zman’s Energy Brain

oil, gas, stocks, etc…

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Technical Tuesday

Posted by zmann on February 6, 2007

Oil…$59.95 But No Cigar. I’ll wait to add more bets to the downside until we cross and fail back through $60. I certainly don’t think today counts although it is interesting to see the all the life drain out of the stocks. Oil’s ‘s run at $60 and subsequently failure was nicely timed to coincide with the OIH hitting its 200 dma and bouncing lower. However, I think yesterday’s action was mostly noise and will await more data on Wednesday before acting. I don’t mean to sound like a broken record here but I’ve got my 20% positions and I really don’t see a need, based on data or charts, to add to them yet.

Barclays Capital technical analyst MacNeill Curry, said crude prices were at a “make or break” stage. “The… rally we expected is potentially nearing completion,” he wrote. If prices climbed above $61, however, there was scope for further gains toward $65. Comment. I agree completely on the nearing completion statement regarding the rally. Unfortunately, you can’t ignore the technicians when it comes to break outs either. If we get a bigger than expected draw in distillates then crude could shoot through $61 in a heart beat.

Early read on tomorrow’s inventory report (from Reuters):

  • Crude – UP a million barrels. No one really cares about this number now unless it significantly missed the mark in either direction.
  • Gasoline – a build but size in the article I read wasn’t specified. Ditto the comment above on crude.
  • Distillates – DOWN 3.2 million barrels. Probably a fair number. I wouldn’t expect a much bigger number than that simply based on the degree day data which were actually a hair lower than those of the prior week.

Opec Watch: Opec basket is at $52 per barrel and rising. These guys are so happy they’re talking about keeping production steady at the March meeting. Gee, I wonder if there’s more propensity to cheat on your quota now that the danger of plunging oil seems to have passed. We’re up $10 off the lows of just three weeks ago when everyone wanted emergency meeting and a new round of cuts.

Natural Gas: Getting A Bit Ahead Of Itself. The following two graphs depict: 1) the year over year (YoY) gas storage surplus or deficit and 2) natural gas front month contract prices for the same period. Reversals in the YoY storage chart have often led to peaks or troughs in natural gas prices. In times when overall storage remained at historic highs, the rate of change in YoY storage was a more important determinant of near term gas prices. For instance, YoY storage was in decline in late 2002 and gas prices rose despite an historic storage overhang. While we may dip slightly into deficit over the next 3 weeks (due to smallish withdrawals last year at this time) it won’t be by more than 200-300 or so Bcf.

yoy-storage-020507.JPG

A Close Up Look Shows That Gas Has Already Anticipated The Move In YoY Deficit Status. Only a few weeks ago, the YoY surplus stood at nearly 500 Bcf. With the advent of cold weather traders started discounting the erosion of this deficit and, I believe, have overshot the mark on natural gas prices given that:

  • Barring much colder than normal weather through the end of February the storage deficit should quickly reverse as last year saw two sizable late season withdrawals from storage.
  • We’re still on track to end the withdrawal season around 1.5 Tcf, well above the the five year average of 1.1 Tcf.

closeup-yoy-gas-surplus.JPG

Odds & Ends:

Petrobras Could Get $300 Million Gut Check From Bolivia. Bolivia former coca growers union leader turned president Morale is asked PBR to swallow a price hike of 40% to roughly $5 per mmbtu for the 30 mmcfg it imports to Brazil on a daily basis. Brazil needs the gas and Morales is under increasing pressure to void Brazil’s current contract which runs through 2019. If it immediately went into effect and PBR were not able to pass the increased cost along to customers this would reduce annual eps by roughly 7%. I miss the old fashioned socialists who just oppressed their own people. Today all you need to do to become a socialist strongman, besides getting a lobotomy and a pair of tights, is to find something important to your neighboring countries and squeeze.

Forest Oil Adds Reserves. Reserves grow 25%, reserve replacement up 372% all in @ an FD&A of $2.15 / Mcfe. On an organic basis, replacement rang in at a very respectable 258% with for $2.09 per Mcfe. Not bad performance with the company replacing the sold offshore reserves through the drillbit (prior to consideration of the pending THX acquisition).

APC 4Q Earnings. Waiting for the conference call to reserve judgement.

BP 4Q Earnings. Cut production targets. Consider them judged. I’ve got my toehold put position here and will add more this morning if they get any bounce after the “initial reaction sell off” on oil breaking though $60 today. The Thunderhorse and Atlantis production schedules slipped again and analysts have got to be getting tired of hearing about how these are projects “that no one else has done before.” Goldman went gambling here yesterday with that upgrade and crapped out.

EEE. Another day, another bashing. This may fall to $5 if they don’t get out some concrete results soon but I’ll wait for the next pre PR related bounce.

Analyst Watch – Yesterday Review. The Street Said To Buy But Investors Yawned. Yesterday saw upgrades for BP (Goldman) and EOG (Oppenheimer); initiation of coverage with a buy SWN (UBS); and MUR had its price target upped from $54 to $57 at Lehman. Four very powerful, bulge bracket sell side firms and four well known, liquid energy stocks and only SWN and BP managed to keep their heads above water on the day.

Analyst Watch – Today. TLM cut to neutral at RBC.

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6 Responses to “Technical Tuesday”

  1. Raj said

    Z,

    Your comments this morning:

    Oil’s ’s run at $60 and subsequently failure was nicely time to coincide with the OIH hitting its 200 dma and bouncing lower.

    This morning OIH hit the 200 dma again and bounced lower. Any comments?

    R

  2. zmann said

    Morning Raj,

    I’d say the more time the stocks look tired and directionless around these levels the better. Traders of oil and gas are starting to look through the valley of cold and see Spring on the other side.

    If you’re looking for a short on service, I’d take BHI over the the service indexes simply over the outrage premiums. But I’m only holding a small position for now contnent to watch this unfold.

    Oil inventories tomorrow are pretty critical and I just watched CNBC say the expected draw is 2.9 mm bls of HO according to Dow Jones and that the other surveys including Reuters are around those levels. My 3.6 number this morning was from Reuters, More evidence CNBC has a hookah in the breakroom.

  3. zmann said

    NEil – nice call on the top of TSO. Hope you’re in.

  4. zmann said

    I’m getting close to declaring it time to put the second toe in the water on energy puts. Very tempted to take small bites now but I think I’ll wait for inventories Wednesday.

    XLE looking like a breakdown is imminent,

    BHI, BP, EOG, SU, SLB, TSO, UPL all look ripe for a pretty good fall

  5. zmann said

    If you must take only foothold positions.

    ** BHI instead of the OSX or OIH puts, great correlation and it’s had a good bounce, and the premiums aren’t nearly as rich!

    ** APC (very messy, analysts don’t want to take the time to get it),

    ** APA (a laggard that’ll really get hurt when oil turns),

    ** EOG (because their growth is mostly from Trinidad where gas is still $3),

    ** BP (their self sabotaging nature really hurts the bottom line)

    ** SU not a big move up with oil after the BP takeout rumor disappated, will fall with oil though

    ** TSO – is just doesn’t get any better than the quarter they just had.

    ** SLB and HAL – yup it’s time for them too!!! SLB now…HAL in another day or so..

    Z – gotta go to a parent/teacher meeting . GLTYA!

  6. nltd said

    Z

    Thanks as usual for keeping us up to date on the energy sector…you’re gold! Hope your kid(s) doing great.

    N

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