zman’s Energy Brain

oil, gas, stocks, etc…

  • Blog Stats

    • 101,683 hits
  • Seeking Alpha Certified
  • Hello and Welcome - I’ve created this blog for the purpose of discussing energy related topics - primarily but not limited to oil and natural gas - and their potential impact on stocks, options, and futures. I am an amateur investor/trader and make no assurances about the opinions expressed on this blog. Please consult your financial advisor before buying, selling, borrowing, or otherwise risking capital based upon ideas taken from this site. Any advice construed from this website is worth what you paid me for it.
  • RSS Subscribe with a reader

  • Subscribe via RSS with

    Powered by FeedBurner

  • pfblogs.org logo

Friday Wrapup

Posted by zmann on February 23, 2007

Oil Traded Higher After U.N. Report Confirms Iran Still Toying With The Atom. Big surprise. The initial reaction to the oil inventory report was a spike followed by a modest sell off. Then oil reversed course on the Iran news and traded a tad over $61 before closing at $60.95. The crude market remains buoyed by multiple refinery, oil field, and pipeline difficulties and rising geopolitical tensions in Iran and, more importantly, in Nigeria. Here’s a quick review of the yesterday’s oil inventory numbers:

  • Crude: up 3.7 million barrels. Much bigger build than Street expectations. Refinery utilization fell to 85.2% versus a Street expectation of a rise to 87%. Gotta wonder why they thought it would rise with the dearth of restart announcements and the recent fires but this lack of consumption on the part of refineries and a small uptick in crude imports are behind the inventory build.
  • Gasoline: down 3.1 million barrels. Also much bigger than expected draw down. The decline was attributable due to a combination of blending component consumption as refineries take on inventories in preparation to maker more gas (1.8 mm barrels) and the aforementioned lack of refining capacity coming back on line. Blending component imports also witnessed a sharp drop in imports. On both a total inventory and days of supply basis we remain well stocked for gasoline. However, until news hits that refinery restarts are occurring I’d expect gas to defy the fundamentals.
  • Distillate: down 5.0 million barrels. Bigger draw than the Street expected. This was the “bigger” number I’ve been talking about for three weeks. As weather warms up secondary and tertiary sources of heating oil demand will continue to refill their tanks. Furthermore, diesel demand was sure to pick up given the relief from the last several weeks of snow covered gridlock. Over-sized withdrawals relative to expected declining degree days are likely for the next two to three weeks.

Natural Gas Withdrawal Was Essentially In Line With Expectations. The EIA reported 223 Bcf were consumed last week versus my estimate of 210 and Street consensus of 229 Bcf. In comments just before the number (when I finally found a consensus estimate) I wrote: Consensus 229. So maybe the under for gas prices is 220 and over is 230 with little immediate change on a number in between. And gas traded flat to down with the middling report until taking its direction from crude as it rallied on the U.N. report. On the day, gas closed up a whopping $0.08 and remains range bound.

I underestimated the East Consuming Region’s gas demand but otherwise came pretty close…

gas-demand-comp-022307.JPG

…But the net impact of 13 additional Bcf taken from storage is minor. I’m bumping my target for next week from 90 to 100 Bcf as I’d rather be conservative than miss the East again. My estimate will change again (probably very slightly) when actual HDDs are released next Monday morning.

gas-table-022307.JPG

I’m Still Banking On Trough Storage Close To 1.5 Tcf. Those smaller end of February withdrawals leave us with gas in storage of just under 1.7 Tcf at the end of February. Average March weather puts at trough storage of around 1.42 Tcf. The wicked cold scenario would leave us with 1.172 Tcf. Anything under 1.4 Tcf at March 31 and I’d give up on gas going sub $5 this Spring (maybe not even sub $6 but it can be surprising how fast a series of tiny, end of season withdrawals, can suck the life out of gas prices).

If I’m Right About February and March Comes In As Average You Get The Following:

gas-storage-022307.JPG

Odds & Ends

Opec Watch: Ecuador plans to rejoin Opec during the second quarter.

Analyst Watch: TK cut to neutral at Bear Sterns. Bear cited industry headwinds, valuation, and a lack of near term catalyts as reason for the downgrade and reduced its 2007 and 2008 estimates.

