zman’s Energy Brain

oil, gas, stocks, etc…

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Monday Mullings

Posted by zmann on February 26, 2007

No picks today. Stop reading if you want picks. I’m told that the first rule for writers is to never tell the reader to stop reading. Because they often do. But seriously, oil, gasoline, heating oil, and natural gas look extended to me. I’d like to let the week get rolling and exhaust some of last week’s exuberance before I make any picks but if I were to pick anything:

  • I’d consider puts on a refiner (very possibly TSO which rallied 7% last week as crack spreads soared on higher gasoline (up 8%) and heating oil(up 5%)) but I’d wait until later in the week,
  • I continue to hold smallish put positions in service companies: SLB and BHI but I’m waiting for further action until the OIH establishes a bit more direction — cover over 143, add to puts under 135,
  • I hold puts on TK – which saw some pretty handsome estimate reductions last week 10% in 2008 and is near it’s 52 week high. VLCC rates continue to fall as seen here and they were a source of last quarter’s strength the company referred to in their 4Q press release.
  • BP continues to recover following the resolution of the Texas refinery fire lawsuits but the company will remain plagued with low growth and operational / managerial problems and I’m considering adding on to my position on this small spike (I’ve got a 2/5ths position now).

Sentiment Watch: I remain bearish on the commodities but acknowledge that the after effects of a rash of refinery fires, pipeline breaks, geopolitcal tension crescendos in Iran and Nigeria will continue to be supportive of oil prices. Combine that with a late February snow storm that swept through the Midwest this past weekend and into the North East and both oil and gas find new floors in what was recent resistance: $60 per barrel and $7.50 per Mcf respectively. I think they break back through these levels, (potentially very quickly) as temperatures become more Spring-like.

Oil & Gas Early Indications: both slightly higher in pre market trading.

Opec Watch: Libya says Iran tensions already factored in, oil prices likely to trade around $60 through year end. Comment: Many analysts are guilty of only being able to see what is currently going on around them (pricewise) and then uttering something within a few dollars of that as their price target range. I expect more from an OPEC oil minister.

Analyst Watch: CAM from SB to B at Matrix.

Sorry for the short post: 1) not much going on in the oil patch, and 2) I’m working on a statistical post and didn’t get on the daily post until late.

NOTE to SA editor – Do not publish today’s post.

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50 Responses to “Monday Mullings”

  1. SA Editor said

    gotcha

  2. zmann said

    Ship Channel was shut on Friday and Saturday due to fog.

    I’m thinking Phil of PSW is right on the protective calls on SU and XOM. I’m also thinking about same on PBR / PTR? Both have been pretty weak of late and could get a pretty good bounce on oil holding $61+.

    TK continues to hold $50 but more downward revisions to estimates prompted by lower day rates should be forthcoming.

  3. zmann said

    EL Dialbo – Thanks for the site comments. Here ya more in depth comments. I think that’s a pretty good idea with a tab for the portion of the daily post that is the daily topic (don’t know if I actually have one every day) but it’s a good idea.

  4. zmann said

    Coals acting poorly after a recent 5-10% run (depending on who you look at). BTU, ACI, CNX, MEE, and even troubled little EEE all down substantially this am. Bears watching since when oil and gas fall (later this week or next) coal will slide as well.

  5. El Diablo said

    Just to clarify: I was thinking of the ‘wiki’ model, if you get the ‘narrowly focused’ discussion started, I think readers would ‘contribute’ the depth without you having to labor intensively on it. I think it would be valuable to hear opposition/what others think too–we all have a tendency to get married to our views… In your daily ‘summary’ of thoughts, you could inject a link to the ‘hot topic’ discussion where appropriate and continue with your other thoughts without getting too bogged down on one subject there.

    Thanks again for all the work you do here.

  6. umagumm said

    In an effort take TXU private, KKR proposed to abandon plans for 8 of the 11 coal powered plants that they had proposed building. That can’t be good for coal demand long term and the coal stocks may be reacting to that this morning. It will be interesting to see what TXU is going to use to power those plants or if this is all just a lot of hot air.

  7. Attacking Mid said

    EOG retreated hard from the $70 level recently. Do you think it will again? I picked up a small put position this morning, and am thinking I’ll add if the SP gets near $70.

