zman’s Energy Brain

oil, gas, stocks, etc…

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Tuesday Morning…Warmer.

Posted by zmann on February 20, 2007

Oil: It’s All About The Rising Temps. Crude fell $0.89 to $58.50 in electronic trading yesterday. This morning oil is indicated down another $0.37 as the first real forecast break in the weather in five weeks materializes.

First Taste Of Spring – It will be brief but very warm.

weather-map-022007.JPG

Natural Gas: The Last of the 200+ Bcf Withdrawals (of the season). I’ll go out on a limb here and say we get another 200 Bcf withdrawal this week and then that the season is essentially over. We’ll probably enter the injection season with a little over 1.4 Tcf in the can which is near 400 Bcf over normal.

  • The Over/Under Is 200 Bcf This Week. My best educated guess is that prices will decline towards $7 this week and then either plung below it on a <200 Bcf report or surge back to that top of $7.50 I mentioned last Friday.
  • Next week I expect a high double digits withdrawal (around 90) as the warmth of Spring slowly spreads to the northeast. gas-weighted heating degree days (GWHDDs) came in at 246 down from 267 last week and 258 the week before that.

Here’s what that will look like on a YoY storage deficit basis.

yoy-deficit-021907.JPG

This Week’s Degree Day Tally Should Fall Off A Cliff So Next Week’s Storage Report Should Be Cut In Half (At Worst)

hdd-vs-gas-021907.JPG

Odds & Ends

Rig Counts Remain High. Baker Hughes rig count increased 13 last week (all oil). Gas rigs remain at all time high. Note also the rapid growth in horizontal drilling. This is primarily gas and of that primarily shale. The slight downturn at the end of the horizontal chart may reflect maturation of the core Barnett properties and a reluctance to maintain capital programs at recent levels given last years slide in gas prices.

horizontal-rig-count021907.JPG

Opec Watch:

  • Opec Says Market Is Fine For Now. According to the new Opec Secretary General, production cuts in March are unlikely and he added: “Supply and demand are running neck-to-neck,” at around 86 million barrels a day. “Adherence to the cuts is excellent at 66%.” Comment: Normally I think of 66% as a D but it gives you a good idea of how to discount any future cut claims these guys make.
  • CNN reported Iranian vessels have strayed into Iraqi waters at least twice over the last week near an Iraqi oil export terminal. They left after Iraqi patrol boats asked them to. Comment: “This business will get out of control. It will get out of control and we’ll be lucky to live through it” ~ Tom Clancy.
  • Russia Cuts Oil Price Forecast. From Bloomberg, Russia, the world’s largest oil producer after Saudi Arabia, cut its forecast for crude prices this year and next, Deputy Finance Minister Tatiana Golikova told parliament today, according to local news services. The ministry cut its forecast for 2007 to $55 a barrel from $61 a barrel and the 2008 estimate to $53 a barrel from $56. Comment: They won’t be #2 for long and they know it.
  • Nigeria. Another day another three hostages taken.

Analyst Watch: RBC and Jefferies initiate with buys on RAME after its secondary (priced in the hole) earlier this month (Do a deal, win a prize!), SUN upped to Buy at DB, XCO (the guys buying a lot of APC‘s castoffs) cut to hold at AG Edwards. UPL upped to buy at Goldman.

And lastly…from a Bloomberg survey, 21 of 42 analysts, traders and brokers, said [oil] prices will decline this week, 10 expected an increase and 11 forecast little change. The week before, 35 percent of respondents expected futures to fall. Comment: I continue to see $55 as the next test followed by a small bounce as we head towards the lower $50s. We remain extremely well stocked for crude and products.

Stocks Of Interest This Week:

Longs:

AXC – this really reminds of TLM in its infancy with bigger growth and large, near term catalysts off the coast of Nigeria and, in of all places, Iraq,

PTSG – high potential, high risk Barnett Shale play,

CRZO – lots of shale exposure (not just the Barnett) in a little package could yield big growth,

CRR – frac business is booming while the frac mapping and reservoir diagnostics business is hitting on all cylinders as well.

Shorts:

BHI – waiting for the other shoes (Goldman & Lehman) to drop,

ACI / BTU – coal is backing off with gas and recent production runs show continued increases in production,

Refiners (HOC, TSO, and VLO) after we get some clarity on the latest VLO fire (that’s 3 in 2 weeks!),

Others: BP, HES, MUR, PBR, PTR, SU (buyout rumor is overplayed here and recent high gas and low oil make SU a dull boy), COP (gassiest major of the all will slide if gas goes sub $7).

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4 Responses to “Tuesday Morning…Warmer.”

  1. zmann said

    RAME – just got through the IPAA presentation after the double broker buy initial of coverage.

    It’s a non starter

    Production is from huge number of little better than stripper wells.

    The excitement is of course the shale where they partner with EOG and DVN. Analysts are looking for double digit growth through 2008 but the wells are pretty pricey for this little fish and they may get AFE’d into a hole on this.

    In summary, they’re cheap but they’re oily, they have a good bit of debt and a small amount of cash from the deal early this month (priced in the hole to get it done and obviously touted as “research is on the way”. If the partners go crazy on this acreage they’ll be outspent in short order.

    The flipside is, they’ve got some sexy acreage. This is my five minute read and they could easily get scooped up and parted by either of their partners but I’m staying away.

  2. zmann said

    BHI PT cut to $80 from $95 at FBR. Of course that would still make the stock a buy but I like the way the FBR guys think.

    Here’s the piece where Goldman upped BHI to buy and cut SLB from the recommended list.

    http://biz.yahoo.com/ap/061218/schlumberger_mover.html?.v=1

    The analyst put a $102 target on BHI at the time. It was $82 then and is $63.80 now and losing supporters quickly. His reasoning was purely valuation but in a falling commodity price environment I’d tell you that the cheap get cheaper and the premium stocks hold up better.

    Abbey Cohen used this as one of her top picks in Barron’s last month, echoing the analyst’s contentions. I wonder if she’s thanked him yet for the great idea.

  3. zmann said

    APC about to test $40. No support underneath. Stock not acting well and will surely get hurt (by as much as 10%) when gas crosses the $7 line (I expect that this Thursday following the last of the big gas withdrawals of the season). COP following similar pattern and has similar exposure (and less hedges) to natural gas.

    Finally XCO (the buyer of APC’s castoffs) will begin to look like they’ve been overly agressive as gas prices fall.

  4. zmann said

    John Hess starting to sell increasing amount of stock. Started as a trickle but he appears to be working up to size. His direct and indirect sales are easily outpacing his automatic sales. $ are anywhere from 10,000 to $250,000 on an almost daily basis.

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