18
May

Friday – Does The Weekend Ever Have To Come?

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Crude Thoughts: What The Heck Was That? A second week of seemingly bearish gasoline inventory numbers and we get a mega rally in RBOB the next day? I expected a firm crude market on the back of increasing demand for gasoline production and the lofty international prices but a rally to $65?  I didn't see that coming and I think the market is getting a bit frothy at this point. It can easily froth all the way to $70 although the amount of OPEC cheating and huge stockspiles in the US should prompt prices to bounce off that level pretty hard.

Voice of Reason Watch: From Bloomberg~ "Gasoline prices are running ahead of reality because there is no shortage,'' Sandy Fielden, Vice President of Energy Products at Chicago-based Logical Information Machines, said yesterday. ``Once we get into June and July and realize the sky isn't falling, prices should ease.'' Comment: To say there's no shortage is a bit of an oversimplification but his point is that gasoline is being priced like we're going to run out. We're not.

In short I think this market is a bit overheated. That said, I think it has broken out after a minor correction and will head higher until the list of refinery snafu fits onto one page of the EIA's nightly summarily. For now, days like yesterday with yet another round of major refinery problems coupled with more problems in NIgeria, (this time word of a labor strike planned to coincide with the presidential changeover) will be the key driver of prices.

Refining infrastructure had a very bad day yesterday (and this week): 

  • (COP) 146,000 bpd capacity plant in Tx offline for scheduled repairs,
  • (BP) 115,000 bpd unit at its Texas City plant for 11 days.
  • (MUR) 125,000 shut Thursday for minor maintenance.
  • CHS 55,000 bpd Montana refinery shut for 11 days following a small fire.
  • (SUN) shut a gasoline pipeline supplying Buffalo for repairs. Always good to

 Nigeria Watch:

  • Shell appears to be close to restoring 170,000 bopd disrupted by protestors earlier this week in the Ogoni area of the delta
  • CVX has restored 90% of an estimated 70,000 bopd that were shuttered by villages late last week.
  • Nigerian oil workers are planning to strike May 28-29.

Holdings Watch: What a fantastic day yesterday was! Aside from my now incredibly ill fated remaining May puts in (TSO) and (SU) my collection of gass. Of course a yard gnome could have made money in energy land on the long side yesterday but we had disproportionate gains in several names and started to take some profits. All three subsectors are making new all time highs which is cause for concern although I think they'll continue to run in the very near term.

  • XOI up 1.5% and appears to have broken out on the charts. I'm not a chart guy but large caps are leading the sector higher while valuations remain in check as estimates begin to increase on the back of the stronger than expected price environment.
  • XNG up 1.2%. Ditto the above comments alhtough I'd expect the mounting strength in natural gas to start to cause the gassier E&Ps to outperform.
  • OIH up 2.4%.  Service appears to be free of the woodshed now that activity is picking back up in North America.

CALLS:

  • (HAL) - half of a 2x position off taken off the table. An 210% gain in 6 days meets my definition of "too far, too fast." Given the discount of HAL to its closest rivals and the strong domestic and international fundamentals facing the company I don't expect the stock to come crashing back to earth anytime soon but this way I get to play with the House's money.
  • (APC) - added a 1x position in August $50 calls on the Icahn news but also because the stock has been too cheap for too long. (APC) raised another $1.2 billion this morning selling stakes in an GOM oil field to Nippon and Mitsubishi.

PUTS:

  • (WNR) took my lumps on the second half of my May $40 puts yesterday for a 60% loss. I'm not going to cry over that one as the first tranche was sold for a similiar sized gain back in early April.

STOCKS:

  • (CLR) added an initial position at $14.25. See yesterday's post for my reasoning there.
  • (END) - No action but I'm getting questions so let me reiterate the buy and forget nature of this investment. Production is running above plan and they will likely raise production guidance upon release of 2Q numbers. For now all eyes are on their Balgownie prospect where a rig is currently turning to the right. No news for awhile so the moves in the stock are people giving up, new investors coming in etc.
  • (SCU) - No action on my part but their decision to take it a little slower in the Fayetteville Shale is giving the stock a haircut. I'm doing a little digging there before making my next move.

See the ZEB performance tab (in the upper right corner of the zmansenergybrain.com site) to see all my current positions.
Welcome To The 2007 Natural Gas Short Squeeze. June natural gas rallied $0.185 to $8.075 yesterday and is trading a dime higher this morning and is looking more and more like a short's nightmare.  We'll be keeping an eye out for CFTC data late today to see if the shorts had begun to capitulate (at least as of last Tuesday). Given the size of the current short position, the cover push natrual gas into the mid $8s temporarily.

