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!