27
Aug

Monday Morning- Oil Stable, Naturual Gas In Selloff Mode Again

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Natural Gas: The Smack Down Continues...

  • Last week No Dean = 20%ish drop in prices with the week ending down $1.58 (22%!!!) at $5.523 on the September contract.
  • The 12 month strip fell just over 10% to $7.23, it's lowest level since mid January 2007 when it appear that Al Gore had indeed stolen Winter.
  • Prices in the Rockies have fallen to roughly $4 per MMBtu (get ready for the shut in press releases).
  • In fact, NYMEX prices witnessed their single largest one day drop in 20 months last Monday (again, note that is was Dean as a no show and not the storage number that spooked the remaining longs).  While I think the move down is overdone, from a technical standpoint, Nicky has called the ball on prices like the pro she is. There is little (if any) technical support for gas prices at current levels.

 

...Stocks Vs Natural Gas. This morning gas is getting taken to the wood shed again falling another $0.25 in pre market trading to $5.27. Interestingly, E&P stocks that produce primarily natural gas have not suffered as much as gas, despite plenty of opportunities to do so in a shaky market. While gas fell 20% last week, the gassy stocks on average increased 1%. Here's some of my recently held positions and their hedges which may go a ways towards explaining this seeming split in commodity and stocks prices. 

hedge-082607.jpg

These are strong positions and they translate into quite a bit of security. For instance, given CHK's strong hedge position, cash flow changes less three quarters of one percent for each $0.50 swing in natural gas prices despite the fact that the company is exceedingly gassy.  What's more my table doesn't illustrate the longer term strength in hedges many of the gassy E&Ps now hold. In (CHK's) case, they have another 68% of expected 2008 gas production hedged at just over $9.  

Natural Gas Inventories Are High For Now But That's Likely To Change... I think we're being presented with a world class buying opportunity in natural gas and gas stocks. I also don't think we've hit bottom yet since all that matters right now is the velocity of the slide in price and apparently not the magnitude. Taking a look at the next four weeks of injections shows one fundamental reason why we might put in a near term bottom in the next week or two.

degree-day-vs-storage-082607.jpg

...And Those Inventories Have Been Earned Through High Activity Levels. Sub $6 gas (let alone $4 gas) doesn't exactly inspire to E&P companies to pump up the volume. I'll add some more meat to this argument in coming days with more play specific charts but suffice it to say, if you don't maintain and in fact increase the activity levels in these plays the flush production being generated will be overcome by declines. 

rigs-082707.jpg

Cooling Degree Days Slipping Just A Touch. The CPC reported CDDs of 77 for last week, down 2 from the prior forecast of 79 and 6 from the 83 recorded in the week ended 8/18. Next week they estimate degree days will be flat at 78.  Both of these readings are well over normal and, for this week ahead the reading is 30% warmer than those seen in the comparable week a year ago.

Tropics Watch: All quiet on the tropical front.

Holdings Watch: What I'm In Now.

open-options-082407.jpg


Odds & Ends

Analyst Watch: (RDC) to outperform at Bear, (MDR) started at Buy at Matrix, (HERO) started at Overweight at Lehman.

Refiner Watch: (COP's) Pascagoula, MS refinery now rumored to be down by 50% for the next 3 to 4 months following the fire reported August 16 at one of the 330,000 bpd capacity facilities two crude processing units. 

Kazakhstan Stops Shashigan Work. After attending the Russian School of Oil Country Management, Kazakhstan has taken a page out of the chapter in Putin's book entitled "How To Squeeze Your Partners To The Point Of Controlling A Lot More Than You Legally Should Because Oil Prices Are Higher Now And You Want To". Work at the massive oil development schedule to see first oil in 2010 was halted for at least three months over for environmental reasons and a criminal investigation has been launched into the Eni (E) led project. Comment: First step in in "cleaning up this mess" is to give Kazakhstan a higher percentage of ownership. Nothing scrubs rocks or birds of drilling fluids so well as greenbacks.

OPEC Watch: Next meeting September 11. I'd bet it's quick and that quotas remain the same.

Pemex Rallying Back To Full Tilt: Pemex is on track in its plan to restore production to 80% of capacity by early this week (it's at 81% now) and still plans to be at 100% by the end of the week. Hurricane Dean appears to have done little damage and all three of Mexico's GOMEX side export points were operational as of Saturday according to Reuters. 

PBR / PTR Watch: How sick am I that I didn't buy into these on the recent slip?

 

20 Responses to “Monday Morning- Oil Stable, Naturual Gas In Selloff Mode Again”

  1. 1
    zman Says:

    Should have named today’s post

    Monday, Bloody Monday – nat gas off another 4% at the open. Looks like minor buying to stabilize it there but I don’t trust it.

    Energy patch pretty red with the broad market but the losses aren’t as bad as the commodity.

    VLO looking to come + which will probably drag TSO that way later in the day. WNR, FTO, HOC, ALJ all positive now.

