Monday Addendum – El Nino Update

El Nino Alive But Barely. The latest from NOAA on El Nino shows a weak but slightly strenghtening El Nino event.

–Equatorial SSTs are just above neutral indicating the El Nino condition remains but I’d tell you from my past studies that the severity of the event is directly tied to predictability of both the expected warmer than normal conditions in North America and the drier than normal effects upon the Pacific Northwest.

–Given that SSTs are within a degree of neutral, I wouldn’t hang my hat on El Nino as an explanation of the recent warm temps across much of the country nor would I give it much credence for prediciting a warmer than normal winter just yet.

–Moreover, the truely strong El Ninos that resulted in “hot” winters were all more developed before this late in the season.

— Still, since I’m an unabashed commodity bear at this point and since the fundamentals need all the help they can get in persuading both heating oil and natural gas lower, having El Nino reaasert itself doesn’t hurt my case in the least.

 

Monday Morning – Weaker Oil

The Week That Was: Commodities Mixed, Stocks Up. After a technical test that drove oil briefly over $61, Friday selling left the commodity little changed on the week (up $0.44 , 0.7%). More amusingly gas, after that CNBC designated “much larger than expected draw of 7 Bcf”, ended the week down a dime at $7.80. The XOI added 2% despite a modest mark down on Friday on light holiday volume.

Oil This Week – Down an early $0.50 to slip below $59 after a brief overnight rally died out. $58.50 remains the next nut to crack and we should get there this week as long as Nigeria holds together and traders don’t buy the story Opec is selling about the last round of cuts let alone new ones. Again look for refinery runs to be up towards 90% utilization with this week’s report easing demand on products. The oil market looks to be going back to trend this week without the benefit of more data (which it should get today from Opec lift allocations for December) however weather is not still not cooperating- it’;s hot, damn hot.

Not exactly an energy trader’s dream for the third week in November:

Natural Gas- We Should Get A Build This Week. Heating degree days show that last week was indeed hotter than originally forecast. Look for a build in inventories although given the time of year (shoulder season) and the squirelly looking data out of the EIA for the last 3 reports don’t ask me to give a number just yet.
Kremlin Watch. BP Pays The Putin. One of BP’s joint development companies, BP-TNK, just settled a back taxes claim with the Russians for $1.4 billion. That’s thought to be the largestback taxes bill every paid by a Russian oil company. Comment: it won’t be the last. BP is getting smacked for $1.20 in the pre market and the other Majors, including XOM, are taking notice with early but so far more modest drops. You can be sure that the cash hungry Kremlin is going to produce similar bills for all its energy partners in coming weeks or even days, just like it has found reasons to renegotiate contracts with them all over the last 2 months.

Analyst Watch: COG upgraded to aggressive buy, ESV to sell, GMRK to hold, GI to sell. That’s a little more negative than normal for the start of the week but given the recent run up not surprising. I’ll get more enthusiatic when we get another Lehamn type downgrade of the sector. ESV does look to get spanking the pre market trading and it’s notable that several drillers are starting to get downgrades now.

Holdings Watch:

APC has sold another deepwater discovery in the GOM. They’re getting good prices for these things and I cheer anyone who can piecemeal monetize an acquisition so quickly after making it. Comment: While I think they overpaid for the assets of Western Gas and Kerr and the timing was unfortunate (peak ’06 oil) Hackett is shrewd and there are better shorts in the oil patch.

Opec Watch: Mixed Signals. Saudi plans to open the spigots for Asian refiners in December. That’s a little surprising after last week’s announcement from Opec’s biggest member that further cuts would be needed at the December cartel meeting. Note that Kuwait has already told customers to expect full allocations next month in contradiction to recently its announced 4% cutback.