    Also eyeing UPL. The SP got an underwhelming boost from a recent upgrade, but seems to have stalled. If NG drops, I would expect UPL to also retreat.

    SU’s been trading strangely as of late, so I’ve been mostly staying away.

    BQI is frustrating the heck out of me, but I am willing to be extremely patient on this one. I’m sure Tom would look at the chart and gag!

    PTCH has been amazing. I’ve swing traded that stock off/on over the past year or so, but missed this latest and biggest move. I’d be careful though, as that thing has a history of rising and falling very fast (very thinly traded).

    AM.

  8. zmann said

    EL D – thanks for explaining. Hear ya WIKI and great idea! I’m definitely going to add that. Need to figure out the best way to organize it so it doesn’t become a quagmire. How about topic threads Lile:

    Iran
    Nigeria
    OPEC
    Coal
    Drilling News

    ett… and if someone thiks something going on in a tab is really important they can hit the main daily post comments to give everyone else a heads up?

    Is that roughly what you’re thinking? It would keep the ongoing dialoge more focused.

  9. zmann said

    Umagumm – excellent thought…I’ll bet you’re right. Someone on Phil’s site pointed out that FDG, a Canadian trust that invests primarily in metallurgical coal production is up today. That would jive well with the TXU story since they’d be unaffected.

    Like I said this bears wathcing as coal prices in US track nat gas and I expect nat gas to fall (maybe after tapping on $8. Nat gas was actually off a dime for 99% of Friday, until a last minute push drove it postive on volume with died the second it broke into green territory. Today it’s down a dime again so we’ll see what games these guys are playing but down volume all day and Spring coming soon doesn’t bode well for prices.

  10. zmann said

    EOG and UPL – I’m watching both pretty closely but won’t take any action yet until I look at the forecast for next week. COP and APC also when NG drops

    BQI – I think it’s trending right for you…just gotta be patient. You own the stock and the calls, right?

    SU – not exactly tracking oil as closely as it used to …funny indeed. Seemed to be tied more to the price of BP if you see what I mean.

    PTCH – is that you’re first mention here. If so, you can’t brag about your past performance on them. LOL. Just kidding, don’t know about them other than they’re another oil sands player. It all depends on net asset value comps. I assume this drilling news is huge. You know them well?

  11. zmann said

    Check out CHK…guess that was a no brainer really. They defeat TXU spending a $mm to make $mmm. Very smart. It’s got a pretty good gap to fill over $32 so if oil and gas hold up through tommorow it could be a pretty quick, nice move towards $33.

  12. El Diablo said

    I think segregating the ‘driving factors’ would give everyone insight into the respective markets. If Iran is driving oil prices higher, we should all try to understand the issues/consensus on that topic before selecting individual stocks. Same with storage ‘interpretations’. I would probably only have one to three topics going at any given time, depending on which is driving the market. Maybe you assert your editorial control by ranking the top 3 topics for discussion–you already sort of do that in your daily summary anyway. So today, Hot Topic 1 could be Iran, Hot Topic 2 could be Storage, and Hot Topic 3 could be March OPEC outlook. Those topics would remain until a ‘new’ one emerges that would kick one of those out of the top 3. Then you and readers could focus their comments on these important driving forces, adding depth for all.

    Please hurry up and get Iran up there, I have to vent about this crap. haha.

  13. El Diablo said

    I can’t wait: Iran–all major idustrial countries have an SPR for dealing with Iran. I think the most logical path for this issue is that we deploy our economic weapons before our stealth bombers. Our 680mm barrel SPR was conceived precisely for this purpose–it can replace our Iranian imports for years. The Security Council should push for an embargo on Iranian Oil until they abandon nuclear ambitions. We and all our allies can comfortably outlast Iran–it would probably only take a couple weeks of forfeiture of their $240mm/day revenue stream for the Iranians to reconsider their nuclear plan. Ahmadinejad gained support by handing out money/benefits to masses, now the revenue is essntial to maintain support. It might ‘cost’ us, 50-60mm barrels from the SPR. Still cheaper and just as effective as deploying the B2s. Nevertheless, even if we resort to bombing, the SPR will be opened immediately to prevent a market disruption.

