zman’s Energy Brain

oil, gas, stocks, etc…

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Archive for December 26th, 2006

Turbulent Tuesday

Posted by zmann on December 26, 2006

What a great Christmas! We had four actually (ours, grandparents 1, great-grandparents, and grandparents 2) so I’m kind of spent, but alas, back to the lash.

Oil Is Soaring on Iran‘s Defiance of Saturaday’s soft U.N. sanctions relating to the rogue nation’s nuclear program. The good news is that 1) consensus among oil traders is that Iran and the Nigerian rebels need to act on an almost daily basis to break oil out of the $60-65 band and 2) Iran needs cash badly to support both it’s neglected oil infrastructure and it’s overtaxed social welfare programs which keep Adinenejad in power making a real threat to the Strait of Hormuz suicidal for him. The lack of real winter weather only increases the downward pressure on crude prices. I don’t expect the February contract to close above $63 today and won’t really start to be concerned unless it breaks $64.50 this week which I very much doubt.

Natural Gas is getting smacked in overnight trading as the unseasonably warm weather is now seen continuing into early January. Gas is down $0.30 as I write this to $6.34 blowing through my level from last week of $6.50 and setting up a test of the $6 level. This could be a bad week for the OIH and XNG if we do test $6.

Weather forecasters never go on holiday: For the week ended December 23 the final number of heating degree days was 156, almost spot on with the week ago estimate. For the last week of December, the CPC is calling for a still balmy 168 (49 fewer than normal but 14 more than last year).

No, this isn’t a map of the mid-term elections. Red = Warmer Than Normal:


CFTC: Net Long Position Flips To Net Short! – Traders may be talking a bullish game in natural gas (at least the one’s CNBC finds to interview) but their wallets ran for the exits last week as the net contract position flipped back to the short side. The reversal came as both longs declined and shorts advanced and comes just after the net long position had reached near record highs. Selling pressure may intensify as traders reposition to the short side and the talk (even on CNBC) becomes decidedly more bearish. I hate to say I told you so but I said last month that when these speculative positions reach peak levels they often reverse drastically, and well, there you have it.

Speculators Flip To Net Short Natural Gas Position


Sentiment: Bearish. I remain bearish on natural gas, neutral early this week then bearish on oil as everybody comes to their senses about the very remote prospect of Iran actually doing anything to oil shipments, and bearish on the energy stocks. The stocks are likely to get a small, very short lived bounce Tuesday morning but are just as likely to lead the decline in oil by hours or even days. I remain comfortable with puts on APC, BTU, EEE, and LNG (the company) as gas and gas proxy short plays. CHK, SWN, and KWK all work as well but only for very short trades as they are too hedged and/or too well run for me to go short them for more than a few days at a time. COP also starts to look weak here over the prices paid for BR but it’s already so cheap on earnings I’m not playing. If we get an oil stock rally I’ll be looking to add to put positions among the refiners and MUR as well as any number of drillers and service (PTEN, GSF, BHI to name a few favorites).

Analyst Watch: They just got mega bonuses so you’d think they’d have some canned research to launch today but so far nada. I’ll post any buys, sells, or holds in comments later.

Odds and Ends:

Fimat Perma Bull Never Sleeps (or gives up) – Quotes from the holiday weekend:

  • If the weather turns colder than normal, “we can rip right through” the existing natural gas surplus, said Fimat USA analyst John Kilduff. – this guy was waving his pom poms and cheering gas higher when it was $9 a few weeks ago and seems to have Bloomberg and CNBC on his speed dial.
  • An oil analyst at Fimat USA (unnamed but we know who you are) said: “Don’t look for a major washout in prices any time soon. Trouble in the world’s most important oil-producing region is not going away.” – It’s Christmas time so at least try to sound like you’re not salivating at the prospect of unrest in the mid east.

Gee, I wonder if he’s long oil and gas?

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