zman’s Energy Brain

oil, gas, stocks, etc…

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Trepidation Tuesday

Posted by zmann on March 6, 2007

Asia and Europe bounced overnight. The U.S. markets and the dollar are called higher this morning after Asia and Europe found solid footing overnight. Oil and natural are looking higher as well. The gains are all stemming from the fact that the Nikkei did not fall for a sixth straight day.

I’ll be very cautious about buying the rally as few recoveries are V-shaped. I’ve taken profits in several names over the last few days including doubles in APC, PTR, and XOM and healthy profits in BP and will probably fence sit today. Exceptions to the fence sitting include that TK put which still bothers me and HES (short) and PBR (long) where I still haven’t found good entry points.

The decline in the broader markets began the evening of February 26th. I find that a numerical review, no matter how simple, is helpful in gaining a little perspective amidst all the carnage. Here’s a quick review of the the damage wrought by the Asian Flu and subprime one-two punch.

stock-table-030607.JPG

Oil: More pricing shenanigans with oil closing down$1.57 to $60.07. Crude hit $59.60 but was saved by the bell and traders who managed in the nick of time to trade the “crude falls below $60” headline for “crude skids with market jitter, holds above $60”. If you’re a bear or drive a car you should thank them. I’d rather have high $50s, low $60s oil as we head to the next OPEC meeting March 15 so that OPEC has no reason to sabre rattle about further production cuts.

Early Read on Crude Inventories (these are broad ranges but I’ll have the “over/under” point estimates in tomorrow’s post):

    • Crude: up 1.5 to 2.5 mm bls. I’d bet on the lower end of the range as the Houston Ship Channel was shut for an unspecified amount of time last week.
    • Gasoline: 1.3 to 1.6 mm barrels. Probably the most important number in the report and I really don’t have a better handle on this
    • Distillate: 1.8 (Fimat of course – why be accurate when you can be a bullish estimate bagger) to 3.2 mm barrels. This could still easily be larger.

Odds & Ends

La Nina Watch: There’s nothing new in this story in terms of La Nina’s development but it’s worth taking a look just for the really cool image of the earth (cool meaning I like the picture, not that the earth is cool) as seen by the Jason altimetric satellite which measures sea level height. The author says that it’s unclear weather or not a La Nina is forming and in the picture green (normal sea temperatures) dominate the globe from my purely laymen’s perspective.

Taxman Watch: A leaked draft report of the Canadian House of Commons Natural Resources Committee suggested that a tax break implimented to spur investment in the oil sands be revoked. The tax break is estimated to be woth C$1.4 billion (US$1.19 billion) annually to investors ~ from Upstream. The government already takes roughly 41%. Let me get this straight. You’re sitting on top the world’s largest recoverable hydrocarbon deposit but it’s only marginally economic as is so you think now is the time to dis-incentivize investment? I only thought that kind of logic was applied in the States.

Opec Watch: The Organization of Petroleum Exporting Countries (OPEC)’s weekly average crude oil prices rose to $57.50 U.S. dollars per barrel, up $3.03 from the previous week and the highest so far this year, the cartel’s secretariat said on Monday. That’s a weekly average and this week’s activity will bring it down a little but again, I want it to stay up over the next two weeks to give ministers no reason for further action. At present, OPEC appears to be concerned about tightness (if you can believe that) in the second half of the year.

Nigerian Rebel Watch: Nigeria is deploying more gunboats (of the government variety) to patrol the delta before the upcoming presidential elections and in the wake a large Shell oil pipeline leak over the weekend. Comment: What have they been waiting for?

Putin Watch #1: An expert on Russian intelligence was critically injured in a shooting in front of his suburban Washington home, authorities said. The shooting of Paul Joyal, 53, came days after he accused the Russian government of involvement in the poisoning of former KGB agent Alexander Litvinenko. The FBI was assisting in the investigation. -AP.

Putin Watch #2. In a bit of unrelated news: In Moscow, Ivan Safronov, 51, was an ex-colonel and journalist for Kommersant who had irritated the Russian FSB security service with his frequent exposes. He was reported dead yesterday after apparently falling from a fourth floor window of his apartment block on Friday. UK Telegraph

Comment: Due to lack of demand I am retiring the Putin Watch segments.

Analyst Watch: Jefferies started FST at buy and SM at hold. Morgan Stanley took E from under to overwieght. CSX started at underweight at Prudential (the coals rails have become interesting of late).

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20 Responses to “Trepidation Tuesday”

  1. tom2oc said

    Morning’ Z, FYI I have done a TA on crude oil and OIH this morning. Watch a failure of 58 for a trip to 50 and a break of 62.50 for a trip to 70. OIH trigger levels to watch are 130 and 140. I’ll refrain from trading oil while within these levels. The TA is loaded on the blog. Have a great day!

  2. zmann said

    Morning Tom, Thanks, will check it out.

