24
Sep

Monday Morning – Commodities Back Off Slightly

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Commodity Price Watch:

  • Crude Oil: November crude is trade off $0.60 in pre-session trading to about $81. The MMS said oil production shut in the GOMEX had fallen from a peak of 62.7% reached Friday to 45.8% on Sunday.  Still, I'd be looking for another big draw on crude this Wednesday.
  • Natural Gas: Trading off a nickel to just under $7.

Tropics Watch: Three areas of concern all of which bear watching. 

Nigeria Watch: MEND leader arrested; new attacks vowed. Comment: some things never change.

 
Stocks We Care About Today:

  • (RIG) - I've been saying combined earnings for RIG/GSF would reach at least $15 by 2009 making it an extremely cheap stock for awhile now. This morning RBC issued estimates of just over >$16 in 2009 and >$18 in 2010 and a price target of $154. These estimates are covered to a very high degree by contracts. I'm going to chase this one this morning and hopefully the down oil and gas markets will keep it subdued momentarily. 
  • (PTR) - Chinese regulators approved mainland secondary share sale. Last sale $167, bid $182. This is getting a little out of hand and I'll be watching it closely but not acting today as sheer demand could drive the shares to $200.  PTR will use the proceeds to increase production from two of its larger fields. (SNP) and (CEO) are in for a quick, mainland fever run as well. China also issued new rules today increasing the opportunities for foreign firms to explore and develop new fields in China. Should be good news for (COP) who picked up some large onshore acreage positions with the BR acquisition.
  • Coal Stocks - they've had a very nice run of late but usually track natural gas and given the fact that we're firmly entrenched in the lower demand second shoulder season months I'm thinking it may be time for a little pullback. Watching BTU and ACI which have enjoyed 20 and 15% runs respectively in the last month.

coal-092407.jpg

 

  • Drybulk Shippers: Will likely add (DRYS) this week to the long list. Charter rates appear have been strengthening and estimates are climbing. Longer term estimates appear weaker as the cargo ship population rises but that's a long way off for an options play. Fear of a global slowdown appears to be a distant/forgotten memory. I'll probably chase this one as well (I phrase I never use twice in the same quarter) but it has an amazing ability to run. Look for a near term, near the money call purchase early this week if not today. I like (DRYS) for a variety of reasons including: 1) it's a Street favorite so they can put a lot of firepower behind the shares, 2) it's fleet is largely Panamax size which is seeing the highest longest long term growth rate in terms of day rates, 3) long term demographics are very strong, and 4) the industry is very fragmented and consolidation is likely to be done on accretive terms.
  • bulk-rates-092407.jpgclick to see recent bulk shipping rate trends.

If you missed the weekend wrap check it out here. If you want to hear about the interesting points but can't stand to read that much the highlights are as follows:

Natural Gas Rigs Down Another 25, Still Near 20 Year High. Normally I'd say not a big deal but take a look at the following chart and when you do keep in context the comments by (CHK) and (EOG) and add to that the fact that there are several silent types and private mom and pops that are feeling the pinch of prices and curtailing activity as well.

rigs-092107.jpg

Could it just be noise in the system (rigs being mob'ed from one job to the next)? Some of that is likely, but it looks like an inflection point after reaching a 20 year high. The gas directed rig count is off 65 rigs over the last three weeks.

The number of low end rigs (from China and from mothballs) is high right now and onshore day rates in popular patches, like the Barnett Shale, have dropped 25% and in some cases more over the last year.

The horizontal rig count remains at a record 435 rigs and the Texas rig count remains strong.

The majority of the declines came from Colorado (not surprising given the extremely volatile and weak pricing in the Rockies) and Louisiana.

