26
Nov

Welcome Back Monday – Cold To Boost Commodities Soon

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The Weekly Wrap Table:

wrap-112307.jpg

Commodity Watch:

  • Crude Oil: As you can see from the table above crude had a pretty good week while everyone was off on vacation. An unexpected draw on crude stocks and an ever weakening dollar helped push the barrel near the $100 mark and this week I think they go for it. This morning crude is trading off  $0.70 to just under $97.50 (see second bullet below).
  • Oil weighted heating degree days hit new season high at 180, up from 152 last week. Suggests another draw on distillates. If you missed the oil inventories slide show this past Thursday click here.
  • OPEC shipments for the four week period ended December 8 are expected to climb 720,000 bopd, higher than the expected 500,000 bopd rise previously seen according to tanker tracking firm Oil Movements. With oil near $100 a barrel I 'd bet Saudi turns a blind eye to just about any member who feels like busting their quota right now. While this news won't be welcomed by the bulls I doubt it will carry enough weight to stop a move to $100 this week.
  • Natural Gas: Last week saw natural gas dip a whopping 4%. I would have thought it would fall a bit more but a cooler than expected week last week and next two week forecast are already pushing gas back up towards the $8 mark. This morning gas is trading up $0.25 to $7.95 as it now appears we will see the first substantial draw from storage this week and next. After taking a pause on adding gassy names I'll be taking a cautious look at additions and re entries there (CHK, APC, SWN, KWK, XTO) and in gas centric names like (BTU).
  • Gas Weighted Heating Degree Days On The Rise: 144, up from 111 in the prior week and 6 more than year ago levels when we saw a withdrawal of 27 Bcf. This reading was considerably higher than the forecast from the Climate Prediction Center this time last week of 127. This week's early read from the CPC: 164.

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  • Rig Count Watch: Natural Gas Rig Counts Take Another Dive. Rigs drilling for natural gas dropped 31 last week which will lend supportive sentiment to natural gas prices as the whispers of "curtailment of activities" grow louder as gas looks a bit weaker pre Winter.

rigs-112307.jpg

 

Stocks We Care About Today Watch:

  • RIG/GSF should trade as one big happy deepwater drilling company beginning Tuesday. I hold (DO) as a good proxy without all the cash and confusion that will surround the merger adjustments. After the stock has adjusted to trading as the combined entity I will likely re-enter the new (RIG). Credit Suisse raised its price target on (RIG) this morning from $138 to $165. 

Odds & Ends

Analyst Watch: (GRP) increased to buy at UBS, (TDW) increased to buy at Jefferies,

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57 Responses to “Welcome Back Monday – Cold To Boost Commodities Soon”

  1. 1
    Sambone Says:

    6:57 am EST

    Brent Hits All-Time High, Eyes US Weather, Nymex

    By David Elliott
    Of DOW JONES NEWSWIRES

    LONDON — Cold U.S. weather forecasts, continued weakness for the dollar and a tight supply and demand balance helped push Brent crude to a fresh all-time high Monday morning in London while Nymex crude’s rally stopped just short of an all-time high.

    Traders said the draw of $100 a barrel, basis Nymex crude, is proving difficult for speculators to resist and expected further attempted rallies later in the day.

    “We are just shy of $100 a barrel (on Nymex December),” said a trader in London. “We’re bound to see a few of these speculators try and push it all the way, if only to say we’ve been there. Hold onto your hat.”

    At 1134 GMT, the front-month January Brent contract on London’s ICE futures exchange was up 9c at $95.85 a barrel having earlier hit the high at $96.65 a barrel.

    The front-month January contract on the New York Mercantile Exchange was trading $0.20 higher at $98.38 a barrel, having earlier climbed to $99.29 a barrel.

    ICE’s gasoil contract for December delivery was unchanged at $855.50 a metric ton, while Nymex RBOB gasoline for December delivery was up 45 points at 247.15 cents a gallon.

    Late gains for Nymex crude Friday were the initial impetus for an early shift higher across the oil complex Monday morning.

    Traders attributed the usual suspects — weakness for the dollar and tight fundamentals — to the gains but felt funds and other large speculators look to be using any excuse to drive Nymex up to test $100 a barrel.

    Some felt there’s more justifiable fundamental reasons to back this current rally than before.

    Olivier Jakob, head of Petromatrix in Switzerland, points to expectations for colder-than-normal temperatures in the U.S. over the next two weeks as a supporting factor.

