29
Mar

Thrill A Minute Thursday – Waiting For Mahmoud

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Thursday Topics:

  1. Oil - Little Bullish In Yesterday's Inventory Report.
  2. Gasoline - Production and imports on the rise.
  3. Natural gas inventory report preview.
  4. Odds & Ends - Boon Pickens, Iran Standoff, Holdings Update, plus a penny for your thoughts.

Oil Inventory Review. There was nothing bullish in yesterday's numbers. After a Mahmoud mania inspired $2 rally crude in the morning the EIA's petroleum inventory report put a damper on the bulls spirits. Both gasoline and distillates numbers came in with smaller than expected draws as more refiners went back to work and imports surged.

Crude fell 0.9 million barrels as refinery utilization ticked back up.

Gasoline - A Picture Show.

  • Imports Picking Up After A Lull. It seems that higher U.S. gas prices attract tankers. Imports need to remain above the one million barrel mark to put a dent in RBOB and need to stay that high to keep prices from heading back towards last Summer's prices.

gaso-imports-032807.JPG

  • Utilization - Starting to get up off the mat. We're about 2% points below where would we usually are for this time of year (89% since 2000) although I'd point out that doesn't mean we're producing less gasoline than has been the March average since productive capacity has risen steadily over the period.  The majors and independent refiners may not break ground on new facilities (which would be pretty inefficient and a complete headache for them) but they continaually upgrade the infrastructure theyve already got.

utilization-032807.JPG

  • Demand Remains Robust. Although not growing as fast as it has been on a week to week basis, demand remains strong. People never learn. Toyota now has to offer  incentives on the Prius since the early adopters have spent all their green; Piaggio , maker of Vespa, is too hard to trade here or I'd be in and whatever happened to all those Segways that were supposed to revolutionize the planet.

gaso-demand-032807.JPG


Gasoline Inventories Remain Sufficient (Above Average) For This Time of Year.

gaso-inv-032807.JPG


If we're not running out and IF imports and production are coming back up than should the RBOB contract look like the east face of K2?

Hype Over (fundamental) Matter. Natural Gas Inventory Day. Natural gas closed up a nickel yesterday to $7.56 and has been on a pretty good rally ever since last Thursday when the earliest recorded injection of the season was reported.

  • My Expectation: +/- 20 Bcf. It's the should season and pretty hard to predict. If you go with the weather alone than we should see another middle teen sized injection into storage.
  • Street Consensus. Withdrawal of 18 Bcf.
  • Next week's numbers will almost certainly be a bigger injection.

Natural gas prices are rising on the two pronged hype attack of a hot summer and increased hurricane activity in the Gulf of Mexico.  I think the floor is still around $6 to $6.50 this Spring but gas may hit $8 first on this hysteria.

Odds & Ends

Analyst Watch: very little activity. (CCJ) price target upped from $42 to $55 at FBR.
Pickens Watch: $75 before $55. T. Boone Pickens (or as I respectfully call him, Mr. Burns) was on CNBC this morning preaching higher oil prices.  "When oil prices are spiking, Boone Pickens is the first person we need to talk to" ~ Becky Glick.

  • Why, because he's going to say something different? Global inventories are falling, Saudi Arabia can only maintain their current level of productin if that, fear and doom and gloom yada, yada, yada. Same stuff he always says when prices are up on factors he's not talking about until prompted like a temporary discombobulation in gasoline production.
  • CNBC, why don't you ask him if he's more short than long oil contracts right now? Pickens also debunked my thought that gasoline prices will peak earlier than usual this year (since they've already one heck of a run they should run more). He's a smart guy but I question his motives, after all he is a hedge fund guy and CNBC's own Jim Cramer says to never trust them, that all they do is lie for a living.

Iran Standoff : Week 2 Begins. I'm surprised CNBC doesn't have a counter with tenths of second going since the hostages were taken.

  • Mahmoud showed a video of it's involuntary British guests yesterday and they looked well enough.
  • John Stewart's people claim that Brits make the best hostages so if you're looking to nab someone they're your mark.
  • Apparently being a woman gets you out of Iranian jails and not only to be stoned for adultery or self defense against rape.
  • U.S. excersises in the Gulf came to an end yesterday.
  • Now Iran says that Britain can just admit it's soldiers trespassed and the whole thing will be over.