 

 

Interesting Point #2. CFTC NG net short position is off its lows but the jury is still out on a reversal. Many on the Street are saying this gas year looks like last gas year (true in terms of where storage is going). I'd add that with the larger short position prices will probably be range bound until we get some direction from weather, be it either tropical in the form of shut ins or cold inducing heat demand. As you can see from the following charts theres a lot of indecisiveness at present regarding prices. While the long position as grown in recent weeks the shorts are not giving up just yet.

cftc-092107.jpg

Interest Point #3. I'm Almost Naked Right Now In Terms of Energy Exposure. While the energy sectors have had a good run, (XOI XNG, and OIH ) I'm loath to get very short going into the higher gas demand months until we get closer to earnings and the warnings start coming out. I would expect land drillers to be prime suspects for warnings and especially those with Canadian  and Rockies exposure and GOMEX and potentially international Jack up rig exposure. 

What I'm Holding Now.

open-options-092107.jpg

Odds & Ends

Analyst Watch: Carris adjusting prices targets lower on the entire refining complex.

 

 

 

71 Responses to “Monday Morning – Commodities Back Off Slightly”

  1. 1
    Sambone Says:

    8:50 AM EST

    Nymex Crude Lower As Storm Threat Weakens

    DOW JONES NEWSWIRES

    Nymex crude prices were lower in early screen trading Monday, slipping after a tropical depression failed to intensify over the weekend, reducing the threat to Gulf of Mexico production. Nov crude -61c, or 0.8%, at $80.99/bbl. (matt.chambers@dowjones.com)

    Reported Earlier
    LONDON — Crude oil futures drifted lower Monday morning in London as the short-term hurricane threat to oil production in the Gulf of Mexico receded.

    The return of the 814,578 barrels-a-day of Gulf of Mexico output that was shut in last week is expected to keep the market under pressure but traders warn the threat of further hurricanes, combined with renewed geopolitical concerns and perceived supply and demand tightness, will prevent significant losses.

    “This one proved a damp squib but we are smack bang in the middle of the hurricane season and the oil producers are going to remain on high alert for now,” said a trader in London. “(Hurricane) Humberto proved how fast these things can impact the market.”

    At 1056 GMT, the front-month November Brent contract on London’s ICE futures exchange was down 74 cents at $78.56 a barrel.

    The front-month November contract on the New York Mercantile Exchange was trading $0.72 lower at $80.90 a barrel.

    ICE’s gasoil contract for October delivery was down $4.50 at $706 a metric ton, while Nymex gasoline futures for September delivery were down 155 points at 209.90 cents a gallon.

    Keeping pressure on the market is news that crude oil and natural gas producers redeployed workers and restored offshore production in the Gulf of Mexico over the weekend as Tropical Depression 10 failed to significantly intensify and weakened as it moved inland.

    BP PLC (BP), ExxonMobil Corp. (XOM), Anadarko Petroleum Corp. (APC), Royal Dutch Shell PLC (RDSA) and ConocoPhillips (COP) said they are resuming production of more than 1 million of barrels of oil equivalent a day.

    While this has dented sentiment, the National Hurricane Center has pointed out a number of other Atlantic weather disturbances worth keeping an eye on.

    Firstly, there’s a weak area of low pressure over the southwestern Gulf of Mexico but it will be a few days before its potential is known.

    More importantly are two tropical waves in mid-Atlantic, said Olivier Jakob, head of Petromatrix in Switzerland.

    “We will keep a strong watch on two tropical waves currently crossing the Atlantic which could be upgraded soon to Tropical Depression status,” he said. “The one further at sea (off Cape Verde) has probably the greatest risk for development.”

    But the weather developments aren’t the only factor underpinning crude.

    News that Nigerian militant group The Movement for the Emancipation of the Niger Delta has ended a ceasefire and vowed a fresh campaign of violence in the restive southern oil region Sunday has refocused attention on the security of supply from Africa’s largest oil producer.

    And the long-term reliability of Persian Gulf supply has also been brought back to the table after France backed U.S.-led calls for new sanctions to pressure Iran to abandon its nuclear ambitions.

