25
May

Finally Friday – Wooooohoooo! Three day weekend!

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Good morning. First Things First.

"Let us, then, at the time appointed, gather around their sacred remains and garland the passionless mounds above them with choicest flowers of springtime; let us raise above them the dear old flag they saved from dishonor; let us in this solemn presence renew our pledges to aid and assist those whom they have left among us as sacred charges upon the Nation's gratitude,--the soldier's and sailor's widow and orphan."

General John A. Logan in his General Order No. 11 of May 5th, 1868,
Decoration Day
I'll be brief as a long weekend means short attention spans and early arrival of beer thirty.  Yesterday was a necessary bit of profit taking in all of the energy sectors and the action was fairly uniform without the least bit of panic. In the case of the service names it was a very even keel tossing of baby and bathwater. I used the day to pick up a few extra calls and while the commodities gave back a little (except for gasoline which only knows one direction of late) none of them violated key levels by the close.Brent, the other, more important oil. Nymex may have had a bad day but Brent keeps angling higher. Here are a couple of charts to keep in mind when you're thinking crude is done for.

brent-052407.jpgclick to enlarge

Nigeria Watch: Unions began a general strike yesterday and MEND took 6 more hostages today. I only expect more unrest in the coming week (and for weeks afterwards) despite the fact that president Y'Adua is promising the reforms everyone has long demanded (education, healthcare, improved infrastructure).

Memorial Day Weekend Gasoline Outlook: Blowout demand is expected this weekend. AAA, as always, said more people would be hitting the road than ever despite record gasoline prices. They expect travelers to cut back on other things like hotels and food. However, this forecast might put a damper on driving:

memorial-day-weekend.jpg

Should the weekend turn out to be excessively rainy it will be like a bad day at the box office for gasoline prices. Note that heat out west! Just about time to start reigning in those natural gas injections. More on that below.

Tanker Trackers Predicting Increased OPEC Supply. According to Upstream both Oil Logistics and Petrologistics are expecting a bump in production of ~100,000 bopd from the OPEC 10 (which excludes Iraq for obvious reasons and Angola because they're new to the party and everyone is still feeling pretty chummy with them).

Canadian Drilling To Hit Five Year Low. According the Canadian Association of Oilwell Drilling Contractors well completions will fall to16,339 this year, down sharply from 22,298 in 2006. This estimate represents a 2,700 reduction from the Association's first estimate last October. Unlike in the U.S. the reduction in drilling has stemmed from a reduction in unconventional gas well drilling. Comment: the Canadian import situation will only get worse from here.

First Chicken Shit Poultry Litter Fired Generation Facility To Open. The 55 Mw plant will open in June and is designed to consume 500,000 of poultry litter per year along with other types of biomass. Look for Tyson and other major poultry producers to jump on the opportunity created by an increasing number of state legislatures that requires public utilities to purchase power produced from biomass.

Nicky's Excellent Point On Distillate Prices From Comments Yesterday: Whilst overall distillate stocks are at a respectable 120 MB, 3 MB bbl over last year’s already high stocks and 8 MB over the 5 - year average, high sulfur (NO. 2 oil) distillate stocks at 35 MB are running almost 10 MB below last year and well below the 42 MB 5 year average. This is contributing to the strong cash values in NY Harbor, the Nymex delivery point, and to the flat front to second month curve. Significantly however, reflecting expectations that the high sulfur supply will improve, the curve gets dramatically steeper as prices go forward. One of the problems with this is that it is holding up the overall complex, making it a challenge to come to grips with the high winter prices, currently running at nearly $2.07 for the Nov - March weighted stip, up from the $1.97 low of three weeks ago. Comment: Me and my charts, ha! You're going to keep me on my toes I can see!

Natural Gas Review:

  • Consensus: 95 Bcf (which I unwittingly predicted would be the over / under)
  • My estimate: 100 to 110 Bcf.
  • Actual: 104 Bcf (its those extra LNG imports and a rebound in imports from Canada combined with fairly tepid temps in much of the U.S.)
  • This is the second highest injection on record for this week of the year.

Storage Isn't The Only Thing That's Running A Bit High For This Time Of Year, Injections Are Out The Top End Of The Range. We'll see how quickly they moderate as the summer's heat sets in.

injections-052407.jpg

See the rest of my on the gas storage environment here.

