zman’s Energy Brain

oil, gas, stocks, etc…

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Archive for December, 2006

Friday TGIE – Mea Culpa

Posted by zmann on December 15, 2006

Opec did largely what was expected of them except a bit later than expected. They cut production quotas by 500,000 bopd beginning in February. Opec forecast global demand growth of 1.3 mm blpd in 2007 but non-Opec supply growth of 1.8 mm bopd (the biggest single year increase since 1994). Oil rose $1.14 to close at $62.51, bit it’s still within the down trend channel. I don’t think this rise is long lived but we may drift higher through inventories next week or to retest $65.

Natural gas inventories saw the first large withdrawal of the winter season. Gas prices closed off a dime as traders looked on in horror at forecasts calling for 60 dgree temps in New England.
Gas Long’s Worst Nightmare: Red Dawn In December


The DJIA made a new all time high closing up a hundo to 12,416 and the XOI paced these gains also hitting an all time high of 1,237 on the back of gains in the one stock both indexes share, XOM. Energy stocks were broadly higher.

For those of you keeping score, the Oil Stocks are at the top (outpacing even the DJIA) while oil is on the bottom.


The market as a whole continues to ignore signs of slowdown as it “climbs a wall of worry” and the energy sector continues to act as if $100 oil is just a trade away and “peak gas” is on the not too distant horizon.

Current Sentiment – Waiting and Watching: For the last 2 or so weeks I have characterized my positions as bearish on gas, neutral through this Opec meeting and then bearish on oil, and bearish on the stocks but largely from the sidelines. Yesterday I dipped a toe back into puts of several names and got it promptly chopped off. As Phil has repeatedly stated, the group is on the rise and although my fundamental views just won’t let me join the longs in rejoicing I do take the occasional long position to help offset the burden of those aforementioned doomed put positions. I see no reason to change these positions at this time although I get just a bit more bearish with each billion dollar day in XOM.

Brian. You’re absolutely correct. Brian pointed out that simply showing inventories for crude oil, gasoline, and distillates is not good enough. My excuse is not laziness. Oh no, not me. I was simply trying to calm a heckler who had said my data was bad. I was trying to keep it real simple since he has a problem with my gas numbers which also come from the EIA. I thought I’d start pretty simple and then build upon his jabs but not in a Michael Richards kind of way. But you are right and days of supply or days of forward demand cover is the better measure. I haven’t worked up my own charts yet but we have exactly 1 day more supply now than we did a year ago. I promise to get with it on this next week.

In the meantime here is the nice chart the EIA provides of Crude Days of Supply:


And here is the complete EIA page for those of you who want more details.

Analyst Watch: ECA goes from buy to sell at Citigroup in one of the boldest analyst moves of recent memory. Citi cited disappointing production growth cost run ups. I wonder if Citi covers anyone else because that’s going to be a universal theme and I could use more sell ratings on some my positions. PTEN drops from hold to sell PDC from buy to hold at Deutsche.

Odds and Ends

Tanker rates jumped 10% to $43,000 overnikght the Opec delayed cut but I would have expected a better rebound (we were over $53K/day just two weeks aog) .

I’ll be on a forced vacation from noon through Sunday.

Posted in Uncategorized | 9 Comments »

Thursday – Opec, Gas Inventories

Posted by zmann on December 14, 2006

Opec Meets Today. And there are lots of mixed signals floating around:

Saudi – “The fundamentals of the market are much better than they were in October,” he said, adding: “We probably have a little work to do to make it an even better, more stable market.”

* – $60 oil seems fair to both sides

* Libya – “I don’t think there will be any cut,” the head of Libya’s delegation

* Iran – $70 oil and Israel must be wiped out

* Angola – glad to be a member, where’s the keg?

* Sudan & Ecuador – let us in, let us in!

The latest “official” word seems to be a 500,000 bopd cut delayed until Feb 1. Talk about less than zero. Oil is up around $1 on the news. This is the perfect announcement for the cartel. It sounds like you’re taking action but actually it’s just a threat of taking action if prices don’t hold $60.

