zman’s Energy Brain

oil, gas, stocks, etc…

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Monday Morning – Busy Week Ahead

Posted by zmann on January 29, 2007

Oil: Last week oil saw it’s first two consecutive days of gains this year and was up $2.02 on the week to close at $55.42. The small recovery was attributed to continued cold weather and reports on Friday that at least Saudi Arabia is complying with agreed upon Opec production cuts even as the smaller players continue to cheat. An unexpected build in heating oil inventories yielded a brief setback to the bulls but they quickly reversed directions and closed the week at its highest level.

This morning oil is off $0.50 in pre market trading. The election of a Muslim to the Israeli cabinet isn’t exactly the same as world peace breaking out but it could be seen as helping to ameliorate recent mounting tensions in the immediate vicinity. Of course, the early morning moves mean little and it’s possible that ever increasing tensions in a place like Nigeria may override the 15 minutes of Kumbaya being displayed by the Knesset.

Opec Watch: Very quiet other than a retread story about Saudi attempting to stabilize prices At $50 (Opec Basket) or roughly $55 NYMEX. See story here.

Nigeria Watch: Militia storm police station and  exchange gun fire with police.  I especially like the part about various militias being funded by rival politicians. Just another day in paradise.

Natural Gas: Gas is holding up pretty well considering this is the most gas we’ve ever had in storage during this week of the year. Click here for more detail on gas storage. Gas traders regained their sanity for one day last week, the only day they had to think about the fundamentals because actual data came out, but then resumed their “keep gas > $7″ campaign. This support is weather based and won’t last long…winter has about 10 weeks left but the first winter relief trend usually arrives in February and that will serve to ease prices. The trick for traders is to smoothly transition from”I think it’s going to snow this weekend” to “have you seen how hot this year is going to be” as they email equity analysts pictures of mountain sized chucks of ice calving off the polar sheets.

The latest weather forecasts call for continued cold in the northeast and a chance for a “plow-able snow event” across the Central Plains to the Great Lakes around week’s end.

It’s Still Pretty Cold…

still-cold.JPG

…But It Won’t Last Long.

getting-warmer.JPG

Rig Counts Were Off A Touch Last Week And This May Be The Start Of Reduced Activity. According to Baker Hughes the number of US rigs turning to the right last week fell 46 to 1,699. Of those:

  • 45 were land based rigs,
  • 20 were drilling for oil,
  • 26 were drilling for natural gas – this was the second largest drop (in shear gas rigs) in the last 12 months. However, it comes on the heals of some recent large rig adds so maybe it’s just a coincidence. Maybe it’s the inclement weather.  It definitely bears watching.
  • Over half the loss in rig count was attributable to Texas and Louisiana, and
  • Drilling activity in three major states is now DOWN vs year ago levels (AK, NM, and WY). LA and CA are barely above year ago levels while Texas continues to be busy with rig counts over 20% above year ago levels – mostly due to Barnett Shale activity.

gas-rigs-012807.JPG

The jury is still out on whether or not the recent statements from Majors and E&Ps alike regarding reduced capital expenditures in 2007 will result in an actual decline in rigs. For oil counts the slowdown is already well under way.

1-year-oil-rig-yoy-comp.JPG

However, as the old adage goes “oil is global, gas is local” and the local price of gas has been holding up a lot better of late than that of oil. For that matter it’s been holding up a lot better than you’d think given the high levels of gas storage but I’ll spare you a rant on gas prices until later in the week. Suffice it to say that as soon as it starts to warm up in the northeast traders goggles will come off and gas will retest $6. At that point the year over year comparison of gas rig counts should start to look like the one for oil above. And then we’re back to that high correlation between the XNG and rig counts I mentioned earlier. Not to mention the impact this will have on the OIH, which strangely, has not fared nearly as well as the oil and gas producers.

And Now For Something Completely Bearish: LNG Expected To Rise In 2007, 2008. Over the last three years, LNG shipments into the US have fallen off as the global LNG market has become more competitive. The EIA just released a report forecasting a reversal of this trend. EIA is calling for mid 30% growth in shipments to occur in 2007 and again in 2008. As seen in the chart below that amounts to an increase in gas supplies of 210 Bcf this year to reach 770 Bcf and an additional 310 Bcf in 2008 to reach 1,080. An additional 500+ Bcf in just two years can’t be positive for gas prices in a market where demand growth typically only runs between 1 and 3%.

lng-eia.JPG

Analyst Watch: HAL – RBC maintained its outperform rating but slashed their price target from $50 to $36 in an attempt to get it a little more in line with the universe. I don’t like price targets because they are static and get stale if the stocks move against you. He should have changed his rating long ago but he, like many other energy analysts, has been is a long term state of denial.

