Posted by zmann on January 16, 2007
Ahhhh, It’s Good To Be Back! I hope everyone had a great MLK holiday!
Oil Is Softening A Bit This Morning. Down $0.91 in electronic trading to $.52.08. Don’t be greedy. If you still have January puts this could provide your last chance to roll out of them.
- It finally got cold but it needs to last. Forecasters have been calling for a cold blast for mid January for over a week now and here it is. Now it needs to stay cold for at least two solid weeks to make up for some of the tropical weather we enjoyed around the holidays.
- Certain Elements of Opec Are Demanding Further Production Cuts. However, since October, Saudi Arabia has cut more barrels than the combined cuts of the remaining cartel. In December Venezuela and Iran, the two staunchest advocates for the prior two rounds of production cuts, actually registered production increases. Saudi seems to be on the fence this time having borne more than their full share of price support efforts in the past. What that’s phrase? Fool me once shame on you…fool me twice…don’t fool me again. Words to live by Saudi.
- And Opec Crude Shipments Are Actually RISING Now. Dow Jones reported that tanker tracker Oil Movements said crude exports from OPEC countries are expected to rise 350,000 barrels a day to 24.5 million barrels a day in the four weeks ending Jan. 27, despite OPEC’s announcements to reduce production by 1.2 million barrels of oil a day starting last November.
- And Finally Opec Seems To Be Shying Away From Another Emergency Meeting. According to AP, an official at Opec’s Vienna headquarters who asked not to be identified because she was not authorized to comment, said such a meeting was unlikely… at least for this week. Surprised SHE answered the phone at all.
- Venezuela To Nationalize ‘Absolutely All’ Of Its Energy Sector. This should actually support oil. The last remaining un-nationalized oil region in Venezuela was the heavy crude rich Orinoco Belt (reported to be the world’s single largest hydrocabon deposit). Chavez has been anything but good for Venezuelan oil production. Since Hugo took office in early 1999, oil production is down 470,000 bopd or 16%. That’s a lot of Bolivars. Meanwhile, Opec production was up 7% over the same period. Maybe Chavez’ call for cuts has less to do with posturing and more to do with saving face since he simply can’t make his quota.
- Who Gets Hurt Besides Venezuela’s Citizenry? BP, COP, CVX, XOM , and TOT. They’ve been given the option of retaining minority interests in their own operations (the state run oil company PDVSA had held an average 40% stake in all the major oil company JVs as of last Friday. What’s more, producers have been told to cut production yet again. Gee thanks! What a deal! Where do I sign? Oil companies were heard to say none of the preceding. REP on the other hand has already announced its immunity to the new Bolivaran order taking place in Venezuela and it could benefit greatly from any firesales conducted by the other majors who are just fed up (XOM) with the country.
- By the way, that production slide in chart above was managed with the help of the previously stated big five plus Statoil. Imagine how steep it will be without their technical expertise to upgrade all that sludge. Oh well. Here are just a few examples of projects that the big five helped develop in the Orinoco which in aggregate produce 600,000 bopd and on which the big five are now getting the shaft:
- CVX – Spent over $1 billion back in 2001 and planned to ultimately produced 2.1 billion barrels (with partners) over the following 34 years. Psyche!
- COP – In excess of $2 billion on the Petrozuata JV that began production in 1998.
- XOM – Back in March, Venezuela told XOM it preferred that the company just leave and not adjust to any future changes. Man that’s just unfriendly! They also added “if we need them, we’ll call them.” At the time Venezuela’s brusk statements helped push oil to record highs.
- CVX Refinery Fire – Impact Unknown. Chevron reported a small fire at its Richmond, CA refinery which has been extinguished. These could provide early, but I’d expect very fleeting, support for gasoline and heating oil unless it turns out to be a multi-week outage. CVX should have more on the fire’s impact later today.
Natural Gas – After a 7% data-based tumble on Thursday, traders managed to whip themselves into a fundamental state of denial Friday. I think they saw what an awesome time the boys over in the oil pit were and just couldn’t stand to be left out. This induced a 3Tcf sized blind-spot in their vision allowing them only to see the BUY button on their terminals. And buy they did rallying gas 2/3rds of the way back from Thursday’s slaughter. Some things to keep in mind for the coming week:
- HDDs this week were 180, slightly ahead of earlier estimates but still 20% fewer than normal. This will be the second highest degree day reading this winter after the week ended December 9th when degree days totalled 215 and 168 Bcf were withdrawn from storage.
- Coincidentally, the coming week’s HDD estimate from the CPC is 215. If we get 168 Bcf next week then you know the whole game is rigged!
CFTC Data Shows Tide Is Turning For Gas Shorts. While gas was only off one of the past five trading days, the net position in Nymex gas fell by 10,000 contracts (lost 5,000 longs and added 5,000 shorts) to reach net -16,000, its lowest level since may.
Holdings Watch: Make no mistake. For the stocks everything hinges on the direction of oil right now. I have a few remaining January positions (do what I say, not what I do) but for the most part I’ve rolled to February and longer. Friday was disappointing and I was too stubborn to ditch most of my remaining Januaries since they’re all very near or in the money and I just didn’t believe the action would last. Even my favorite whipping post MUR was up and they pre-announced numbers that were so low to the Street you could have sailed a VLCC through the gap! I’m into February and beyond on coal stock puts and if I don’t write about coal any more this week it’s because of a lack of fresh data from the EIA. Anyway, on to the numbers.
XOI – May get hurt a little early this week as several majors get grazed by Hugo’s greed (and utter lack of foresight). However if oil rallies significantly all bets are off. Technically speaking the chart should bounce lower off 1,130 (just 3 points above us) and head back to test last Thursday’s low of 1,093. As such I’ll be losing the Januaries if we sustain 1,130 more than just briefly. Fundamentally I expect two or more large cap or major warnings this week with the approach of earnings season combines with the apathy of analysts.
XNG – At 430 adn wouldn’t be at all surprised to see 440 before turning down later this week. At present weather forecasters are expecting a slight warming towards month end but if this changes gas will breach $7 and the XNG will rally over 450.
OIH – Expect warnings from onshore and shallow water drillers to increase. We’re at a critical level on the OIH and any close over 133 will cause me to enter into February puts on BHI, some of the land drillers, GSF, and several other favorties.
Analyst Watch: Analysts remain defiantly bullish. Cantor cut tankers OMM and GMI from buy to hold.
Odd & Ends:
Orange Juice Crop – Frozen Before It Went In The Can. This weekend the other OJ got some very bad news. According to Accuweather the California citrus crop was subjected to a freeze similar to the one in 1990 which destroyed 85% of the crop. Now we’re all apple juice and milk people around here so we’ll be fine but to me this looks like a textbook base breakout. For those of you with futures accounts who don’t want to chase it I’ve noticed that in the past class III milk usually moves well on big moves in OJ. Everybody drinks one or the other.