zman’s Energy Brain

oil, gas, stocks, etc…

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Archive for December 18th, 2006

Monday Morning – Analysts Are Buzzing

Posted by zmann on December 18, 2006

Natural Gas – Lookout below. Recent heat wave continues to take its toll on prices, now down $0.20 this morning to build upon the last two week’s route and heading for a test of $7.  Heating degree days fell to 135 from over 200 last week and the forecast is about the same this week. I’ll have more later on this as NOAA is having site problems this morning.

Oil – Looking Kind of Tired. Trading slightly lower now that Opec is out of the way and the North American winter once again takes center stage. I’d like to see a test and failure of $65 but we may be caught in a channel between $60 and $64 through year end.

Analyst Watch: Busy Day on Wall Street. Goldman ups BHI to buy after its recent run from $62 to $78, FST upped to buy, MUR downgraded to under-perform, while FBR took XOM, HES, TSO, MUR, and HOC to hold from buy in what I’d consider the boldest move since Lehman’s ill-fated sector downgrade a few months ago. SWN caught two substantial PT upgrades from Deutshe and Prudential (despite the failure going on in the gas market, SWN announced a massive capital program and bold production estimate for 2007 and I’ll be jumping in with both feet this week but only opportunistically given gas’ predicament). ECA was cut to sell at Goldman which is not really too late and will likely ruin their chart today after Friday’s Citigroup downgrade.

Odds and Ends:

Barron’s says COP is undervalued stating that it has the lowest P/E ratio among the largest 50 companies worldwide in terms of market cap. Not a bad point. At 7.7x forward PE it would make a nice long paired with XOM (12.5x) on the short side. This would work nicely except the group trades as a herd and XOM‘s buyback program will bite you quickly on any puts held for more than 2 0r 3 days. A better pairing would be CVX (10x) or mini major MUR (14.3x).

VLCC rates are skyrocketing on 1) the Opec production cut delay and 2) the lack of strong language out of Opec regarding tightening up compliance on the last cut. In other words, this indicator shows that a lot of oil is still sloshing around. VLCC rates had fallen from the low $50K /day range to around $38K/day. They rebounded $4K on Friday but are jumping today by $15000 to $59K/day. Merry Christmas, Happy Hanukkah, Joyous Kwanzaa to FRO, OMM, NAT, TNP, and TK. FRO has been beaten to the curb of late but they did miss so I like the OMM 25 Jan Calls for a dime in here) .

Reiterate Dislike of EEE Through Year End. These guys should get nailed by all kinds of retail tax loss selling through December 31. Falling gas and coal prices help them none too much either so I think you have time to wade into a long position in late winter after the stock gets shot over the next few weeks.  I a nutshell as coal prices fall, the spreads between the cheap Powder River Basin coal they buy and the upgraded syn coal they sell get squeezed by the falling prices in the eastern US coals. While the lower gas prices help them a little, it’s not enough to offset the pain of signing long term contracts at lower than expected ASPs.

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