Bad Idea Watch: BP employee (manager of regulatory affairs) deleted subpoenaed files regarding the Texas City refinery fire. She says she doesn’t remember doing it but the judge has ordered them to produce the deleted files by today.

Errata: An ever-so gracious reader on the SeekingAlpha site pointed out at least two of my mistakes in Wednesday’s post. I erroneously stated that TK and GMR were at or approaching all time highs when in fact I meant to say they were hitting or about to hit 52 week highs. I regret the error and any confusion it may have caused.

Advertisements

40 Responses to “Friday Wrapup”

  1. tom2oc said

    Holy Cow Z! I just completed reviewing the energy sector this morning and I’m telling you, you better forget your fundies for a while. Tons of bullish charts out there. Take a look at a one year chart of SUN. It’s about to break above the huge downtrend line from beginning of ’06. A move above 66 would do it and we might get it today.

    OIH above 140 will make it zoom to 145 resistance of that huge triangle resistance. And 145 is broken, get the hell out of in front of that train.

    Most coal stocks are showing long standing trend reversal signs. Take a look at FCL and BTU. FCL has an identical TA setup than SUN. A little 1% up move today and we break a huge down trending line.

    XLE is in a bull flag in the middle of large trading range. If that flag works like the best odds are telling it to work, it’s going to 65.

    Reading Phil’s blog this morning I see that he keeps on buying those puts on those terrible fundies and I hope for him and his readers that he’s right but just wanted to tell you that current TA tells me that it’s definitely not the time to go short energy at this moment. But I trade a shorter timeframe than Phil and you though. I’m getting ready to go long SUN OIH FCL when I get my signals. Good luck and be careful on the short side.

    What do you think of VSE? TA tells me that odds are the bottom is and we’re going back up big time.

  2. tom2oc said

    By the way Z, last year we got 0 hurricane. Heck, it didn’t come as a suprize since I posted on my blog late spring that the waters in the Atlantic were below normal temperatures and the experts had changed their forecasts to a lower to no hurricane activity in the fall. But the oil pumpers and crooks didn’t deem to publish this and they kept on scaring people all summer of the hurricanes coming.

    But what are the odds of a repeat situation this coming hurricane season? It must be low don’t you think? Think about this: We had NO hurricane, we a WARM January as it ever was, we had calm in the geo-pol scene for some time and now it’s back in the news. We are buying less SUVs. And yet, after all that bearish context for oil, we still have oil above 60. Can you imagine where it would go if were to have an active hurricane season this year?

  3. zmann said

    TOM – I hear on cautious stance on energy puts. I think the charts are right until they reverse. The further they get out of line with the fundamentals the more comfortable I get shorting the group. But, that’s no reason to ride out upswings with full positions and that’s where your TA stuff is beneficial.

    Fundamentals for what to buy (or sell), technicals for when.

    What does the TK chart tell you now? They got a $50 test on a downgrade this am and have held so far with another pop in crude.

  4. tom2oc said

    TK same thing as yesterday. Above 50 bullish. Below 50 bearish. The intraday at the moment shows positive moneyflows divergence so wouldn’t be surprized to see it bounce above 50 but that is very short term though. Could go anywhere later today.

    I hear you on the fundies but I prefer to stick to technicals for what to buy or sell in addition of when. Better to go with the trend, and you see this on the charts, for the short to intermediate term timeframes. Unless you’re an insider and know stuff others don’t, the fundies are all built in the charts anyway. Just as an example, I got in a MSCC call play for a small experimentation posted live on my blog. I knew absolutely nothing about that company but the chart was screeming buy me! Up 8.8% yesterday and today already up another 8%. Resistance is just above at 22 so I’m about to get out. Gotta luv TA!

    Any take on VSE?

  5. zmann said

    Tom – I agree to a point. But not all fundamentals are backward looking. What I add is an analysis of the macro fundamental environment going forward. If all the stocks expect $8 average gas and I can figure out that gas is going to aveage close to $6 then there is a divergence between what’s in the charts that’s right and what’s in the charts that’s going to turn out to be wrong.

