12
Dec

Recovery Wednesday

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I'm back in the office today and today's post will be direct and to the point instead of my pre-oil numbers meandering style (look for the graphs and meandering language to reassert itself in tomorrow's post). The market was obviously disappointed yesterday with the Fed's mini cut but I think that's pretty short sighted with more (and hotter) inflation news due out this week. Import prices reported their biggest monthly advance in 17 years this morning; does the market really want all that fresh, cheap capital feeding inflation? Seems to. Anyway, just about the only thing that ended on a positive note yesterday was the price of a barrel of oil. This morning broad market futures are rebounding despite oil's continued ascension. 

Commodity Watch:

  • Crude Oil closed up $2.16 to $90.02 due to a convergence of power outages at pipes supplying and delivering oil to and from the Cushing, OK storage facilities with 410,000 bopd, anticipation of a further fall in the dollar, and the expectation that another rate cut would allow all of you to keep driving as much as you want no matter the current price of gasoline. 
  • Flows to Cushing have been restored. Despite this crude is trading up a buck this morning to $91 per barrel as the dollar continues to soften.

EIA Inventory Expectations (from the Dow Jones survey) 

  • Crude Oil: up 100,000 barrels. Z Comment: very hard number to predict. Estimates range from smaller builds to a draw of 3 million barrels. After last week's massive 8 million barrel draw a smaller draw or even a build is likely to be in the cards although this week should see the impact of pipeline outages coming down from Canada as well as shipping delays in the Gulf Coast.
  • Gasoline: up 1.3 million barrels.
  • Distillates: up 500,000 barrels. This may be the surprise number with a draw.  
  • Natural Gas closed up $0.05 to $7.08. This morning gas is trading up $0.15. I repeat that $7 is pretty key here. 

 

Stocks We Care About Today:

  • (PBR) - another production boost, this time an additional 180,000 bopd platform at the Roncador field. This is third big production add since mid November. We hold the January $115 calls here.
  • (HK) - Acquiring additional interest in their Elm Grove field. This is the "can't miss" Lower Cotton Valley wells that offer extreme long lived reserves at low operating costs. With a price tag of $169 million and estimated reserves of 83 Bcfe this is a very cheap, no brainer type purchase for them ($2.03/Mcfe versus the $3+ most deals are being done at of late). Since selling their higher cost, higher decline rate assets in the gulf coast they have now beefed up each of their 3 core regions which provide them with lower cost, lower risk, longer reserve life assets.

 

Holdings Watch:

Calls:

  • (HAL) Out half of the December $37.50 calls for $1.35 for a 10 day double. In comments yesterday I wrote "Time to play with house money on a name like this as we approach an uncertain reaction to today’s Fed decision."
  • (APC) Exited second half of APC December $60 Call position for $3.80, up 111% to average costs.

Puts: No Action

Stocks: No Action 

Odds & Ends

Analyst Watch: (REP) upgraded to hold at Lehman, (LUKOY) cut to hold at Lehman,

87 Responses to “Recovery Wednesday”

  1. 1
    yona Says:

    bloomberg survey
    C-750
    G+1050
    D+500
    Utilization 0.0%

  2. 2
    zman Says:

    Thanks Yona, I saw that one as well…the oil number should be the big wild card and will likely swing the market today.

    Everything to be up at the open, PBR the most. This may be a good entry for BTU by the way.

  3. 3
    bhr5491 Says:

    Hey Z, any thoughts on VLO president resigning?

  4. 4
    zman Says:

    Saw the headline but no explanation other than it was unexpected. Sounds like family reasons.

  5. 5
    scoop006 Says:

    Z Welcome back.Any thoughts on an exit stratergy for APA Dec C’s

  6. 6
    zman Says:

    APA: plan to hold the $100s a little longer (maybe into early next week), and to sell the $110s on any pop over $105. We were back up to $104 on the common with oil $1.40 lower than here before the Fed rained on everyone’s parade. With them making the markets happy again this morning I’d expect APA to at least reclaim and best that level. Oil report in 45 minutes.

