02
Apr

Monday Morning – Diplomacy Anyone?

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Monday Topics

  1. Oil & Gasoline
  2. Natural Gas
  3. Odds & Ends

Oil was barely off $0.16 Friday after gaining for 8 straight sessions and reaching a six month high. Early moring indications of a small decline may indicate the needle is moving from sabre rattling to diplomacy.

Iran Watch:

  • The Brits are trying to appease Mahmoud & company with promises that "British troops would never knowingly enter Iranian waters without permission." Not that the Iranians know exactly where the demarcation line is. I, and the international press, think this a positive step towards bringing the troops home (which will deflate oil to the tune of $3 to $4 per barrel.
  • Iran, for its part, has now aired new footage of all 15 troops and claims that they've all "confessed". Maybe if they just "apologize" they can all go home.

Gasoline is up a little over a dime since the hostages were taken and 31% since mid January when the first of the high profile refinery snafu was reported. Talking head and hedge fund consensus is that prices will continue to rise through Memorial day. I'm in the peak earlier than normal camp. The following graph gives you a good idea of the unseasonably strong charge in crack spreads the U.S. has experienced on a regional basis.

cracks-033007.JPG

The cracks for 1Q07 to date are updated through: March 16, 2007.

An index of refiners shows them to be nearing all time highs. I constructed these indexes from the independent refiners: VLO, TSO, SUN, WNR, and HOC.  The barrel weighted index uses stream capacity to weight the shares which gives about two-thirds of the performance to VLO and almost nothing to tiny HOC and WNR. Either way, you can see the refiners have had a pretty good run in the face of a what I'd consider to be a pretty short term set of snafu circumstances.

zbwi-033007.JPG

Natural Gas. Up with oil. I'm looking for a return to injections to storage this Thursday on last week's much warmer than seasonally normal weather.

CFTC - Shhhh, I Have A Secret.  Natural Gas Shorts Are At Record Levels. The net position in natural gas futures and options fell to its lowest level (most short) on record last week. You're unlikely to hear this anywhere else but traders are taking a huge bet against natural gas prices right now. At some point, the cover of this position will result in a sharp rise in natural gas prices however, I happen to agree with the traders and think tthat gas prices are due for a small tumble (to around $6/Mcf) in the the near term. Then the cover would lift prices from their.

cftc040107.JPG

Odds & Ends

Analyst Watch: (PEIX) to hold at FBR, (AGU) to hold at CIBC - I keep an eye on the fertilizer companies since their #1 cost is natural gas. (NBR) PT trimmed at FBR after last week's profit warning, (AVR) and (VSE) PTs whacked at FBR.

Minnow Watch:

  • Gastar (GST). I've got a thing for minnows lately. This little E&P is gassy with high potential exploration in the tight gas sand Bossier play of E. Texas and CBM development in the PRB and Australia. Near term catalyst abound in the form of multiple tests in the Bossier with partner (CHK) who also owns 17% of the company. I'm taking an entyr postion here ($2.25ish) and will continue to do a little more work to decide if this is a trade or something more interesting.
  • (END) presents at Howard Weil April 5th and the audience could well prove to be a receptive one given the destruction of the companies shares over the last 12 months and the close proximity to the companies next, significant reserve test in the North Sea.

22 Responses to “Monday Morning – Diplomacy Anyone?”

  1. 1
    zman Says:

    If anyone is having problems posting you can email me here: zmannalpha@yahoo.com.

    I’d prefer that you use this address for problems registering with the site and keep other questions regarding the oil, gas, etc to this comment section.
    Thanks.

  2. 2
    zman Says:

    Goldman Sachs just downgraded the UK North Sea energy companies. I haven’t seen the report but it’s probably due to the harsh decline rates in comibination with the continuation of burdensome taxes.

  3. 3
    zman Says:

    Positions updated through last Friday on the Zeb Perf tab.

  4. 4
    El Diablo Says:

    Expectations for ‘all things bad’ appears to be peaking. We’ve managed to chunk expectations for refinery runs, middle east tensions, and three month hence hurricane season into a couple weeks.

    I think it will be difficult for expectations of difficulties in any of these areas to continue rising without some clear steps in that direction. ie, no more hurricane premium until we see a cat 4 or 5 forming in the gulf.

    Market seems to be WAY ahead on several issues at this time, and all a bit premature. This is why I believe a sharp snapback is more likely to occur very soon.

  5. 5
    zman Says:

    EL D – Agreed. I probably ought to take a look at where the speculators sit on WTI now.

    The gas guys have built this big net short position (biggest of all time) while the CNBC weather girls and their guest have been talking prices up!

  6. 6
    zman Says:

    TK and rest of shippers on the move higher again. No word on tanker rates until later today.

    My TKEK are back in the black now.