Natural Gas Prices Gave Back A Little Ground Yesterday. June natural gas fell $0.076 and just based on the chart I'd say it finds support at $7.63. Looking regionally, the country continues to see patchy spots of heading load, especially in the Northeast. Good news for the Appalachian players who are seeing gas prices consistently tipping the scales north of $8. The Rockies, as usual, continue to contend with the weakest prices in the country with prices currently hovering at and sometimes below $4/mmbtu. Not such great shakes for the (BBG)'s of the world.

Odds & Ends:

Analyst Watch: nada

Bottom Line: Holdings Watch:

  • Calls:
  • (NE) Added to the June $90 call position.
  • (GRP) Added a 2x position in the June $55s for $1.90.
  • (SWN) Got stopped out of my remaining June $45 calls at $1.90. Not a bad little 124% 12 day gain but I would have done better to listen to my own over /under comments on the gas numbers and set a tighter stop!
  • Puts:
    • (SU) Sold the 1x $80 puts for $0.40. I thought this was flushed but I took today's sell off to get out. Nice loss there.
  • Stocks:
    • (UCPI) took an opening position at $0.38.

IEA Says Governments Should Favor Ethanol From Sugar Over Corn. What took them so long?

Thanks to everyone for reading and voting this week. May you all have a Safe and Happy Memorial Day!

70 Responses to “Finally Friday – Wooooohoooo! Three day weekend!”

  1. 1
    zman Says:

    Oil and gasoline bouncing early.

    Service stocks look to be up at the open

    Not a lot of news as you’d expect.

  2. 2
    zman Says:

    I think the MEND travel agency has a better handle on gasoline prices than AAA. lol.

  3. 3
    zman Says:

    Nicky – do you trade Brent? That chart just won’t stop.

  4. 4
    zman Says:

    Re RBOB – I still think they sell it off next week.

  5. 5
    zman Says:

    N. Korea launches short range missiles. Kim Jong must miss the spotlight.

  6. 6
    zman Says:

    Say Flynn’s newsletter yesterday afternoon. Must be nice to say buy RBOB to your clients and then have the biggest podium in history to tout from. lol.

    Maybe they do hang out another week but I think the wednesday inv report is the key more than the date.

  7. 7
    H Says:

    Hi aLL !

  8. 8
    zman Says:

    What up H?

  9. 9
    zman Says:

    PQ moving on up nicely here. Any day now on that well.

    Nat gas back above your 7.69 support level Nicki

  10. 10
    SLM Says:

    CNBC has been calling a bottom in the housing market for 6 months. My thoughts are that you will know we are near a bottom when you see a few major homebuilders go bankrupt.

  11. 11
    SuperDiesel Says:

    Nicky and Z,
    You’ve got the diesel story wrong. You are ignoring the new lower sulphur requirements for off-road diesel about to kick in. This is the big reason for the change in various volumes in addition to ULSD change last year:

    Nonroad Diesel Fuel. At the Tier 1-3 stage, the sulfur content in nonroad diesel fuels was not limited by environmental regulations. The oil industry specification was 0.5% (wt., max), with the average in-use sulfur level of about 0.3% = 3,000 ppm. To enable sulfur-sensitive control technologies in Tier 4 engines—such as catalytic particulate filters and NOx adsorbers—the EPA mandated reductions in sulfur content in nonroad diesel fuels, as follows:

    * 500 ppm effective June 2007 for nonroad, locomotive and marine (NRLM) diesel fuels
    * 15 ppm (ultra-low sulfur diesel) effective June 2010 for nonroad fuel, and June 2012 for locomotive and marine fuels

  12. 12
    H Says:

    Some nice defence for the refiners today , huh– damm mad I didn’t take some VLO calls yesterday- but thats w street…But I did take some oih C’s

  13. 13
    zman Says:

    Thanks SuperD. So you’re thinking dist prices are deservedly this high? Now tell me a play to make money off that.

  14. 14
    zman Says:

    OIH trying to breakout now despite softening commodities? It’s driller based with HAL and SLB bringing up the rear again.

  15. 15
    SuperDiesel Says:

    no just that going forward you should something like 20% less demand of the >500 ppm diesel and hence you should see a drop in inventories in the same range.