Probably Good News For (LNG) (the company) and (MMR). From Upstream: Shell has drooped plants to build a liquified natural gas terminal offshore Louisiana because import capacity will be sufficient without it...when Shell announced plans for Gulf Landing in 2003, there was one LNG terminal in the Gulf of Mexico. Now, seven are either operating or under construction in the US and Mexico. 

Holdings Watch: Added (SU) May 75 puts yesterday and added to the (TSO) put position. Finally, I took position in XOM calls as insurance against a potential incident (or rumor of one) spiking oil prices again.

Finally, I added a new name to the ZEB Reports list. Storm Cat Energy (SCU). This is a microcap E&P with big plans. I own a little and I think it bears watching.

41 Responses to “Thrill A Minute Thursday – Waiting For Mahmoud”

  1. 1
    zman Says:

    T Boone rally is on. Very light volume with every oil stock up.

    TSO opened up basically $2 on 300 K volume with gasoline rallying for what reason I’m not sure. RBOB expires tomorrow so you could also see some profit taking as the weathergirl on CNBC pointed out earlier.

  2. 2
    insyte Says:

    shorting tso here zman?

  3. 3
    sane Says:

    I question as to why people even listen to him. $80 before $60, well we went back down to $60, $70 before $50, and lo and behold we hit fifty.
    Though, I would be uncomfortable if he $50 before $80.

    He is probably short.

    Sane

  4. 4
    zman Says:

    Sane – if you saw the interview it was funny to see that CNBC had the $80 before $60 byline loaded before he said and then when prompted he said $75 before $55 causing them to have to quickly change it. Yeah, his numbers are rock solid.

    And I’ll bet he’s more short now than he was before the open.

  5. 5
    zman Says:

    insyte – I should, I think Phil at PSW is right now but I’m 3/5ths of where I want to be. If fit goes lower here fine, if not I’ll wait a bit and get more over $100.

  6. 6
    zman Says:

    insyte – Phil taking April 95s with TSO at $100.

  7. 7
    sane Says:

    Z,

    Reading phil this morning, he pointed out SU and T Boone. It is kinda convenient, especially after seeing that Cramer vid.

    Sane

  8. 8
    zman Says:

    Gas storage

    22 bcf withdrawal. probably seen as mildly bullish

  9. 9
    zman Says:

    Sane – EXACTLY.

  10. 10
    zman Says:

    went back for another set of May 90 puts at $2.00

  11. 11
    zman Says:

    Added HOC APL 60 for $1.85 (doubles originals bought at $1.70)

  12. 12
    dave Says:

    Got to love this market, it sort of makes no sense. TSO & BP way up compared to others. Oils as a day trade, I think I’ll call it a week after lunch !

  13. 13
    Attacking Mid Says:

    z – with those May 90’s you’re buying $12 of negative intrinsic value. The stock has to drop about $0.33/day every day until expiry.

    A better play, imo, is to shorten your timeframe and go with something like an April 105. There, you’re only losing about $1.50 in intrinsic value for 15 days of time ($0.10/day).

    With the May 90’s, you need a significant drop in the stock relatively soon to cash in. Otherwise, theta begins to really dampen your gains.

    With a higher delta play like the Apr 105’s, you’ll still profit nicely from a significant drop, but you’ll also profit from just a casual weakening in the price.

    Just thought I’d throw in my $0.02 fwiw.

    AM.

  14. 14
    dave Says:

    Zman it looks as thou USO closed at it’s highest level in 2007, up another 50 cents or so which are a basket of crude futures I believe. Got to be a pull back coming in a week or so.

  15. 15
    zman Says:

    AM – Thanks. You’re right. I started when the stock was quite a bit lower am just averaging the contract down for a trade hoping to get out close to even on those.

    The 95s I’ much more comfortable with. Also, I do expect a pretty significant down move in the stocks but need the time to let it happen.

    I don’t really play the greeks other than delta. Just a simple E&P analyst you know. Anything that works for you there please share. Thanks!

  16. 16
    zman Says:

    RBOB – everry contract is up 2.5 to 3 cents on the T Boone comments this morning. Ya, know, a guy like that, given his name and access to CNBC has a license to print money.

    Dave – I think so. It all hangs on the yokkels in Iran.

  17. 17
    Popeye Says:

    Bloomberg:
    “Nabors Industries Ltd., the world’s largest onshore oil and natural-gas driller, said first-quarter profit will miss analysts’ estimates because of a decline in North American drilling and higher costs”

    Popeye is seriously short SII and nervous.

