Posted by zmann on November 28, 2006
Oil: Up another $0.40 this morning and likely to test $61 today. Yesterday’s like sized rally was fueled by the first real batch of arctic air, rebels in Sudan this time, dollar weakness, Opec, and two pipeline explosions in Iraq. Look for more of the same reasons today. I’ll get more nervous if we cross $61.40 where a technical reversal could set the bulls on a $5 buying spree but for now the trend remains down.
Natural Gas: up on weather expectations as well. Historically natural gas is a big “buy the rumor, sell the news” commodity often peaking for winter during or slightly after the first serious cold of the season. Either way, $8+ gas is simply too high given storage levels and the lack of evidence that gas production is crashing. Remember this week’s weather is next week’s inventory number so although we’re likely to get a moderate draw this Thursday, December will open with a whimper as it’s been downright tropical over much of the country before and since Thanksgiving.
Opec Watch: Unlike the two weeks before the last meeting, Saudi has come out swinging early in favor of “additional” production cuts… Given their recent statements that supply and demand, not the price of oil is the deciding factor in this decision, I’d say they’re seeing a real lack of compliance towards the October cuts from the other opecies (not altogether bad news for the likes of FRO or OMM‘s 4Qs but if Opec gets serious, day rates could tumble and then watch out for these guys).
…And If Opec hasn’t really cut yet this should mean that when the TAPS and LOOP are functioning properly and refinery maintenance season draws to a close both US crude and product inventories will march higher. This will be especially painful for the refiners as crude inventories rise more slowly than products (refineries will be consuming them to make more products) supporting oil prices while heating oil and gasoline prices fall. I’ve still got puts on VLO but HOC, TSO, SUN, and WNR should all be impacted.
Analyst Watch: Goldman apparently agrees with my call yesterday on several gas weighted stock and took KWK from neutral to buy but demoted SWN to neutral this am based on relative valuation. This should create a nice buying opportunity in SWN as further strength in gas prices will lift all four names mentioned in yesterday morning’s post.
Holdings Watch: Like I wrote yesterday, I’m not playing much until commodity prices start to make a little more sense, especially natural gas. The stocks had a bad yesterday (down with a down market) despite the rise in oil and gas so my puts scored with LNG, XOM, MRO (the company) leading the pack. If we get a good bounce down off $61 I’ll be looking hard at EOG for puts but a technical rally over the $61.40 mark could inspire me to take calls on the same names.