  7. 7
    El Diablo Says:

    The ‘tsunami’ watch this morning really pushed me over the edge…

    Since the 2001 hysteria of florida shark attacks, media covers each new one, but we’ve never matched the fear of the original one. Since the 2004 hysteria of the Indian Ocean tsunami, media covers each new one, but we’ve never matched the fear of the original one. I suspect the 2005 hysteria of Katrina and Rita will be the same, media will cover each new one, but we will not match the fear of the original one. Same goes for 9/11 terrorist attacks.

    These ‘big media’ events are one-hit wonders. They get so over-hyped, that it is impossible to meet the extraordinarily high expectations their tireless coverage generates. Anyone have an example to the contrary?

  8. 8
    zman Says:

    EL D – I’m hearing there’s problems with sign ins on the site . Think we’re alone in here.

    Next thing will be meteor watch. lol.

  9. 9
    El Diablo Says:

    The first decade of the 21st century should become known as the Decade of Fear. The 9/11 attacks appear to have started us on a long treacherous slope of fearing everything, travelling/flying, sharks, global warming, hurricanes, earthquakes, tsunamis, food shortages, fuel shortages, etc, etc, etc.

    In this regard, terrorism works. It instills fear and changes our behavior. The media amplifies it and spreads it to the masses.

    Too bad it didn’t work on me, because I don’t see ANY reason to be long energy. Could have made some money if I was afraid too.

  10. 10
    dave Says:

    I’m here Zman…bought some calls on CHK for a short term trade.

  11. 11
    sane Says:

    I am here. Sign in working ok for me

    Sane

  12. 12
    sane Says:

    El D,

    I remember reading back in college that doom and gloom predictions were prevalent during the first decade of most centuries from what historians found in writings throughout history. I think it is a hangover from the turn of the century apocalypse hype.

    It is all probably amplified d/t turn of the millennium

    Sane

  13. 13
    El Diablo Says:

    Sane,

    Interesting, I never heard that.

    Oh yeah, I totally forgot the Y2K hype?! Remember that?! The WHOLE world was going to crash…that should have sent crude to $100 too!

  14. 14
    zman Says:

    Picked up a little of the GST. They present at Howard Weil this week but am not sure of the day. Nearest catalyst should be a deep sand test this week with CHK followed by more within about a month.

  15. 15
    sane Says:

    El D,

    Y2K. Yeah I had a job redoing a computer system to handle it. I used to laugh at the reports in the media.

    Funny thing about that was that the people in the computer world, e.g. programmers / developers, where not worried. It was the people who knew just enough about computers to be dangerous and people looking to make a quick buck who were the ones touting disaster. Hmmmmm…… kinda reminds me of the oil market.

    Sane

  16. 16
    sane Says:

    If I also remember correctly, back in 98 – 99, $5 oil was on the table for the coming decade. Fast forward 5 – 6 years, we go from look at how much stuff we have to OMG!!!!!! we are running out!!!!!!!!!!!!!

    Sane

  17. 17
    zman Says:

    This is from a private company that just drilled 3 massive wells 52, 28 and 20 mmcfepd in the county bording (Robertson) GST’s drillingin Leon county.

    Note the minnow on the list:

    Other companies currently active in the Deep Bossier trend include: Anadarko Petroleum Corp. (APC) ; Chesapeake Energy Corp. (CHK) ; ConocoPhillips (COP) ; Devon Energy Corp. (DVN) ; Gastar Exploration Ltd. (GST) ; and XTO Energy Inc. (XTO) .

  18. 18
    zman Says:

    GST’s production for the fourth quarter just announced was 13.7 mmcfepd and they have half of one of the wells being production tested this week. Would be pretty significant to the company if it comes on at anywhere near the rates of the 3 just announced by that private company in the neighboring county.

  19. 19
    dave Says:

    May crude near highs for today

  20. 20
    nampilot Says:

    i really love you guys, the way you dig your teeth into this stuff like its female girth.
    one of the things i practice in trading is to have the wisdom to doubt my own intelligence. the following is a bit of intelligence. the road behind us in the rear view mirror is littered with bodies of people unable to resist the siren lure of being biased in favor of their own opinions. most of us use our emotions to make decisions with, then hunt for logical reasons to justify it. otherwise, how could so many milions of sheeple be so constantly wrong in the maketplace of trading opinion?
    in the past week, as you guys have spent so much time convincing yourself of a pullback in oil, i have been buying gsx again, of which i already own fifty thou shares, because i try not to think in terms of opinion which i glaze over with my own emotional predjudices, but in terms of probabilites, and whereas two weeks ago i thought the hostage taking would have an eight per cent chance of resolving itself peacefully, and sided with you guys, now i am becoming more convinced, based on a plethora of news stories, of an attack on iran, maybe april sixth, or the fifteenth. the point is, don’t be thin if we do attack. it will be a once in a lifetime chance to make overnight big bucks. think about it. and if there is no attack, i still sense this hostage situ may go on for awhile, putting some kind of a floor under crude. sort of a win win, imho, but i see you guys coming up with reasons for a pullback, and i just wanted to stimulate your thinking to other possibilites. i am going to try and paste an artilce from the russkies, and it may not take, but i promise you, i have read at least seven good intel soucrce blurbs betting their money on an attack. the eisenhower is there, the stennis on its way, and they just finished the war games in the strait. bush promised he would hit them before he left office if they didn’t stand down the nuc stuff. i say there is a fifty per cent chance of a strike. please offer facts to prove me wrong. again, i love you guys, and your incisive commentary, and cutting whiplash wit. stay strong. WASHINGTON DC — The long awaited US military attack on Iran is now on track for the first week of April, specifically for 4 AM on April 6, the Good Friday opening of Easter weekend, writes the well-known Russian journalist Andrei Uglanov in the Moscow weekly “Argumenty Nedeli.” Uglanov cites Russian military experts close to the Russian General Staff for his account.