Natural Gas Inventory Day: The First Of The Winter Withdrawals. Today we get the first of the 100 Bcf withdrawals from storage of the season. We scored 215 degrees last week, well above normal and year ago levels so there’s no way around a big number this morning. Of course, the forecast shows us tumbling all the way back to 144 this week (next week’s storage activity) and the week after that looks even warmer so any rally will be (should be) fleeting. Prime demand time is being wasted for much of the US.

Analyst Watch: VLO – buy to hold at Deutsche.

A word on gas well economics. People have said that gas will never go below $5 again because everything has changed in the gas industry since 1999 and poor E&P companies can’t drill a well for less than that. Put the cup down. Stop drinking the industries cool-aid. Here’s a recent, very common example of how wrong that is. Let’s take a shale well- lots of growth coming from those these days (CHK, DVN, EOG, APC, SWN etc, etc):

  • One Fayetteville Shales well – average reserves 1.5 Bcf – at $5 /Mcf held flat into the future the revenues off such a well would be $7.5 million.
  • SWN drills them for $2.2 million apiece.
  • This trend is less developed than its big brother the Barnett so it costs more to gather and process the gas and workers are more scare but these are hardly marginal economics — and that’s at $5 gas. Not the 12 months strip’s $8.
  • Yet this is what other big players in the industry are telling you. The play is not profitable for them and only marginally economic. Please. Cry me a river.

Recent Moves: Picked up a little APC 45 December put action on the suspicion that any commodity weakness will hurt these guys after the scathing comments from Goldman Sachs yesterday. Also bought SU 80 puts on the expectation of BRSN action regarding Opec and BHI 75s for same and the fact that the OIH looks overheated to me – what exactly is the catalyst for this recent move higher? I know it could easily pop into the high 150s but the service guys are starting to face some pricing pushback (something they haven’t seen in years). Finally, picked up the Jan 7.50 P s on EEE and am looking to pick up the long side of the trade (March 10 Calls) around year end.

Another word about oil. The following data is “unmassaged”, straight from the EIA. I download it and then put it in chart formats that are more user friendly than a line that begins at the beginning of time and runs to present. All in all, supplies are adequate if not plentiful. Given that Opec has excess supply and IEA just moderated its forecast for Chinese growth I’d call the present situation mildly bearish.

1) There is a lot of crude in storage at present…


2) … But more important is how much is in storage compared to other years at this time of the year. This is the same data stretched over 52 weeks of the year. Crude inventories are clearly above the mid point of the range.


3) Gasoline history – also relatively high just looking at a long term chart of gasoline


4) …but the 52 week chart reveals the impact of refinery outages. Gasoline inventories have made a relatively quick transition from somewhat oversupplied to somewhat under-supplied. Good for gasoline prices but not indicative of true supply and demand. Given the abundant supplies of crude on hand this situation can be quickly reversed once refineries decide to start operating again.


5) The long term Distillate history chart also shows relatively high stocks


6) But the 52 week chart shows the bounce off record (for that week in time) storage and the impact that low refinery utilization and secondary and tertiary demand has had.


Posted in Uncategorized | 17 Comments »

Waiting Wednesday

Posted by zmann on December 13, 2006

Oil – Waiting On Opec. True, we get inventories today…

  • Crude: Wide Range of Expectations. As of Tuesday analysts expected anywhere from a draw of 2mm bls to a build of 150,000 bls in crude with an average draw of 1.3 mm bls expected.
  • Distillates : consensus is calling for a build of 300,000 bls (which makes little sense given the blast of cold for the period) and,
  • Gasoline inventories are expected to rise, anywhere from a 0.5 to 1.8 mm bls (average of 900,000 bls build) and if we come in over the mid point watch out refiners, it won’t be your day. While crude is likely to hold relatively firm into the Opec meeting, gasoline will weaken on a big inventory build. I’ll be looking at buying more refiner puts on any pop associated with rising oil but falling gasoline. Yes, I know it’s winter but gasoline still makes up two-thirds of production even during this time of year. As utilization cranks back up the oversupply situation in gasoline will reassert itself.

…But the real action starts tomorrow with the Opec meeting. If we get another sizable draw in crude and subsequent rise in prices, the cartel may restrain itself to the lower end of the cut forecast band of 0.5 to 1.5 mm bopd. If we get a small draw or a god forbid a build then watch out for the ministers to try to teach this market a lesson. While I believe they’ll opt for something in the 500-700,000 bopd range, here are some of the latest comments made by those appearing to be less draconian.