    ———————————————————

    Robert on CFTC – chart from Monday’s post is for natural gas. Is that the one you’re referring to? The stuff on my CFTC tab is rather dated but I’ll update it this moring?

  3. dave said

    Zmann do you trade GLBL, I’m looking to add to my position

  4. zmann said

    Dave – It’s been a long time. Anything new there?

  5. zmann said

    Robert et al – the CFTC page is now updated…my apologies for the confusion.

    ———————————

    Mkt observations:

    Dow rally has the crowd on its feet. I am not inclinded to chase as the nice bounce I was looking for in issues like PBR was in place before options started trading.

    Coals continue to be weak despite the up market.

    If you missed the quarter or otherwise disappointed the street recently you don’t participate in this rally. XCO, BRNC.

    NFX is acting the bit of the laggard this morning so if this rally has any staying power it should catch up. They’re drilling some massive shale wells in Ok.

  6. zmann said

    Check out Tom’s thoughts on oil and eneryg indexes here:

    http://tom2oc.blogspot.com/2007/03/36-pre-market.html

  7. zmann said

    Snafu update:

    VLO’s McKee refinery still seen restarting early April

    Imperial Oil’s Toronto refinery restarted March 1 and expects to be back at full capacity, 118,000 bopd, by mid March.

    BP’s 47,000 bopd production capacity Northstar Field in Alaska should have begun to produce again this past weekend following a leak on Feb 20th.

    No further reports of HSC fog

  8. dave said

    Zmann no not really on GLBL. Bought so in jan. & feb. Old idea of keep adding on until it tops out. Very good fumdies & ta

  9. Stephen said

    I’ve had my eye on GLBL, it has risen quite substantially in a falling market.

    It is a bit of a hard one to crack though, as you don’t really know what they charge, i.e. day rates, and I don’t really know what they give in terms of operating updates. In other words it is difficult to estimate their future earnings, other than as an average offshore maintenance and repair play.

  10. zmann said

    Stephen – you know that information deficiency is pretty smart in some ways.

    Look at DO with their massively detailed 8K today. They tell you what every rig is contracted for in $, how long it will be there, and the overall utilization. The analyst plug all that in and then when something breaks or takes longer to get overhauled they start whining.

    More power to the GLBLs of the world. They should have analyst presentations on line and you should be able to get a pretty good idea of how things are going by look at what type of rigs they have and the recent move in the stock. Looks pretty good.

    I haven’t looked at valuation here as it’s really not my kind of thing but it looks pretty good on the surface.

  11. nltd said

    Z

    Thanks for the daily info.

    Tom2oc

    Thanks for opening the window to your world today.

    N

  12. zmann said

    Tom

    XOI looks to be diverging from the DJIA.

  13. El Diablo said

    Zmann-

    Did you explicitly account for the prior’s week closing of HSC in your estimate of this week’s crude numbers? i.e. if there were 59 ships ‘waiting to be counted’ when last week’s numbers came out (and less today) wouldn’t we see some recovery in the form of higher imports in this week’s numbers?

  14. zmann said

    El D,

    I thought that we had more days closed last week than in the prior week. Did I miss something?

  15. tom2oc said

    Z, true but very sligthly. They’re both in bullish ascending intraday patterns.

    Nfld, you’re welcome. Enjoy while it’s on!

  16. zmann said

    Bill F –

    Thanks for the post on the gas storage page. Those are valid concerns although much of it is well hyped.

    If you look at last Friday’s post you can see me throwing up my hands at much lower gas prices even with elevated storage levels.

    My best bets to be long gas are CHK, SWN, KWK, and PETD and I’ll be in them from time to time, especially when I see the first tropical wave forming off the coast of Africa. Some of the small and mid cap names have done very poorly of late and should also be considered.

  17. zmann said

    In case you missed it EL D is continue to add his $2 dollars to HIS Snafu and Iran pages. Don’t miss it!!!

  18. El Diablo said

    HSC was completely closed Feb 22-23 due to fog (thursday and friday of last week’s report). It reopenend on Saturday Feb 24 to a backlog of 50 ships. As of Monday Feb 26, the backlog was cleared. It was then closed again for 10 hours on Tuesday Feb 27. As of friday, March 2, there was no reported backlog. So the report that will be released tomorrow contains 2 day’s worth of the prior report’s imports + normal operations for the week.

  19. El Diablo said

    March 6, 2007 (Reuters, 13:25) OPEC February Production Drops by 205,000 b/d – About 50 Percent of Target

    Production cuts by the 10 members of OPEC that were bound by the quota agreement to trim production by an additional 500,000 b/d, achieved approximately 50 percent of the agreed upon target for the month.

    [Maybe its just a typo, but 205,000 is about 40% of 500,000…]

  20. zmann said

    Robert – I will post this here and in Monday’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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