zman’s Energy Brain

oil, gas, stocks, etc…

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Archive for February 21st, 2007

Waiting Wednesday

Posted by zmann on February 21, 2007

Oil Inventories Postponed Until Thursday. Gas Inventory Report To Arrive At Usual Time. April crude is indicated off another $0.50 after a $1 tumble yesterday. Natural gas continues to rally into what is likely to be the last of the 200 Bcf withdrawals of the season (more on that tomorrow).

  • I’m still looking for oil to test $55 before it’s able to to muster a small bounce. Then downward to the lower $50s.
  • Gas should soften up next week, especially if next week’s pull from storage is less than half of this week’s (which I’m betting it will be).

Earnings Watch:

  • TK and GMR after the close. Talk about priced for perfection its at all time highs but earnings numbers are expected to fall from $1.70 to $1.07 for the former and from $1.71 to $0.72 for the latter. Lower rates, lower volumes. Guidance here is crucial. I’ll be taking some $50 March puts for a buck on TK and some April 35 on GMR which is up 10% in the last two days. Both will be 20% opening positions. Also will take a few TOPT $5 calls or puts tomorrow morning depending on the results tonight.
  • BRNC – announces Thursday and has already been downgraded by everyone on the Street on the expectation of reduced onshore drilling activity. While I expect activity to fall as well it hasn’t yet and is in fact increasing. Ratings may have come down here but estimates have not and BRNC trades at a mere 6x forward earnings (cheapest driller I can find). I’ll be taking the April $15 calls (20% opener) before the report. Normally I’d say that the cheap get cheaper in a falling commodity price environment but with activity remaining high I’m suspending that rule here.

NXY Watch: The chart is on the brink. It’s unlikely they will be able to post better than expected production guidance in coming months as their growthy, long lead time projects have been well telegraphed. They have set the bar very high for 2007 (50% production growth) but given their high forward multiple relative to their peers they are likely to trend lower in the current falling commodity price environment.

CFTC Report Shows Marked Increase In Natural Gas Short Position Last Week. After a brief bounce towards equilibrium at the start of the month, the shorts reasserted their bearish sentiment last week. Concurrently, the longs continued their 5 month long exodus from gas reaching the lowest level as a percent of total contracts in 8 months. (click on the graphs below to open in a new window)

Longer term a large net short position could provide the impetus for a rally. Historically, the pendulum swings much further into short land before this occurs. These reversals usually occur when longs represent as little as 15-20% of outstanding, non commercial contracts. With the longs at 45% of total we’re not there yet.

…But For Now The Slide In Net Contracts May Bode Poorly For Gas Prices. In the last two instances where the net position plummeted from high to low levels (2001, 2003) gas prices fell substantially once the net position tipped into short territory. Looking at the chart below you can see that there is not a simple relationship between gas prices and net contracts. However at the extremes the CFTC data would seem to be predictive of significant moves in gas. If the net long position spirals toward the low end of the range again (15-20%) it would suggest that gas prices will come in (to the $5.50-6.50 range).


Odds & Ends

SPR Refill To Commence This Spring. Secretary Bodman said the U.S. will start purchasing 50,000 bopd to begin refilling the 11 million barrels sold from the SPR to refiners in the wake of Hurricane Katrina. As the secretary said, this shouldn’t have any impact on crude prices.

In a never ending attempt to support oil every time prices start to waver BP said it shut in its 47,000 bopd Northstar oilfield in Alaska after discovering a pinhole sized leak in a gas line. No word yet on a repair time line but BP will likely take their time as they’ve stated they have some other facilities upgrades to do during this outage.Analyst Watch: VLO PT upped from$79 to $82 at FBR.

Dykstra Picks HAL. When investing becomes entertainment you’re near the end of a bull market. First Mad Money, then Fast Money, now Sports Money?

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