  • “I don’t think there will be any cut,” the head of Libya’s delegation, Shokri Ghanem, said today. “No cut, compliance – this is the view up until now from the Gulf members,” the delegate said.
  • OPEC’s research director Hasan Qabazard concurred that if members abided by the deal they struck in Qatar in October, that should do the job of restoring equilibrium. “If we achieve the cuts agreed in Doha, the market will more or less be in balance,” he said.

Natural Gas: Likely to trade with heating oil today and could get a boost from the first 100+Bcf withdrawal of the season tomorrow. Even if we do get a bounce on the triple digit storage number all eyes should quickly refocus on the warmer weather of the next two weeks which should serve to severely dent December withdrawals. Longer term I remain bearish for all the reasons I’ve discussed before.

Analyst Watch: APC to neutral at Goldmann (two days after an upgrade at Merrill) – if they take a beating over this after the 4% drop yesterday I’ll be in for a quick trade on the long side but only if gas holds $7.30 today; Morgan Keegan initiated coverage on the offshore drillers with outperform ratings for everyone; RBC slashed its PT for RIG from $128 to $120 while maintaining a buy rating (talk about about asleep at the wheel!); FBR upped PT on TLM slightly after yesterdays growthy projections from the company.

Last minute trading ideas for Opex/Opec Week:

  • Oil Rising / Falling. SU and XOM long or short depending on your perspective on oil. These two divorced oil about 3 months ago


  • but have remarried recently and are trading quite nicely with the commodity at present.


  • FRO and long or short based on the outcome of the Opec meeting (anything less than 700,000 bopd or less means calls, greater and VLCC rates will remain depressed so I be taking the January 30 puts). Same applies to OMM which is often a little slower to move.
  • EEE – Play on falling natural gas prices and end of year mutual fund housekeeping. Plus there’s no positive momentum in coal prices and coal inventories have just reversed a multi-year decline as seen here: coalinv.JPG Anyway, clean coal with a really terrible chart and no catalysts before year end equals tax loss selling. I’m taking January 10 puts and until year end and then flipping to calls. Don’t fall in love on the short side of this one. Very good management. 2007 should be their year to shine but the stock needs to flush out all the suckers before rebounding.
  • SJT – a royalty trust with a direct connection to gas prices. No surprises here of big discoveries, just a steady monthly payout tied to gas prices and level production. The put spread is horrendous but can be bought on the mid if you’re persistent.

Posted in Uncategorized | 29 Comments »

Trendless Tuesday

Posted by zmann on December 12, 2006

Oil gets a minor bounce today ahead of Opec but no real news is driving this, it was just down a bit yesterday.

  1. Indonesia’s Opec oil minister claims that the group will cut 1 to 1.5 mm additional barrels from daily production when the group gets together on Thursday. Comment: 1) I really don’t think so since the last cuts only got 60% acceptance in the first month and maybe less now, and 2) that’s an easy statement for a guy who has no teeth in the game (he barely produces 1 mm bopd)  to make. Why not cut back 5 million barrels for all it would effect him? Of course, he’s a net importer and should want lower prices but then he’d have to think logically for a moment instead of just making statements to impress his friends.
  2. Angola Opec membership being fastracked. Originally slated for indoctrination next March, Opec wants everyone in for Thursday’s meeting (except pesky Sudan and tiny Ecuador who will have to wait). Unlike those other wannabe market manipulators, Angola is blessed with a rapidly growing production profile on the backs of foreign investors. In 2005 Angtola’s economy grew 18%. Why would you want to jeopardize this by making a squabbling group of greedy oil states your masters is beyond me but there I go thinking rationally/logically again.

Natural Gas. Ditto except for all the cartel stuff. We were due a bit of a bounce after the beating gas has taken. It’s not doing the stocks one bit of good though.

Tanker rates collapsing. Somebody believes Opec means business this time. VLCC have fallen another $4,000 per day to $41,000 this morning.  Again not good for FRO, OMM, NAT, TOPT, ALEX etc… Working to find historical data for rates but now except my word that this is pretty low for recent history.

Analyst Watch: GW upped to buy, DRQ cut to hold. ECA cut to hold at Tristone but price target upped 10% at R James.