    Heat cracks are out of control. can’t explain them. Seems best just to buy Sep puts on the refiners and the seasonality work for you.

  16. 16
    SuperDiesel Says:

    correction,

    that’s about 20% of total distillate, but maybe more like 50% of >500. So inventories of that should be much lower going forward.

    See for estimates:
    http://tonto.eia.doe.gov/dnav/pet/pet_cons_821dst_dcu_nus_a.htm

  17. 17
    H Says:

    Hey Zamn, How come I can’t find that MRO120P you brought in your postion page–where do I look? did you sell it?

  18. 18
    zman Says:

    H – I haven’t rebuilt and update the puts page yet H but all I’ve got short now is that MRO

    Thanks Nicky – I see that! Today would mark the 6th consecutive down day for the contract. Looks like the strip is barely trading/off substantially less.

  19. 19
    zman Says:

    Tempted to play the TSO puts as the stock is soaring today on RBOB and memorial day dreams of high demand. It could also suffer next week from buy the news, sell the split action.

  20. 20
    H Says:

    O Ok thats what i figured….Is their any news , looks like service selling off again?

  21. 21
    DJ Says:

    A Dow Jones service said that heavy buying by hedge funds is keeping Nymex natural gas futures prices inflated,above the $7.70/MMBtu level, although traders and analysts expect prices to drop. “These prices that have been defended by funds are unwarranted at this time,” says a
    trader. “There is fund paper on the buy side being advertised on the floor in an effort to defend trendline support from failing down here.” He adds that the result could be a “sizeable
    long liquidation.” Is there any validiy to this?

  22. 22
    SLM Says:

    In the last 3 days I went from 80 June Nat Gas contracts short to flat.

  23. 23
    zman Says:

    DJ – thanks for that piece. It’s very possible.

    As far as prices being unwarranted at this time, I’d say they’re $1.00 in that territory. That doesn’t mean they’ll fall any where near that far however.

    Prices haven’t come down in the fact of high inventories and a large short position, which has started to liquidate. Tune back in today at 3:30 to see if that short position has gotten bashed. If so, we could be looking at a steeper sell off next week.

  24. 24
    zman Says:

    bail me?

  25. 25
    zman Says:

    OIH holding up barely here. A move to mid $7 nat gas would have 0 impact on the drillers. At $7 you might see a little foot dragging and of course, worse in Canada and the Rockies.

  26. 26
    zman Says:

    OT: KO buys vitamin watermaker for $4.1 billion. Sounds like a good move from a marketing standpoint but has anybody tasted that Coke Plus with the blue label? It’s coke with vitamins and minerals. I wouldn’t give Phil Flynn a glass of that stuff!

  27. 27
    JBosh Says:

    The Coke Plus is just….well….bad..

    I am a newbie to the the market in general and especially the energy markets

    Your posts along with everyone else here has been a huge educational experience

    Thanks to everyone!

  28. 28
    zman Says:

    Housekeeping Items:

    1) if you haven’t signed up for RSS delivery either via browser or email, days like to today are tailor made for that kind non-sense.

    2) if you haven’t voted, please vote for this site as Best Business Blog using the button above and to the right. It means a lot.

    3) if you visit here daily and have questions, alway ask them. If I don’t know the answer or can’t find it then someone here can.

    4) I’ll be out of pocket from June 16 to June 24. There will be no posts between those dates.

  29. 29
    zman Says:

    Welcome JBosh! My dad used to tell me that the only stupid question was the one that went down the elevator shaft with you at the end of the day. I later found out the hard way that that’s not necessarily true if you’ve had one too many and the other guy doesn’t have a sense of humor about his sister but around here, let the questions fly!

  30. 30
    H Says:

    Well, zman..quiet day…got out of my oih jun 170 c’s this morning for a .60 gain- …nothing doing…getting to spend the weekend in the city, fleet week! yes sir, I will join in to slaute them all!

  31. 31
    H Says:

    zman, which TSO puts were you thinking?

  32. 32
    JBosh Says:

    Voted!!!
    I think I signed up for the RSS..I need to check.

    Sunny in San Diego today. I expect heavy heavy heavy driving this weekend.