    Congrats on MSCC! I don’t do that kind of investing but for those of you who can do it profitably, over time, I say more power to you!

    VSE – sorry no. The ethanol game is a weird one and I don’t keep up enough with everything that’s going on it to offer anything useful. I used to track pretty close but have been away for a long time. Maybe I’ll come back to that and solar when time permits.

  6. Raj said

    Tom,

    How can I get access to your blog site?

    Raj

  7. tom2oc said

    Z, yes of course but that implies you know your stuff than the market which is quite possible given your expertise. I’m not bright enough for that though. Take last summer, heck I knew in months in advance that there would be no hurricanes in the fall. I even posted it on Phil’s blog. I was looking at making money on oil puts on that incredible information knowing that it had not been published anywhere (heck, the oil crooks and CNBC not wanting to piss off its audience of Cramer fans all invested in oil services stocks ahead of the hurricane season didn’t want this to be published. Joined Phil in buying OIH puts late summer and guess what happened to them. They went down the drain despite no hurricanes. There was always someone saying that an hurricane would for sure show up and when it became clear there would be none, then the attention switched to geo-pol once again. Fundies were as bad as could be on no hurricane and all the high expectations of higher crude all built in the charts, and with perfect advance fundie information, still couldn’t make this fundie play profitable. That was the last nail in the coffin for FA trading for me.

    Raj, I run no blog at this moment. I’m waiting for COMP to kiss the 2500 and go back for a huge breakout move to 2650-2700 or COMP to fail 2500 for a move to 2450, 2400 and then a failure of this line. Very crucial period here. Been waiting for weeks and weeks for this TA action which is unfolding as planned here. Will be too busy trading to run a blog once I get my confirmation that this market is going to shoot for the stars or tank. It’s coming any day now. Watch 2500!

  8. zmann said

    Hear ya Tom, good points.

  9. Tom,

    I think you hit the nail on the head. Knowing that it was going to probably be a mundane hurricane season, people were out their preaching the fear. Same goes for the geo-political, out of control demand, etc… Welcome to the fear driven market.

    It all seems very insane to me. The money keeps coming in and inflating the balloon. I like Phil’s roach motel theory, but the problem is is that roaches are very resilient; hell, they would out last us in a nuclear war. The market has been resilient in the face of high commodity prices, but how long can that last? What is going to pop the commodities balloon? Rising inventories… No, Rising spare capacity?…. No, Slowing of demand growth?… No. A recession….. probably / maybe / I am not even sure about that.

    Argh, rant…. rant…. rant…..

    -SaneO

  10. tom2oc said

    SaneO, LOL! The roaches surviving a nuclear war! Too funny!

    Heck, you might ask yourselves all these questions and lots more but at the end of the day, is it not easier to follow the damn trend? Who are we to believe that we know more than the market? Roaches, NYMEX number of barrels, etc. all that is nice stuff but if the market wants to go higher, why fight it? Someone said the market is never wrong, opinions often are.

    At the moment on the market all I know is that we are at a very crucial point and TA gives best odds for a major breakout to happen soon. The market is behaving exactly how I’ve been expecting it to behave for months now just by following the TA on the market charts on a daily basis. And the line to watch is 2500! We are now in the normal TA process of kissing the 2500 line goodbye for the start of a major leg up in the form of a blowoff top before the coming financial crisis or slicing through it for a breakout negation and the start of a correction phase right now instead of later. Been waiting for weeks and weeks for this crucial event to happen and we’re there now. I’m planning for a very busy spring trading session, long or short!

    OIH holding above 140 for now. This is bullish action.

  11. zmann said

    EPA revising automotive MPG estimates to incorporate more real world testing vs lab testing previously used. This looks like it shaves 10% off the estimates. Should be no effect on gas demand since actual mileage remains the same.

    Should be inflationary as well. CPI is calculated using a utility factor. For instance, if a car costs $200 more next year but adds an airbag the CPI might consider that a wash, not inflation.

    In this instance, the lower MPG estimates will factor into raising a car’s total cost of ownership.

    And I’ll bet you never hear anything more about the CPI aspect of this change.

