zman’s Energy Brain

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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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17 Responses to “Tuesday Morning – Gas Got Crushed And No One Cared…”

  1. Attacking Mid said

    Like you’ve said several times, if you can’t beat ’em….

    I added to my SU calls this morning. I’m being somewhat aggressive in order to recover from significant put losses over the past couple of weeks.

    GSX is on a tear despite declining gas prices. I’ve been upside down on some shares for a few months now. Still not back to even, though.

    AM.

  2. walter said

    You`re right about Phil Flynn- his estimates are way off (most of the time).

  3. zmann said

    Good for you on the SU turn. I would do the same but I’m holding legacy puts that are near worthless and this all seems a little hypey right now for me to go long. I don’t really day trade that much because I’m not very good at it unless there’s only 2 or 3 days to opex.

    Hear ya puts pounded in recent weeks. That’s why I’m mostly on the sidelines. Little reason in the move XOM and its peers are making except that lots of people who feel they missed the energy boat are clamboring over the rail as it leaves the dock.

    GSX up of late just confirms that a rising tide lifts all boats. They appear to have big production growth potential but I usually steer clear of the microcap E&Ps.

  4. Soccer_F1 said

    When was the last down day for XOM?

    How much longer can this go on?

  5. zmann said

    Walter – these guys are shameless. When I give (gave) a number I care (cared) about it being right. Not about its pull on consensus. I’ll bet these guys make 20 phones calls write after the interview explaining to top clients what they really think. Or maybe they have some sort of code. ;->

    oops, there goes oil down, that’s odd.

  6. zmann said

    Soccer – 8 dyas including today. It had a string of 7 up WEEKS that was broken 3 weeks ago by 2 flat weeks so they’ve gotta make up for that. This is unreal. It reminds me of AAAPL or GOOG when they go through price targets and the analysts just expand the price target multiple. Oh, except that in this case they’re not expected to grow at all next year.

  7. zmann said

    SU and EOG just went negative, VLO about to. If oil fails its gains today then BRY, OXY, MRO, and REP all come into sharp focus. The spreads on BRY options are large but it’s oil is heavy and the impact will be much greater there.

  8. zmann said

    Somebody please tell me how you price LNG (the company)? This thing has been on a bigger roll than XOM while it goes deeper into debt and the stuff it will eventually sell is failing out of a major reflex rally.

  9. zmann said

    In the category of “you have no business being this high” : ECA – huge run to $53 from a bottom at $43 in early October.
    –Limited upside to production
    –Techincally it failed to make a new high with most of its peers.
    –Estimates for 2007 have been dropping like a rock (down just under 20% in the last 3 months).
    –Like XOM, ECA is on a quest to buyback its shares but it’s using proceeds from asset sales to fund the repurchase instead of just cash flow. So down the road, there’s likely to be less cashflow to go around. Either way, the buyback is just about done – it was 70% done a month ago when the stock was 13% lower.
    –as of Sept 30 they had 1/3 of gas hedged which is pretty light compared to most of the sizeable gas players south of the Canadian border.
    –these guys reduced their growth targets in the third quarter press release officially targeting buybacks for which they sold offshore Brazilian assets as well as gas storage facilities in North America instead of increased production growth becasue they are tired of paying high service costs and leary of gas prices.

  10. zmann said

    “buy the dips” in full force. Still not buying those XOM (or any other major’s) puts.

  11. zmann said

    Oil Inventories expectations:

    Analysts at Wachovia Corp. expect a 1.5 million-barrel climb in crude inventories for the week ended Dec. 1. Fimat USA is looking for a rise of 900,000 barrels.

    Distillate inventories likely saw a decline for a ninth week in a row, most analysts said. Wachovia expects a 1 million-barrel fall, while Fimat expects a 1.7 million-barrel decline.

    Motor gasoline supplies likely rose by 1 million barrels, according to an estimate from Wachovia. But Fimat predicts a fall of 1 million.

  12. zmann said

    Gas Inventory expectations:

    Market expectations for this Thursday’s natural-gas supply report from the Energy Department call for a decline between 15 billion and 25 billion cubic feet.

    I said 20-25 yesterday. That guy at Alaron is such a bagger.

  13. I am wondering if any of the refiners are looking to crank back up production, or are they going to keep dragging their feet.

    -SaneO

  14. zmann said

    I’ve only seen more maintenance downtime announced although the VLO worker strike in Aruba just ended.

    AM – you win the prize of the day for those calls on SU. You’re no longer a good contrarian indicator. ;->

  15. Attacking Mid said

    What’s the prize? I sold my calls a bit too early, but made about 35 cents on a very high-risk play (I loaded the boat with ’em this morning and was sweating there for a while).

    I’m mostly out for now. Gotta get some real work done.

    AM.

  16. Soccer_F1 said

    Sens. Rockefeller (D., W.Va.) and Snowe (R., Maine) sent a letter to ExxonMobil’s CEO.

    Here is the full text of the letter:
    http://opinionjournal.com/extra/?id=110009337

  17. zmann said

    VLCC rates dangerously close to falling through $50K/day. Lookout FRO, OMM etc, etc.

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