  7. 7
    zman Says:

    YGE – yesterday I saw some erroneous commentary here. Both yahoo finance and Thomson show earnings for this quarter alone over a buck which sort of rules out multi hundred PE stock. They’re set to $3.24 this year and $6.75 in 2008 and over $14 in 2009. That makes it the cheapest stock in the solars on a forward basis. The stock was off yesterday as they priced a secondary and is rebounding with the market today.

  8. 8
    zman Says:

    wonder what the “fair weather fan” talking heads that be are saying with oil back over $90. Probably we told you so.

    PBR breaking out today. If it sinks back a bit and oil holds post numbers I may take a little more on for a trade.

  9. 9
    zman Says:

    oil up $2

    Goldman boosted its 2008 oil price target $10 to $95.

    Another oil spill, this time 25,000 barrels in Norway.

  10. 10
    zman Says:

    HK – I’ll take more stock and calls here soon. This is likely to be one of the better stories of 2008.

    APA up $4 to $104

    APC and EOG breaking into record territory…DVN probably makes a run on the mid $90s soon if oil is happy with this week’s report.

    PBR cresting $110, intraday high was 119 in early November. Think it goes back there.

    NFX on the threshold of a breakout, another point. Still own the Jan $55 calls there.

    Oil #s in 15

  11. 11
    zman Says:

    YGE up 10% now, best in group by double except for CSIQ

  12. 12
    zman Says:

    crude down 700,000 (in line)
    gaso up 1.6 mm (in line)
    dist down 800,000 (wrong direction…hate to say I told them so but I did)

    oil all over the map at present but likely to trade back to a range of 90 to 91

  13. 13
    zman Says:

    big rally in Cushing stocks:
    rose from 15.9 to 17.3…surprised this isn’t macking oil prices

  14. 14
    zman Says:

    Oil stocks fell DESPITE a large increase in imports. This sets up another bigger draw likely next week as there is little chance imports will be higher given the numerous disruption of the last few days.

    Bottom line, we’re still in the upper end of the oil inv range for this time of year but are 10% down to YoY levels.

    Products however have transitioned from being in the top end of the band to the low end over the last few weeks. We should be building gasoline stocks at a faster rate but are not and demand remains strong. Utilization faltered to 88.8% or down 0.6% from last week. This data should help crack spreads.

    Sane, any API #s yet?

  15. 15
    sane Says:

    not yet

  16. 16
    yona Says:

    API actually came out first
    C+1393
    G+2475
    D-1734

    i actually bought the initial dip off the api – but covered too early

  17. 17
    zman Says:

    ZTRADE

    VLO: Jan 67.50 calls entered for $1.80

  18. 18
    zman Says:

    Thanks Yona, gas # is a little high for my liking but the market seems unconcerned for now. Crude over $92 up 2.7% but both products up over 3%.

  19. 19
    Jonesey Says:

    Any idea what spurred the NG forwards this morning?

  20. 20
    Nicky Says:

    Morning all –

    WTI has resistance at 9250 (intraday high) and then 94.03.

    We still appear to be tracing out the (b) leg of an abc wave down.

  21. 21
    sane Says:

    My api source has been quite slow as of late:P

  22. 22
    zman Says:

    J – just weather. Several parts of Texas being in the 30s, …looks the forecast is calling for more of the same and is now a little colder over more of the country. Also, ice can play hell with gas fields and they are calling this OK storm one of Biblical proportions, local utility OGE says it has never seen ice like this so you can bet their are going to be some production snafus.

    Morning Nicky, thanks (didn’t mean for you to jump back in so soon…sorry to be a pest)

    Sane – did you see the Senate is investigating the refill of the SPR and has said officially that this refill is boosting world crude prices. That’s a big stretch in my book but I agree that now is not the time to refill in the whole spirit of buy low, sell high, lol.

  23. 23
    zman Says:

    Broad market has given back over half of early gains. Energy has for the most part not.

  24. 24
    Nicky Says:

    50% of the move from the highs to the lows is at 92.56 with 61.8 coming in at 94.16

  25. 25
    zman Says:

    Anybody see a consensus number for the NG withdrawal tomorrow? I think we need trip-digits to support gas.