  18. 18
    zman Says:

    Thanks – Popeye.

    NBR to miss on lower than expected N. American drilling activity. That’s the second service company to warn in the last two weeks after HAL’s similar statement. (that I know of)

    It also jives with Tx permit data I was looking at last night showing a pretty steep year over year decline is taking place in the number of wells being permitted for drilling in the state. However, the number of rigs working there continues to climb. Tx has just under half the active rigs in the US so it’s a pretty good barometer of activity. Bad for service, bullish for gas prices

    I’m writing something for this in tomorrows piece. Thanks for the headsup on NBR. Why you nevrvous shorting SII here if activity is falling.

  19. 19
    Attacking Mid Says:

    Here’s an estimated football analogy for ya…

    With the 105’s, here’s your situation:

    Time: 11+ minutes remaining in the 4th qtr.

    Possession: You have the ball in fg range.

    Score: You’re down by 5

    With the 90’s….

    Time: 11+ minutes remaining in the 3rd qtr.

    Possession: You have the ball deep in your own end.

    Score: You’re down by 40

    Which scenario do you pick?

    The emotional desire to turn your upside down position into a breakeven or a winner is what compels you to keep adding to it. I’ve done (and still do) the same.

    IMO, a more logical strategy is to reevaluate the current situation and try to determine what is the best way to profit from a drop in the stock. With the 90’s, a 12% drop in the stock over the next 7 weeks gets you only to a breakeven on today’s purchase.

    A similar drop while holding the 105’s would result in about a $13.50 gain.

    Beyond a 12% loss, it’s a wash in $$ terms, though percentage-wise the 90’s win hands-down.

    Assuming you’re correct in predicting the direction of the SP movement, the 105’s give you a MUCH higher percentage chance of turning the overall position into a winner.

    The 105’s do come with a downside, however, and that is if you are wrong in your prediction of the stock price. For that reason, one must adhere to a hard stop-loss point.

    Just some food for thought.

    AM.

  20. 20
    Popeye Says:

    I’m nervous because I used past performance to gauge the future. If you pull up a 2yr chart on SII this last run has gone too far without correcting and any bullish talk is unsettling.

  21. 21
    zman Says:

    Hey AM thanks and I know. It’s irrational but I’ve got a lot of time to be right (or at least partially right) and it’s the percentage thing on the 90s you mentioned.

    Trying to get back to even is stupid. I know that but still do it from time to time if the % on the original works for me.

    Woops there goes oil

  22. 22
    zman Says:

    So oil shot up on the death of one of the candidates in the April Nigerian presidential elections casting doubt on whether or not they’ll be postponed.

    The guy who “suddenly” died is Adebayo Adefarati

    On January 30th I wrote: Nigeria Watch: Good Reuters story on Umaru Yar’Adua, currently a regional governor likely to be Nigeria’s next president. Elections are in April and it promises to be interesting/volatile. The opposition candidate is a former military dictator.

    So the guy we want is still alive. Yeah. Bad news is the current leader, Obasanjo will probably use this to hold onto power a bit longer. I wrote about him yesterday and his 11th hour plan to tame the rebels by bringing his people’s standard of living up.

  23. 23
    zman Says:

    Nigeria’s landmark elections will go ahead as scheduled next month despite the death on Thursday of a presidential candidate, a spokesman for the Independent National Electoral Commission (INEC) said.

    Adebayo Adefarati, 76, candidate of the small opposition party Alliance for Democracy (AD), died in the southwestern state of Ondo, private radio Ray Power FM reported. The station said Adefarati, who was diabetic, died in hospital.

    OK, now today’s oil rally is officially BS.

  24. 24
    sane Says:

    The hysteria in the oil market continues to be insane. There should be a sign to the entrance of the NYMEX pit that says, “Leave Your Soul at the Door”

    Sane

  25. 25
    zman Says:

    Keeping finger off trigger on more TSO.

    Oil rallies on death of presidential candidate in Nigeria and prospect of no election. Govt says elections will not be delayed and oil rallies more. It’s an insane world.

  26. 26
    zman Says:

    PTR with 2.2 billion barrel discovery. That’s twice the sixe of largest US discovery – Thunderhorse.

    Maybe a good cover stock here. Checking with Phil.

