zman’s Energy Brain

oil, gas, stocks, etc…

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Friday – TGIF

Posted by zmann on December 8, 2006

“I’d much rather be happy than right” – Douglas Adams. And my thought on overestimating yesterday’s natural gas draw.

Natural Gas – Whimpy Withdrawal But Traders Look To Next Week

  • We pulled 11 bcf from storage, far below the 10 year average of 41 for this week.
  • We are now 232 bcf (7%) above last year and 282 bcf (9%) above the 5 year average.
  • Gas couldn’t have cared less closing down only a nickel. At $7.66 per mmbtu, gas is 33% above its five year average of $5.76 for this week, excluding 2005 which was at $13.70 having jumped in the aftermath of KatRit (the one thing more annoying than TomKat).
  • the 12 month strip closed down $0.065 to just under $8 – not really breaking the up trend here…maybe after next week’s number.

Traders are focused on next week’s number, the first subject to cold weather.

  • The 5 yr average withdrawal is 104 bcf, again excluding last year.
  • Last year we withdrew 206 Bcf from strorage. It was considerably colder than the comparable week this year and most of the Gulf of Mexico was shut in.
  • Degree days of 202 show us to be well above the 5 yr average of 181.
  • In short, I offer my sincerest apologies to Gunga who I brushed off in comments yesterday when he threw out a 100+ number for next week. After having reviewed all the data, my back of the envelope modeling indicates a withdrawal range of 100 to 150 – probably over the mid point. Anything less and something is wrong with the industrials or they just don’t like these prices.

Just So You Rest At Ease About Natural Gas Production Levels. This is a snapshot using governent data of U.S. natural gas gross withdrawals. To make it painfully sinple I took a look at one summer month (July) and one winter month (December) for the last 6 years. The data reveals that the annualized decline in winter is less than a percent (and that includes Katrina) and is almost negligible in summer. True, we’ve had to run a lot of rigs to get there but the difference comes from how we’re doing it and at what cost. In a nutshell, unconventional, low cost, onshore gas. So don’t believe the hype, decline rates aren’t forcing gas prices higher, people talking about the decline rates are.

US Gross Natural Gas Withdrawals (Bcfgpd) – Not That Bad


CapEx Watch: It’s that time of year and I’ll keep a rough tally of the big boys spending plans. Please send me notices if you see one I don’t mention.

  • COP cuts back – $13 billion for 2007, down from $18 this year. Estimates were for $15 to $16. Company warning that this could impact growth. well duh.
  • CVX pushed forward – $19.6 billion vs 16 this year. Company sited lots of big ticket projects in the closing (expensive) stretch.

Analyst Watch: nada

Odd and Ends:

VLCC rates hover below $50K per day. With every day that passes this is bad for the tankers and a clear indication that Opec will officially cut production levels late next week (even if they don’t actually reduce production a drop).

CHK is doing a 30 million share secondary. Sure sign of a top. Great company and will not short/buy puts but if these guys are selling stock, even after doing their Euro debt deal alst week, I call that a top.

“OPEC needs to restrict output further because a plunging dollar has cut the value of oil,” said OPEC president Edmund Daukoru. Back when CNBC had Melissa Francis as their resident energy expert, they would have flown her over there to take this guy to task. Today all they’ll do is comment how much oil is up. No indepth analysis, no hard hitting questions.

Shell Says January North Sea Brent Shipments To Drop 41%. daily shipments of North Sea Brent crude oil, which forms part of the Brent benchmark, will drop 41 percent next month from this month. Tankers will load 158,065 barrels a day of Brent in January, down from 267,742 in December, according to the loading program of Royal Dutch Shell Plc. – Bloomberg. Good reporting, just the facts with no explanation.

Nigerian Rebel’s Call On The Price of Oil:


“Up. We don’t take hostages for free you know” – unidentified rebel spokeman of the Nigerian Rebel Navy.

From the “the buck doesn’t stop here” File: former CIA director Woolsy said, “You can pick your horror story about the Middle East, it’s a disaster waiting to happen.” He then called for the US to rely more heavily on alternative energy.

From the “Perma Bull” File: “The market is assuming that OPEC will cut more production but if they surprise us with a larger than expected cut, the market may jump,” said Phil Flynn, a senior analyst at Alaron Trading. And “if oil imports to the U.S. drop for any reason prices may jump.” Comment: Flynn was “expecting” a build in gas yesterday. Does that mean that if they don’t surprise us with a bigger cut, oil is heading lower? hmmmm.


29 Responses to “Friday – TGIF”

  1. walter said

    Another secondary? I thought they were still trying to recover from the last one lol. CHK was at $40 in 2005.

  2. zmann said

    It’s a great company, excellant management team. Short at own peril. On an NAV basis it looks expensive but when was the last time anyone cared about that?

  3. Attacking Mid said

    Holding oil puts over the weekend has been a profitable venture in recent weeks. Absent significant news, oil tends to open lower on Mondays. I presume investors like to be long oil for the weekend in case something happens to spike oil. Of course, nothing happens the vast majority of weekends.

    Today looks to be shaping up to be another good opportunity. With oil climbing, we could see a nice bounce in the oil stocks. This might be a great put-buying opportunity to hold for Monday.


