zman’s Energy Brain

oil, gas, stocks, etc…

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Archive for November 27th, 2006

Monday Morning – Welcome Back Everybody!

Posted by zmann on November 27, 2006

Wednesday was slow, Friday was dead.

Opec Watch:

  • “Saudi Oil Minister Ali al-Naimi said yesterday Opec would cut oil output again when it meets in December if recent supply curbs failed to balance the market. Oil prices were not a decisive factor, said the oil minister of the world’s top oil exporter and Opec’s biggest producer.” My question is what other than price is going to tip them off over the next two weeks that supply and demand have stabilized? This could mean that in the near term, smaller crude builds could yield weaker oil and vice versa as traders start to anticipate Opec’s Dec 14 action.
  • Kazakstan (not a member) says its Kashigan oil field to peak 25% higher than expected at 1.5 mmbopd by 2010, another signal that non-Opec production is not only becoming increasingly more important but that it’s also growing faster than previously thought. Expect the biggest increases from Russia and Brazil next year.
  • Ecuador (also not a member) -Correa won the presidency Sunday and is looking for readmittnce to OPEC (they dropped out in 1993). Correa is a leftist/isolationist and close personal friend of Chavez and has said he wants to strengthen the Ecuadoran national oil company…so expect production to fall. Ecuador produces about 535,000 bopd. This is probably not so good for OXY who got Ecuadoran oil production when they acquired Vintage Petroleum in late 2005.

Weather – Cold Snap Approaching. One more week of warmer than normal temps and then an artic air mass will bring the coldest air of the season though the mid west and into the deepsouth. Natural gas longs rejoice! Of course this won’t save gas prices but it’ll buy another week’s time.

Oil – January crude is off $0.50 at $59.40 and continues to trend lower. Reversal would be anything above $61.40 and new lows on the contract would be below $57.80 so we’re right in the middle now. Silly trading on Friday left the contract up just shy of a buck last week despite the 5 million barrel build in crude reported Wednesday. More trouble from Nigeria Friday was the culprit then and it along with Opec and the cold front will lend support here so I’m expecting range bound trading $58-60 through Wednesday when we get another look at inventories and refinery utilization.

Natural Gas – Still Too Expensive But If You Can’t Beat Em… Despite CNBC’s best efforts to put a bullish spin on a draw of 1 Bcf after the second coldest week of the year so far, January gas ended down $0.36 for the week at a still ridiculous $8.28. On the continued strength I like APC, CHK, SWN, KWK. The problem is that the continued strength is unwarranted. Still these make good short term trades and Thursday’s inventory report is unlikely to upset the bulls since they’re the ones setting the bar.

Analyst Watch: MRO -slight price target bump from FBR

Holdings Watch:

Refiners – Still like ’em short here: heating oil cracks were down last week as the 1.2 mm bls draw met expectations and while gasoline was up on the week it’s strength really should be fleeting as utilization cranks back up (some day). The refiners are caught between the proverbial rock and hard place. Margins have eked back up because they’re cranking out less product and inventories have come off recent high levels (though they’re still above average) propping up product prices. If they don’t get their units back on line soon the quarter is going to slip and earnings numbers will have to come down. When they do, margins will slip unless crude continues to slide (which Opec is determined to forstall) and the quarter is again in jeopardy. Finally, when they do increase utilization, crude is likely to strengthen but without real winter weather products may fall behind, again pinching margins. I’m sticking with puts on VLO, TSO, and HOC.

Oil Plays – I’m not playing other than quick trades and a standing put in EOG that would cause me to lose sleep save that the position is small. Although it’s the least hedged sizable player in natural gas it trades with oil like glue in recent weeks. True it has outperformed oil over the last 2 months but not to the degree of its big brother XOM.

Gas Plays – REALLY not playing until this weather gets out of here. Except for the gas names mentioned above which I may be long but probably not short at any given time over the next two weeks, I’m still holding puts in LNG (the company) and think SU‘s 4Q numbers are getting severely squeezed at this point by the combination of low oil and high natural gas prices.

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