  14. Diablo,

    good idea.
    Iran……. funny 😛

    -SaneO

  15. Attacking Mid said

    Sorry about the PTCH comment – I got confused with a post on another site that mentioned it. I dumped it for the last time in late 06…… that must be why it has tripled since 8^o

    Only in BQI options unfortunately. I never buy options on such low priced stocks, but it seemed like a good idea at the time when the SP was right around the $5 strike. The $2.50 calls would be somewhat appealing right now if it weren’t for the large spreads. Fortunately, I mostly have Aprils, and a significant PR is due the first week or so of April.

    AM.

  16. tom2oc said

    Could it be that they plan to replace the projected TXU coal plants by gas plants? Since you said last week that OIH is impacted by gas by a good size (if I remember correctly) then it could be why OIH is up today again and positively diverging from USO? I had to DD on OIH puts at 142 after getting some at 140 on Friday. Was too weird to see OIH in a intraday bullish consolidation while USO is in a bearish consolidation. Will rely on your call that gas should start to drop later this week and will let cook these now with 142.75 as stop.

    If USO does turn south then I might short COG. I’ve been monitoring the cooking of this one for some time and the run after earnings made the pattern morph into a bearish wedge which seems to be starting a down wave today after hitting resistance Friday. It’s one of the few oil patch stock red today so I guess it says its run is about to be over.

  17. tom2oc said

    USO failing the gap zone support on volume now after an intraday double top. Gee, if this oil crooks can reverse this TA action now… But I learned to never underestimate these crooks.

  18. tom2oc said

    USO failing the gap zone support on volume now after an intraday double top. Gee, if this oil crooks can reverse this TA action now… But I learned to never underestimate these crooks.

  19. zmann said

    AM – re PTCH – I was just kidding. Never stop pointing out stuff like that! It just keeps going up…
    ————————————————————

    USO breakdown has got to be of some concern. My CNBC is off, anybody got a NYMEX quote.
    ————————————————————
    IRAN tab is opened. I wrote an opening paragraph and then saw EL D couldn’t wrote but essentially wrote the same thing LOL. Rant away guys!!!

  20. tom2oc said

    USO has now almost filled the gap and I got a sell signal on the 1 and 5 minutes and about to get one on the 10 too. If I get sell signals up to the 30 then odds are OIH will go back below 140 and I think we might get the oil crooks Z later today!

  21. zmann said

    sorry, meant to say “EL D couldn’t wait”.

    Coal stocks reasserting negative move despite coal being up last few days. It (coal) should track gas back down and gas will track oil back down. While we might get some extended large pulls on heating oil as leftovers from prior weather and the current snow (could go on another 2-4 weeks)supporting oil, consumption of natural gas is more like a light switch. You either use it or you don’t.

    Tom – that’s defintely the thought on TXU and the beneficiaries are the Tx gas producers, especially CHK, EOG, DVN on the size side and the makers of gas-fired turbines (GE).

  22. tom2oc said

    USO gap filled now. Normal bounce in order to 50.50/50.70 can be expected now but after this process done, should resumes downtrend, hopefully.

  23. tom2oc said

    Ok thanks. But from reading your blog or Phil’s, I remember that there is so much gas in inventory out there that they had to cap the wells. So this rally in Tx oil producers affecting OIH must be driven by short term fundie traders and will probably be short lived, hopefully again. Damn crooks, raised OIH above 141 again on USO bouncing in the 50.50/50.70 as expected. Odds are OIH will negate the 140 breakout later today, at least that’s what I hope for… 🙂

  24. zmann said

    On the OIH, I still like my buy (above 143) but my sell should have been 139, not 135 this morning on the OIH. You could drive a truck through it but sometimes that’s what’s needed for a chart to work for all the “laymen” TA guys out there.

    I personally think oil is headed lower but we won’t get good confirmation of imports rising this week as the Houston Ship Channel is closed again. 55 ships and growing in a tanker park offshore as of Friday. Still, I like today’s action.

  25. zmann said

    Good point over on PSW site. Coal down on the TXU news. Rails can look for less growth too:

    Quote for Phil: “CSX is the most runaway rail, up 40% for the year, down 2% today. I’m going to take some $40 puts right here for $1.45, stop at $1.30 and following with a .15 trail – good one to play if the market tanks.”