Earnings I Care About This Week:

  • Monday – TSO – the most insulated of the refineries reports first. Given recent price action this needs to be a pretty positive call and a beat.
  • Tuesday – SII, WFT, – bits, mud, other services – check to see if their comments are as rosy as those from HAL and SLB last week.
  • Wednesday – HES – first of the mini-majors to report…could set the tone for MRO and MUR.
  • Thursday – AGU – big fertilizer company – their #1 cost is natural gas so they usually have some interesting things to say about it. APA – first to report of the big cap oil E&Ps. CRR- these guys make propants (basically manmade ceramic sand) used to hydraulicly frac wells. There aren’t a lot of wells being drilled these days that don’t get fracced so what these guys say about demand is pretty important. EOG – first of the big cap gassy names and one I have puts on now so of course I’ll be paying attention. XOM – listen for buyback information…I’m betting they’ll be forced to say it’s going to shrink. MUR – need I say more. PDC – driller, again watching for forward cautionary tone. VLO – will the day never end?
  • Friday – ACI – people who report on Fridays are generally hoping no one notices. I’m only half kidding. Analysts have gotten very bullish on the coals over the last two weeks so we’ll see if Arch supports the newly brightened outlooks.

The Week Ahead: See last week’s picks here. That is not a copout because: 1) Movement in that list was negligible and the same principals/logic/thought processes still apply and 2) I applaud the reader if you made it this far. As far new picks go I’m sitting out through Thursday. As you can see above, Thursday is undoubtedly the most important day of the quarter for earnings. Any bet I make before the numbers and the conference calls would simply be that, a bet. Of course, I reserve the right to change my mind taking action on say, VLO due to TSO‘s comments, etc.

Have a great week and as always, thanks for reading!

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22 Responses to “Monday Morning – Busy Week Ahead”

  1. zmann said

    TSO – $2.28 vs $0.97 — blowout # if it’s clean.

    Consensus was $1.91 with range: $1.58 to $2.24

    buying Shell Ca refinery

    buying 390 gas stations

    FBR ups refiners to outperform this morning

  2. neil said

    TSO – the big battle will be BLOW_OUT earnings (higher than inflated expectations) versus the fact that they are NOT going to do a buy-back but rather, will buy assets for $1.8BN.Market has repeatedly told TSO they didnt want a big acquisition, so that prob over-shadows earnings unless management can make a great case on the conf call…

    Steve – any thoughts on the price paid for assets..Seems like both TSO and RDS both traded off on the news???

  3. zmann said

    JJ – I sort of remember that chart from back in the day. I’ll look around a bit.

    —————————–

    Michael – that’s the $50 billion question! So far they (the oil stocks) haven’t given much ground at all to falling oil. I think it takes deteriorating growth (capex and production) to get the stocks down or oil below $50.
    —————————–

    Neil – These guys went through a perior of deworsification at the end of the 1990s since no one at the time understood how to value them (refiner, marketer, service boat company, etc). I know people want buybacks but scale would seem to make more sense from a long term perspective. I don’t have any comps close at hand to make a quick call on the $/assets.

  4. walter said

    TSO down 1.50%

  5. zmann said

    Walter – yup. It’s kind of sad when buybacks are more important than operations!

  6. zmann said

    Of course, MRO upped their buyback today and the stock is worsening on the morning with oil.

    MUr announced a gas discovery off the coast of Malaysia. Sounds like it’s a delineation well and non newsworthy.

  7. walter said

    Did I say TSO down 1.50%?
    I meant up 1.50% lol

  8. zmann said

    TSO up 4.5%. This is what I was talking about this morning about making bets during early earnings season prior to the conference calls. If you traded TSO like the pre call read this morning and bought puts you’re getting hammered now.

  9. google-me-you-will-find-nothing said

    tdameritrade down

    etrade says oih up +1

    cnbc says oil down .77c

    wht is the price of OIH now? is it etrade that is also screwed up?

