zman’s Energy Brain

oil, gas, stocks, etc…

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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:

redmap1226.JPG

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

cftc-goes-negative.JPG

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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16 Responses to “Turbulent Tuesday”

  1. Attacking Mid said

    Wow, what a turnaround in oil.

    My new theme for 2007 is more diversification. Hence, I took puts this morning on SU, DVN, MUR, and XOM… oh, and MOT (Motorola). See how diversified I am ;^ )

    AM.

  2. zmann said

    From the “also looking like they paid too much file”: APC for paying some of the biggest premiums ever earlier this year for Kerr-McGhee and Western Gas. It’s up today after announcing yet another asset to pay off debt taken on to do those big purchases. Wall Street hates these as the production profile remains in flux for a year or so and nothing is “apples to apples” – the more confusing the story gets or the longer it goes on, the less insterest the analysts have in promoting it.

    Yes APC is raising a lot of cash (acutally just reducing massive debt) but on a $/barrel basis, do you really think that what they’re selling now is getting a higher prices than what they bought earlier? I know I don’t.

  3. Attacking Mid said

    Screw-up of the day….

    I tried to squeeze an extra nickel in buying UPL puts this morning. Never got a fill, and the stock’s down $1.25 since. New saying…. A nickel saved is a dollar lost.

    AM.

  4. zmann said

    AM – Uou didn’t lose it. You just didn’t make it! Think positively dude. You’re kicking tail and taking names in SU!

  5. zmann said

    The trader they just had on CBNC almost quoted my comments on Iran and oil this morning! On weather he went further and said that temperatures out through Jan 10 are mild and after you’ve only got 2 or 3 more weeks and then winter is over! That’s a bit of an overstatement but not far off the mark. These are prime gas and heating oil consumption days that the US is missing out on.

  6. Attacking Mid said

    I can just see the headlines:

    Global Warming Given Credit for Saving World from Apocalyptic Energy Crisis

    Funny how things work out.

    AM.

  7. zmann said

    MUR just fell through it’s 200 dma. With their high P/E and fall gas, oil, and cracks they’re in bad spot here.

  8. zmann said

    LOL – AM. It’s being given credit for everything from droughts and rising tides to an early ice age but I haven’t seen that one so the credit goes to you!

  9. zmann said

    Check it out. XNG down slightly and OIH dipping over 1%. XOI fighting to stay positive even with oil down $1.50 and natural gas off 10%. I who among the analysts will head for the exits first? It could get ugly or maybe they’ll all just ignore the commodities and reiterate their buy ratings.

  10. zmann said

    the 12 month NG strip is about to break below multi-year lows.

    http://tinyurl.com/ue2d9

  11. non-nonymous said

    APC seems to be stubborn, nto coming down

    Zmann – hopefully no problems in the aftermath of the fire in your house?

  12. zmann said

    Non-nonymous

    Thanks for asking but nothing major. Other than I have some dogs up for adoption in my backyard. ;->

  13. zmann said

    XOM getting pulled back in off a failed rally as oil falls to new interday lows.

    CNBC hauling out pm’s who are long energy saying it’s a buy

    BTU still held up the Barron’s pump but only barely as gas heads towards $6. (when I wrote that this morning I was speaking for the week, not just today!) We could get a big bounce off $6 tomorrow.

    XOI stocks still defying the commodities but XNG and OIH paying close attention.

    APC up on that sale. Hackett (APC’s head) is no fool but neither are the buyers.

  14. zmann said

    On falling gas I still don’t like APC that much since hedge positions are smaller than some of its mid cap peers but that was not a bad sale given how reserves are being priced at present.

  15. Attacking Mid said

    I neutralized my SU puts with an equal number of calls.

    Sorry to hear of your dogs. We have a 4 mo. old Golden Retriever, but we still kennel him at night or if we’re unable to keep an eye on him.

    I call him my “trading” dog, as he often lies under my desk for hours while I’m trying to make a buck.

    Oil’s trying to mount a last-ditch rally into the NYMEX close. Might get a chance to buy more puts.

    AM.

  16. walter said

    Z, what’s your take on crude/gasoline inventory? should we look for some trading opportunities in the refining sector?

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