    These bullish factors have, along with the perceived tightness in the global oil market longer-term, kept the chance of a test of last week’s all-time highs alive.

    But the rally looks to be becoming top heavy.

    The latest Commitments of Traders report from the U.S. Commodity Futures Trading Commission showed large speculators increased their net-long positions in Nymex crude oil futures by 7,093 contracts in the week ended Sept. 18. The number of both Nymex RBOB and heating oil contracts also increased sharply.

    “Investment flow data is showing speculative positions at record highs and this even on products which are coming out of the peak season,” Jakob said. “But unless a tropical disruption materializes, the size of speculative positions on petroleum products especially on RBOB gasoline could start to become a pressure point.”

    —By David Elliott; Dow Jones Newswires

  2. 2
    fraser921 Says:

    Re: Drys .. Welcome aboard!

    There is a conference this week hosted by Jefferies which will be carried over the web. Most shippers will present both “dry” and ‘wet”.

    I have heard that jefferies is raising price extimate of drys to 100 in advance of the meeting.

    Drys is the best play, imho, due to the number of available “spot days” which will enable Drys to capture todays strong rates.

  3. 3
    zman Says:

    Fraser,

    They went to $100 this morning. It looks like its their favorite too. Those are smart guys.

  4. 4
    fraser921 Says:

    Do you get a copy of it?

    Bill

  5. 5
    zman Says:

    si senor

  6. 6
    QUARRYMAN Says:

    Hey Z.,

    I think the unique color of your posted messages should be GREEN. 🙂

    Good morning.

    “SAFETY PAYS”

  7. 7
    zman Says:

    Morning Q – found a way to do it, have to wait until next Friday to implement as there is a chance it will cause problems. My tech guy was out last weekend. Green is not a bad idea, will test.

  8. 8
    zman Says:

    DRYS exploded out of the gate. Maybe take a look at some other Capesize and Panamax size heavy carriers, posibly EXM

    TRADE: DRYS 85 CALLS for $5.80. Small as its up 4% at time of purchase on a broker upgrade.

  9. 9
    zman Says:

    TRADE: RIG October $115 CALLS for $2.50.

  10. 10
    fraser921 Says:

    nm is another good play in the dry sector. Topt also ships oil and will be getting dry bulkers soon and trades below book but will lose money in q3.

    i like exm but not at these prices. Exm has a number of their ships on lower fixed charters. gla

  11. 11
    Sambone Says:

    10:11 am EST

    Nymex Crude Down More Than $1/Bbl; Eyes $80

    DOW JONES NEWSWIRES
    From Market Talk:
    [Dow Jones] Nymex crude is down more than $1/bbl as hurricane fears dwindle and profits are locked in after a long, fast upward surge. Nov crude -$1.01, or 1.3%, at $80.61, falling as low as $80.37. Traders saying if prices fall below $80, there could be a quick selloff down to $78.(matt.chambers@dowjones.com)

  12. 12
    zman Says:

    F –

    Saw NM, good val, no options. TOPT might be the bargain here.

    DRYS – people still piling in despite the early up.

    RIG up by 50% from early morning (and very silly) plummet.

  13. 13
    Sambone Says:

    Weather – Not expecting much out of the three that I’m watching at this time.

  14. 14
    Nicky Says:

    Morning all – test

  15. 15
    Nicky Says:

    From David Tolleris (his words and not mine!):