  10. Raj said

    oih – 133.59 9:38 AM CST

  11. Raj said

    Z,

    what is your thoughts on TSO now since stock is up almost 5?

    R

  12. zmann said

    R – glad I didn’t buy the puts.

    After seeing the acquisitions I opted to read the transcript instead of listen to the call. I’d say it’s a love in with the analysts but I’m not listening. Neil is probably listening so if you’re out there Neil please chime in.

  13. Jon said

    Z,

    What is a delineation well? Besides not being newsworthy, that is.

    Jon

  14. neil said

    On TSO call now…a VERY strategic acquisition, paid a very reasonable price..analyst comments will be very positive and targets will increase to 80+…would lay off shorting for now, this will become the “go to” refiner for the short term…

  15. zmann said

    Thanks Neil

    ————————

    Jon – This is a discovery well, not a delinieation well as I had previously thought (got a bad headline on my system). First success after four attempts.

    To answer your question companies usually drill 1 or more wells to delineate the size of the structure or reservoir. i had thought this was one of those and not really newsworthy. So it’s not a total fluff PR but they gave scant details as well. Shouldn’t be much of a stock mover.

  16. zmann said

    Interesting action on crude, down a buck on all the “2 weeks of cold” news today. Stocks giving back a lot of early gains.

    Last week’s mini-bounce in PTR is over with the stock headed apparently to new lows,

    BP trade from Friday late is working ok as the company is in the press again regarding an internal squabble over how much information should be released to the public about the refiner fire report.

    SLB getting a little tired after last week’s rally and HAL continues to weaken after last week’s beat that was met iciliy by the Street.

    SU and OII have resumed their linkage to oil prices and EOG has fought the tide all moring but looks lower now.

    Those TSO numbers are by far the biggest refinery beat you’re going to see for some time. I’m still waiting it out b/c the upgraded PTs tomorrow my boost the stock another few %.

  17. zmann said

    BRY – heavy Calif. oil E&P cut to hold at Wachovia. I’ve picked on these guys in the past and it may be time to do so again.

    Ah BP sliding well now.

  18. zmann said

    Special thanks to Neil for his cautionary tone over the last week which saved me Size dinero on a prospective TSO put position! I was about to step onto the third rail on that one!

    I’m not touching it until the brokers have got their moring upgrades notes and then only for maybe, and then, only for a quick trade.

  19. nltd said

    Z

    Any special significance to you that oil closed @ $53.99 rather than $54? Is it just a penny, or much more psych-wise? Or is it a bigger deal with regard to the integrated stocks that Nat. gas is under $7 again? Quite a day today, huh? My thanks also for TSO caution. That could have been a disaster!

    N

  20. neil said

    TSO – just let it go….time to move onto a new one….i am thinking HOC..seems like they are benefitting from the TSO #’s, but the results wont even be comparable..TSO was a very unique situation given their PAD 5 exposure

  21. zmann said

    NTLD –

    Ya know, I would say it would have been something to it if it had held but…nah…The fact that we’re back under $55 is interesting and I’d say these moves are getting a bit silly, but I got chastized for using that word earlier on my other site. It was insensitive of me. I’ll substitute stupid for silly here.

    Back under $7 is more interesting. With new forecasts calling for lingering cold for the next two weeks (a little longer than the last cast) you’d expect up not down. I think…it’s a reaction to the down gas rig move on Friday combined with a bit of post short covering down action from the CFTC.

    I’d have put the CFTC chart in today’s post but I was really long winded and chart encumbered already. Suffice it to say there was some covering last week but also a reduction in the number of longs. Now we’ve got less of a short pos to cover and gas is retreating. It’s either the rigs or the recent cover. The HDDs for the week were actually a bit higher than originally forecast and I would’nt be at all surprised to see a 200 Bcf draw this week.

    —————————————-

    NEIL – agree on HOC but will revisit TSO on the put side if it runs for a few more days. Inventories on the west coast are starting to build and prices are starting to fall. The great quarter is in the past and once the analysts drop the accretion of the acq into their models and the stock jumps more it’s all downhill from there. At least that’s what I’m thinking right now.

  22. I needed to thank you for this great read!! I
    definitely loved every little bit of it. I’ve got you bookmarked to check out new things you post…

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