zman’s Energy Brain

oil, gas, stocks, etc…

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Friday Morning – 1/12/07

Posted by zmann on January 12, 2007

Well, I Didn’t Call It Thursday Thrashing For Nothing!

  • Natural gas got popped for 7% but more on that later.
  • The pendulum has probably swung a bit too far and definitely too fast (as usual). I’ll be looking for every opportunity to lighten up on the puts and may take a call or two for an “Opec’s going to pull something over the long US weekend” play. Probably SU or VLO or something just as wildly volatile and highly oil correlated.

Oil – S.S.D.D. Rally a little, retreat a lot. Sad really. We’re set up to see similar action today although the long weekend and Opec threats should be able to keep oil positive. Tell me how this doesn’t hit $50 soon if not $45. Notice in this long term chart how you always get a rounded bottom on the change in direction. You’ll have time to buy calls on energy stocks. There is no reason to catch a falling knife here except for a quick trade!

Opec Watch: Rumors of an emergency meeting. Hey guys I thought it was about inventories and not price. US crude inventories continue to fall so what’s the problem? Oh, I see. You thought that falling crude inventories would lead to more stable prices but you didn’t count on the massive builds in gasoline and heating oil stocks. I gave you my master plan for correcting the situation in yesterday’s post…just do it…the rest of the world can’t stop you and what do the rest of us expect anyway? You’re a bloody cartel so act like it!

Fimat Watch: Since these guys get published somewhere with a silly bullish/inane comment on a daily basis I just had to add a Fimat Watch. “The impact of the weather should not be overstated. Heating demand is a comparatively small part of global consumption,” said Antoine Halff, an energy analyst at Fimat. “There’s potential for a rebound.” I especially love that last line, “potential for a rebound”. Now that’s some concrete analysis. ROFLMAO! When these guys capitulate I’m going ALL IN LONG! Just shut up instead of babbling daily about how prices should be higher. It’ll happen but bagging your estimates and calling every reporter you’ve got on speed dial won’t make a difference! I really miss Melissa Francis! She would have taken these guys to task!

Natural Gas Had A Very Bad Day…Falling $0.46 (7%!) to $6.29 on the February contract. The last three withdrawals have been below 50 Bcf (47,46, and 49) at a time of year when 120 to 150 per week is the norm. Say what you like about the approaching weather but unless the Sun takes leave of the solar system we’re going to have a lot of gas in storage at the end of March. For its part, NOAA said it sees warmer than normal weather for the U.S. persisting through March which would seem to contradict the recent dire forecasts calling for a month of Arctic blasts. For a better summary of the gas storage numbers look here.
gas-storage-011607.JPG

…Look For Gas To Trade With Heating Oil Today. Illogical as that may be, the long weekend and threatened cold could send oil and heating higher today and gas is likely to at least find support here. Next week we can resume our downward course on the way to a failure of $6 gas. My one caveat would be that if we somehow, maybe with the help of a warmer weather report, crack $6.18 then gas could move lower fast for that $6 test. Once we warm up again I fully expect gas to crash back to $5.50 in late January and to $5 by early February.

Stocks Tread Water. Stocks did a lot better than you’d suspect on a day in which oil and gas got shredded. Lots of early buyers got burned though as brokers called for bargain hunting and at least two rounds of buy programs kicked in. Every time this happens it makes the next time the brokers say, “it’s time to buy this dip” that much harder to pull off. I’m still in puts on APC, EOG, MUR (not enough but that’s a problem to have!), BTU, EEE, and PBW and a goodly bit of cash for the long weekend. Of course, I still like puts on the refiners, especially SUN and VLO (although they’re all suffering), BHI, PTEN, and am looking for an opportunity to buy puts on HES but probably won’t add any puts for carrying over the weekend unless oil gets out of hand on a rebound (>$54.50).

Adding XLE To The Hit List. It’s an ETF holding the “whose who” of energy names but is very heavily weighted towards XOM and CVX (36% of assets) which happen to be the two most expensive majors out there. COP is another 10% or so of the fund and it has its own set of problems. Very near term support is 4% below current levels at 52. Interesting the XLE has found a bottom around 51 three times this year in Mar (when oil was $62), June ($70) and early October ($62). So here were are at $54 but oil is all $10 lower!