    FROM 805 AM 24 SEPT 2007 TPC TWD

    A 1007 MB LOW PRESSURE SYSTEM IS LOCATED ABOUT 565 NM SW OF THE
    CAPE VERDE ISLANDS NEAR 8.5N31W. THIS LARGE SYSTEM CONTINUES TO
    SHOW SIGNS OF ORGANIZATION…AND COULD BECOME A TROPICAL
    DEPRESSION DURING THE NEXT DAY OR SO AS IT MOVES
    WEST-NORTHWESTWARD NEAR 10-15 KT. A MORE CONCENTRATED AREA OF
    SCATTERED MODERATE/ISOLATED STRONG CONVECTION IS NOW MOSTLY W OF
    THE CENTER FROM 8N-11N BETWEEN 31W-37W. ISOLATED CLUSTERS OF
    MODERATE CONVECTION ARE ELSEWHERE FROM 5N-12N BETWEEN 29W-38W.
    THIS IS ONE OF THE MORE CLASSIC LOOKING CAPE VERDE SYSTEMS WE
    HAVE SEEN OVER THE PAST COUPLE OF WEEKS.

    As I said YESTERDAY the ONLY feature worth a crap in the entire ATLANTIC BASIN right now is this one… it follows the seasonal trend of DEAN and FELIX

  16. 16
    zman Says:

    I see you Nicky, morning. Nice call oil top

  17. 17
    Nicky Says:

    From David Tolleris:

  18. 18
    Nicky Says:

    FROM 805 AM 24 SEPT 2007 TPC TWD
    A 1007 MB LOW PRESSURE SYSTEM IS LOCATED ABOUT 565 NM SW OF THE
    CAPE VERDE ISLANDS NEAR 8.5N31W. THIS LARGE SYSTEM CONTINUES TO
    SHOW SIGNS OF ORGANIZATION…AND COULD BECOME A TROPICAL
    DEPRESSION DURING THE NEXT DAY OR SO AS IT MOVES
    WEST-NORTHWESTWARD NEAR 10-15 KT. A MORE CONCENTRATED AREA OF
    SCATTERED MODERATE/ISOLATED STRONG CONVECTION IS NOW MOSTLY W OF
    THE CENTER FROM 8N-11N BETWEEN 31W-37W. ISOLATED CLUSTERS OF
    MODERATE CONVECTION ARE ELSEWHERE FROM 5N-12N BETWEEN 29W-38W.
    THIS IS ONE OF THE MORE CLASSIC LOOKING CAPE VERDE SYSTEMS WE
    HAVE SEEN OVER THE PAST COUPLE OF WEEKS.

    As I said YESTERDAY the ONLY feature worth a crap in the entire ATLANTIC BASIN right now is this one… it follows the seasonal trend of DEAN and FELIX

  19. 19
    Nicky Says:

    #17 – DT’s words and not mine!

  20. 20
    Nicky Says:

    Z – really need to see wti break 79.80 – does exactly look conclusive right now.

  21. 21
    Nicky Says:

    It doesn’t look conclusive right now is what I meant to say!

    Jeepers I have taken up about 7 posts saying nothing! Sorry!!

  22. 22
    zman Says:

    N – its was in the spam blocker. I think the ALL CAPS set off an alarm bell. Lots of spammers use all caps, if not, I’d have won the Nigerian lottery like a thousand times by now!

  23. 23
    cattleman Says:

    Z or Bill, as regards the shippers, what about tankers, watching OSG doing well.

    Ear Beef

  24. 24
    cattleman Says:

    Or should I say “eat beef”?

  25. 25
    Nicky Says:

    Lol Z!

  26. 26
    zman Says:

    UAW striking GM…do I care?

  27. 27
    Sambone Says:

    N – 96L is entering alot of shear, so I expect it to be another Ingrid, and will go north, IMHO.

  28. 28
    zman Says:

    Cattleman – doing a little work there but nothing definitive yet, rates look to be rounding the corner.

  29. 29
    BigJim Says:

    Good Morning Everyone:

    Zman – TLM has over 2000 October 20 calls purchase this morning. I do believe something is going to happen soon with this stock. It will be interesting to see how many calls are purchased by the end of the day. Anything over 5000 total call purchased in my opinion is very bullish reative to historical activity. What I like also is they are buying more 20’s vs 17.50 strike price. Which says to good stock movement. Just wanted to pass on to rest of members also. Opinions welcomed.