As CNBC will begin reminding everyone next week, hurricane season is just around the corner and the doors won't be wide enough for all the shorts to jam through if a storm spins up in the Atlantic. This doesn't necessarily mean good things for the stocks as they often trade in the opposite direction you'd guess (ie down) shortly after the initial surge.

Review of yesterday's gas storage report: Gas Inventories Remain 21% Above The Five Year Average, But 11% Below Year Ago Levels.

  • Storage as of May 11, 2007: 1,842 Bcf
  • Max storage for this week in history: 2,080 Bcf (2006). At present gas storage is at it’s 2nd highest level in history for this date.
  • We are now down 11% (238 Bcf) relative to year ago storage levels. Due to the slightly larger injection this past week relative to the year ago comparable week we eroded the YoY deficit by a measly 1% (see second chart below).
  • We are now 21% (324 Bcf) above the 5 year average which includes 2006’s record levels (see third chart below).

Looking Ahead:

Here’s some quick stats for the period running from mid May through the end of October (the traditional end of the injection season):

gas-sto-5yr-comp-051707-aaa.JPG

  • 5 Year Average Injections: 1,754 Bcf. Taken with current storage that scenario would put us at a pretty bearish / very comfortable 3,501 Bcf in storage, or 51 Bcf over record storage.
  • Minimum Injections: 1,370 Bcf in 2002. This would yield storage of 3,117 Bcf.
  • Maximum Injections: 2,287 Bcf in 2003. That year saw storage trough at a very low 642 Bcf. This won’t happen with this year’s much higher storage levels going into the injection season.
  • Last year we injected 1,370 Bcf into storage during this period which would yield storage of 3.1 Tcf.

I don’t see natural gas trading on average much above or below a range of $7.00 to $8.50 this summer (with spiky trading possible due to storms and the short covering it will no doubt provoke). I've said it before and I say it again, the well run E&P mint’s money at those levels. Even the not so well run ones do just fine in that band.

gas-graphs-051707.JPG


 

Odds & Ends

Analyst Watch: (NBR) upped to Add at Calyon, (ATPG) upped to buy at Matrix, (TOPT) upped to hold at Cantor.

 

 

70 Responses to “Friday – Does The Weekend Ever Have To Come?”

  1. 1
    zman Says:

    Thanks N!

    Natural gas shortz have got to be getting very woorried here. Even news of current reocrd LNG is not a downer. Canadina import declines are outpacing the rise in LNG but just barely and it probably won’t last as these prices are going to attract everything that can float.

  2. 2
    zman Says:

    APC acting nicely again. I think this move has legs as the stock has been in the penalty box since last summer for it’s tow high profile, high priced acquisitions.

    (LNG) the company, flying here. Rising LNG imports are seen as validation for the new facilities they’re bringing on line starting next year. Of course, current capacity is about 6.0 Bcfgpd and we’re importing a current record 3.o Bcfgpd via tanker. There isn’t enough liquifaction capacity at present to send 6.0 Bcfgpd here, let along to fill the new regassification capacity that’s coming. But I guess they can worry about that later.

  3. 3
    T-Tupp Says:

    nicky– your technical analysis is a great compliment to z’s fundie’s- keep up the great work guys…

    initiated a DT in vlo off the open, going to add at 73.80

  4. 4
    H Says:

    goodmorning everyone, Zman, Its me Big H. and I have been having trouble posting any suggestions, today I used a diffrent email and name to c if i can post ..help…

  5. 5
    H Says:

    I c today i can post the first time all week, CSFB up gas and refining margins for the 2 and 3 q 07 today and also up the price of WTI, they say margins will be strong due to low runs , supply and high demand, but expect the 4Q margins to drop, ….if you world like the report, send me an email.

  6. 6
    zman Says:

    Tupp – long the VLO?

    N is king of technical analysis around here!

    H – what seems to be the trouble?

    You know you can always email me if there’s a problem. I’d ask that people don’t ask questions about stocks and commodities via email b/c then others don’t get to comment (nor the benefit of my wisdom.LOL ;->). With that said you can reach me at: zmannalpha@yahoo.com

  7. 7
    zman Says:

    Another big day in E&P land: APC, SWN, NFX outperforming.

    CHK doing well as and if you never took the CRK, now is the time, it’s flat and had just about the best quarter, scrathc that, it had the best quarter for the group.

    HK and PQ doing nicely here. I still have to punt some may PQ calls today but I’m in the July’s for now.

    EOG running like a scalded cat as is CRZO both of which I seem to keep missing. Strong drilling results at CRZO this morning.