  • XOI – Down Slightly. rebounded above but then closed well below the 1,100 mark and very near it’s low of day at 1,092. Next stop 1,080 which we may get this morning on the MUR warning (see below) if oil cooperates.
  • XNG – Ditto. Still headed to 400 and then 380 in conjunction with my position on natural gas outlined above.
  • OIH – Down 0.9%. Still heading for 120.

MUR – Warned After The Close. Estimates 4Q of $0.40 to $0.45, down from past guidance of $0.40-$0.60 and much lower than Street consensus of $0.65. The Street had 4Q EPS at $0.95 just three months ago. Talk about a state of denial from the analyst community. Key takeaways of the shortfall:

  • R&M margins were weaker than expected. This is the third company after COP and CVX to warn on refining in the fourth quarter. That it happened is no surprise at all given what happened to cracks during the quarter but that analysts hadn’t shagged the data and adjusted numbers yet is! All the other majors, mini-majors, and refiners have drafted their press releases by now.
  • 4Q Production was lower than expected. 4Q production was 92,000 boepd, down from October estimate of 94,000 boepd.
  • More Dry Holes. This month it’s an exploration well off Malaysia described in presentations as “large gas prospect”…it’s now a $22 mm dryhole. This comes on the heels of the disappointment of the 100-200 mmboe Thunder Ridge prospect in the GOM in late November.
  • MUR is still trading at a fat 12.5 times 2007 consensus earnings. See yesterday’s note for a look at how this compares to its peers.
  • Summary: I still like this for puts although I ‘ll be selling the initial reaction and rolling into the February’s on the bounce. It makes me like the HES put idea a lot more since that stock hasn’t been touched by the 2007 sell off but essentially does the same thing albeit on a slightly larger scale. True, it’s cheaper but it should be sliding with its peers.

COP’s Organic Reserve Replacement Was Abysmal; Do High F&D Costs Loom? 300% reserve replacement. And over 96% of that came from the acquisition of Burlington Resources and increased ownership in Lukoil? So you guys barely edged your production with the drill bit? Man. AG Edwards even called into question the quality of COP’s prospect inventory. That’s gotta smart! What really scares me is the early release of the numbers like they were something to be proud of. Or did you not want to wait and release this when you had compiled your finding and development costs? Are they going to be that bad in lieu of the current forward deck? It’s not going to be hard to figure out that you guys paid to much for BR, you might as well go ahead and spill it all at once. Now we have to wait for the other shoe to drop.

Analyst Watch: BTU upgraded at Citigroup. That’s 3 upgrades in as many days. I’ll hold my Feb $35 Ps though this and reevaluate next week. THX downgraded to neutral (FST bid for THX on Jan 8thand their stock fell through all semblence of support this week. On MUR, no downgrades and only price target reduction from UBS who already rate the stock Reduce. They cut their target from $46 to $45. Shouldn’t that be a Maintain/Hold rating? That’s where the stock is now. The other analysts are either asleep or expect to have to slave their estimates by over half in the last 3 months. Talk about complacency.

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51 Responses to “Friday Morning – 1/12/07”

  1. zmann said

    COP announces $1B buyback. Money better spent on drilling? Maybe not in their case.

  2. zmann said

    EPL still trying to sell themselves. After a four month flatlined chart the stock is starting to roll over and just crossed its 200 dma. They cancelled a deal to merge iwth SGY a few months ago paying a good sized breakup fee in the process but remian desperate to do a deal.

  3. zmann said

    Huge disappointment on the reaction to MUR…Wall Street simply shrugged off the bad news. In fact, oil gave up all its overnight gains yet the Street cares more about the $1B buyback at COP.

    Oil continues to slide so we’ll see if this turns out to be another day where the brokerages scream BUY BUY BUY in the morning only to disappoint everyone in the afternoon. Clearly funds are using the mini rallies to lighten their energy load.

  4. WDKING said

    Heh Zmann seems like XOM is just dying to go higher, a whiff of positive dow or oil up a cent or two sends this thing into orbit……what is your take on it?

  5. help said

    Is the mkt closed on Monday?

  6. zmann said

    They’re the group’s safety stock and their buyback remains in full force.

    I’m not buying this low volume rally this morning (like the one yesterday) but I’m not buying more puts to have a day of TMV run away on the holiday either.

    I just don’t like trading those guys. Maybe buy calls as a hedge over the weekend but you can use the XLE for that for pretty low premiums and you get broader coverage.

