zman’s Energy Brain

oil, gas, stocks, etc…

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Friday Morning – Retrenchment Time

Posted by zmann on December 1, 2006

Oil Shot The Moon This Week. Oil launched itself higher early in the week on the first of what NOAA says will be fewer than normal “artic blasts” this winter. That was followed by Opec threats, more refinery shut downs, rebels (this time in Sudan), a new crop of Opec pledges, more worrisome weather, and draws in products inventories when for some reason analysts expected builds.

  1. January crude is up $3.23 (7%) to $63.13 in the last 4 days. Gasoline and heating oil are both up 5%.
  2. 3-2-1 Crack spreads are in the mid $9 per barrel range after touching $10.20 earlier in November. I’m looking for spreads to weaken by mid December as gasoline and heating oil production gears back up while crude remains firm through the Opec meeting.
  3. XOM is trading in lockstep with crude again and is making new all time highs every five minutes. XOM is even more expensive than the last time I wrote about them – simply little bang in terms of production growth versus the multiple. Use your imagination and trust me that everything I said about these guys is a little more inflated then when I said it last.

Gas has been on an unjustifiable march to $9. Now that the first winter weather to hit a wide swath of the country has arrived, futures are pulling back and forecasts are tipping higher after the weekend. See my latest comments about gas on the gas storage tab above.

Opec Watch: Now that the front month is a few bucks above $60 look for traders to start bouts of profit taking. Opec is less likely to act in December if crude settles down here and sentiment on a larger, more powerful Opec seems to be turning from bullish to bearish with many thinking that more cheating is likely among the older members once the additions. Also, look for Angola to pump every last drop prior to its induction next March. Note also that Angola’s growth is largely XOM‘s offshore developments so any restrictions there hurt mother Exxon as well as CVX and DVN.

Analyst Watch: CVX upped to neutral, SFY cut from buy to hold.

Holdings Watch. EOG slid on its downgrade and uninspiring analyst meeting. SU slid as well, possibly in anticipation of the release of its monthly production numbers for November.

I’ll be watching the ISM today at 10 am for more signs the US economy is slowing especially after the Chicago Purchasing Managers index dropped below 50 yesterday.

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14 Responses to “Friday Morning – Retrenchment Time”

  1. Attacking Mid said

    Chevron has been unflappable in recent months. It still has a significantly lower PE than XOM despite being on a persistent march forward for many weeks. Next time I turn bullish on oil, I might consider CVX calls. How can you lose…. it only moves in one direction?

    AM.

  2. zmann said

    Hear ya relative valuation will start to mean a lot more if oil prices trade sideways for a while. XOM has got to be looking pretty pricey to its peers even to the street without the forward momementum of rising oil and natural gas.

  3. zmann said

    Stocks started to follow but then failed away from this rally in oil. We should get a new read on Su’s november production and current production on Monday which should be enough to calculate 4Q eps. I’ll make up a table with some ranges later today. The stocks is uncharacteristically weak.

  4. Attacking Mid said

    The oil stocks are dropping on low volume. If sellers start to show up, perhaps we could have a short party! I’m definitely in a party mood!

    AM.

  5. walter said

    BoA reiterated their positive view on refiners VLO and SUN top names.

  6. zmann said

    Nat gas is getting b slapped. SU and EOG getting minorly rocked so have a shot at being up on the week. The virtual gas play list is gettng whacked as well but it only makes for a good entry if we prove to hold $8 gas next week. I don’t think we will but will start to watch more closely.

    ISM fell futher than CPM yesterday. The R word is going to be all over business sections from Shanghei to Sussex this weekend. Not good for oil.

  7. zmann said

    Surveys of OPEC cuts

    DJ- 685,000 bopd
    Reuters 785,000 bopd

    out fo a possible 1.2 mm bopd

    Thanks CNBC, that was actually useful

  8. R word……. Yield curve……..

    -SaneO

  9. zmann said

    Tanker rates edged lower yesterday after a 2 day pause. That little rally on FRO could have been a gift. OMM is flat to up a nickel this am… another sign that no one believes Opec is really cutting.

  10. zmann said

    Well that was interesting. All losses, including the 2% variety reversered in an hour. This is why I’m still not doubling down or adding new positions. Too much money still buying the dips.

  11. Attacking Mid said

    I missed the big downdraft in SU. I thought it was safe to let my puts ride while I drove into work. By the time I got to my office, SU had risen more than $1 from its LOD.

    However, my favorite TA indicator would indicate we have not yet seen the LOD. Market so far isn’t paying any attention to my favorite TA indicator though.

    I’m holding on to puts for a bigger drop.

    MOT Jan 20 calls are on my radar screen. I’d like to see a nice drop in the overall market to lock in some oil put profit, then to “steal” those calls for a buck or less. MOT has been undervalued all year – it has to pop at some time.

    AM.

  12. zmann said

    MRO looks pretty extended over the past 2 months and today but the puts have too much premium for me right now.

  13. zmann said

    SU –

    YTD oilsands production: 252,800 bopd

    Full year target 250,000 to 260,000 bopd

    to get the low, they need to average 261,600 in 4Q
    to get the high, 281,600 bopd (pretty unlikely with the October average of 261,000 bopd)

    November should production should be released Monday

    Cash costs will be up slightly in 4Q over guidance due to higher than expected natural gas costs. While there’s likely some downside to the 4Q numbers it’s less of a factor than the direction of oil for now.

  14. walter said

    MRO- very interesting; thanks!

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