    Peter Beutel, analyst at Cameron Hanover, said the market, interrupted by the Thanksgiving Day holiday, hadn’t had a chance to build last week’s U.S. inventory data fully into prices.

    “Seeing crude oil stocks and refinery utilization fall during the same week is unequivocally bullish at this late stage,” he said. “Not only do we not have increased amounts of refined products coming, we do not have the crude oil that we will need to process into those products laid up for refining, yet.”

    But there are signs extra crude is seeping through.

    Two tanker tracker reports released last week show exports by the Organization of Petroleum Exporting Countries have been ramped up considerably during November, and one suggested this would continue into December.

    This, combined with the fact U.S. traders may be disappointed that Nymex crude hasn’t breached $100 over the long weekend, could pull prices lower when they return to their desks later Monday.

    Time will tell but the much-hyped $100 a barrel level could remain too tempting for the market to ignore.

    Brent also took strength from news of a fire at an oil rig in the North Sea and activity on the physical market.

    Lundin Petroleum confirmed a fire had shut production at its 5,000 barrels-a-day Thistle Alpha platform 190 miles northwest of the Shetland Islands Sunday.

    “It’s not a large amount of production but is enough to make people nervous in the market like this,” another trader said.

    And the removal of overhanging physical supply has also helped.

    “Some stale North Sea physical (cargoes) sold late last week,” are helping to boost front-month prices Monday,” a physical trader said.

    —By David Elliott, Dow Jones Newswires

  2. 2
    zman Says:

    Tracinda says poison pill adopted by TSO violates $64 offer.

  3. 3
    zman Says:

    Hope everyone had a great holiday, nice open for energy.

    getting a nice move on the DO relative to RIG, APC and APA moving nicely as well …BTU moving a bit faster than me this morning. SWN and KWK strong this am and I’m not going to chase just yet…a bit surprised CHK not acting a little better.

  4. 4
    dooch Says:

    So what are the near term ramifications for TSO? Does it trade up to $64 on Dec 7 and then fall?

  5. 5
    zman Says:

    D- unless the board punts the new pill the deal is off. I wouldn’t expect them to do that and therefore I would expect the stock to continue to return to trading more on valuation and less on deal hype. I would not expect to see $64 for some time. Crack spreads are treading water up here but if oil holds this level you can expect them to advance over the winter and accelerate that advance in the Spring. $90+ oil = $4 at the pump by March.

  6. 6
    zman Says:

    Tracinda said it is mulling its alternatives to its offer but for now says the $64 still stands.

  7. 7
    zman Says:

    if you have access to NPR they are doing an interview with Matt Simmons regarding peak oil now.

  8. 8
    Sambone Says:

    9:40 am EST

    Nymex Crude Down As Market Weighs Weak Dollar, OPEC

    By GREGORY MEYER
    Of DOW JONES NEWSWIRES

    NEW YORK — Crude oil futures were down slightly Monday as traders interpreted mixed signals from the weakening dollar, forecasts for colder U.S. weather and the chance that OPEC will decide to boost oil output at a meeting next week.

    Light, sweet crude for January delivery on the New York Mercantile Exchange was recently down 53 cents, or 0.5% at $97.65. Brent crude on the ICE futures exchange was down 43 cents to $95.33 after reaching a record intraday high of $96.65.

    Nymex crude traded at a high of $99.11 earlier Monday before backing off the psychologically powerful target of $100. More volume is expected as traders return from a U.S. holiday weekend, potentially removing some volatility.

    Record high crude prices add pressure on Organization of Petroleum Exporting Countries representatives to raise output when they meet in Abu Dhabi on Dec. 5. That risk weighed on prices Monday.

    “We believe the markets have yet to discount the outcome of the OPEC meeting on December 5th, where there will be immense — and we believe ultimately successful pressure — on the cartel to raise quotas,” MF Global analyst Edward Meir said in a note.

    At the same time, the National Weather Service has forecast colder-than-normal weather Dec. 1 to Dec. 5 in the U.S. Northeast, the primary market for U.S. heating oil. Heating oil closed at a record high Friday and continues to keep crude prices aloft, analysts said.

    The dollar, whose weakness has spurred oil buying, weakened further Monday against the euro. Monday morning in New York, the euro was at $1.4850 from $1.4829 late Friday.