  27. 27
    Attacking Mid Says:

    The way the oil stocks are acting, I think we’re in for a nice pullback if oil starts to retreat. Sold my SU puts and rebought cheaper. Didn’t catch the extremes, but took out some of the basis.

    Watching BQI for a bounce off $3.50 support. If it does, then $3.50 should be established as a short term floor. Still surprised by the lack of interest in this stock. Guess the technicals are in charge for now.

    AM.

    AM.

  28. 28
    sane Says:

    CNOOC also said it was making finds in the Bohai Bay area also.

    Sane

  29. 29
    zman Says:

    Note to Aramco. I saw you visited the site a few minutes ago. I’d love to get your thoughts on T. Boone Pickens’ repeated assertions that you, Saudi Arabia, can’t grow production.

    It runs contrary to everything you’ve stated for years and years but Pickens and Simmons both continue to question both your reserves and productive capabilities. I know you’re unlikely to answ3er but I thought I’d give it a shot

  30. 30
    zman Says:

    AM – You still want to post a report here on BQI? You’d be welcome too. I know you’re busy but again, you’d be welcome.

    Thanks Sane.

    There goes oil rallying yet again. XOI doesn’t look like it’s buying into it yet.

  31. 31
    El Diablo Says:

    With no voice in Washington to calm the energy markets, I’m certain this will be the final nail in the economy’s coffin.

    The fed ‘calms’ economic fears, justice/defense ‘calm’ physical threat fears. The only voices the market hears on energy is OPEC and Iran.

    If we have any hope of prevailing in the Middle East, this administration must circumvent the ‘threatening’ power of this region.

    Just goes to show that they are out of touch with consumers. With a 10% increase in all commodities in past 6 days, the likelihood increases that consumers send the clear message in the form of restrained spending elsewhere.

    Hope its not too late by then.

  32. 32
    zman Says:

    El D – thanks, now I’m just bummed out.

  33. 33
    Attacking Mid Says:

    z – Yes, I would like to. However, life is very busy right now, so it may take some time.

    Took a few z-puts (i.e., out of the money) on UPL. Had a few $$ sitting in cash and decided, what the heck…

    AM.

  34. 34
    sane Says:

    I agree with El D.

    The economy was partially able to absorb $75 oil and 3$ gasoline, but also look at the dip in the GDP 5.something% to 2% ~ 2.5%.

    $75 oil now would be economically numbing, and $100 oil would be disastrous.

    I read today that beef prices are another commodity the speculators are looking to jack up.

    Also read that Hedge Funds as of January were worth in total $2T up from $1.5T six months earlier.

    Something has to give, and when it does, it is not going to be pretty.

    Sane

  35. 35
    sane Says:

    Funny thing though is the usual BS / Tension monitor, “gold”, was down today.

    Makes no sense.

    Sane

  36. 36
    zman Says:

    Got to admire the coordination of T Boone’s appearance on CNBC with a GAO report released today saying the US needs to “develop a strategy to mitigate the effects of a peak in oil production, which most studies show will occur between now and 2040.”

  37. 37
    zman Says:

    So now Iran has released a second letter from the female hostage in which she purportedly says Britain should get its troops out of Iraq. They really think we’re stupid don’t they. Even if that were of her own free will why would anyone care what a single troop thinks about a nations strategic interest. Last I heard they were leaving anyway.

  38. 38
    zman Says:

    Goin fishin. I’ll check in later.

  39. 39
    dilbert Says:

    Fishing for “fishes” or “chicks”?

  40. 40
    El Diablo Says:

    The risk in this run is that it is not systemic or fundamentally-driven, it is only ‘fear’ driven.

    Bush could easily dispell the fear by using diplomacy to persuade Saudis to increase production BEFORE there are more problems in Straits of Hormuz, directing release of SPR before ANY additional escalation, and finally, just reassuring the market that he will not allow all consumers to be held ransom by speculators and fearmongers.

    If the spingot was open on the SPR, I don’t think bulls would be as comfortably bidding prices up.

    Iran has figured out this game and is using us against ourselves. Now they see that a few hostages will get the ‘capitalists’ to bid prices high enough to send our own economy down the tubes. Brilliant. Use the system we love and they hate to bring us to our knees. Maybe Ahmadinejad is not such a fool.

  41. 41
    Hostgator Says:

    Hostgator…

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