  7. zmann said

    help – yes

  8. Attacking Mid said

    Well, as I predicted yesterday, Friday is usually a better put-buying day. Considered lightening up in early trading, but when oil went red, I held. I’m in sit back and watch mode for now.

    AM.

  9. zmann said

    Me too but I did add some MUR puts on this nonsense move.

  10. Attacking Mid said

    I going to have to do a little backtesting, but my gut tells me one could do well by buying calls on Thursday afternoon, ride ’em up and flip to puts on Friday.

    Terrorists seem to work the standard 5-day workweek, as it seems nothing ever happens over the weekends. Yet, it seems as if a lot of investors want to be long oil (and related stocks) over weekends.

    Today is a good day to sell short some Jan options against any Febs or later that you plan to hold onto. You can sell the strikes that are OOTM which most likely helps lower your basis a bit without affecting your margin much. I may do that with some of my puts in a few hours.

    AM.

  11. zmann said

    Am – Haven’t formally backtested that but it intuitively it sounds right.

    By the way, I think this rally is going to continue to fade and quicker than the last one. Just a gut feeling but I think it’s getting harder to orchestrate these comebacks in the face of $52 oil.

    NG is up in line with heating oil this am. I honestly think analysts don’t care what gas does as long as it doesn’t drop below $6.

  12. zmann said

    MUR red again at 10 til 11:00 eastern. Oil really cracking here.

    I’ll get those time stamps working this weekend if it’s the only thing I do!

  13. Attacking Mid said

    Posted at 11:13 EST by Attacking Mid:

    Why can’t you guys get the time stamps to work. Works fine for me ;^ )

    AM.

  14. zmann said

    OK, here’s a new theme that shows timestamps. AM I couldn’t see them on a Firefox browser.

    The only drawbacks to this theme I see are that my favorite links have disappeared. I’ll put them in a tab at the top if I can’t figure that out.

    Everybody ok with this theme?

  15. help said

    hmm y isnt oil falling yet?

  16. Eric said

    Yay, the timestamps are working!

    MRO is 2% higher. Might make a good short if oil starts to slide.

  17. help said

    ok seems to the time is CST, am I correct

  18. zmann said

    Oil not failing because of fear of opec action on long weekend
    ——————————————–
    MRO, HES, and SU are on the top of my watch list for shorts right now! And of course MUR.
    ——————————————–
    yep, I’m CST

  19. walter said

    Zmann- Congrats on the website – looks really good
    !

  20. zmann said

    TSO on fire for no good reason…up 3.7%. They’re going to have to warn just like everyone else but the street has taken their estimates up substantially in the last 30 days. I must be missing something there.

  21. Attacking Mid said

    The last several times OPEC took “action”, oil rallied briefly, then realized that OPEC “action” is a misnomer.

    AM.

  22. help said

    ok so it is a good thing to go with cash on the long weekend or go in with puts?

  23. zmann said

    Thanks Walter! Lost my links but I’ll get ’em back up over the weekend.

  24. zmann said

    Help

    On this particular long weekend:

    From safest to most aggressive:
    1) All cash
    2) Oil calls to play an Opec fist shaking bounce on Tuesday
    3) Puts and calls – ahhh, pretty tricky
    4) All puts – 10 oil ministers in a room over the weekend can surely come up with a way to jack oil on Tuesday. But like AM said, any rise should be brief.

    Whatever the choice I’d stay out of new January positions in favor of longer dated options.

  25. zmann said

    Like watching paint dry…traders packing it in early to get in a 3.5 day holiday. I’m still betting on a sell off for the stocks before the close but then, I’m a bear right now.

  26. Yay time stamps

    _saneO

  27. zmann said

    SaneO! Welcome to the 2007 energy brain site! I’ll had to add a podcast in ’08 don’t ya know.

  28. Lou said

    Thanks Zmann for you generosity.

  29. zmann said

    Thanks Lou! Glad you find it useful and/or entertaining.

    Paint drying very slowly now. Oil looks like it might make another run for the deck.

    The stock pump appears stalled.

    TSO now up 4.5%. Unreal.

    Speaking of unreal the new foofighters accoustic set makes days like this a little more bearable.