    “The market is going to be tugged in two different directions, with the weaker dollar being bullish and the possibility of OPEC increasing output being bearish,” said Nauman Barakat, senior vice president at Macquarie Futures USA in New York.

    Front-month December reformulated gasoline blendstock, or RBOB, fell 1.47 cents, or 0.6% to $2.4523 a gallon. December heating oil fell 72 points, or 0.3%, to $2.6970 a gallon.

    —By Gregory Meyer, Dow Jones Newswires

  9. 9
    zman Says:

    ZTRADE: CHK Jan $37.50 Calls for $2.05 with the stock flat on the day.

  10. 10
    zman Says:

    NPR guests making a pretty long term bullish argument for crude, as you would expect, and just talked about the changing nature of crude being brought up from light sweet to heavy sour. This plays well into the hands of FTO and VLO, no surprise but its good to have these guys call it a major change and that they see the differential between WTI and heavier crudes continuing to expand.

    Oil down $1.50 now as fear of the upcoming OPEC meeting outcome and the report of higher OPEC shipments according to the tanker tracker firm is more than offsetting more expected colder weather and another dip for the dollar.

  11. 11
    zman Says:

    Oil trying to mount a small recovery, now down $1.10…if it succeeds should see a nice trade in APA, EOG, DVN, DNR, PBR

  12. 12
    TTupp Says:

    pbr eh, i like your style.

    took some DO on the big pull-back, and RIMM at the same time, not that it matters on this board tho lol.

  13. 13
    Sambone Says:

    11:09 am EST

    Nymex Crude Drops More Than $1/Bbl

    DOW JONES NEWSWIRES

    1550 GMT [Dow Jones] Nymex crude drops more than $1/bbl as traders sell in the absence of major supply news. The front-month Jan contract is now far below the day’s $99.11/bbl high. “I think more than anything it’s just profit-taking,” says Phil Flynn of Alaron Trading. After the runup, “a lot of people are having a hard time justifying these higher levels. To stay at these lofty levels, the market needs some news.” Nymex Jan crude -$1.27 at $96.91/bbl. (GM)

  14. 14
    TTupp Says:

    delicious offshore

  15. 15
    Sambone Says:

    Uncle Phil

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

  16. 16
    zman Says:

    T – don’t know about you but I’m feeling very cautious about this market. I see a few interesting charts and some valuations that are too cheap but I like my $ too much to go coo-coo for co-co puffs over much right now.

    I am sorely tempted to douse a few bucks in kerosene and send them to the dry bulks but today’s Cantor hosted 3 way of CEOs there has had no impact on the stocks.

    Refiners cheap as well and may be the one group that can move soon but right now the DJIA rules.

    In E&P land nat gas is probably not going to see $7 again this year. Forecasts have gotten cooler as has the rig count.

    Re DO I think RIG takes off and drags DO with it.

    Re PBR : they just announced everything on schedule in their Roncador deepwater field. Stock has come off since upping the Tupe reserves last month.

    Still watching CLB, its not cheap but man what a business they have long term. Stock tried to break support earlier today and I’d be tempted to take puts on it and switch to calls after a dip which looks almost certain to come with any weaker market.

  17. 17
    TTupp Says:

    refiners: vlo broke a key level last week and the damage will become apparent this week.

    re DO: much cheaper forward and backward than RIG , eps will double in 08 , and i GUARANTEE cramer talks about it within a month. also, i think some more firms might pick up coverage of them along with existing ones upping previous estimates.

    re broad market, your right, it is dicey. but people who make money buy now- or at least dangle some toes. after all spy held closing support (i put more stock in that index myself).

  18. 18
    zman Says:

    RE: PF aside from all the hyperbole he jots down on a daily basis (I’m more of a “just the facts” man myself) he makes a good point about the consumer. Still spending hard earned (plastic) even with gasoline topping $3 most places. Man are we going into debt. If we go into recession it will knock oil prices down a bit but I question how much actual demand will come off. They may spend less but they still have to get to work and as to all those financial guys who get axed, well…they ride the train.

    re SPX more important, absolutely agree…doesn’t that chart look just as bad. agree buy now on the dips especially in options is key and I’m pretty light right now but do have exposure and most of it has taken a bit of a hit…all energy keying off either market or NG today, oil is sideways until after Dec 5 (OPEC), still think we briefly take out $100 pre meeting.

  19. 19
    redjack Says:

    Z…re #16, the webcast was postponed until 12:15 ET because demand took the website down.