    We get a lot of the Los Angeles crowd driving down here.

    Gas is expensive in L.A. county….but they are going to be really shocked when they get here.

  33. 33
    zman Says:

    gone swimming

  34. 34
    zman Says:

    Thanks jbosh!

    Nicky – I don’t see anything other than the stuff in last night’s EIA piece.

  35. 35
    Kevin Says:

    CNBC,..shamelessly trying to take down the market. It’s so obvious, it’s disgusting. They sure weren’t interviewing “bears” when the DOW was hitting new highs day in and day out. Unreal. As far as the oil patch,..demand estimates and reports will be interesting for Tuesday and inventory report will be critical,..Sorry to be a John Madden here, I’m just in wait and see mode. GL all.

  36. 36
    zman Says:

    pump for oil but not natty gas.

  37. 37
    H Says:

    I don’t have a cable, how are they trying too take down the markets? TIA> Kev-

  38. 38
    H Says:

    How’s the cracks looking today…up nice yesterday!

  39. 39
    JBosh Says:

    I have a question about the weekly Inventory Reports.

    Does the Wed. #’s reflect supply and demand up tru Tues. the day before….or what is the cut off day for those numbers.

    i.e. will Wed’s report cover the demand for this weekend.

  40. 40
    H Says:

    Next gonna be a blizzard for the tso’s and mro’s and the other refiners…I susspect new highs….long xle calls

  41. 41
    H Says:

    thats”

  42. 42
    H Says:

    next wweek

  43. 43
    Kevin Says:

    H,..well,..in the last half hour they have continued to ask the rhetorical question of “Do we have our heads in the sand” and continue to make comments about China’s market and about the 1999 crash. In the meantime,..interviewing any and “bears” they can find. I’m not talking about the gasoline/oil market specifically. I am talking about the market in general.

  44. 44
    zman Says:

    Jbosh- previous week ended Friday. memorial day will be covered in the report a week from next Wednesday

    CNBC has a guy on saying their study show gasoline tipping point (point at which drivers change their habits) is $5.12!

  45. 45
    H Says:

    O Ok No Gas/oil….yip its exactly as I figured, marire from her pretty expensive lips, asks some trillion $ manager” do you see anything that can bring or cause this crap too go south””‘

    and china is not what japan was when it went whooie wowo…in what 90/89?

    Thanks Kev– I appricate the shareing the remote….better off watching I Luv Lucy!

  46. 46
    zman Says:

    Crude up over a buck in a pump into the close, gaso up what? a nickle? wow. that should set up a nice fall mid next week.

    next week both the oil and nat gas inv reports will be released simultaneously on Thursday due to the holiday. fun, fun, fun!

  47. 47
    Kevin Says:

    H,..That is true,..I have often thought of trading without CNBC exposure,..It probaly would be the best way considering all the “noise” they put out. Plus,..I would be more focused on Price and volume (which I am supposed to be doing anyway,…BAD TRADER, BAD TRADER,..LOL).

  48. 48
    H Says:

    Not really,I was just kidding about I Luv Lucy—everyone has their own outlest for market news, I just been without it and had noprolbems.

  49. 49
    JBosh Says:

    starting to look at the TSO June 115 puts $2.25

  50. 50
    zman Says:

    NE looking higher. I’m in 3x on the 90 calls and may punt 1/3 in a before the close if I can get $3.00 to $3.10 for them.

  51. 51
    zman Says:

    E&P and Big Oil (XOI) putting on a nice reflex rally here with crude.

    TSO tempting. I’d bet AAA will have some stats out on Tuesday to let everyone know how big (or not) the driving weekend was. They’re expecting a 2% increases which is pretty much what they expect every year.

  52. 52
    H Says:

    Stay away from those puts Z! their not gonna work…the comples is going higher, too many bottlenecks–not enough gas to fill all the hummers in NJ!

  53. 53
    H Says:

    besides upgades are comming , revalution of 2Q earnings…higher…am I right z?

  54. 54
    JBosh Says:

    Shouldn’t their be a season top in the Refiners that should be happening soon. I would have guessed late May…

    I was now thinking it shifted a little becuase of the supply problems….but Mid June….It should be kicking in.

    Right???? Or am I way off?

