zman’s Energy Brain

oil, gas, stocks, etc…

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Monday Morning 1/8/07

Posted by zmann on January 8, 2007

Oil Up Strongly In Pre Market. This morning oil is getting a boost from: 1) heightened rebel activity in Nigeria (these guys definitely watch CNBC for cues about when to act), 2) reports that an “Artcic Blast” could send temperatures plummeting across the Eastern Seaboard around January 20th, and 3) increasing talk from Opec nations that another energency meeting is needed to shore up prices. Oil is just over $57 at 8pm eastern but I don’t really get concerned unless it breaks $58 which I very much doubt will happen (unless of course rebels show up in the GOM and then all bets are off).

Gas Is Up Too Much. In early trading gas is up a whopping $0.28 to $6.46. Simply ridiculous. Yes, the second part of the month looks colder although Ive read several weather blogs from reputable meteorologists (I know, I know, I need a hobby) and there is much in question as to the severity and breadth of the “artic blast”. This weather blogger makes it sound like any major changes in the warm weather pattern the US has enjoyed will be very short lived. At nearly $6.50 for the front month contract gas is out of control when you remember that we were in the mid $4s back in September before any knowledge about short sleeve weather in January nor just how big a storage surplus that would lead to. I’ll updated production data tomorrow but suffice it for now to say that gas production continues and that the current supply overhang is not just related to successive warm winters.

Stocks Appear Likely To Continue Friday’s Bounce. Early indications show 1 to 2% upward moves for the usual suspects and I’ll be waiting to see how far “artic blast mania” can carry the group. I’m betting that hedge and mutual funds alike will transitions from a long period of buying the dips to one of selling the bumps. We should be able to tell if the XOI and XNG fail to break through last Wednesday’s closing lows and if we begin to see a pattern of morning rallies followed by more volume selling after the close of NYMEX each day.

  • I got stopped out of my two biggest positions last week, BTU and MUR and will take my time before reentering.
  • I may take some very short term calls on gassy names: EOG (I have puts here now), KWK, CHK (very favorite) , SWN. Oil names: SU and VLO. On the service side BHI and RIG have been much abused. Fundamentally I don’t believe the group should go up but if there’s a bounce to be played (and that’s all this will be then I’m game). Oh and I may of course play the ultra cheap premium XOM as it’ll be the last to turn back negative when the bounce fails.

CFTC data was not released Friday.

Baker Hughes rigs count rebounded 12 – a non event but certainly aren’t seeing a big decline in rig activity yet but most operators continue to say it’s coming with lower gas prices.

Analyst Watch: ESV to underweight at JP Morgan (Wachovia beat them to it last Thursday- the offshore drillers are starting to lick a little picked upon). Wachovia cited “the increasing threat of an overhang in natural gas storage” and that it “sees additional downside as activity metrics worsen and service companies give 2007 outlook below consensus.” — I wonder what tipped them off?! UBS initiated coverage of KBR with a neutral.

Sorry for the short post this morning but our heat went out during the night and I’ve got to get on top of the situation. This rebel problem is really getting out of hand!



21 Responses to “Monday Morning 1/8/07”

  1. Ok if OPEC needs to have another meeting about cuts, then oil is really showing weakness. If I were long on oil I would run far away. It is a sign that the market is not liking $60 oil. I think that OPEC was stupid in going from a $22 – $28 price-band to around $60. Maybe if they shoot for $40 – $45 they may get a better reaction. Just my 2 cents.

    I think with nat, sometimes things are hard to let go of. 😛


  2. zmann said

    Interesting quick sell off of the morning oil rally. Stocks gapped up and then sold of solidly after first minute on pretty good volume. Just watching….no calls or added puts yet.

  3. zmann said

    Sane – couldn’t agree more re Opec. All of the sudden we’re supposed to swallow 3x oil prices re 2000 and watch their economies grow in the teens? Well, they don’t call it a cartel for nothing.

    Interesting action on the stocks. Gap up then sell off for the first 30 minutes of trading.XOM touched even a minute ago and most gains have been cut by a third to a half, USO included.

    Picked up some APC 42,50 Ps and looking hard at BTU again.

  4. walter said

    Refiners still strong, VLO up 1.75%

  5. Attacking Mid said

    Sold my SU calls before it came back down and loaded up on UPL and ECA puts. There is no NG cartel.


  6. zmann said

    AM – not unless you count things like CHK shutting in wells and saying that selling gas a prices below $5 isn’t worth the trouble. Six years ago $5 was only a dream. Now it’s not worth the effort. Picked up some Feb BTU puts.

  7. WDKING said

    Hey ZMAN,

    I agree 100% with your 3rd comment, my theory is very simple. There is more oil out there then we ever thought, the rise from 20$ to 75$ is just the last kick @ the can for oil co.’s to make as much $$$$ as they can before their product becomes almost obsolete (see 2007 auto show hybrids)

    PS, thanks Goldman for cutting your 2007 oil estimate to 69$…should give them enough time to get out!