  30. Now podcasts are an Idea. I could get my daily dose of zmann on my way to work 😛

    Yeah boring day. Of course earlier this week I was in cash when all the action was going on. Now that I have some time, well…….
    Figures 🙂

    -SaneO

  31. Attacking Mid said

    BQI starting to climb and volume picking up. As I mentioned yesterday, CEO Chris Hopkins is scheduled to present at a Canadian Oil Sands Conference next Tuesday afternoon. I expect strength in the stock on Tuesday during the day, though if he doesn’t really say anything of substance, the stock could retreat on Wednesday. I’m playing for the potential of a big “pop” in the next 30-60 days. There’s also the strong potential for a big “flop”, so tread carefully.

    Regarding help’s question, the reason oil puts can be so rewarding to hold over the weekend is that doing so carries significant risk. If Tuesday rolls around, and nothing of significance happened over the weekend, there’s generally a modest retreat in oil and oil stocks (at least as of late). However, should something happen, you’re stuck with a potentially big hit to your position. I own nothing that expires in January.

    AM.

  32. nltd said

    Hi Z and all

    Been reading you a few days, first comment. Thanks for all you do. Excellent! Nice having time stamps now, way uptown. Still waiting for oil to turn down, seems late today. . .do you think it will? I’m in some puts from yesterday, really don’t want to carry into 3 day, but not ready to swallow morning loss if don’t have to.

    Thanks again,
    n

  33. Attacking Mid said

    z, why has the Feb crude contract been a bit stronger this week than the Mar contract? I would have expected it to be reversed.

    AM.

  34. zmann said

    Welcome N. Don’t think it’ll happen as traders are betting Opec will save their long positions (with little confidence) so there’s little conviction to the buying and selling right now. If those are Febs or later I’d go sit somewhere sunny for the rest of the day. But, if they’re Januaries you’ve got some tough choices to make. I’ve got some of those too and am probably going to ride several of them out at this point.

    ——————————-
    AM – Weather is supporting the near month as well as some short covering. All the longer dated months are worse which is a relatively new phenomenon.

  35. zmann said

    Qatar Opec representative says he’s not aware of an emergency meeting.

    Oil is barely over $52.50 but the stocks are drifting higher in a very lightly traded pre holiday session. Nasty for puts but Opec is really going to have to find away of taking credible action next week or oil tests $50 and then the stocks will quickly lose these hollow gains.

  36. nltd said

    Z

    Thanks for reply. . .yeah I can sit on Febs, but Jan I picked on COP this AM when both oil and COP looked toppy to me, not so good.
    That near month-far month new phenom, is it just me, or are the big boys realizing the jig is nearly up, but still hoping (striving through buddies at OPEC?) to pull off a miracle over the weekend for the near term? Makes one wonder just what skullduggery might be up. . .
    N

  37. Eric said

    Zmann, Can you post the link to the weather blog you had under your link section.

  38. zmann said

    Eric –
    http://wwwa.accuweather.com/index-forecast.asp?partner=accuweather&traveler=1&zipcode=10001&u=1

    weather blogs are on a tab on the left hand side.

    —————————————

    The XOI is up 30 points (2.8%)!!! with very little volume. Another 9 points and we test the 200 dma from below.

    —————————————
    N – Lots of shenanigans in the oil markets. Generally non-perishable commodities (like gold and oil) are in contango meaning the longer contracts rise in value into the future. This is due to ever rising demand and the cost of carrying the product, risk, etc. The spread between near term and long term contracts has tightened a bit but we’re no where near a backwardated state (when the close contracts are priced higher than the far ones). I just find it interesting that some traders and mosts analysts say this is just a weather related blip and that core demand remains strong. I won’t argue but at the same time one has to wonder at the excess Opec and Non-Opec supply being built at present…the long term effect seems to be sub $60 oil through 2012.

  39. Jeff said

    >>TSO now up 4.5%. Unreal.>>

    odd move indeed given Golden Eagle went down a couple days ago and that facility generates 50% of total CF. imagine some short covering rally in there as with all energy stocks today. that being said, the west coast/ANS crack, which is probably the best benchmark for TSO, is still hanging out around $20. 4q06 pac northwest cracks were $1 better than 3q, while west coast were a $1 worse, so 4q should be in-line with 3q, without knowing what their turnarounds looked like. ytd 07, cracks staying flat to those levels. was just looking and the EV/TTM EBITDA is below 3x for the 1st time ever and net debt only around $200mm, so there is perhaps a bull and bear case and today bulls win.