  55. 55
    H Says:

    Whats everyone think of todays new upgrade to VLO’s P/T of 96-?

    Its cheep on a p/e, but gas has to hold—

    and TSo..that LA nuy they need high gas to pay for it short trem

  56. 56
    Sambone Says:

    I never watch those “Talking heads”. Do my own homework and then go from there. Everybody has left the office to go on their vacations down here in the south, and yes they are driving their Tahoe’s. I’m holding my longs until July/August when either a hurricane enters the Gulf or I see the turn. Then I’ll take half my postions off for the shoulder in the fall.

  57. 57
    zman Says:

    H – no
    Jbosh – yes

  58. 58
    H Says:

    no what?

  59. 59
    H Says:

    Looks like eric from fast money made out on his TSO buy the dip call….

  60. 60
    H Says:

    No to this”its cheep on a p/e, and , revalution of 2Q earnings…”

    Why …Thank You!

  61. 61
    zman Says:

    H – I was kidding b/c you said right at the end of your statement that the complex is going higher next week. I think it is very near the top.

    As I’ve been saying for some time now I think we’re very near the peak in gasoline prices.It’s fun to look at all the daily stuff but when TSO is up $4 just before the holiday with no new news then I think its buy the rumor sell the news time. I think it may eve3n go up through Wed but then on Thursday you get an import number which should show a hell of a lot of imports and yet again higher production which may be able to crakc the back of RBOB, meaning that we say the high in RBOB and definitely the high for cracks on the west coast some two weeks ago.

    With that said I took a 1x TSO 120 Put position for $4.30.

  62. 62
    H Says:

    yes , zman I know, and I hope you can see some of my off the cuff emotions working, in scarcasiam- But their was news today–upgrades..and N Kroea,( wcich to me was no news ) but iran and irasel….into lebenon…and so on..

    I am on the sidlines with any and all put buying till I C next week, then into sell the news camp if the run gets brought-

    its all short term quick in and out now, take em and shoot em as you get em….

  63. 63
    H Says:

    Zman,,,as you know I gave you all the votes I could….

    I digg your site to…

    Lets all remember the man and woman of the US Service’s…

    C U Tuesday….Have a great weekend!

  64. 64
    sane Says:

    Hey z,

    I just saw your post about the tipping point for gasoline. A guy on marketwatch yesterday said is was $8/gal. I know personally it has already reached my tipping point. The wife and I have been looking at cars this week and from what I have seen around here ( Chicagoland ) 30+ mpg cars are going like hotcakes. On monday the Toyota dealership here had 6 Priuses on the lot. As of today they had 1.
    I think prices are already near the tipping point. The problem with the demand equation is that there have been a series of peaks in price. When the hurricanes hit and prices skyrocketed people said screw that, and reacted. Last year prices jumped for the summer. Demand growth slowed a bit, but prices came back down. Now prices are jumping again. People are getting the mindset that it is only temporary and are willing to eat the extra cost. Until we sustain for a significant period of high prices or an obscene spike in prices, we will probably see demand grow.

    Sane

  65. 65
    Jonathan Says:

    I using this bullish sentiment to lighten up VLO positions. Oil (both crude and refined) is globally integrated (can be transported)…There will be a tsunami of supply coming on line in 2008 & 2009, (by my calculations about 8-12% growth (vs. .5% historic capacity growth) In Saudi and India they have enormous projects in the works. 2006-7 were unusual years in terms of idle capacity. Crack spreads headed south long term. Still like VLO because they are most complex and best positioned. These stocks shouldnt be at 8x EPS given cash generating ability, But its going to be choppy ride IMHO

  66. 66
    zman Says:

    Thanks Nicky. Let’s see how long the strike of the strike lasts. lol.

    J – agreed both on the multiple and the “choppy ride”

  67. 67
    T-Tupp Says:

    z- read the article on refiners off the bmo research site

  68. 68
    zman Says:

    Thanks Tupp – good read. I’m centering it for tomorrow’s edition.

  69. 69
    T-Tupp Says:

    your the man

  70. 70
    bill fraser Says:

    >Gas Inventories Are Now 22% Above The Five Year Average

    Is it possible that current demand is up 22 % over the 5 yr average thus the current inventory levels vis-a-vis the 5 yr avg. is not alarming.

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