    The attack is slated to last for twelve hours, according to Uglanov, lasting from 4 AM until 4 PM local time. Friday is a holiday in Iran. In the course of the attack, code named Operation Bite, about 20 targets are marked for bombing; the list includes uranium enrichment facilities, research centers, and laboratories.

    The first reactor at the Bushehr nuclear plant, where Russian engineers are working, is supposed to be spared from destruction. The US attack plan reportedly calls for the Iranian air defense system to be degraded, for numerous Iranian warships to be sunk in the Persian Gulf, and the for the most important headquarters of the Iranian armed forces to be wiped out.

    The attacks will be mounted from a number of bases, including the island of Diego Garcia in the Indian Ocean. Diego Garcia is currently home to B-52 bombers equipped with standoff missiles. Also participating in the air strikes will be US naval aviation from aircraft carriers in the Persian Gulf, as well as from those of the Sixth Fleet in the Mediterranean. Additional cruise missiles will be fired from submarines in the Indian Ocean and off the coast of the Arabian peninsula. The goal is allegedly to set back Iran’s nuclear program by several years, writes Uglanov, whose article was re-issued by RIA-Novosti in various languages, but apparently not English, several days ago. The story is the top item on numerous Italian and German blogs, but so far appears to have been ignored by US websites.

    Observers comment that this dispatch represents a high-level orchestrated leak from the Kremlin, in effect a war warning, which draws on the formidable resources of the Russian intelligence services, and which deserves to be taken with the utmost seriousness by pro-peace forces around the world.

    Asked by RIA-Novosti to comment on the Uglanov report, retired Colonel General Leonid Ivashov confirmed its essential features in a March 21 interview: “I have no doubt that there will be an operation, or more precisely a violent action against Iran.” Ivashov, who has reportedly served at various times as an informal advisor to Putin, is currently the Vice President of the Moscow Academy for Geopolitical Sciences.

    Ivashov attributed decisive importance to the decision of the Democratic leadership of the US House of Representatives to remove language from the just-passed Iraq supplemental military appropriations bill which would have demanded that Bush come to Congress before launching an attack on Iran. Ivashov pointed out that the language was eliminated under pressure from AIPAC, the lobbing group representing the Israeli extreme right, and of Israeli Foreign Minister Tsipi Livni.

    “We have drawn the unmistakable conclusion that this operation will take place,” said Ivashov. In his opinion, the US planning does not include a land operation: ” Most probably there will be no ground attack, but rather massive air attacks with the goal of annihilating Iran’s capacity for military resistance, the centers of administration, the key economic assets, and quite possibly the Iranian political leadership, or at least part of it,” he continued.

    Ivashov noted that it was not to be excluded that the Pentagon would use smaller tactical nuclear weapons against targets of the Iranian nuclear industry. These attacks could paralyze everyday life, create panic in the population, and generally produce an atmosphere of chaos and uncertainty all over Iran, Ivashov told RIA-Novosti. “This will unleash a struggle for power inside Iran, and then there will be a peace delegation sent in to install a pro-American government in Teheran,” Ivashov continued. One of the US goals was, in his estimation, to burnish the image of the current Republican administration, who would now be able to boast that they had wiped out the Iranian nuclear program.

    Among the other outcomes, General Ivashov pointed to a partition of Iran along the same lines as Iraq, and a subsequent carving up of the Near and Middle East into smaller regions. “This concept worked well for them in the Balkans and will now be applied to the greater Middle East,” he commented.

    “Moscow must exert Russia’s influence by demanding an emergency session of the United Nations Security Council to deal with the current preparations for an illegal use of force against Iran and the destruction of the basis of the United Nations Charter,” said General Ivashov. “In this context Russia could cooperate with China, France and the non-permanent members of the Security Council. We need this kind of preventive action to ward off the use of force,” he concluded.

  21. 21
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  22. 22
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