  30. 30
    zman Says:

    I’m always a fan of the FRO but that TOPT minnow is cheap and my outperform despite the losses.

    Sambone – thanks. Crude continuing to dig itself out of the pre market hole.

    (COP) up nicely, could be the China news.

    BigJim – I think you’re on to something. Recent news is good for new plays for their core is declining pretty hard on them. Almost has to be takeout thoughts. I may join you there soon.

  31. 31
    Sambone Says:

    Big – No news on my screens, but it would make sense for a buyout.

  32. 32
    Nicky Says:

    Sam – is that the one he refers to in #18?

  33. 33
    zman Says:

    Interesting action in VLO/SUN this morning…products down much more than crude.

  34. 34
    Sambone Says:

    N- Yep, yep. Has potential to be a TD, BUT shear coming in big way, and it’s forcast to move North.

  35. 35
    Sambone Says:

    N- http://www.ssd.noaa.gov/PS/TROP/float3.html

  36. 36
    Sambone Says:

    Cam – PWI just got taken out. COSWF may be next because of the new tax.

  37. 37
    scoop006 Says:

    Z Any thoughts on PWE and it’s dividend

  38. 38
    zman Says:

    Sorry, not really my area of expertise, do you own it? I can take a look but it looks like a trust making an acquisition and in Canada so that’s pretty far afield from my usual stomping ground.

  39. 39
    scoop006 Says:

    Z re # 38 the 13% yield looks inviting but please don’t devote your time on it. Plenty of other domestic opportunities.

  40. 40
    zman Says:

    Thanks Scoop – I will pass it along to my father and law who loves the yield deals. I should too but I’m not that smart.

  41. 41
    Sambone Says:

    Scoop – Go here and scount around. one of the best in Canada. He has a target of US$36.00. (Never mind, US and loonie at parity).
    http://www.mcdep.com/

  42. 42
    Sambone Says:

    Z – Why is Ngas popping?

  43. 43
    zman Says:

    nickel is popping? Probably b/c oil was down a buck when NG was off a nickel. Now NG is up a nickel with crude only down 20 to 30 cents. Why is crude popping?

  44. 44
    Sambone Says:

    Nicky’s buddy!

    http://www.321energy.com/reports/flynn/current.html

  45. 45
    zman Says:

    snooze type trading.

  46. 46
    RickWI Says:

    Maybe due to drivel like this?

    [Dow Jones] A tropical weather system in the southwestern Gulf of Mexico has
    the potential to develop into a cyclone, says Jim Rouiller, a meteorologist
    with private forecaster Planalytics. If wind shear dies down over the Gulf in
    the next 24 hours, as some weather models predict, “the combination of low
    shear and close proximity to waters of very high ocean heat content will stage
    for solid tropical cyclone development,” Rouiller says. Meanwhile, a large
    tropical disturbance southwest of the Cape Verde Islands is likely to become a
    hurricane later in the week, he says.

  47. 47
    zman Says:

    RIG getting stomped now. That makes very little sense to me.

  48. 48
    REgards Says:

    Hello everyone, why is BHI the exception today in the OIH group. Any thoughts?

  49. 49
    zman Says:

    RE – Dunno. Don’t see anything that would differentiate it. Onshore, shallow and deep water drillers down a little, and general sercie.

  50. 50
    scoop006 Says:

    C-SPAN televising speech by Iranian Pres.

  51. 51
    zman Says:

    Oil still crawling back up, energy stocks, especially OIH/OSX stocks could care less.

    Scoop – me too.

  52. 52
    zman Says:

    Lee Bollinger for president of the US. He’s ripping Ahmed a new one every other sentence. I love this guy!

  53. 53
    scoop006 Says:

    How about AMB. to the U.N.

  54. 54
    scoop006 Says:

    His message must have been lost in the translation because I don’t know what he said: sounded like goobly-gook to me.

