zman’s Energy Brain

oil, gas, stocks, etc…

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Archive for December 5th, 2006

Tuesday Morning – Gas Got Crushed And No One Cared…

Posted by zmann on December 5, 2006

…and that’s why I remain on the sidelines. If you can’t beat ’em at least don’t let them beat you. Right now, the bulls are in charge. That may change today or tomorrow (well, probably not today) but I’d like to see directionality before I start wading back in, long or short.

Oil lost a buck or 1.5% yesterday. The recent rally failed as the dollar stabilized. Left that one out of yesterday’s post of the list of things driving oil up over the past two weeks. This mornings headlines read almost exactly like yesterday’s except that oil is rallying today for the same reasons it was plummeting yesterday. Silly reporters, just say you don’t know some of the time. This moring’s trading has recaptured about 2/3rds of yesterday’s losses and the stocks appear to be off to the races again.

Natural gas got crushed for 7% and fell below psychological support at $8 all in the same day. As I said in comments yesterday, this week’s report should be a tad smaller than the last one making a light month for withdrawals as Novembers go. December is getting off to a decent start with the first 200 heating degree day (HDD) week of the season but it falls 18% short of last year’s comparable week.

Bulls Take Heart, The Analysts Are Trying To Rescue Gas By Bagging Expectations. “Natural gas is falling not so much because it’s cold, but because we should see an injection in next week’s [supply] report,” said Flynn, senior analyst at Alaron Trading. Are you friggin kidding me? You expect an injection? With the weather just slightly warmer than the prior week when we withdrew 32 Bcf!!! What are you smoking and does it serve as a heat source for you? Man, I wonder which side of the trade Alaron is on.

  • For the week ended Dec 2 (the last week of November) HDDs came in at 132 vs the 130 predicted a week ago by NOAA and the 137 seen in the prior week. I’ll be going with 25 to 30 Bcf since the mix was a little more skewed to gas heating regions. That leaves us with a November draw of about 60 vs the 328 last year and 10 yr average of 186.
  • This mix also has bearish implications for heating oil on Wednesday but not greatly so. Heating oil got dinged 2% yesterday.

The stocks yawned. The XOI and XNG fell a measly 0.3% and 0.4% respectively. Technically speaking the slight downward moves of the last 2 days don’t put a dent in recent gains and there is lots of room for these stocks to fall if gas is repriced (say below $7 in the short term). XOM added another $2.9 billion in market cap on somewhat light volume as the “buy the dips” mentality rules the stocks as well as the minds of oil traders.

Analyst Watch: Busy day with ratings going every which way.

COP upgraded to buy. CVX, MRO, HES downgraded to hold.

XOM PT raised from $75 to $80 at BofA and reiterates buy (gutsy move Maverick with the stock at $77- I’d love to know hwat changed to boost earnings or did you just exspaqnd the multiple by 7% so you wouldn’t be forced to downgrade?).

FBR raised and lowered price targets by $1 or $2 on almost all the refiners -fine tuning?

Holdings Watch: First I’d consider lightening up on any of the four “virtual gas” plays (APC, CHK, KWK, SWN). Since I never pulled the trigger on them and am not inclined to be long right now I don’t have to worry about them doing anything more harmful than tempting me to buy some calls but if you own them, then gas has got to be scaring you a bit right now. I orignally said they were trades for gas remaining strong (over $8) and they’ve performed well in the face of a 10% retrenchment and gas falling into the high $7s. I’d use today’s strength to take a little off the table.

SU – where is that November production update? hmmmm. I’d hold off since the stock is back in rally mode and data could only confuse things.

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