    Still like my remaining HAL and NE calls

    SUicide to have shorted SU and considering an add in the June 85s. Nicky, please keep me posted on your oil thoughts as this one will get gut punched on the combo of high gas and any retrenchment in oil.

    H – sure, send me that report. Like to see all the refining stuff I can get unless its from Bear Stearns. 8-0!!!

  8. 8
    H Says:

    I don’t know, everytime, I hit the button, it looks like its posting then a second later the page loads and no post–so today I used a dirrerent email and name, and its the first time all week I was able to post, I tryed posting wed, after the report 20 times, to say I was buying OIH JUN 165 Calls, on that sell of towards 160! any suggestions? and I will send you the CSFB report…

  9. 9
    zman Says:

    H – use the new email. It shouldn’t require a password. I’ll take a look at the process from another PC this weekend.

  10. 10
    T-Tupp Says:

    long yea

  11. 11
    H Says:

    How do I get a password ? and check your email.

  12. 12
    zman Says:

    PQ – Interesting stock sales by the CFO, their general counsel, and the SVP of bus dev.

    Before results of Atchafalaya are announced. Hmmm. No way they’d be selling if it’s bad. That would be suicide. With the general counsel in the list there would be no excuse for them to have sold prior to a major dry hole announcemetn.

    Maybe they’re not privy to the results yet and want’t to get out early but that would look very bad.

    I’d guess they wanted to sell earlier, got the nod that the well was ok but didn’t want to wait longer with prices up to see if the well jolted the stock price. I’d bet news will be out shortly on the well.

  13. 13
    zman Says:

    H – thanks got that. If you register with the site you should get one then.

  14. 14
    H Says:

    Your welcome, I tryed to register, I summited my email, on the top right of the page, and all i get is the daily link….no passward user ID or the like, can you post the rigister link….

    and anyone buying puts on oih, for a quickie?

  15. 15
    zman Says:

    NFX – Lehman continues to reiterate its equal weight rating. Man that is some useful research. This no doubt prompted by NFX’s acquisition of the Stone Rockies package on Tuesday. Nice of them to get around to writing that First Call note!

  16. 16
    H Says:

    I ment gas. like SUn , I sold my oih 165 calls this morning ! weeeeeee

  17. 17
    zman Says:

    No taker on OIH puts, too quickie.

    I see. That’s not the same as registering for the site. That should just send you an email in the moring when I’ve posted to let you know a new post is up.

    When I say register, I’, talkiing about to make commetns and you should be able to just commetn as an anonymous commentor.

  18. 18
    T-Tupp Says:

    nicky– the best traders always use a combination of fa & ta i find; therefore it has tremendous use!

  19. 19
    zman Says:

    Ditto T-tupps comments.

    Hope you do this for a living b/c it’s definitely a value add.

    I live by the motto, FA tells me what and TA tells me when. With that said I spend 95% of my time in the FA research fish bowl. I’ve got an Elliot Wave book and a massive CMT bible around here somewhere with a lot of dust on them so thanks for what you do!

  20. 20
    zman Says:

    Every pullback in natural gas is met with buying. If I were short the futures, and I know two smart guys that are right now, I’d be pretty damn nervous.

    Nicky – What are the idicators you put the most stock in when looking at commodities. B Bands, Sto, SMA? Also, you ever look at stocks?

    PQ getting kind of jumpy

    NE blazing higher – $91 !!!

  21. 21
    Art Says:

    Z-How did you find that info on the NFX project? I believe NFX has a WI of 50%. The projection (if that is the correct word) is 3-5 billion at today’s prices. Thanking you in advance, Art

  22. 22
    zman Says:

    By the way, if you need a laugh or a different perspective on stocks. Go check the blogroll for the Trading Goddess’ website. There’s nothing like it on the web. Warning: Not safe for work. She was kind of enough to spotlight my site today.

    Also, don’t forget to vote. H, Tupp, this means you. LOL. Click the best business blog icon above and to the right. It’d be much appreaciated and it only takes 2 minutes out of your life.

  23. 23
    zman Says:

    Art – I’m sorry 3 to 5 billion what? If that’s BCFE than its just a small bump in the road. If it’s barrels I’ll call them a liar right now. It’s not that deep and Eugene Island isn’t exactly the far side of the moon so what gives with that?

    Found it here:

    http://www.ridgewoodenergy.com/gulfPartners.asp

    They’got it allocated to 3 of their funds and are keeping 25% unallocated for now.

  24. 24
    zman test Says:

    test post.

