zman’s Energy Brain

oil, gas, stocks, etc…

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Markdown Monday?

Posted by zmann on February 12, 2007

Oil and Gas prices are off substantially in early morning trading today. No picks yet other than the usual as I’m expecting big withdrawals in both heaing oil and natural gas this week. In fact, if we do get a substantial pullback in the stocks, I’ll be looking to add covers with the XLE.

Crude Still Finding $60 To Be A Ceiling. Traders are sticking to the talk that a higher close for oil means … further higher closes for oil. The elusive closing trade above $60, if achieved, would make a run on $65 very likely this week. News of record snowfall in upstate NY will undoubtedly be trotted out as a sign of further massive demand every 5 minutes on CNBC but I still think oil hits $50 before $65 as winter is nearing its end and OPEC compliance will likely falter with the rebound in oil prices.

Opec Watch: From Saudi’s oil minister Al Naimi on Sunday,

  • “the world oil market is in “much, much better health and balance” now and if trends hold there will be no need for further production cuts or increases in supply when members of the OPEC meet next month
  • production is now 8.5 million to 8.6 million barrels a day – one million barrels a day less than it pumped around six months ago.”
  • Comment: Since September, OPEC has announced cuts totalling 1.7 mm bls. Oil has rallied on cold weather and little else. There is no evidence that Iran is willing to make good on it’s threat of using oil as a weapon. Instead, OPEC ministers are high fiving each other over this rally and there is no chance the remaining announced cuts will happen.

Oil Analyst Watch:  ‘With US petroleum demand showing stronger growth in recent weeks and with ongoing geopolitical threats to supply from Nigeria, Iraq and Iran, we think there is enough fundamental support already in evidence to spark a run to 65 usd or even 70 usd,’ said Citigroup analyst Tim Evans. Comment: One week of crude oil pulls out of the nine weeks and that’s strong demand? Wow, despite the fact that we’re thoroughly oversupplied it’s time for talk of $70 oil? Go figure.

Current Price Talk Is Too Bullish. One positive I would note is that when talk gets this bullish you’re due a downturn. Just before oil bounced from $50 to current levels, everyone CNBC could find to interview was saying $40 to $45 was the next stop for crude. We were too bearish then and they are too bullish now.

Elk Hills To Reopen Within Days. The closure of the Elk Hills prompted a $2 run last Thursday on statements that it would remain closed indefinitely.

Natural Gas: $8 remains the ceiling. This week will see the biggest withdrawal from storage to date but we still remain well supplied.

Holdings Watch: No new picks this week as both commodities are at inflection points. Moreover, analysts are sitting on their hands right now. That is to say they’re doing nothing but maintaining Buy ratings and telling investors the stocks are cheap.

Weather: Cold to maintain tight grip on northeast. NOAA’s latest forecast shows continues colder than normal weather through February 21. However the rest of country starting to see more normal temperatures.

  • Last Week was colder than expected. HDDs came in at 267 for last week versus the Climate Prediction Center’s early read of 254. Last week saw the biggest pulls from storage for both natural gas and heating oil but this week should see the biggest withdrawals of the season to date.
  • But early morning indications on oil and gas show hefty price declines. Traders are starting to anticipate the inevitable decline in prices as winter draws to a close.

Earnings I Care About This Week:

  • Monday: CRK,
  • Tuesday: XTO,
  • Wednesday: PVA, PQ, TOT, RIG,
  • Thursday: BHI, COG, XEC, ECA, NXY 

Analyst Watch: nada


9 Responses to “Markdown Monday?”

  1. zmann said

    Miocene Jim,

    Re nat gas estimates. There used to be a symbol for gasest on Bloomberg. I just google for it and generally get it from Reuters, Dow Jones, Bloomberg.

  2. neil said

    HOC reported…slight beat, headline # looks better than actual result..would short the stock only if it dramaticaly out-performs..still very expensive longer-term and todays # wont do anything to change perception either way….

  3. zmann said

    The no more cuts from Opec holding sway over prices into the Nymex open.

  4. zmann said

    Goldman lightened up on SFY, Cap Re on several names.

    KWK spinning out its gathering infrascructure in the Barnett…sign of a top. Good for the KWK shareholders but it tells me they don’t see a better time than the present for the offering.

    HOC – agreed overpriced. They, like TSO, won’t see that good a 4Q for some time.

    Still holding my toeholds put positions in BP, BHI, EOG, SLB VLO, TSO, HES, and BTU

  5. Zmann,

    Good stuff, as always. I’m curious about your forecast for oil prices going forward. Do these assume no significant change in any geopolitical risk premium going forward?

    In a future entry, I’d very much be interested in hearing about how you evaluate any geopolitical risk component in oil prices, as well as what sort of premium you think may be built into current prices.



  6. neil said

    hope you guys got short DO on Friday into the special dividend..stock is really under-performing the OSX today, down 3% after factoring out the special dividned payment

  7. zmann said

    Bill – Love the handle. In the middle of something will get back to you later today.

    Neil – tried to send you a email repsonse but got stiff armed by yahoo. Missed DO by a dime…am playing the group instead through BHI which is catch some collateral damage today.

  8. zmann said

    Lots of technical damage being done to the nat gas chart…now down $0.60. So much for $8. I’d be careful about adding too quickly to putters as we are going to get the biggest draw of the season this Thursday. Still, I’m very pleased with the action in everything from EOG to SLB and in between.

    CNBC said this drop in oil and gas prices is to be blamed on Saudi’s comments (ture) and the warming trend (which I’ve been point out for over a week) as the blue zone of colder than normal weather shrank back towards the east coast.

  9. zmann said

    PTSG continues to climb, now $1.38. I wouldn’t chase it but I like the action in the face of a down commodity and group.

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