    Nicky – why do you think its 92+ on these numbers? I honestly thought the Cushing number would have caused a bit of trouble. Anyone know if the Flynns and Kilduffs and flip flopping back to oil to $100…they matter more than the fundies, lol.

  26. 26
    sane Says:

    Z

    Re SPR:

    Over the last year we have managed to put almost 8Mbls in the SPR. That 8Mbls shrinks the YOY deficit to about 5% from 8%. Also filling it at $80+ is retarded

  27. 27
    zman Says:

    retarded = government policy on a lot of things.

  28. 28
    sane Says:

    hear ya

  29. 29
    Jonesey Says:

    Natural Gas May Fall on Outlook Supplies Are Ample for Winter

    By Ian McKinnon

    Dec. 12 (Bloomberg) — Natural gas at Canada’s largest trading point may fall on speculation U.S. stockpiles will diminish at a lower-than-normal rate, reducing the need for additional purchases of the fuel.

    U.S. inventories for the week ended Dec. 7 are forecast to fall 130 billion cubic feet, the median response of 13 analyst estimates compiled by Bloomberg. That would be below withdrawals for the same week of 132 billion cubic feet averaged in the past five years.

    Storage levels of 3.44 trillion cubic feet are 8.6 percent higher than the five-year average. The Energy Department is scheduled to release its weekly gas storage report tomorrow at 10:30 a.m. Washington time.

    Spot gas yesterday at AECO rose 7 cents, or 1.1 percent, to C$6.16 per gigajoule ($6.389 per million British thermal units) on Calgary-based Natural Gas Exchange Inc.’s NGX electronic energy market. It was the first day in three prices rose at the southern Alberta hub.

    The U.S. typically draws about 2 trillion cubic feet from storage during cold-weather months. Canada sells more than half of its daily output to U.S. buyers, according to the National Energy Board.

    To contact the reporter on this story: Ian McKinnon in Calgary at imckinnon1@bloomberg.net .

  30. 30
    zman Says:

    go APA / PBR!

    Sane – your tax dollars at work. Of course, the next administration will likely tax the crap out of oil companies so that we can reduce our dependence on foreign oil. We should be working with the Mexican congress to persuade them to allow foreign investment…that’s not foreign oil…its right next door and it’s our #2 supplier and its going to keep falling without US intervention.

    Bumping ethanol production without a plan is not the answer.

  31. 31
    zman Says:

    Thanks J! That’s a help.

  32. 32
    Nicky Says:

    Had a quick look at PF who is short everything except natural gas and now stopped out!

    There is a diamond formation which has formed in wti which is potentially very bullish which some TA may be watching.

    That said personally I think the move up is looking overdone on what was essentially a neutral set of stats if not acutally bearish.

  33. 33
    zman Says:

    N – Just sent a message back to my Alaron guy daring them to go ahead and flip flop.

  34. 34
    zman Says:

    PBR at $114, I’ll close my Jan $115s if it fails to punch through $119

  35. 35
    zman Says:

    HK $17.50 December calls not for the feint of heart, are trading pretty actively for a dime. Stock looks to be moving back up and should easily best $17 shortly. I’m not taking them on because as soon as I do it won’t work but felt like it was worth passing along.

  36. 36
    scoop006 Says:

    Z You saying PBR @ $119 TODAY?

  37. 37
    zman Says:

    no, probably not today but very soon or its a lower high. I think the string of recent successes they have announced lately is not completely factored into the stock yet.

  38. 38
    scoop006 Says:

    Z Bought PBR Jan 110 yesterday @3:50PM for $4. had to sell today @$9.60 to make up for my DRYS losses.

  39. 39
    ram Says:

    Missed the VLO trade @ 1.80. Currently 2.30. Still O.K. to ponder?

  40. 40
    zman Says:

    Oil up 2.80. Stocks a little off highs as the market fears another big run here.

    Ram: I think around this level OK as I think it goes back to $70. I’d be patient.

  41. 41
    zman Says:

    so, my broad market friends, what seems to be the trouble with the rally?