  25. 25
    arpapale Says:

    Z-did you just have a change in your site? I had to re-register at a different site -WordPress. And, this is the third time I am trying to comment. The 3-5 billion is a top line number. The potential is 25-40 million barrels on oil and 180-250 BCFE. Thanks for directing me to that site. But, how in the world did you find it? What made you go to that company? Is there a source to quickly find this information. Thanks

  26. 26
    zman Says:

    my trading platform just dumped 90% of my marketwatch pages. AAAAAAAAAAAAaaaaaaaaaaaaaaaggggggggggggggggggggggggggggggggg

  27. 27
    zman Says:

    Sorry about the change, I was trying to see how something worked and I flipped a swith. You shouldn’t have to be logging in to comment rigth now, it should be back to the way it was.

    RE Sapphire: Ve half our vays! Kidding, I just googled Saphhire NFX lol. Their site shows NFX as operator with 25%. 180 to 250 Bcfe would be a nice shot in the arm. Thanks for clarifying.

  28. 28
    zman Says:

    hello … anyone out there?

  29. 29
    H Says:

    Just a quick comment on this weeks EIA report and the quick response by the market that followed–

    When I saw the report I did not think it was bearish at all and I was surprised that given the build that people were say it was bearish–to say-, I saw it as netural at best, I mean you can’t import enough gas right now, and the .05 jump in runs was not enough to make the build number look strong- I knew the oih and xle comples was going higher-

  30. 30
    H Says:

    yea, mw any news in the last 40 minutes that sent OIH running again?

  31. 31
    T-Tupp Says:

    z i cant figure out how to vote..

  32. 32
    zman Says:

    Thanks for trying Tupp – see the button that says bloggers choice award? It’s at the bottom of all the stuff in the right hand column. Click that and follow the directions. I’d appreaciate it. You have to give them your email but that’s about it.

  33. 33
    zman Says:

    Exactly Nicky, it’s just up too much for the data. Last $0.30 has been snafu related hype, 90% of which is very short term in nature.

  34. 34
    zman Says:

    NE on fire,

    Taking half profits in SWN

  35. 35
    H Says:

    what I ment was that gas and oil were not going down this week but up after the report.. which is why I brought the oih 165 Calls on the selloff ( JUN ) and sold them taday… and that the stocks would go up not down, and the short term selling was fare, panic, or simple squring with a taste of confuesion from a starbucks employee!

    I saw this a short term at the least-

  36. 36
    H Says:

    BTW I brought them at 4.20

  37. 37
    zman Says:

    Bill – I’ll post this on the main site as well. Re SJT production. It’s been sliding for years though. I’m not sure they can offset with infills at this point. Still as far as SJT goes, at $8 henry hub, the dividends will be hefty.

    Nice moves H

  38. 38
    H Says:

    Whos got their wings tied to a look’en at some OIH JUN Puts for a quick pullback monday or tuesday- I think the trade works buy buying mon or tues whichever day knocks oih over 170, without any new news,

    Zman you recall a while back I asked you about JRCC , if you knew it, it was 6 then after falling from 45, you said you would have a look then came back and said” WOW THATS A SCARY CHART” ….thats the day I brought some..

  39. 39
    H Says:

    and you remember my call around the beginning of may , GDP was at 38 I said buy puts or short……..I didn’t

  40. 40
    zman Says:

    SWN out half position, up 109% to average cost. too far, too fast.

    thinking of same for NE

    PQ:
    May PQ 12.50 calls, 2x position, average $0.87 for 105%.
    Holding July 15s.

  41. 41
    zman Says:

    H – I get pretty busines, can’t kiss all the girls.

  42. 42
    H Says:

    HUH??

  43. 43
    zman Says:

    Sorry, I’m saying I get pretty busy and if you bring a ticker up once and that’s it I may never look into again until you tell me it’s doubled or whatever.

    I’m a fundamental guy and I have reasons for owning everything I’m in. If somebody mentions in passing (one time) that a stock is up I think, does that make sense or is it just some noise. If it makes sense with my macro picture of the market or sector I start working on it. For instance ED pointed out CLR to me the other day. I’d forgot they were going public, I looked into the stock, wrote up a little piece and ended up buying an initial position the next day. So in other words, if you have a good idea and I don’t respond tell me again, tell me why it’s a good one and I’ll pay attention. If you tell me about a $10 stock and you never heard me say another word about and you let it got to $20 and then tell me about it again, well, then I just think your bragging and I could care less. I’m glad you made money on it all but I want this site to be about sharing data and thoughts and ideas to make everyone that $10.

  44. 44
    H Says:

    I understand, and belive me I didn’nt mean anything, just was crouious if you recall me that far back, if anything it shows how long I been reading you on a daily basis!

