zman’s Energy Brain

oil, gas, stocks, etc…

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Tuesday Morning

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.

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16 Responses to “Tuesday Morning”

  1. walter said

    OIH and VLO are on fire today!

  2. zmann said

    From FRO’s report:

    Frontline said average time charter rates for very large crude carriers (VLCCs) in the fourth quarter this year were about $51,000 per day, down from $95,000 in the same quarter last year, according to one shipping industry index.

    This has bounced in recent weeks but is now back down to $53 as of yesterday. OMM will get hit on this news.

  3. zmann said

    Maybe starting a pattern here with stocks up in the morning on strong oil and deteriorating all day to the close. We’ll see but those refiners are getting themselves into a hard place now – crank it up and drive inventories higher and product prices lower or stay offline and kill your numbers.

    Service has been paroled in my book for lack of commodity pressure. OIH has a lot more to lose from down and depressed natural gas prices (which hasn’t occured) than to this dip in oil.

  4. zmann said

    XOM, CVX, COP, BP lose right to drill Thomason leases for natural gas in Alaska. I guess you can only fool some Alaskans for a very long time (and screw the American public for an even longer time).

  5. Yeah I would strip the leases to after 30 years and nothing to show for.

    I guess it is going with the whole energy mentality currently: Keep production flat and jack up prices to increase profit rather than produce more to make more.

    Sad because there is A LOT of gas in Alaska

    -SaneO

  6. zmann said

    Damn, was busy looking at weather while SWN took off from the GS inspired dip this am. Those gassy name calls from yesterday are rocking in comp to the group, especially the KWK. CHK about to break through to all time highs next. Hmmm. I guess if you can’t If you can’t beat em, join em.

  7. zmann said

    Early estimates for Thursday’s weekly Energy Department update on natural-gas supplies calls for a decline between 5 billion and 40 billion cubic feet, according to Fimat.

  8. Well T. Boone is on the prowl again. Now he says we should run our cars on Nat Gas. Doesn’t seen to make a great deal of sense to me. Move from overpriced oil to overpriced gas, and we are supposedly running out of both quickly ( In his words )

    I think I have figured out this guy. Invest in oil, ratchet up oil prices, create demand for alternatives. Invest money made in oil in alternatives to make even more money. Actually smart for him, but hell on the consumer.

    Funny the call to move to nat gas. Yeah I could see it now, T Boone predicts $20 nat. T Boone predicts $5 ethanol, T Boone predicts $5 biodiesel, T Boone predicts high prices on what ever comes next to fill his pocket book.

    -SaneO

  9. zmann said

    Most analysts expect the data to show increases in crude and distillate inventories, but estimates for gasoline are mixed.

    Wachovia predicts a climb of 1.5 mm bls for crude, 1.5 mmbls for gasolilne and 600,000 bls for distillates.

    Fimat expects a rise of 2.1 mm bls but for gasoline to fall by 1.1 mm bls. Fimat expects a 200,000 bls increase in distillates.

  10. Tomorrow is a crap shoot in inventories. It all depends on refinery util.

    -SaneO

  11. walter said

    Thanks for the updates on refiners.

    I was wondering about unexpected cold snap this winter- what kind of impact are we talking here?

  12. zmann said

    Walter. Where did you hear of an unexpected cold snap? If you mean the cold air expected for this weekend it’s not that big a deal as we’ve been well off normal for some time now. November was a complete bust for heating demand and the coldest winters on record wouldn’t deplete inventories beyond what could be considered very comfortable levels by Spring.

  13. jon said

    Zman, are you in and out of the LNG puts daily or have you been holding some for a while?

  14. Attacking Mid said

    I’m thinking of opening a “pay” site with a simple philosophy….. when I buy puts, subscribers should buy calls and vice-versa. Back testing for the past few days has been 100%! If anyone’s wondering why the sharp rise in oil co. stocks today, it’s because I sold my calls midday and flipped to puts.

    Even though I got burned with MOT options last spring, it’s looking tempting to play the calls again. That might be a sign for everyone else to buy puts!

    I mentioned BQI a few weeks ago…. it’s up sharply in the past week. It’s a speculative play (Canadian bitumen) that you can buy on dips for a long term hold (but sell on parabolic rises). It’s a $5 stock, so don’t mess with the options, just trade the stock.

    Bitter cold air coming into the Rocky Mtn region, but should be a brief blast.

    AM.

  15. zmann said

    Jon – small LNG put positin for a few weeks now. Hurts but thinking about a DD here.

    AM – hear ya buying puts like contrarian indicator. Very painful of late. The group has the feel of wanting to go higher despite the fundamentals. Actually the stock fundies are pretty good, its the resilience of the commodities despite their fundamentals which is hard to fathom.

    Those biumen plays seem to run with oil but the high gas costs have got to be killing them. SUs numbers are going to be way off (per their 3Q guidance) if gas doesn’t correct soon.

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