zman’s Energy Brain

oil, gas, stocks, etc…

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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.

15 Responses to “Monday Morning – Analysts Are Buzzing”

  1. zmann said

    Taking a hard look at the PBW clean energy fund on the short side again. Ir ran up with the hopes of a democrat controlled congress and high gas and coal prices. Now that they’re falling and the dems aren’t as likely to push for clean energy boosting the group is starting to fall off. Spreads are very tight with is surprising but welcome.

  2. zmann said

    Picked some OMM 25s at $0.15 this am. Holding up nicely vs the energy group sell off.

    Also got back into some Mur 50 puts for $0.85.

  3. zmann said

    HOC and TSO getting popped hard this am on the FBR sector downgrade. HOC has the higher multiple and a lot further to fall. VLO down a buck on sympathy.

  4. zmann said

    LNG (the company) has given nearly all of the recent deal touting gains back. This had no business over $30 and it still has no business over $20.

  5. zmann said

    SWN calls getting more tempting by the minute (it’s now down 3% despite the upgraded analyst comments and mongo production growth forecast).

    Just goes to show how important patience is, especially when the micro call (the stock) is fighting the macro call (gas prices). The stock might when for an hour or a day or two but with gas headed below $7 and then $6 and then $5 it’s a tough call.

    At the end of the day, SWN will have one of the best production profiles in terms of not only raw organic growth but also sustainability and risk in the business.

  6. SWN does have a good production profile. Might be a good one for calls.


  7. zmann said

    I’m in on those calls as soon as it falls (some more). It’ll be the best profile amonth the E&Ps next year.

    Meanwhile BTU is cracking down. Good discussion of the potential risks of a short there on Phil’s site.

  8. zmann said

    USO moving lower despite explosions in Nigeria and a weather shut in houston ship channel. Heavy producer BRY looking especially weak right now. All of the refiners getting sacked but cracks will be up today as gasoline is supported by the inability of the ship channel to receive some 60 tankers that are waiting to offload.

  9. looks like an energy shakeout today


  10. walter said

    will the shakeout continue tomorrow? the whole sector looks weak

  11. I hope it continues. I can get rid of all these puts. 😛


  12. zmann said

    Could have used this last week for expo. Nothing’s changed since then but they waited out the Dec puts. As to how long it lasts…who knows. If oil dips down to $62 on the Feb contract Opec is sure to start grumbling and the rebels will shut in a platform or two.

    The weather is supposed to get colder before New Years but not especially. Any way you slice it this is going to be a lousy December for gas and heating oil consumption as history goes so prices should only continue to slide.

  13. zmann said

    Funny how this energy collapse, for lack of a better term, happens the day after expiration. It continues to get worse but I’m not complaining . EEE is breaking below $8 (down 7% today) and new positions in BTU and MUR are working surpisingly well. My new calls on OMM have not budged as everything energy is down…but they’re immune to a big crash here (the stock is off just $0.20) as everyone wakes up and sees all the oil sloshing around.

  14. zmann said

    Ahhhhh, SJT got positively crushed and I never was able to pick of a mid spread trade.

  15. zmann said

    NOAA site back up. Next week’s forecast 159 HDD, up a little from last week’s 135. That gets us through the majority of December with well below normal weather. The 15 day forecat (which gets us into the beginning of January isn’t all that wintry as well.

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