  45. 45
    lawdymama Says:

    Z – ya got my vote. And that Trading Goddess site is, well…a bit different…, but not nearly as exciting as looking at a YoY storage chart.

  46. 46
    zman Says:

    NE – half out June 90 calls at $4. $1.85 cost 10 days ago.

  47. 47
    zman Says:

    Sorry H – a bit testy as I lost all the data in every market watch I have today. My lists of E&P, refiners, shippers, service, all gone. My brokers I’d have to rebuild it manually and to have a good day.

    I appreciate your coming to the site. Make sure you vote.

    Lawdy – THANKS! I do make some pretty charts don’t I?!

  48. 48
    Popeye Says:

    Nothing like TA with a little T & A. 🙂

  49. 49
    zman Says:

    Nicky please don’t get them started. It’s nearly beer-thirty on a Friday. lol.

  50. 50
    H Says:

    oooooo I hate it when I click the wrong botton and lose my set up…I going to starBucks. For an expensive cup of tea!

  51. 51
    Art Says:

    technology – Ain’t it great!! Z, would a successful find for NFX move the stock? BTW, the BCFE #s are in addition to the oil #s.

  52. 52
    zman Says:

    Art – It wouldn’t hurt!

    oil combined with gas would yield a prospect range of 330 to 490 Bcfe. If NFX has a 25% working interest, after taking out royalties to the MMS that comes to a net interest of 72 to 107 Bcf or 3 to 4% when compared to their YE 2006 reserves of 2300 Bcfe. They’re targetting reserve adds of 600 Bcfe this year (some of that comes from here probably) but again it doesn’t hurt at all and would be a nice quick to develop bump in production if successful. If they have 50% like you said earlier than just double the impact.

  53. 53
    zman Says:

    END making a run back for $2. Thought that was a bit overdone.

    PQ up $0.30 – people surmising the same thing – that you don’t see in front of bad news. of course, those insiders may have had sell orders in place that were automatically executed.

    Nicky – I thought about working for CNBC. All I’d need is “a lobotomy and a pair of tights.” ~ it’s an old Breakfast Club line but I think it applies!

  54. 54
    zman Says:

    N. American rigs up 22, gas rig count up 10 – somebody likes these n gas prices!

  55. 55
    Art Says:

    Thanks Z. Preliminary results are imminent.

  56. 56
    zman Says:

    Maybe we’ll see one of those @NFX pieces shortly then.

  57. 57
    zman Says:

    Nicky – enquiring minds on the PSW site want to know why the drop in nat gas at the close. It started cracking your technical levels and found no dip buyers for once, would you agree that it’s as simple as that?

  58. 58
    zman Says:

    CFTC data:Net short position in natural gas fell 14% through Tuesday. Mostly due to an increase in longs but also a small decline in the number of shorts willing to stomach this much pain. Again, this data is through Tuesday so I’d bet the short position is a little smaller tahn this.

    Bottom line: it’s slightly less bullish in that the short position has fewer contracts that need to be covered but it is still of a size that represents substantial buying power (support for ng)

    AS to the late day selloff, we violated key technical levels and people started taking profits.

  59. 59
    Dave Says:

    Nicky – higher highs just on the RBOB, or are you including NG in your higher highs forecast?

  60. 60
    zman Says:

    Nicky – hear ya hihger highs after a smallish correction

  61. 61
    zman Says:

    That CLR IPO is having another nice drift up day while PINN keeps drifting off.

  62. 62
    zman Says:

    Show of hands. Who thinks the posts are too long, disorganized or are missing something you’d like to read.

    TK taking it on the chin again

  63. 63
    zman Says:

    May TSO and SU crop of puts expriing worthless. Nice Job Z 🙁

  64. 64
    Stephen Says:

    Remember when you said there was insane volume in the GSF May calls, and now GSF is rallying into the close, are there any rumours going around?

  65. 65
    zman Says:

    I haven’t heard anything new. There was a rally in the driller components of the OIH following the rig counts.

  66. 66
    bill fraser Says:

    Regarding ng 5 yr avg:

    New demand by conversion from coal fired electrical plants and consumer would mean we should have more inventory today than the average inventories for the last 5 years.

    Price’s this year are significantly higher than last year even though inventories are at their 2nd highest level.

    Given the latent demand, are inventories high enough? The 5yr chart is only meaningful if everything is static, no??

  67. 67
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    Zman’s Energy Brain ~ oil, gas, stocks, etc… » Blog Archive » Friday – Does The Weekend Ever Have To Come?

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