  12. Financial crisis? can you elaborate?

    -SaneO

  13. zmann said

    Tom – If OIH fails to hold 140 today (closes below it) does that tell to hold off on service company calls or call on the index itself?

  14. El Diablo said

    Hurricanes are a moot point. Inventory levels have adjusted higher to account for any expected dispruption due to hurricanes or terrorist acts–that’s what inventories are for and the market sent a clear pricing signal that inventories were too low for the perceived risks in the market. Now inventories are at historic highs. And rig count is at historic high. Oil will flow onto the market until the price falls dramatically. Sorry to disappoint the ‘professional’/’bubble’/’hedge fund’ traders.

  15. zmann said

    El Diablo – you from the industry?

  16. tom2oc said

    Z, yes OIH closing below 140 on a Friday would be a problem (at least a buck down though). As you know I like to short OIH on Mondays morning after the initial spike up from retail dumb money in the first 30 minutes. I might have a play Monday unless a nuclear bomb explodes somewhere.

    SaneO, too bad my blog is no longer accessible but I loaded charts at times showing that there is a financial crisis happening every 4 years (give or take one year). Don’t ask me why, it just happens like this. Nothing else that normal TA stuff. Market will find an excuse to selloff. The last one was end of 2002 with Enron/Worldcom so we are overdue and running on borrowed time already. And a last hurrah leg up leaded by COMP would be perfect timing for trouble in later half.

    I loaded a very informative chart on my blog, the percentage of stocks over 200MA. We are now at 85.5% of all stocks above their respective 200MA. The top is usually 88-89% meaning that there is still room above. Every year we get usually one intra cycle correction and the indicator goes down to about 30-40% before climbing back up again. This is great tool to time market bottoms by the way. Every 4-5 years as shown on the charts going back 25 years, there is financial crisis and the indicator dives to 18-20%. Just amazing to see how these cycles happen like clockwork as you could see clearly on the chart the indicator dipping to the bottom on these events:

    1987: Crash
    1990: Gulf war
    1994: Orange county, Baring, Mexican pesos crisis
    1998: LTCM and Russian crisis
    2002: Worldcom/Enron

    May or it may happen because Mr. Market likes to surprizes everybody but I don’t think there is a lot of people looking back 25 years and doing TA on stocks over 200MA when the market is in a strong bull run. So I will be very careful once this possibly last leg up which is about to start, (maybe, we’ll know in a few days), will start to lose steam.

  17. Thanks Tom,

    My personal feeling that I have had from mid last year was that we going to tank sometime soon, but I never looked at it from the historical / pattern perspective.

    -SaneO

  18. tom2oc said

    Z, ideal situation for OIH would be a close below 139 and a run up to 140 resistance Monday morning in the first 45 minutes to short it using 140.25 as stop. Above 140.25, same as today (today being a Friday I don’t short oil anyway) no way I’m shorting this crooked thing. Would go long using 139.75 as stop.

  19. El Diablo said

    Retired from buy side (‘hedge’ fund) and sell side. Seen the bubble mentality many times first-hand, and of course, researched it throughout history. ‘buy high but sell higher’ is the quintessetial catch phrase employed by ‘sophisticated, professional hedge-fund’ traders. Its a fools game. Simple economics of supply and demand ALWAYS prevail. We are just witnessing the ‘greater fools’ buying now. If they’re willing to foolishly pay $60 for oil, they would also foolishly pay $70, $80, or $200. Using ‘their’ logic, you would NEVER short against them, which is what they want you to believe. That’s the opportunity: anyone should rather bet against the fools than against solid fundamentals. Why is oil up despite fundamentals? Because it is (was) above yesterday’s high, no other plausible reason. I’ll take the bet against the fools any day–it ALWAYS pays off.

  20. zmann said

    Tom – thanks. That sounds like sound advice.

    Everyone’s got their eyes on Oil but service is just as dependent (more in many cases on natural gas). At last check it had given up yesterday’s oil pop related gains and was heading back towards support at $7.50. The withdrawal almost cetainly will be cut in half next week and if March turns out to be pretty normal (mild) you’re looking at very comfortable trough storage levels. Oops, sorry to “fundie” you out. ;-> Glad you and Sane are around. I get a little concerned when nobody comments.