    I think he’s on to something as coal production continues to grow at a pretty good clip and the last available coal inventory data showed a possible turnaround in years of declining levels. Either, more coal to Tx is something that was in rail car expectations/sentiment if not in actual analysts models.

  26. tom2oc said

    I hear your FA concerns on that ship closure but all that counts for me is that bloody OIH back below 140 resistance. If we go below that line, then that will be a breakout negation and it would increase the odds for OIH to go test 135 this week. This is what I would like to see, OIH going under 140 for a cascade drop. At 140.67 those puts are already profitable now after the DD of this morning. Keep dropping OIH!! You should have a tab for our venting on the oil crooks! LOL!

    I’m focusing on oil today while COMP is in the pullback process to 2500/2510 I mentioned last week. We’re getting closer to the big decision on the market now. Could be up or down but odds are strong that it’s going to be HUGE!!

  27. zmann said

    Tom – hear ya OIH.

    Now what would be the fun of taking the oil crooks commentary off of the main site? Besides, I don’t call them that since I have several friends in the industry and they honest, hard working guys who heat your home and let you drive around. Plus they’re pretty tough and they take offence to easily. ;->.

    DBLE – bad news – miss is probably worth more than the 10% hit they took on it today. Looks like the low end of support is $17.92 which they touched briefly. Please take a look at that chart Tom. Thanks.

  28. tom2oc said

    Oil crooks puming USO back over 50.50 now. Gee, I didn’t remember how tough and frustrating it is to short the oil stocks! Kudos to you Z for enduring this bs day in and day out. But the feeling is so good when we can beat these damn crooks! OIH below 140 might do it today, hopefully… 🙂

  29. tom2oc said

    LOL! Ok, they’re all nice guys working hard to feed their kids by pumping oil to artificial levels like the Enron guys used to do with electricity. I will be nice to them now but still want to win though. Gee USO keeps on climbing now. Damn crooks! Oh, sorry! Way to go, nice guys!

    DBLE I agree that the selling is not done but looking at the daily it’s now at 18 support from aug and oct. So I guess odds are we will see a continuation pattern at this level in the form of a bear flag before it breaks down eventually to 16 or so. Seems to me that it would be less risky to wait for the bear flag to raise this POS towards 19 before shorting it now but heck, I have no clue on what will happen in reality and it might dive to 16 later today or shoot up to 20! But if I was trading this thing, I would wait to see 18.60/19 before shorting it. G/L!

  30. nltd said

    Like everywhere you go, oil has good, hard working guys…maybe just me, but most of the crooks wear suits and get paid stock options by the millions…

    N

  31. tom2oc said

    Gee, back to square one again. USO 51! (hopefully a triple top now :)) I knew I should never underestimate the power of these nice guys. Just unbelievable! Wow! I don’t know how you can cope with this Z! You must have balls of steel. What a crooked game. Congrats for enduring this!

  32. Tom,

    I have found that xanax helps with the oil insanity 🙂

    -SaneO

  33. tom2oc said

    LOL!

  34. zmann said

    Wow, just took a look at HDDs for last week. You can throw out my 90 Bcf withdrawal. It was much cooler than originally forecast. HDD s were 194 vs the 166 the CPC (climate prediction center, part of NOAA) was looking for. That’ll push the withdrawal to over 100.

    Next week (through March 3) is expected to fall to 171 Hdd’s – still pretty strong (cold) for this time of year.

    TK down a buck now. The oil pump is in full swing to defned $61 oil at all costs. But most of the stocks continued to slide off this morning’s highs, maybe seeing it for what it is, a pump.

  35. zmann said

    HES – the share deluge continues from the insiders yet the stock is at all time highs. Reminds me of the HB’s, especially TOL well before their bubble burst. Just watching but it’s interesting to see that the share counts on the sales are rising.

  36. tom2oc said

    HES hmm… Shows a bearish reverse triangle on the weekly and just hit resistance from July on the daily. Could it be that the run is about to be over for that thing? Will be watching for reversal signs. Thanks.

  37. zmann said

    Tom – I’m also assuming that the TK below $50 is more interesting to you now?

