Testy Tuesday

Oil Backs Off: Saudi Arabia’s apparent lack of concern over oil’s recent declines slapped crude prices yesterday. If the Saudis decide to set what they consider to be a fair price at roughly current levels this will muffle/neuter the most vocal (also the most prone to cheat) cartel members.

Opec Watch: In Venezuela, the Collective Junta of Workers in the Orinoco Oil Belt for the Socialist Vanguard (CJWOOBSV???!!!), a pro Venezuelan government oil worker group whose acronym is undoubtedly pronounced just like it is spelled, is reporting that XOM has rebuffed the country’s efforts to nationalize their joint Cerro-Negro extra heavy oil project in the Orinoco Basin. No comment from Exxon but it wouldn’t be the first time they’ve told Hugo to pound sand. This could lend support to oil prices if XOM decides to shut everything down and take Chavez to the Hague instead of just cooperating and taking less money from the project.

Putin Watch: Russia to expand ties with Iran. Nothing says please support our ideology like a fresh stack of Euros. Moscow is going to get all the good engineering contracts that we won’t let SGR and the like have anyway.

Nigeria Watch: Good Reuters story on Umaru Yar’Adua, currently a regional governor likely to be Nigeria’s next president. Elections are in April and it promises to be interesting/volatile. The opposition candidate is a former military dictator.

Earnings Watch: SII – in line fourth quarter at $0.71, in line expectations with $3 number for 2007. WFT – slight beat. More on these two later.

Natural Gas pulled back below $7 today despite new forecasts calling for bitterly cold weather through the next two weeks. It’s possible gas’ retreat is attributable to 1) a reaction to the drop in gas rigs I delineated in yesterday’s column (which I know is sort of the tail wagging the dog but it happens, trust me), and 2) a bit of profit taking and repositioning after a week of short covering. Looking ahead:

• It was colder than originally anticipated last week… The heating degree days (HDDs) for the week came in at 224, slightly colder than the early read of 219 and I would’nt be at all surprised to see a 200 Bcf draw when inventories for last week are reported this Thursday.

• …And this week will see the coldest weather of the season to date.This week’s advance tally on HDDs is a whopping 238 (Ok not really whopping, just about normal for this time of year actually). We’re probably looking at a draw of 200-210 Bcf vs 5 year average draws for this week in history of 166 Bf.

• So if we get withdrawals of 200 Bcf this Thursday and 210 Bcf next week where does that leave us at the end of January? 20 Bcf shy of all time high storage territory for the end of January, that’s where.

• I expect a bumpy ride this week for gas as people refocus on just how cold the data says this week is going to be. Potential long side quick trades are EOG (which I still have puts on but may hedge this week), SWN, CHK, and APC. More on gas Thursday.

Analyst Watch: Bear Stearns upgrades TSO (talk about a day late and $10 short!)

TSO Had A Blowout, Best In Show Quarter Yesterday. No stock is changing hands on the acquisition of a west coast Shell refinery and several hundred service stations and I’m told accretion amounts to 20% in 2007. Debt to cap will be under 50% after the deal and I’m holding off on taking action here until the shine where’s off a bit.

Holdings Watch: I’m pretty content with my March opening puts (opening generally being about a fifth of what I’d ultimately like to hold in terms of contracts) in BP, SLB, EOG, and BHI.

Odds & Ends

XOM Drilling In The Barnett Shale. They been working with Harding Co., a local private oil and gas company and single digit midget PTSG, for about a year gathering leases and drilling wells through their DDJET venture. XOM acts as operator in a five county area around Ft Worth. The strange thing is that Exxon doesn’t do much domestic exploration/exploitation of anything in this size range. It’s just too small. They had infrastructure so that makes some sense and this could be part of a campaign to look like they’re doing something green at home but unless its scalable it won’t make a dent (bump) in their financials. It does make me nervous about shorting a company like DVN who acquired their way into the Barnett when they picked Mitchell back in the play’s nascentcy or even EOG or COP who are big in the area.