    LNG, the company, inexplicable leaping up a buck on weaker gas which is not like them although it’s on light volume. Might make a good entry for a hedge against lower gas but I hate the spreads there.

  2. 2
    mdinh Says:

    I am just at sick as you are.

    I had alert for SNP at 92 and again at 90 and felt unsure about Oil and China.

    Oh well.

  3. 3
    zman Says:

    Nat gas hugging the $5.25 level but really there’s not much there for it as Nicky I’m sure would tell you. Obviously $5 is the next key psychological support level and if that falls it’ll be like setting a bomb off on the XNG (crushing to those stocks)

    Two things I should have mentioned in this morning’s post re gas:
    1) bearish: probably in the next 3 weeks we pass the 3 Tcf mark at the earliest point in history.

    2) bullish: last year the CHK press release regarding curtailed volumes due to prices came out on 9/28/06. The front was then trading at about $4.50. Many Rockies producers follow suit. Prices ended that week at 5.62.

  4. 4
    ndog Says:

    z,

    back in california, so the left coast is back 🙂

  5. 5
    zman Says:

    Welcome banck ndog…August is always a slow month in the market …lot’s of vacations plus this market is for the dogs right now.

    mdinh – I getting pretty used to kicking myself over missed China plays. 🙁

  6. 6
    scoop006 Says:

    Z What’s up with RIGBB?

  7. 7
    zman Says:

    RIG – FEB 110 Calls – big volume – my time and sales is down but I’d bet it’s in large pieces. Somebody’s taking a big bet.

  8. 8
    Greg Says:

    Zman: anyway to search archives by a stock symbol (or by any method)?

    Thanks
    Greg

  9. 9
    zman Says:

    Greg,

    Left column, just above where it says Recent Posts. This only searches the post and not the comments. If you’re looking for something in particular and can’t find it but think it was on the site let me know and I’ll have a look.

  10. 10
    Greg Says:

    Thanks Zman, it worked for me.

  11. 11
    apbd Says:

    We need a spinner. Where’s Al Gore when you need him?

  12. 12
    Cadillac Says:

    Not many comments today. Any theory on why LNG is up today. Looked like strong buying (relatively) this morning…It is almost as if someone knows something??? It sure seems to me that LNG has a lot of head winds. It could be due for a breakout or a very big drop if positive doesn’t come soon.

  13. 13
    zman Says:

    Cadillac,

    Monday’s are often quiet. Plus it’s August, plus the market is decidedly red today.

    LNG – I dunno. They don’t really have catalytic type news expected so I’m not sure someone could know anything unless it’s a legal approval of a new site or some such. Nat gas prices being down would normally be a big drag as this doesn’t say good things about their future imports business (less throughput at $5 gas is pretty much guaranteed).

    Of course, it’s a self correcting problem as lower LNG imports will eat away at the gas storage surplus.

  14. 14
    zman Says:

    TSO – mulling doubling my TSO call position for around the $1.75 level which is just above my buy in level last week.

    Gasoline is holding up nicely with crude off just under 1%. HO is down 3 cents but it’s not as big a piece of business for TSO as for the other players and they’re getting overly hit here for a stock that really shouldn’t be impacted that much by it.

  15. 15
    zman Says:

    Oil up, gasoline up, HO recovering. Just missed adding more TSO $50 Sept calls at the $1.75 level but think it probably cleans up soon.

  16. 16
    zman Says:

    Check out the massive rally on UNG. Looks smaller when you consider the Sept nat gas contract but both a rallying with oil which is rallying with RBOB which just shot back over $2 to $2.01.

  17. 17
    jimbo Says:

    New Rockies hub to open near Meeker, CO. White River Hub to be run by Questar Pipeline.

    http://www.pcquote.com/stocks/newswire/4011072/?tagged=newswire

  18. 18
    zman Says:

    Jimbo,

    Hmmm. That’s a 2.5 Bcfgpd pipeline in addition to the Rocky Express coming into service 6 to 9 months after it. Can’t see how that would be a bad thing for Rockies gas prices.

    Speaking of gas prices, another leg up like the one middle of last hour and n gas could come close to closing flat on the day.

    Anybody hear a reason for the crude rally?

  19. 19
    zman Says:

    PTR – another five bucks.

  20. 20
    Stephen Says:

    The rise in Hong Kong stocks and Chinese stocks in the last 2 days is absolutely crazy, check out Aluminium of China ACH with a $30B market cap up 23%, China Mobile CHL with a $268B market cap up 5%, the China 25 ETF FXI up 6.77%.

    All because the Chinese goverment have pretty much allowed individual investors to buy $50,000 USD worth of Hong Kong stocks a year, starting Wednesday. The twisted logic is that they will only buy the Chinese stocks on the Hong Kong market, and reduce the spread between their A shares listed in Shanghai and their H shares listed in Hong Kong. Hence the huge rises, slightly uncalled for I think. Plus if there is such a flood of the liquidity trapped in Shanghai stocks into the Hong Kong stock market, you might expect to see secondary listings of US and European companies in Hong Kong.

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