zman’s Energy Brain

oil, gas, stocks, etc…

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Archive for November 17th, 2006

Friday – T.G.I.E.

Posted by zmann on November 17, 2006

Thank God It’s Expiration
These days are usually uneventful and, while I’m not a big fan of “max pain”, the stocks seem to be meant for certain levels by days end but often get there early. Then they trade sideways on light volume. In other words after 11 am its pretty boring and only cheap gambles on volatile stocks are worth your time and money.

Oil is getting hammered this morning in Europe and on its last day of trading, December crude is in the mid $55s in electronic trading at present. I’ll bet we get more Opec threats, rebel rebellion, a massive production disturbance from BP (it’s been almost 2 weeks now and the technicals are getting pretty dire), a statement from Bodman saying oil’s too cheap now, or some combination of the preceding mid day so hold on to your butts and be careful with your trades.

Why did oil get snaked yesterday? Oil fell $2.50 yesterday and is down $4.75 (10%) over the last 5 sessions. To me it looks like a combination of five factors:

—Middle men & exports. According to the EIA, middlemen and customers have been taking on inventory to take advantage of current low prices in advance of winter weather. Moreover, an inordinate amount of gasoline is being shipped to Central and South America.

—Opec cheating. Ok so that’s not really new but word from CNBC that liftings were actually up as recently as a week ago made CNBC and may have contributed to the slide late in the session.

—LOOP closure. Its open, wait, there’s a strong breeze and some fog, better shut the biggest oil receiving port we’ve got. It was closed through Wednesday but was supposed to reopen Thursday. Who knows for how long.

—End of contract and technicals. The December contract expires today so some of the sell off is attributable to that. This is like the third month in a row to end on its lowest levels for 2006. Moreover, the USO ETF, which is based on the price of the WTI futures contract continues to make all time lows. I’m not very impressed with this argument since the January contract got sacked for $2.15 yesterday. If traders are selling December to buy January, then why did it tank 3.5% as well?

—IMF reduced forecast for US 2007 GDP growth. Cut from 3.4% to 2.9%. Keep cutting Opec, you’ll get to the right number (about 25 mmbopd to get to $60) any day now.

American Petroleum Institute shows crude inventories increased by 6.7 mm bls yesterday! That’s a big gap to the EIA number. API says its a matter of different survey methodologies (more careful) for the weekly change but that the overall inventory amounts are very close.

From an AP story last night: Even as oil prices fell through the low end of that range ($57 to $61) Thursday, many analysts remain bullish in their outlooks, citing concerns about instability in Nigeria and Iraq, a recent drop in U.S. refinery output and trading patterns that suggest the market is preparing for a late-year upswing. Comment: Talk about grasping for straws to keep from breaking the oil camel’s back. Fellas, that’s just sad. Just about as sad as the parade of pumpers CNBC hauls out every time oil hits a new 2006 low. Of course they’re bullish, 80% of ratings are buys and bonus season is just around the corner. Sell ratings don’t generate a lot of commish, capiche?

Natural gas got whipped. December gas fell $0.365 to $7.75 on the unexpected build.

—We got a build of 5 Bcf versus an expected draw of 1.5 Bcf (come on CNBC say 1 or 2, you can’t get a half!). I get style points but no dollars for hitting the number spot on in comments yesterday morning. Whoopty do.

—Anyway, looking at the weather I’d say we are likely to see a number of around flat to down 10 next Wednesday (they moved it up for the holiday) as the old forecast looks to have been a little warmer than what actually happened this week.

—My point is that it doesn’t matter as long as we’re staying near record levels and not chewing through storage yet. The average November sees gas supplies fall by 181 Bcf.  Last year, with the aid of supply crunching hurricanes, November inventories fell 328 Bcf (the second biggest month of demand in November on record). We’re 10 days through November 2006 and we’re up actually up a few B’s.

—Even if we have the worst winter on record, gas in storage should only fall to just below the middle of the average range. Looking at this chart you can see where a warm winter will leave inventories. $8 gas is hard to explain in either scenario.

Analyst Watch: B of A says E&P capex to rise 4% in 2007 vs 38% in 2006. Get your OIH index puts here. Drillers should get macked on this news as it’l put the breaks on day rate advances which have gotten out of control of late. Ditto service.  How these guys issue this kind of a bombshell and don’t downgrade a single stock or cut a single earnings estimate or price target is simply beyond me. Plus, why issue this on a Friday, don’t you want people to read it?!

Holdings Watch:

—Still have puts on (and like to the downside) SU, PTEN, HAL, HOC, FRO, LNG, GSF, and OMM. Have puts and calls on XOM.

—Gassy names that should retreat from here: EOG, KWK, BBG, and DVN.

—Oil names on the downside hitlist: BRY, TSO, SUN 

—Names I like long but not necessary today: CHK, SFY, SWN, and CRR. – for now consider them waiting for lower entries but definitely not short candidates.

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