  21. zmann said

    El D – Holy crap! I’ve felt like the lone voice screaming in the woods for a long time now. Were you a sellside E&P guy like myself? Just curious so I can target question. Thanks.

  22. zmann said

    I’ve got a lunch meeting but will be back before the close. Until then here’s a few questions for you guys about the direction/balance of the site:

    More stock specific / more fundamental analysis?

    More non oil/gas stuff: coal, solar, biodiesel (I will not do it!, ok maybe)

    Suggestions at large. I do this because I love it and live it.

    For instance, I think the way the search feature on this site operates sucks. I can’t change it though so maybe there’s a better way to organize the page tabs across the top. I’m begging you for suggestions. Thanks in advance.

  23. Rob said

    Tom, have you considered the subprice mortgage to be the next financial crisis? Its killed those stocks and started to hurt the big banks.

    XOM still the laggard of the group today, IMO, still telling the story.

  24. El Diablo said

    Downstream from there: boring LDCs, pipelines, utilities. But learned the tricks of the trade from the covering the best lying thief ever: Enron!

  25. tom2oc said

    Rob, yes that could be the spark. Right now it’s still very much confined though. Like I posted here earlier this week and on Phil’s blog I think the spark will come from all these crazy China bubble stocks. Most of them have already gone through the blowoff top process and are now stuck in large triangles which I give the best odds to break on the downside. The poster boy example is FXI. See the blowoff top in the beginning of this year. see the zig zag afterwards in a huge triangle. Down 2% today and threatening to breakdown in coming days. 2 days ago I went back to the dotcom bubble blowoff tops and subsequent breakdown looking at COMP and many high flying names and I was amazed at finding the exact same pattern that FXI is now in. Compare with COMP from early ’99 to August ’00. Same exact pattern!

    Like I was telling Phil, if we do go for a last leg up and postpone the financial crisis for later this year, I will go big time long and will use puts on China stocks like FXI to hedge the longs. I’m getting to point now that even with SOXX in good shape to kick off the 2500 kiss and subsequent big rally up it might be stopped any day with China crashing down. As you know when Asian bourses go down, they don’t go down by 3-5% they go down 15-20% in just a few days.

  26. I know I love the ( oil / gas ) fundamental stuff, but then again I am a fundamental type.

    Coal would be interesting, because it is often overlooked.

    Alt energy is interesting, it would be nice to see some non: political / treehugger / agenda based analysis ( e.g. market / fundie stuff ) about alt energy.

    -SaneO

  27. Eric said

    Tom,

    Speaking of China and Oil what’s your take on PTR. It looks to me like a Decending Triangle that’s getting ready to breakdown.

  28. tom2oc said

    Eric, PTR is in the a no trade zone which is getting more and more compressed. Below 120 is a short and above 122.50 is a long. Will depend on what oil does I guess. Like many oil stocks I see some positive moneyflows divergence on the daily so if it wasn’t that it’s tied to oil, I would say that the best odds are for a breakout above the downtrending resistance line at 122.50 but in this case the driver is oil. The market is about to give the direction on PTR. For now it’s a neutral wait and see stock.

  29. umagumm said

    Coal is a natural to have on this site as it is often in direct competition with gas. Look at who’s leading the protests against TXU proposed 10 new coal-powered plants in Texas- CHK.

  30. El Diablo said

    Where is the Iran/Nigeria Friday-Fear-mongering?!

    When is the market gonna stop worrying about these backwards third-world countries? They simply have no viable economic alternatives other than to keeping the oil flowing. Despite what they SAY, that will NEVER change, no matter how much they hate us, they have to eat. Who’s dumber–those blowhards or the CNBC-type blowhards that believe everything they say?!

  31. Diablo,

    I agree. Yeah Iran can really afford to turn off the spigots. It is the speculators who keep rewarding Iran.

    I wish I could threaten my employer and they give me more money because of it.

    -SaneO

  32. nltd said

    Lively spot today…

    Been out. Any take on TXU here? Looks to me may be setting up for a fall on earnings Tues. All the news neg. to me, but stock is up.

