the biggest swing factor in the operating profits as I wrote in yesterday’s comments) rallied far more than oil yesterday. If oil and gas prices stabilize here for the fourth quarter, SU‘s eps estimate will have to come down as gas is over $1.25 above their estimates posted just last week.
Iran Will Review It Relationship With The UN. If the security council doesn’t listen to weakened measures for sanctions proposed by Russia (who likes to build large capital projects in Iran including nuclear reactors) then Iran will review the relationship it has with the UN. What review? You guys are in charge. More than ever with the change in Congress.
Analyst Watch, All Quiet On The Analyst Front: EPL had it’s price target raised a buck post earnings.
– more later –