  20. 20
    scoop006 Says:

    Hello Z, If the RIG/GSF merger is completed tomorrow and RIG closes today @ $130+-, the special dividend of $33 will be subtracted from $130, therefore will the merged company price open around $96. If so what do think about buying Dec $110 puts for .40

  21. 21
    kaman Says:

    drybulks CC: nothing but positive remarks, volume in 08 up across the board, not really weak dollar-affected, China demand is unflinching…

  22. 22
    zman Says:

    RJ – thanks will listen to the replay

    Scoop – I’m just staying away. The calculation goes 0.6996 X RIG +33.03 = new stock price which will yield a post deal stock price of about $125, not $96. Many people may be waiting to buy as soon as possible to avoid the cash component of owning today and therefore you may see the stock briefly of $5 but higher by end of day. I would not be shorting it for a definitional price drop.

  23. 23
    zman Says:

    Nice moves already in every stock mentioned in #11 save PBR which has not moved.

  24. 24
    zman Says:

    as per #11 and #23, oil now down $0.30 from off $1.50 earlier.

    Scoop – did that (#22) make sense?

  25. 25
    scoop006 Says:

    Not to me. From my perspective we leaped of the leading horse down the stretch and we were playing with house money.

  26. 26
    zman Says:

    Independence Hub (APC) back up to 850 mmcfgpd after scheduled 48 hour maintenance . Still sticking to 1 Bcfgpd by year end.

    Scoop – I’m just saying I would not be buying puts there.

    NG lost the mornings big cold boost, up on $0.06 now…still more bears than bulls there (as there has been all year long). CFTC data is delayed due to the holiday.

    Bulk estimates and multiples updated on the bulk shipping tab so you can see just how cheap they are now. DRYS down post CC.

  27. 27
    redjack Says:

    the drybulk cc was very bullish

  28. 28
    zman Says:

    RJ, Kaman,

    Any reason you heard for the divergence in DRYS vs EXM?

    Crack spread regional tab updated. Nothing to write about as all regions saw lower cracks last week. The northeast is doing the best and will likely have an up quarter vs year ago. Best play on that is probably SUN.

  29. 29
    zman Says:

    oil trying to go green.

  30. 30
    scoop006 Says:

    I understand not buying puts. I do not understand why we did not purchase the RIG common , collect the $33 special dividend and then have the common stock valued at $125 per share.
    Can you explain what I am missing? Thanks

  31. 31
    redjack Says:

    z..no mention of the divergence in DRYS & EXM…the questions and answers could not be company specific

  32. 32
    Jonesey Says:

    Z, I’m looking at NG supply sources. Above you’re looking at Gas Rig count in the US. It looks like the Canadian rig count rose enought offset most of the drop in US rigs. Taking the US and Canadian rig count together, the weeks 48-50 over the last 4 years have shown 3 – 5% total growth in rigs pretty consistently.

    Do you think we’re due to repeat recent history?

    Would you expect that to be a bearish signal that shows up on NG traders radar?

  33. 33
    zman Says:

    Because anything over $109 is a bad deal on the common since the equation used to value the stock has a fixed cash component. For every 100 shares you have of RIG at the close tonight (if the deal goes through by morning), you will have 70 shares of new rig + the cash with new rig at about $125 in the morning. It may (and I believe) should rise from there or it may fall. But the math shows about $5 hickey over $109 per old RIG share instantaneously.

  34. 34
    zman Says:

    Jonesey:

    Canadian rig count is a whole different ball of wax driven more by the seasonality of the way they have to drill more than the market price for gas up there which is low and which is depressing overall activity. They are way low on rigs for this or any time of year. In other words, a rise in rigs there should be anticipated and it will only raise an eyebrow if it either far exceeds the normal rise or falls short.

    In the U.S. I think we need $8 for a while before we take out recent gas rig highs. Folks like CHK are likely to continue to drill but delay hooking up wells prior to end of quarter (as long as they are set to make their production number) 1) it makes 1Q all that much easier and 2) it has the effect of boosting prices.

    Right now I think what shows up on gas price radar is 1) weather, 2) weekly imports (which I will have tonight), 3) rig counts and comments by E&Ps and 4-10) weather.

  35. 35
    Jonesey Says:

    Thanks for the insight Z. I’ve already started tuning into the CDD/HDD, any other insights you have on the supply side are welcome.