  8. zmann said

    AM – already got my fill of UPL although this bounce looked nuts…it looked nuts to me Friday too. Next dip I roll longer on that one. too expensive…gas out there too cheap…not good combination.

    Called for service on my heat earlier and they’ll be right out. Usually this time of year they tell you to bundle up and they’ll see you later in the week. Maybe we should short lennox on the global warming thing. They make AC too but 50% of their business is heat. 😉

  9. zmann said

    XOM getting popped. Canary action on this oil rally fizzling?

  10. thumb said

    NO heat/
    Obviously a conspiracy/ to sway your position on energy/
    Watch for a clogged chimney next.

  11. Attacking Mid said

    Definitely a conspiracy. Let me guess… your dog’s not in heat either? I knew it!

    I should just sell out and watch the rest of the week. My trading account is up 10% for the day. I was due, however.


  12. zmann said

    APC in batan death march. BTU to follow. No help from XOM’s prime broker…he’s obviously been told he has a lot less to spend on the buyback this year.

    Service guy is here. He’s checking the unit for rebels as I type. Something about dirty fuel sensor on my heat exchanger.

  13. zmann said

    Feb oil through Thursday low of $55.39. Looks stalled for now above the Friday ($54.90) from which we got this rally. I think we’re headed lower shortly. Wednesday heating oil inventories shouldn’t make any bulls happy. Weather forecastors still conflicted about the duration of the approaching cold as well.

  14. Attacking Mid said

    Dirty fuel sensor, huh? Sounds as if the N American fuel supply is contaminated. Watch the news spread from here – it’ll be on CNBC in an hour.


  15. Lou said

    Marathon Oil-MRO provides Q4 interim update
    Production sold during Q4 is estimated to be approximately 355,000 barrels of oil equivalent per day (boepd). Revenues are reported based on production sold during the period and can vary from production available for sale primarily as a result of the timing of international crude oil liftings and natural gas sales. Oil and natural gas production available for sale during Q4 is expected to be approximately 360,000 boepd, within the previous Q4 guidance of 350,000 to 370,000 boepd.

  16. zmann said

    Thanks Lou.

    It was a hinky flame sensor. $86 + tax.

    Oil rally looks pretty orchestrated with close of Europe. Let’s see if they bust above and stay over $56 again. Action in XOM says they can’t.

  17. zmann said

    Ray – the logic in hyping something your hedge fund is short is two fold:

    1) he really believes oil will go up in the future…just not in the near future so he can stake his claim and reputation on it and later when its up say, “see I told you so” and

    2) everytime he goes before the camera and hypes oil he may or may not mention that this is his “long term” position on oil. CNBC summarizes by saying T. Boone says oil is going up and traders rally the commodity immeadiately. HIS traders then add to their short position from a higher level.

    Cramer did much the same back in the old days when he ran a hedge fund but appeared on CNBC. One of his minions even wrote a book about it.

  18. Attacking Mid said

    I read that book a couple years ago by the former Cramer employee. In many ways, the Cramer I see on tv doesn’t entirely add up to the Cramer described in the book, but apparently the tv show has been a therapuetic outlet for the hyper, type A Cramer who was heading for an early death in his former life. It was a reasonably interesting read as I recall.

    All the stocks I’m watching seem to be in neutral for the past couple of hours, though volume is pretty strong. I’m not playing SU either way right now – will wait for a break one way or the other and try to play the counter move.

    In non-energy, AAPL may get a nice upward move over anticipation surrounding the “iphone”. It might make a nice opportunity to go long on puts, as I think the “sell the news” move might be larger than the “buy the rumor” move.

    SU moving up – may buy puts if we get a rally into the NYMEX close.

    BQI had drifted a bit lower last week and started down this morning. I managed to steal a few more Feb $5 calls for $0.40. It’s back up to $5 now. My plan is to try to sell the Febs on an upward spike, then try to buy back into the Aprils at a similar price on a retracement. Plans, of course, don’t always come to fruition.



  19. zmann said

    From Fox News:

    a Reuters survey showed on Friday that OPEC had made little further progress in December in lowering supply to bolster prices, as higher output from some members offset continuing cutbacks by Saudi Arabia and others.

    Supply from the 10 countries bound by output targets was 26.96 million bpd, up 60,000 bpd from November, the survey found on Friday. December supply was 680,000 bpd less than in October, just over half the cut OPEC pledged from Nov. 1.

  20. Lars said

    Zmann –
    If you don’t mind educating a noob, on Phil’s blog last week you mentioned industry switching to natural gas as prices decline. What is involved in switching (is it a matter of pushing a button or does equipment have to be changed out)? Also, what fuel would they be switching from?


  21. zmann said

    CFTC page updated. Longs are currently 48% of total speculative positions in gas. We’re pretty much unchanged from the prior week and we’re certain to get another small withdrawal for the first week of January.

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