Odd and Ends:

XOM appears to have restarted their buyback as it’s up over a percent on no news.

APC is giving back everything it gained off the Merrill upgrade and more despite announcing Mission Deep, another lower tertiary deepwater discovery with DVN and it’s intention to amputate Venezuelan ops next year.

Sorry about the delayed posted but I’ve had technical difficulties filling a large order of T-shirts for the a guy in Nigeria who says that if I send him my bank account number, he’ll send me some of the royal family inheritance. Sounds to good to be true really. Actually, meetings yesterday ran long and Gunga is closer to the mark. Rest assured I am back.

I remain bearish on both commodities but sidelined on the stocks this week as a surprisingly large “announced” cut from Opec and a frighteningly large withdrawal from gas storage could serve to drive their respective commodities and the stocks higher in the very near term. As always I’m scouting some Opex plays as well. Good luck.

Posted in Uncategorized | 9 Comments »

Monday Morning –

Posted by zmann on December 11, 2006

Oil prices mixed this morning. Rumors continue to swirl about whether or not Opec will cut and if so by how much when they meet at the end of this week. It’ll be nice to get this event out of the way so prices can get back to trading on data (or at least closer to it). I expect a cut of 700,000 bopd. I don’t see them holding pat or going with the much rumored half million and prices not tumbling back below $60. Unless the number is larger than 750,000 I expect buy the rumor, sell the news action this week (with the most of the buying done 2 weeks ago).  Remember that within days of the last Opec cut crude was trading at fresh 2006 lows.

Natural Gas – the beating continues. January gas is touching $7.30 this morning on a return of warmer weather. And who can blame traders for selling into this:

Feelin’ Hot, Hot, Hot


Having the whole country warmer than normal is pretty rare and traders know it. Everyone expects this week’s withdrawal to be the first 100+ Bcf number of the season but looking forward to mid and late December things look more Tropicana than Carmex along the eastern seaboard and that’s not good for gas.

Analyst Watch: Merrill ups ECA to buy

The House passed expanded drilling in the eastern Gulf on Friday. Still has to get by the Senate in the new year but this deal was pre-negotiated to succeed there.  Potentially a boon for some of the majors who hold leases from before the drilling ban.

Sentiment:  Bearish. Bearish on gas; neutral this week and then bearish on oil. The virtual gas trades are officially shelved over lack of winter. Any new positions considered this week are assumed to be for January or futher out unless otherwise specified as a trade. Sorry for the light note this am but I’ve got meetings this morning. Back after the open.

Posted in Uncategorized | 5 Comments »

Friday Wrap – Fun With Numbers Plus A Bonus

Posted by zmann on December 8, 2006

To be completely honest I’m still fence sitting before the Opec meeting aside from a few legacy puts. All in all, commodities faired poorly but the stocks disavowed them again, gutting my legacy puts like characters in a Mel Gibson movie.


By Popular Demand: The Rebel T. Submit Bids Now For The Holidays!


Caption on back: “Rebel Forecast For Oil: UP! We Don’t Take Hostages For Free Ya Know!”

Thanks for stopping by and have a great weekend!

Posted in Uncategorized | 3 Comments »

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.

Posted in Uncategorized | 29 Comments »

Thursday Morning – Forget Opec, Today It’s All About Gas

Posted by zmann on December 7, 2006

Natural Gas Inventory Day And It’s Another Bag Job. Consensus: withdrawal of 14 Bcf according to Bloomberg which sounds like a bag job when you consider the weather was pretty close to matching the prior week when we had a 32 Bcf draw.

  • I haven’t seen the range of estimates but I’ll bet it’s dragged up by a few shameless participants who are “long but expecting a build”.
  • Brother if you’re expecting a build, you shouldn’t be long! I’m calling for a draw of 20-25 bcf as I stated on Monday. If we get that 14 number I’ll be pretty happy as that certainly isn’t good for gas. It will also serve as reminder that this is only a survey.
  • Comparison of degree day readings to implied change in storage shows the withdrawal should be bigger than what those surveyed are “expecting”


Remaining Winter Withdrawals (December through March) – We’re in no danger of running out of gas this winter. In fact, we’ll be hard pressed to get back to average trough storage levels .


Analyst Watch: SFY and PPP cut to sell at UBS and Deutche respectively. NFX PT taken up substantially at Caylon.