  36. 36
    zman Says:

    J – happy to oblige and sounds like it’s time for a special post on the subject…been awhile since I did a macro post anyway. Will have one up before the weekend with any luck.

  37. 37
    Jonesey Says:

    I look forward to it. Sorry, didn’t mean to kill the postings from everyone else. 🙂

  38. 38
    zman Says:

    J – not at all. Monday’s are often very slow, especially after a holiday.

    market exceedingly hesitant despite big black friday….crude back off $0.70.

  39. 39
    Popeye Says:

    HK is the best performer on my screen today.

  40. 40
    Sambone Says:

    Looks like overall market is wanting to go down more into the close.

  41. 41
    Sambone Says:

    Financials getting spanked yet again.

  42. 42
    zman Says:

    P: I am going to start writing calls against my position in HK soon (same CHK). That stock will go away (they’ve said its for sale recently) but I don’t have the spine right now to step up on the little guys in options land. Stock, no problem, but little guys are getting crushed with no regard for valuation and options are just dying

  43. 43
    zman Says:

    DRYS just getting clobbered. Gotta wait for a bottom but there is going to be one helluva dead cat bounce.

  44. 44
    Popeye Says:

    I was thinking of doubling down on HK but perhaps not until Jan or Feb.

  45. 45
    Sambone Says:

    “What, me worry”? GOOG and APPL still up.

  46. 46
    zman Says:

    P: I agree except that this market has turned towards more of a day to day trading one and less of a valuation one. Each days trading is very black and white (green and red) if you know what I mean. Not a lot of big % trades I see right now…very, very, very short term focus out there which I tend to not like. Chart guys must be loving it.

  47. 47
    Sambone Says:

    Hmmm, looks like Fridays gains will be wiped out today.

  48. 48
    zman Says:

    Small victory if we stay above Wednesday/Friday lows on the broader indexes?

  49. 49
    zman Says:

    PBR getting creamed for $6/6%

    DRYS off 8.5%

    TSO becoming quite a deal again from a strictly valuation standpoint however westcoast and pac-nw cracks look kind of iffy for the fourth quarter vs YoY but at least are flat to slightly up sequentially. Stock is now below original offer.

  50. 50
    kaman Says:

    Stop the ride, I wanna get off.

  51. 51
    Sambone Says:

    K – Look up “Dow Theory”. This party aint over.

  52. 52
    zman Says:

    support on S&P about another drop like today away.

  53. 53
    zman Says:

    2% off the broad market…thanks sub prime dudes. you truly are subprime.

  54. 54
    Sambone Says:

    Z – If the S&P closes below 1411, then it’s broken it’s support.

  55. 55
    Sambone Says:

    Next support is 1395

  56. 56
    Sambone Says:

    Tini time! Look at SRS today.

  57. 57
    bill Says:

    I’ve beeen away nursing my wounds and trying to find sanity. Obviously i lost my ass as i rode this down from 130 to 70..BUT I WONT CAPITULATE!!

    drys market cap is 3.4 b, 2008 ebitda is forecast at 1.b so its trading at 3.4 x cash flow. I ‘ll leave that up to you whether thats good or bad. The ceo on cnbc said on friday that they are making 3 m per day.. do the math 3 * 365 is what???

    http://www.dryships.com/ir.cfm

    this site you can see so video interviews

    Tanker rates have finally expolded to the upside..its too late too help q4 pl but there are some good values there.

    One being topt tankers. (TOPT) They will have a q 4 loss.

    They will have a secondary next week probably priced at 4. After thats out of the way , i expect this stock to quickly be in the 5.s and if you hold a year 7 to 10.

    they are buying 6 dry bulkers. The 6 ships will generate 95 cent per share in cash flow. so at 4.40 you are buy the dry ships cash flow at 5 x and getting the rest of the company 20 ships for free.

    I attended the companies road show in boston on friday and talked to their ceo.

    You might be able to niblle at this at 4.20 or so as the pricing will be announced on tuesday after the market closes. I expect 10 % below current market price.

    Net asset value after the offering will be 7.04 per share.

    another good one is NAT if you like dividends,

    TOPT is not paying a dividend and is a growth stock. So if you want lt cap gains buy topt. if you want a 10 % yield by nat. I love TNP management and i think they are a good buy as well.

    In summary

    topt 100% return in 1 to 2 years
    Nat 10 to 15 % returns
    tnp 15 % return
    ————————————-

    drys 50% return

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