    This morning I read descriptions of the feds new initiatives with descriptions ranging from brilliant to innovative. The pullback is creating so ops in some names that ran to technically good levels. So if we bounce at flat Dow (up 37 and falling fast from up 250 this morning) it stands to reason that many cheap energy names will regain their highs quickly, especially with oil making a breakout here, up $2.80.

  42. 42
    Alhambra Says:

    http://biz.yahoo.com/bw/071210/20071210005652.html?.v=1
    Looks like deep-water services attracted the largest French conglomerate. Guess they’re taking water services to a new level.
    “The Swordfish will be the fifth vessel in our Marine Services fleet and will strengthen our “deepwater” capabilities to serve offshore oil and gas customers in the Gulf of Mexico and around the globe.”

  43. 43
    Nicky Says:

    Whats the hype behind this rally in energy then?

  44. 44
    zman Says:

    N – I think PF and the other guys are scrambling to cover shorts. As usual, the CROWD had decided to stampede in the same direction. PF called a top at 97, Kilduff much the same…then two weeks of draw downs and the prospect for, wait for it, more draw downs, is forcing them to cover. Otherwise, yeah, this is an over-reaction and a half!

    Oil at 93.13 and rising….is this what’s upsetting the broad markets go-go rally this morning?

  45. 45
    zman Says:

    Ram – that’s a roger

  46. 46
    zman Says:

    RIG took a dive, that’s odd, tempted to take some well OOTM Jan calls here for a few bucks or even long shot it at the $160s for $0.50. Say the stock goes up $10 in the next 15 days

    CHK – Texas gas production hits record 10 Bcfgpd over the weekend according to EIA…sounds like they are tying in those delayed wells. Not great for gas prices but they will have a heck of an exit rate to talk about in Feb and people will know it much soon than that.

  47. 47
    Nicky Says:

    Seems absolutely absurd Z when the draw was less than expected in WTI….

  48. 48
    zman Says:

    ZTRADE:
    CHK December 37.50s for $1.40

    and a high, high, high risk December $40 call trade at $0.15. High risk and small and I’ll be quick to take profits (if any).

    As you know I like these guys a lot and I suspect that the 10 Bcfgpd record production level that Texas hit over the weekend is due in part to CHK hooking up wells in the Barnett Shale that they had drilled but not completed as they indicated would be the case when gas was lower back in September. I think they are hooking up this backlog of wells now, no way to confirm it, but that’s my sense as the end of year approaches. This way, they not only beat their 4Q production growth target but can talk about exit rates for 4Q levels on the Feb year end conference call. The 40s are a high risk bet since the stock is current at 38.60 with only a few days left until expiry on the 21st. At 15 cents I’m a throwing a little money at them with the expectation that the triple digit draw in storage tomorrow is big enough to buoy gas prices and that the Texas news on production becomes more accepted as a good thing for CHK. The stock has underperformed, is cheap and should play catchup to the group soon.

  49. 49
    ram Says:

    Thanks. Everybody was wearing heavy clothing this past Sunday – NFL. I was inquiring about consumption rates. Is it predictable to estimate increased draw based on regional change in temperatures before info. is released for ng and oil?

  50. 50
    ram Says:

    DEC’s. Is this the wild Z?

  51. 51
    Denise Says:

    Good afternoon-
    I have never experienced a more wild time
    in the markets-makes one want to become a day trader.
    Here is a must read for the day-comments on Mr. G’s editorial in the journal-a must read if you missed it
    http://www.jeffmatthewsisnotmakingthisup.blogspot.com/
    My on the spot t/a expert last night said-expect more downside-we will not be oversold until Xmas week-then she thinks maybe a rally

  52. 52
    zman Says:

    Ram – we use gas-weighted and oil-weighted degree days which attempts to take into account what people in various parts of the country use to heat and in the summer cool their homes with. Sometimes it appears to work in a highly correlated manner and gets better during the extreme weather months. But it has it’s issues like two weeks ago where the contango kept gas in storage or like when their is a problem with offloading like in the HSC.

    wild Z? I suppose, note that it said small and high, high risk. Obviously I’m not kidding as you have to cover $1.50 in the next few days…but the other gassy and not so gassy big cap E&P indies are bucking for all time highs and they trade at higher multiples with lower production growth expectations.