  40. Raj said

    Z,

    Hi, yesterday regarding my question – Is OIH still a ’short’ candidate?

    “You mentioned:

    Actually I just use the OIH (and the XOI and XNG) to gauge the environment. I find the premiums extremely overpriced in the index options relative to those of their components.

    Over the next few weeks I do see the OIH going lower although a cold snap lasting longer than 5 days give the entire energy group a short term spike.

    Most of the land drillers, HAL, BHI, and OII are more current Put favorites in the extended group I’m calling service in the table above. North American onshore activity and to some extent GOM shelf activity is going to decline for a time on the easing of both oil and gas prices. But asking me during market hours tomorrow and I’ll tell you what I’m doing then. Cheers”

    Any additional comments on OIH?

    Regards

    Raj

  41. zmann said

    Thanks Jeff, Sounds like you’ve got a bloomberg on your desk!?

    Does TSO still have a refinery in HI? If so, any data on those crack comparisons?

    ——————————-

    OIH caught up in the mania today. Jeff said it all with the short covering aspect of today… Also this is a light volume and hope/fear of opec inspired rally. Could blow over next week when they’re done cryig wolf and weather pattern show a rewarming by month end. Either way, stay away from the Jan anythings!

  42. nltd said

    Oil puts

    Got antsy, bought XOM Feb 75’s for put insurance. You guys owe me if my usual luck holds and this all turns around now! Hah!

    N

  43. Jeff said

    good guess on the bloomy. no terminal or desk as in between jobs, but do still have access to bloomberg anywhere, for short period of time anyway. covered TSO in the past and they’ve always posted weekly, quarterly, ytd benchmark cracks on their website. they do still have HI refinery, but don’t see any date below or on bberg. can see BMO increased tgt price to $80 today and left at outperform, while sandford bernstein reiterated underperform and $45.50 tgt yesterday. can drive a truck through that range. comical. sector due for a bounce and i’m always wary of 3 day weekends as it seems more often than not that big m&a deals are announced on the back end.

    http://www.tsocorp.com/stellent/groups/public/documents/published/tsi_inv__industrydiff.pdf

  44. Eric said

    Z – do you have the link to the long-term weather blog that you had previously posted on your site?

    thanks!

  45. Raj said

    Z,

    I have OIH Jan 140 puts which I am in ‘red’. Any suggestions???

    Raj

  46. zmann said

    Jeff- cool…good luck with the next gig! I covered the E&Ps and I just wing the refiners and service guys. Actually quit the business to do something completely different but “just when I thought I was out…they pull me back in.”

    ————————–

    Eric which day was that? Are you referring to Bastardi?

    ————————–

    Could be a nasty pop early next week (I’d call it 60/40 we’re at least higher for most of Tuesday). Januaries are just too dangerous and you’re looking at losing a day of TMV either way to MLK (that’d be about $0.30 off the bid if we open flat on Tuesday which I doubt). That’s a tough one.

    Note to everyone: I rarely day trade because 1) I suck at it, and 2) while I find it sometimes thrilling I’d rather book the occasional weekend in Vegas. I’d rather focus on the fundamental trends backed up by my experience and lastly backed up by charts. Fundamentals tell me what and how much to buy (or sell as the case has been lately) and charts tell me when.

    Anyway, hope that helps. You have 54 minutes to decide. Once last thing. I’m not lecturing but am serious about this. You are the only one in the world who cares where you buy or sell a stock. The I’m in the ‘red’ comment shouldn’t enter into it. Not being harsh just trying to share some stuff that cost me a lot of money to learn on my own.

  47. zmann said

    Eric – here it is – meteomadness

    http://wwwa.accuweather.com/news-blogs.asp?partner=accuweather&blog=meteomadness

  48. zmann said

    BTU – 3 buys in 3 days. And a director then punts 50,000 shares at $40 today. About 8% of his holdings and a lot more than his annual grant. My money is on the insider. Not the hopeful analysts.

  49. zmann said

    Thanks for reading fellas! Have a great long weekend!

  50. Lars said

    BTU – it looks like over the last 9 months insiders have bought $217K worth of stock and sold $115.67 million worth.

  51. Jamie said

    Zmann, How about a weekend ramplings/comments for those of us addicted? Also see no new OPEC news and Russia& Belarus seem to be buddies again, adding 1.5Million BPD. How do you see next week re options expiration? Tks for all your insights. Jamie

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