  4. Attacking Mid said

    I jumped on a few CHK Dec 30 calls this morning. They have only a few pennies of time value in them. Betting on a recovery from the initial downdraft.


  5. zmann said

    AM – noticed the over the weekend thing as well although it’s counter intuitive and runs counter to history. I’m still medium term bearish, short term sidelined.

    CHK near term calls a true gamble for a bounce today but there’s plenty of hope for next week as traders dream about about the big kahuna draw Thursday.

  6. Attacking Mid said

    I have now picked up an equal number of 30’s and 32.50’s. Hope to sell the 30’s fairly quickly with enough profit to own the 32.50’s for free. No sign of recovery yet, however.


  7. zmann said

    heating oil and gasoline cracks rolling over. Both have taken a beating this week. Note SUN, TSO, VLO all lower as products dip while oil rises. Bet they wish they’d cranked up production soon. Numbers going to be hard to make now.

    gas crack:

    heating oil crack:

  8. zmann said

    VLCC rates continue to reflect Opec cut. Now at $46,440. FRO and company continue slow slide.

  9. Attacking Mid said

    CHK already traded twice its normal daily volume. Do we run out of sellers or buyers first?

    In non-energy, I’m starting to nibble at Jan Motorola (MOT) calls. Electronics seem to be the theme of this year’s Christmas shopping, so I’m anticipating a climb in early Jan for MOT due to earnings release anticipation.


  10. Attacking Mid said

    DVN suffering today due to tough going in Canada. SU vulnerable to a larger drop if/when SU makes a similar announcement. I’m planning to get back into SU Jan puts today.


  11. Attacking Mid said

    DVN suffering today due to tough going in Canada .
    SU vulnerable to a larger drop if/when SU makes a similar announcement. I’m planning to get back into SU Jan puts today.


  12. zmann said

    If anybody can make a deal work write now in the gas markets it’s these guys.

  13. zmann said

    Same news on DVN hurts TLM, ECA, SU

  14. zmann said

    Pretty pathetic move on XOM given recent fall and oil up so much today. May take more SU 80 puts if XOM actually dips to red.

  15. zmann said

    Grey predicts active 2007 hurricane season:

  16. Jon said

    But after this year’s “miss”, who’s going to put much faith in that? Oh, wait… are oil prices going up? 😉

  17. gungagalonga said

    Z- You should make that Nigerian Rebel Pic into a T-Shirt. I still LMAO every time I read that quote…

    NG still holding that tight trading range, wonder which way it’ll break… It’s almost like the market took so much out of it from last week to Monday that it’s exhausted on the downside, but has no catalyst for any strength. This usually means gravity is the path of least resistance…

  18. walter said

    I second the Nigerian Rebels T shirt request- very funny!

  19. Soccer_F1 said

    CNBC’s oil pump is relentless.

  20. Soccer_F1 said

    Cool map with temperatures across the country

  21. Attacking Mid said

    SU put buying opportunity is brewing….


  22. zmann said

    So say you are Nigeria. You have the potential to pump 2 mm bopd. But certain elements of your populace have shut in one quarter of your production. At $60 oil this 500,000 bopd of lost production is costing you $900 million per month (500,000 bopd X 30 days X $60/barrel). Still your revenues are $2.7 billion per month.

    If you hire security forces to shut them down and begin pumping 2 mm bopd say the price of oil falls to $50. You now make $3 billion per month. Only if oil prices fall by 25% from present levels ($15 per barrel) is this a breakeven proposition. How much can real security cost? Can these guys not do some simple math or is this really just part of an effort to squeeze more from the oil companies in terms of social support programs without the government lifting a finger? For that matter, the oil companies, who have built schools, hospitals, clean water facilities, etc could hire addtional security but don’t. Why not?

  23. zmann said

    cool site soccer – I’ll probably bust an hour or two looking at it this weekend.

    last gasp on stocks – SU 80 puts looking good here. XOM just tried and died so I’d say you good to go on its second trip into the red.

  24. Attacking Mid said

    I’m in half of my SU 80’s (Jan), but am waiting to see if we get a runup in oil approaching 2:30 EST before doubling up.


  25. zmann said

    XOM about to go through LOD. FRO making new lows.

  26. zmann said

    oil and gas off…EOG looking weaker, SU advance cut in half.

    CFTC numbers will be interesting this afternoon. bit of a cover but with the net long position shrinking I suspect. They’re starting to worry that we may end the season with high storage levels.

  27. zmann said

    all of SU’s $1+ advance gone. When will COP do same?

  28. Attacking Mid said

    Stock tip stolen from another message board…

    Buy Apple Computer
    They reported today that they have created computer chips that can store and play music inside women’s breasts. This is considered a major breakthrough because women are always complaining about men staring at their breasts and not listening to them.


  29. Attacking Mid said

    Dec SU options still have a lot of premium in them. I’m holding some Jan 80 P’s long over the weekend, but sold short an equal number of Dec 80 P’s anticipating a rapid loss of premium starting Monday (next week is expiration week) – plus I’m somewhat hedged if SU blasts up on Monday.

    Have a great weekend!


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