    N

  33. zmann said

    Oil ang gas almost exactly where they were when I left. Yawn.

    So for suggestions I’ve got: More Coal / Alt Energy. Anything else because if not I’ll assume that everyone’s happy.

    Interesting to not the rise the PBW has taken (alt energy ETF) since the recent rally in oil. When oil pulls back these stocks are going to get hit. There’s not a lot of talk of tax incentives right now and the summer slowdown should lead to some selling.

    HES is out of control. Someone stop them. Another flood of insider sales is met with a 2% rally to just off an all time high.

    I think the refiners are overdone right now but I’ll wait to step in front of that train until next week. Especially TSO and VLO whose going to get hurt on the earnings front over this.

  34. nltd said

    Hi Z

    Sure a lackluster close today…feels eerie without the pump.

    N

  35. zmann said

    Hear ya N. I missed the close but am looking right now and I didn’t miss much.

  36. tom2oc said

    Z, LOL! I just read that MSCC went ballistic today on the news they have won a design contract with CSCO. No wonder why that chart was a TA beauty few days ago. Those good fundies were already getting built in the chart by the insiders and other people in the know. Told ya that fundies are factored in the charts. Calls up 400% in the last 2 days and from looking at the volume today I think the 22 resistance will be crossed easily. Gee, gotta luv TA!

    I grabbed some few OIH puts when it crossed the 140 line for the last time to test the waters and get an head start for Monday. If something happens this weekend and price climbs back above 140 and is still above 30-45 minutes then I’ll dump the puts and switch sides. Or I might just get some puts since we’re at a crucial inflection point right now and it’s either going to go test 145 or back to 135 so could be a good volatility 2 way play.

    Will be very busy next week if what I think will happen to the market happens. No more time for blogging! You’ve got a great blog! Don’t change a thing!

    Have a good week-end!

  37. tom2oc said

    Typo previous post. I meant keep the puts and get some calls on the second option.

  38. nltd said

    Tom2oc–fun to hear from you. I appreciate your insights, as I am relatively new to this game. Looking forward to reading more of your “stuff” as you have time to post here (and/or when you are able to open your blog). I enjoyed reading there one day when you were open. I would read without interactivity, if you decide to be available that way. Of course, being able to ask ?’s would be even better. . .Thanks again.

    Z
    Concur with Tom, “You’ve got a great blog!” I’ll pass on recommendations for improvement for now. I’m still trying to wrap myself around 1/10 of what you present here, which I’m sure is a small fraction of your knowledge.

    I’m sure as time passes, the relative impact of alt energy will show more significance. Whether it shows enough to demand your attention I think remains to be seen. That said, don’t underestimate American agriculture’s abilities. I live (grew up) in farm country, and I’m amazed at how much yields have improved since I was a kid. If the gov quits paying farmers to grow nothing (no productive crop) on a % of their land and they use that to produce renewable energy, I think it could matter.

    There’s all that stuff about subsidization, but all that’s required for that to no longer be needed is higher petroleum prices (whether naturally, or by taxation). So maybe you’ll eventually get more interested in biodiesel as it impacts your other studies.

    I appreciate your work immensely. Thanks.
    N

  39. nltd said

    FWIW
    In case anyone interested. . .TXU possibly being bought is why it was up so sharply today. Thought I should mention here, since I brought it up here earlier.

    N

  40. El Diablo said

    RE: Website improvements. I believe you’ve made great steps toward compiling (and regularly updating) vital data on the markets. Perhaps what is needed is greater depth rather than breadth. I suggest adding a “Daily Hot Topic” tab in which you would provide your insight on a single issue that is currently affecting energy markets and readers would add their comments/views in more lengthy replies to that particular topic. The result would be a better feel of how the ‘market’ weighs that issue. Examples: Iran or Storage or Weather Predictions. Your main page touches on many issues, so the comments are too dispersed to nail down the particular issue that is driving the stocks/commodities. Such a forum would narrow the scope of the comments while also adding depth/insight on an important issue that appears to be driving markets immediately.

    Thanks for all the hard work.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: