zman’s Energy Brain

oil, gas, stocks, etc…

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Monday Morning – Next Verse, Same As The First … More Selling

Posted by zmann on March 5, 2007

Asia got whacked for another 3% while the vast majority of you were sleeping so we’re almost certainly in for another bumpy session.

Axiom of the day watch: When the markets are running fast and scared round numbers take on heightened meaning.

The Week Ahead:

  • Current Positions: I’m content with put positions in BHI, SLB, XOM, and APC right now. May take profits (pretty much a wash right now on the Mar 110 PTR position) as I last Tuesday when I took it that it was a rank wildcat of a bet. It should pay off pretty nicely on the open this morning,
  • BP: Got stopped out last week in a “failure to communicate thought versus trade entry” (aarrgghh!). Still looking for a point to enter a longer dated put position but it just keeps falling away from me.
  • Shippers: TK – all the good news is out here and estimates are actually coming down following the quarter’s results. As a group the shippers rallied Friday as VLCC rates began to build in the second half of last week (a potential sign that OPEC is cheating. Of course, I may reverse course at a moment’s notice if further indications arise that OPEC production is rising.
  • Mini-majors: HES – insider selling continues, stock remains just off all time highs; MUR – still expensive at 11x forward numbers despite its share of operational short comings of late,
  • SGY – high operating and F&D costs = high economic breakeven. This is an oilier E&P than most, facing stiff Gulf of Mexico decline rates and offering guidance that is flat to down. They have failed to partner up twice in the last year and I think it’s highly vulnerable to the effects of retreating oil and gas prices.
    • Natural Gas Shorts:
      • APC: fell below $40 (nice round number) and is now at it’s lowest levels since acquiring Kerr-McGee and Western Gas. The company is over half way home in its desired divestitures but commodity price pressure won’t help when try to sell the remaining, potentially higher hanging fruit on the auction block. Doubtless the company is both cheap and extremely well managed. This is a TRADE, nothing more.
      • BBG: high F&D + good operating costs = slightly elevated full cycle economics. Contrast that with the generally unfavorable discount Rockies gas receives now and a smaller than peer group average hedge position (and a stock that’s been on a roll of late but now looks toppy) and I’m looking for an entry.
      • COG: on the fence but thinking puts. Higher full cycle costs than the preceding. A goodly hedge position around $8 and strong management make me hesitate. Still, if gas plummets through $7 I’ll be in the puts.
      • COP: this gassiest of all majors is selling off technically without me. I’ll most likely add an initial short position on any contra-group strength over $65 this week.
      • Staying away from shorts on CHK, SWN, and KWK. If gas cracks $7 these guys will fall as well. I just don’t like shorting extremely well run companies that aren’t excessively overvalued. Besides, they’re hedged to the gills for their size.
    • Refiners: It doesn’t get any better for them this time of year (gasoline really got out of hand last week culminating in a 10% wholesale cash price jump on Friday!!!) and they’re going to have a great first quarter but enough is enough. I am strongly considering adding near the money positions on VLO, TSO, and entering a new put position on WNR.
    • Coal: No change. Still bearish
    • Longs Trades. PBR is down 16% since the beginning of the year versus less than half that for the XOI. Late Friday they announced another big oil discovery in the Campos Basin. I know I’ve repeatedly grouped the stock with other, high flying foreign oil firms but the damage to the shares of late has been extreme in comparison to most and this news could provide a small bit of respite.

      Odds & Ends
      CFTC: Natural Gas Open Interest Plummets While Net Position Recovers To Neutral. Does this bode poorly for near term gas prices? Maybe, maybe not (I know, how useful). I consider this week’s look to be slightly gas price bearish. Here’s why:

      • As I’ve stated in the past I believe the predictive element of CFTC data is somewhat contrarian in nature. In my way of thinking, large net long positions represent potential supply and are therefore actually bearish and visa versa. This week bulls and bears are evenly matched (the net position is near zero).
      • As always when I’m writing about the CFTC I’m examining the non-commercial (speculator) data. After rising to levels of what can only be considered speculative excess last Fall, open interest in NYMEX natural gas futures had its largest one week decline in open interest in seven years. Maybe it’s nothing. Maybe they’re just gathering their firepower to go long when things settle down in the broader markets. I’ll keep a close eye on this because a continued reduction in open interest has often led to falling commodity (gas) prices. But again, we’re at step one in that analysis now.
      • Combining this sudden lack of betting one way or the other with the players abandoning the table for friendlier games (and that’s all this is to the hedgies speculators) I’m struck with a slightly bearish look for gas.


      I’ll See You In Comments. Have A Great Week!  


      37 Responses to “Monday Morning – Next Verse, Same As The First … More Selling”

      1. dave said

        Zmann I am looking to go long on TSO this week

      2. zmann said

        I guess that’s what makes a market! Any particular reason why you want it up in this rarified air?

      3. mike said

        zzz interested in your op. on WNR put as it developes.

      4. zmann said

        Analyst Watch: B of A taking up PT’s on XOM, COP, BP, TOT

      5. dave said

        Zmann TSO showed up on 3/1 with heavy option buying in mar 90/95 also apr95’s . So I am looking at it.

      6. zmann said

        Dave – Ahhh sooo. From your earlier post I just thought you liked the ticker! Hear ya heavy call buying.

      7. nltd said


        A few days ago I looked at history of stock prices on refiners and decided I would not try to short them this time of year. Granted TSO is very high, but may go up anyway? Tis the season to pump gasoline prices to ridiculous levels and rape the driving public…summer is just around the corner after all. JMHO


      8. zmann said

        Knew I forgot something this morning. Heating degree days: last week and next from the CPC are 177 and 178 rerspectively. I’d call that gas price neutral. Maybe a little bullish given that we’re still seeing some cold hang on in the east.

      9. zmann said

        N – Probably wise. I’m just not that smart sometimes and the refiners look ripe. I’m counting on a period, however brief, when the market comes to the realization that inventories are full and the driving season is still 3 months away. Although, that may be asking a lot on the part of the market.

      10. Rob said

        Zman, PT’s = puts?

        XOM getting bought after its 4 day slide — moving with the DOW. Oil looks to still be down.

        I don’t know how CNBC let this Analyst on the air, but this morning said oil was going to 55 near term (this week or next).

      11. zmann said

        Rob – sorry, PT’s = price targets.

        Hard to imagine how they let on the air. What’s really sad is how much all these guys, not CNBC, but the analyst who come on TV drive using their rearview mirrors! Last week when oil was bumping up to $62 traders and analysts where talking $64-65 and the press had quotes of $70 up to $100.

        two days later and we’ve got a guy on talking $55. These are the guys at the casino who run to the slot machine that just hit to drop in a quarter. Amazing.

      12. Rob said

        Zman, it aired about 7:30 EST this morning. He also said gold had stability around 626. But they joked with him about knowing the price of the “Apartments in the backround”. Which he corrected them and said “they are condos”. Just shows you how clueless CNBC is.

      13. zmann said

        Rob – clueless ~ worthless. They really screwed that channel up when they re-designed it last year. The smart guys like Faber were on most of the morning and later in the day occasionally . Now he gets five minutes. But at least there are a lot more weathergirls to look at;->

        USO taking a pounding all of the sudden. Very close to unhooking my PTR puts.

      14. Stephen said

        Glad you’re making some money on those PTR puts, although it was a bit of a rough ride.

        Just having a look round and BQI is getting killed, down 7%, 52 week low. Any insider news?

        I don’t really get oil sands, but I’m interested to know. It’s at the high-end of the cost spectrum at $20 to get out of the ground, and the oil is mostly bitumen, which is at the low-end of the quality spectrum, right? On the plus side, it is all based in Canada, not Alaska, and free of national security and environmental worries, but what else is there on the plus side?

      15. zmann said

        Oil sub $60, gasoline down a nickel. Sometimes things happen faster than I expect. 😉

      16. zmann said

        AM, if you’re out there can you field Stephen’s question? I’ve been watching BQI fade and it seems overly punished but you know it best.

      17. Rob said

        Stephen, I think they are banking on the potential to be a large amount of oil trapped in the sand. In that case, even at $20+ a barrel cost, it’s better than relying on OPEC for the next 100 years. BQI is interesting no less, but I don’t think much will happen for a while. It’s not complete sold off either. I wouldn’t buy options other than leaps, nor expect a return on the stock this year, but thats just me.

        Oil off ~3%. All we need is a bearish inventory report to send it down to 50.

      18. Attacking Mid said

        BQI is a speculative play. If you dig into it, you’ll find that it is a stock with stunning POTENTIAL, but little has been proven at this point. Exploratory drilling has been going strong this winter, and results have been very promising so far. In the first part of April, management will provide an update with drilling results. The results will only indicate the success rate in hitting bitumen deposits along with reservoir depths. Saturation levels will not be known until next fall after laboratory tests.

        Last year’s saturation levels were quite high, which generated a lot of market excitement driving the SP to nearly $9. If next month’s success ratio remains high (>50%), and if reservoir depths are good, this will actually be a huge step for the company toward proving out commercial resources.

        While the current stock price situation is painful as an investor, it is not shocking. The market is not interested in speculation at this time. This long slide was started by tax selling by holders of previously restricted shares. I speculate that technical damage exacerbated the slide, and has now taken it down further than is warranted, IMHO. If next month’s results are good, I wouldn’t be surprised to see an abrupt turnaround. This is a stock to buy and tuck away for sunnier days. Is now the time to buy? Who knows how long this slide will continue, but if the company proves out half of what they have said they THINK they might have, this stock will make investors very happy at some point.