  38. dave said

    Zmann:

    I noticed that GMR only went up $4 or so after it’s $15 special dividend for 3/9 holders. Any thoughts why it didn’t move more ?

  39. zmann said

    Dave

    The $4 reflected the present strength of their business more than adequately in my opinion as well the increase in the regular dividend and the special dividend. Ya know, when they pay the dividend everything gets adjusted downward to reflect the outlay.

  40. tom2oc said

    TK: Yes sir, getting its act together for bears. Testing support of prior day right now. If it fails it will be below 20MA which is also middle bollinger band and that is bearish. But the volume is disappointing though. I guess It’s normal with oil up that there is not a lot of enthousiam to short this thing. Looking a lot better though on the short side. It’s 49.96 but it ain’t counting. You need to see where it closes, that is the important price.

  41. dave said

    Zmann

    Thanks, I knew about the adjustment, I thought the stock price might collapse after the pay out. I really enjoy your blog !

  42. zmann said

    Tom – thanks…hear ya “need a lower close”

    Dave – thanks…I’m glad you like it. Hope it’s useful/interesting/at least a laugh/mildly amusing

    How about that double fisted oil pump today? They just don’t want to give up the ghost on $61.

    For those of you who haven’t notice El Diablo has already populated the Iran tab with lots of gems for the “Iran would be cutting its own throat” camp.

  43. Lars said

    Z –

    The governor of Montana (Schweitzer) was just on Bloomberg talking about wanting to build 10 coal-to-liquids plants. Do you see this as helping EEE or are they beyond hope?

  44. zmann said

    Lars – I don’t think those guys are beyond hope given a pretty seasoned management team however that’s not their business. They basically just put coal under heat and pressure to squeeze out water and obtain a lighter, cleaner, higher btu lump of coal. Works nice in the lab but the continuous process hasn’t yet been perfected (they’d argue that point too but I say let’s see the revenues from those sales…uh, huh, I didn’t think so)

    It would benefit someone Sasol (SSL) who makes the components for those kinds of operations and has the most experience in them and maybe Syntroleum (SYNM) if you like to invest in high risk/low reward type stories.

  45. Lars said

    Thanks for the correction – I misunderstood their business.

  46. zmann said

    Lars – Thanks for pointing out Wyoming’s new interest. SSL is a quality company and even little SYNM may benefit from this. I saw something similar in a headline from Virginia after you prompted me with the WY news.

    Here’s the business week article:http://www.businessweek.com/ap/financialnews/D8NHFKE02.htm

    These things have a way of coming in waves and they can drive the stocks for days or weeks.

    So again, thanks for pointing it out.

  47. zmann said

    LOL EL D – except I told you I’ve got readers over there so now your masterplan is out of the bag. 😉

  48. nltd said

    UPDATE 1-Sempra/Occidental Elk Hills power plant returns
    9:37p ET February 26, 2007 (Reuters)
    LOS ANGELES, Feb 26 (Reuters) – The Sempra Energy Occidental Petroleum Elk Hills natural gas-fired power plant in Kern County, California was back on line on Monday afternoon after a 20-day shutdown, following an explosion in a gas field that serves the plant, Sempra officials said.

    The Occidental oil and gas field is only partly back in operation, said Richard Kline of Occidental. Kline did not say how much of the 120,000 barrels per day of oil equivalent has returned.

    “The field is coming back slowly and steadily,” said Kline.

    The part of the field and the pipeline that leads to the Sempra plant returned on Monday, allowing the plant to go back on line, said Sempra spokesman Art Larson.

    A Feb. 6 explosion in the Occidental natural gas field that serves the plant injured four workers, but no one at the plant. The plant was shut down the same day.

    The 552-megawatt Elk Hills plant, which Sempra operates, returned to operation at 1 p.m. on Monday and was reconnected to the California power grid, said a Sempra spokesman. The plant was not damaged in the Feb. 6 fire at the oil and gas field.

    During the shutdown of the production, Occidental shut in 95 percent of the oil and gas field’s production.

    About 60 percent of the oil and gas field’s output is crude oil that includes natural gas liquids and 40 percent is natural gas.

  49. zmann said

    Thanks for the update N! Good catch. Just added a Snafu tab for all “broken pipe” events.

  50. blog said

    greatings

    i agree

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