Holdings Watch: SU reports November production at 257,000 bopd, down from 261,000 bopd in the prior month. Probably a non event news item as their average 2006 production should fall in the middle of their projected range. They had a shot at the high end before this number but that’s not possible now. They should need to guide expense higher soon as natural gas has stayed well above their 4Q target of $6.75.

EOD = LOD for XOM. Man when people want out, they want out. Exxon fell 2.3% yesterday the second largest single day decline this year (just shy of the one it experienced in mid November before the stock vaulted to new highs). This sell off came on high volume as well: 30 million shares vs average volume of 21 million.
  • Strangely it wasn’t anything the company or an analyst or Opec or a democrat senator from California said. It wasn’t the Russians either although that should be (but has not been) cause for concern.
  • It wasn’t the lack of production growth growth at the worlds largest energy company.
  • But it was a change from the day in, day out advance the stock has exhibited over the past 3 months.
  • XOM is up 36% YTD and just in the last month it’s market cap has grown an eye popping $35 billion.
  •  Over the past month its forward multiple has expanded by a full point to 12.25x.
  •  Its peers (BP, COP, CVX, TOT, REP) trade at 9.8x
  •  15 out of 22 analysts rate it a BUY. The other 7 have it at HOLD.
  •  and everyone’s favorite chart – XOM’s complete divergence from oil since summer.


             Odds and Ends:

            Cramer, the schizo, on XOM (this week):

            December 5 – “you can’t go wrong owing Exxon” and “clearly going to $80”

            December 6 – “Boo the bad Exxon Buyers” ” Their impatience made this stock overvalued

            Nigerian rebels attacked an AGIP production platfom taking 3 hostages. Pretty good chronology here of the rebel’s activities. Buys little buggers.

            Iranian production problems. There’s a good article in Business Week, sorry no link, about Iran’s lack of investment in oil infrastructures and its inability to grow production as a result. The government has hijacked oil revenues to support massive government aid programs. Moreover, the Iranian government has done a poor job of attracting foreign investment  with overlong negotiations and unattractive economic terms. Energy subsidies, especially for gasoline, have yielded spiralling energy resource demand and as such, they are a net importer of gasoline and natural gas despite massive reserves.


            Posted in Uncategorized | 11 Comments »

            Wednesday Morning – Waiting For Inventories

            Posted by zmann on December 6, 2006

            Oil Easing Slightly Ahead of Inventories. January crude is dipping below $63 early this am but will probably hover close to that mark until 10:30 when consensus calls for a build of 560,000 bls of crude (with a broad range of draws and builds) and a draw of 860,000 bls of distillate. Most analysts expect gasoline to show a small build but that’s of little importance at present unless it just balloons and I really doubt that’ll happen.

            • As this is the second to the last inventory prior to Opec’s Dec 14 meeting we need a Goldilocks number- not too big, not too small for both the crude build and the distillate draw. Large builds although short term bearish would increase the likelihood that Opec will act so be careful of getting whipsawed with the initial reaction today.
            • I would be surprised to see a larger than expected draw in distillates since the majors and independent refiners continue to drag their feet on annual maintenance turns and utilization will almost certainly remain below 90% in this report.
            • We’ve had 3 reads on the US manufacturing economy in the past week CPM, ISM and factory orders yesterday – all lower than expected. It’s OK though because I saw a comment from the Nigerian president of Opec that the cartel wasn’t concerned about high prices impacting demand from their largest customer. I don’t care what he says, if these keeps up demand slows.
            • Most opecies are calling for a 500,000 bopd cut at their meeting next week. If they get the same 60% participation in announced cuts that will bring total reductions to just under 1.1 mm bopd (just shy of the original production cut of 1.2).

            Natural Gas To Focus On Distillates Today, Inventories Tomorrow. After losing over 10% of it’s value in the last 5 days, natural gas is likely to trade more in line with heating oil early today than on weather forecasts. Tomorrow’s withdrawal closes the books on a pretty lame November (as withdrawals go) and traders appear to be buying into my line that even the coldest winters would only get you back to average and we don’t appear to be on track for one of those.