        I’d start your DD by going over the company’s website at .

        Hope that helps,


      19. zmann said

        Internet in general seems to be having technical difficulties today. WordPress wouldn’t let me into my site for the last half hour.

        Have not sold PTR yet but am setting stops

        APC same

      20. zmann said

        Thanks AM

      21. zmann said

        Attempting to sell 1/2 PTR putter bought for $1.30 on Tuesday at $3.00 big now.

        Attempting to sell 1/4 APC bought on Thursday at $0.90 for $1.90 now.

        No need to be greedy.

      22. nltd said


        Hear ya, greed.

        Lotsa flakey stuff again today. First 1/2 hour or so Ameritrade had no quotes on indices. Haven’t had quote all day on BKX anywhere I’ve looked. Subprimes getting hammered across the board, maybe they’re scared to let us see…Hah


      23. Attacking Mid said

        bkx at 113.61 (-0.75) at 1:57 PM EST.


      24. nltd said

        Thanks, AM


      25. Stephen said

        Thanks for your analysis, AM.

      26. Attacking Mid said

        Actually, the real reason for BQI’s slide is that I’M long! I don’t know what the opposite of the midas touch is, but I seem to have it lately. Additionally, there’s no 2:30 oil pump today because “they” know I’m long SU today.



      27. zmann said

        I’ve known that feeling too often. I said pick some of the shorts from this moring’s note but I’m in them and don’t want them rising . LOL.

        All kidding aside, the COP stands out as a should be off more than this. It all depends on the Dow for them and a run up into the close could turn the whole sector green, including SU.

      28. zmann said

        Meant to say: “I say pick”, “not I said pick”

        …Not trying to be a jerk (it must be a subconcious thing).

      29. zmann said

        April crude closed at $60 even?! Reached a low of $59.55. I guess “they” couldn’t stomach a $59.99 close.

      30. Joe said

        Z, do you have an early estimate on the Gas draw?

      31. zmann said

        Joe – I need to look at those numbers more closely but probably 110-115. That’s a touch high for eating away at the YoY deficit but still leaves us with a helluva lot of gas in storage. Rigth now, I bet that next week’s number will be a hare lower, close to the 100 mark but the east keeps getting the cold so who knows.

      32. Rob said

        How could bulls miss the news story about power outages at refineries?

      33. Jon said


        Like Dave, I’ve been looking at going long the refiners like TSO. My reasoning is more firsthand – Crude is down, fuel is up. I just finished a road trip that took me to Seattle- Sacramento- Bakersfield- Phoenix- Las Vegas- Boise- Spokane, then back to Seattle. Diesel prices were running between 2.69 and 3.19. Unleaded regular was typically 2.49-2.69, but you could find it at 2.29 in a few places. The crack spreads must be growing, and I’m sure they will find a way to keep fuel prices up thru the driving season.


      34. robert said

        Z– is your CFTC COT data correct? I show a *net* spec position of (5,574) for 2/20 report and +7,645 for the 2/27 report. a swing of +13,219 contracts (moving from net short to net long). But your chart appears to show almost dead neutral net spec position. Is is the chart scale that’s got me confused? Thanks for your great work.


      35. zmann said

        Robert –

        I was talking about natural gas which is about even. Are you looking at WTI contracts, they were negative and may have swung long like you’re indicating?

      36. robert said

        Z- thanks for the reply.

        I am referring to CFTC Nat Gas data as follows:

        long: 88,047
        short: 93,621
        net: -5,574

        long: 80,167
        short: 72,522
        net: 7,645

      37. zmann said

        Robert – I will post this here and in Tuesday’s post to try and answer your CFTC question about why my chart and you numbers don’t match.

        You are looking at the CFTC’s futures only report and I am using the combined Futures and options report. I’ve always used the combined account since it gives you, I feel, a more complete (though not entirely so) picture of what the non-commercials are up to.

        From the CFTC here is the methodology used to convert options on futures when combining them with futures:

        For the COT Futures & Options Combined report, option open interest and traders’ option positions are computed on a futures-equivalent basis using delta factors supplied by the exchanges. Long-call and short-put open interest are converted to long futures-equivalent open interest. Likewise, short-call and long-put open interest are converted to short futures-equivalent open interest. For example, a trader holding a long put position of 500 contracts with a delta factor of 0.50 is considered to be holding a short futures-equivalent position of 250 contracts. A trader’s long and short futures-equivalent positions are added to the trader’s long and short futures positions to give “combined-long” and “combined-short” positions.

        Hope that helps and thanks for making me thinking about that stuff at this hour of the night! LOL!

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