  55. 55
    zman Says:

    I stopped listening after the first five minutes as I decided it would be better to get back to work. He was busy espousing the virtues of knowledge and spiritual freedom, and praising the free speech environment of the US. I don’t even know where to start with that.

  56. 56
    Nicky Says:

    Tedious day but looking more bearish than bullish by the close.

    WTI needs to break 82.40 or 80.37 for confirmation one way or the other.

    Nat gas upside does not look done intermediate term. November and December charts have ‘delayed’ the bearishness! It looks like we need to see a lengthier correction above last weeks 6.730 high before turning lower.

  57. 57
    zman Says:

    Thanks Nicky for the levels. Agreed.

    Also agreed re Tedious – got my head into a model for a micro E&P with shale wells, gulf coast cash flow now and exploration in the future. No options, just shares.

  58. 58
    Sambone Says:

    Hmmmm, mostly red on my screens.

  59. 59
    QUARRYMAN Says:

    I tried to listen to him. Is he still answering the same question for 20 minutes?

    My ninety year old parents, on Dec. 7th ,1941 were actually on an airplane tour of D.C. The guide pointed out the Japanese embassy and they saw smoke coming from the chimney. The ambassador was at the White House.

    Hope there’s not an analogy here.

    Defcon 4… “SAFETY PAYS”

  60. 60
    TTupp Says:

    how does the ccj chart look to you?

  61. 61
    zman Says:

    Q – I sincerely hope not.

    S – yes, very red indeed.

    TRADE: Bought more RIG Oct 115 Calls for $2.20.

  62. 62
    zman Says:

    very short cup and handle. definitely a breakout today with good volume.

  63. 63
    TTupp Says:

    was that for me Z?

  64. 64
    TTupp Says:

    Z- look at the consolidation pattern in HOC

  65. 65
    Sambone Says:

    Z – if your talking about RIG, I somewhat agree. I want a little more confirmation.

    Quarry – You scare me, man!

  66. 66
    Magadan Says:

    Q,

    Whether there is or there isn’t, it is a very good story. Worthy of being put into a movie or something.

  67. 67
    zman Says:

    Tupp- sorry was in a hurry, cup and handle was for CCJ

    Sambone – I just bought another batch of the RIG

  68. 68
    BigJim Says:

    Don’t mean to keep pounding the table, but TLM running at the end of day.

  69. 69
    QUARRYMAN Says:

    Sambone,

    Did you watch the first episode of Ken Burn’s WWII film on PBS? I hadn’t realized that we left nearly 100K of our boys and allies to die w/no support in Bataan and Corregidor.

    Mr. Ahneedanukeahnmysaad. He’s expendable for the greater Shiite cause. They let Sadaam decimate Kuwait, their insurgency is keeping Iraq largely offline, all the while Iran is taking in a trillion or nearto of our oil dollars.

    The USD is teetering, we’re ineffectual in bringing any POLITICAL value from our $200BB burn rate. They have USDs. They want WMDs. They want a few kiloton chips in the BIG poker game of politics.

    He’s cockily hoping to sway American political feeling favorably toward Iran as there is discontent with the War on Terror. It looks like it’s backfiring.

    He forgot you have to be able to speak ENGLISH to Americans.

    YES, it’s kinda scaring me, man!

    anyway, aren’t you glad N. Korea doesn’t have oil?

    “SAFETY PAYS”

  70. 70
    zman Says:

    Big Jim – pound away on stuff like that!

    Over 2000 contracts in the Oct 20s again. I will probably take the 20s soon or the 17.50s if I push it off a week.

  71. 71
    Sambone Says:

    Q – I have three draft age boys, and I’m a WWII history nut. Yep, US did leave the boys in Bataan.

    Burn rate? Yes again. US is a mess. I can go on and on, but this is a energy blog. I’ll leave it there.

    I’ve been scared.

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