            Forecasts for next week continue to moderate which should pressure prices after inventories as we transition from this:


            To this:


            Analyst Watch: Yawn. PQ upped to buy, WTI initiated as an ADD at Caylon. No comment except that the option spreads are huge on both and that any pop PQ gets will be short lived if gas trades sub $7. Nothing like changing your rating to a buy with falling gas prices and the stock touching all time highs.

            Holdings Watch: SU is officially late with its monthly production report. Any number below 265,000 bopd negates the possibility of attaining the high end of the 4Q projection production range.

            VLCC Rates Got Hammered Yesterday. I guess someone believes Opec will cut as VLCC rates fell $3,330 to $47,280 well below the $50K psych support it’s been teetering on. If it holds for more than a day look for OMM, FRO, TK, TNP and crew to get shelled (further shelled in FRO’s case).

            Posted in Uncategorized | 11 Comments »

            Tuesday Morning – Gas Got Crushed And No One Cared…

            Posted by zmann on December 5, 2006

            …and that’s why I remain on the sidelines. If you can’t beat ’em at least don’t let them beat you. Right now, the bulls are in charge. That may change today or tomorrow (well, probably not today) but I’d like to see directionality before I start wading back in, long or short.

            Oil lost a buck or 1.5% yesterday. The recent rally failed as the dollar stabilized. Left that one out of yesterday’s post of the list of things driving oil up over the past two weeks. This mornings headlines read almost exactly like yesterday’s except that oil is rallying today for the same reasons it was plummeting yesterday. Silly reporters, just say you don’t know some of the time. This moring’s trading has recaptured about 2/3rds of yesterday’s losses and the stocks appear to be off to the races again.

            Natural gas got crushed for 7% and fell below psychological support at $8 all in the same day. As I said in comments yesterday, this week’s report should be a tad smaller than the last one making a light month for withdrawals as Novembers go. December is getting off to a decent start with the first 200 heating degree day (HDD) week of the season but it falls 18% short of last year’s comparable week.

            Bulls Take Heart, The Analysts Are Trying To Rescue Gas By Bagging Expectations. “Natural gas is falling not so much because it’s cold, but because we should see an injection in next week’s [supply] report,” said Flynn, senior analyst at Alaron Trading. Are you friggin kidding me? You expect an injection? With the weather just slightly warmer than the prior week when we withdrew 32 Bcf!!! What are you smoking and does it serve as a heat source for you? Man, I wonder which side of the trade Alaron is on.

            • For the week ended Dec 2 (the last week of November) HDDs came in at 132 vs the 130 predicted a week ago by NOAA and the 137 seen in the prior week. I’ll be going with 25 to 30 Bcf since the mix was a little more skewed to gas heating regions. That leaves us with a November draw of about 60 vs the 328 last year and 10 yr average of 186.
            • This mix also has bearish implications for heating oil on Wednesday but not greatly so. Heating oil got dinged 2% yesterday.

            The stocks yawned. The XOI and XNG fell a measly 0.3% and 0.4% respectively. Technically speaking the slight downward moves of the last 2 days don’t put a dent in recent gains and there is lots of room for these stocks to fall if gas is repriced (say below $7 in the short term). XOM added another $2.9 billion in market cap on somewhat light volume as the “buy the dips” mentality rules the stocks as well as the minds of oil traders.

            Analyst Watch: Busy day with ratings going every which way.

            COP upgraded to buy. CVX, MRO, HES downgraded to hold.

            XOM PT raised from $75 to $80 at BofA and reiterates buy (gutsy move Maverick with the stock at $77- I’d love to know hwat changed to boost earnings or did you just exspaqnd the multiple by 7% so you wouldn’t be forced to downgrade?).

            FBR raised and lowered price targets by $1 or $2 on almost all the refiners -fine tuning?

            Holdings Watch: First I’d consider lightening up on any of the four “virtual gas” plays (APC, CHK, KWK, SWN). Since I never pulled the trigger on them and am not inclined to be long right now I don’t have to worry about them doing anything more harmful than tempting me to buy some calls but if you own them, then gas has got to be scaring you a bit right now. I orignally said they were trades for gas remaining strong (over $8) and they’ve performed well in the face of a 10% retrenchment and gas falling into the high $7s. I’d use today’s strength to take a little off the table.

            SU – where is that November production update? hmmmm. I’d hold off since the stock is back in rally mode and data could only confuse things.

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