  53. 53
    zman Says:

    Ram – let me know if that’s what you were asking. There3’s a lot that goes into coming up with a number. Some math but also news and some gut.

  54. 54
    zman Says:

    N:

    just read this on CNN money:

    In its weekly inventory report, the Energy Information Administration said crude stocks fell by 700,000 barrels last week, marking the fourth straight week of declines. Analysts were looking for an increase of 100,000 barrels, according to a Dow Jones poll.

    guess it just depends on which survey you were watching, lol.

  55. 55
    zman Says:

    and here’s the new quote from one of my favorite fair weather oil fans at blowing in the wind capital management:

    “It got the eye back on the ball in terms of the fundamentals being supportive,” said John Kilduff, an energy analyst at MF Global in New York.

  56. 56
    jy Says:

    Speaking of production growth (or lack thereof) here are some interesting numbers from the MMS on Gulf of Mex production over the 13 months from 8/06-9/07.

    Gas 7.96 BCF/D to 6.1 BCF/D (down 24%)
    Oil 1,315,000 B/D to 1,031,000 B/D (down 22%)

    It’s not just a high month to a low month comparison. The numbers fall fairly consistently throughout. Sure, Tahiti and other deepwater developments will help but I suspect they will only help to reduce the decline rate. It will take 1860 wells in the “Resource plays” at 1 mmcf/d each to plug that gap.

    Z, Is there any way we coud post images to the blog. I’d love to show this graph.

  57. 57
    ram Says:

    Cool – Thanks – Wild Z!

  58. 58
    jy Says:

    OOPS that should read 12 months from 8/06-9/07!!

  59. 59
    jy Says:

    Dang it! 12 months 9/06-8/07!!!!

  60. 60
    zman Says:

    Thanks J – I posted the gas side of it last Wednesday but at the time data was only available through August. You can send it to me at zmanalpha@gmail.com

  61. 61
    zman Says:

    thank you VLO

    and thanks D for the top 20. will read soon. market happy again though so I guess I don’t have to, lol.

    CHK actually thinking about making a move, still a % point below its big brothers in terms of move today and several % points lower over the last few weeks despite a stronger, more secure prod growth profile. WildZ $0.15 bid. I’m going to adopt WildZtrade for use with Ram’s permission.

  62. 62
    zman Says:

    oil knocking on 94….that’s pretty nutty until you consider that all those talking heads are reversing their shorts after taking it in the shorts.

  63. 63
    ram Says:

    Of course WildZ!!

  64. 64
    sane Says:

    Copper Declines on Concern Fed’s Rate Cut Won’t Be Enough to Spur Growth

    Crude Oil Rises on Speculation Central Banks’ Credit Plan to Spur Economy

    Good stuff

  65. 65
    zman Says:

    oil up $4.20 to $94.25. Guarantee Kilduff and Flynn are bulls again.

    Sane, it’s a crazy world. Thanks goodness the press can make sense of it for us 😉

  66. 66
    sane Says:

    I would have expected oil to react this way last week, not this week. Dyslexic market.

  67. 67
    zman Says:

    gas demand was 9.348, a near record for this week in history. $3 gas? big deal.

    re oil last week vs this week. They’re trying to make up for last week today. Big short cover in progress.

  68. 68
    zman Says:

    so what $4 up oil just too much for this market or is it the unhappiness with the Fed’s non-solution regarding credit?

  69. 69
    sane Says:

    probably both

  70. 70
    zman Says:

    This market needs a valium or maybe an enema. If we have not snapped any key tech support levels by the close you would suspect we get a rally soon.

  71. 71
    TTupp Says:

    i think i need a Valium

  72. 72
    TTupp Says:

    any takers in the dip on pbr/apa?

  73. 73
    zman Says:

    me long enough for now APA and PBR. RIG tempting to get back in on this though. Broad market once again looks like it wants to go lower and could obviously take more wind from our sales.

  74. 74
    zman Says:

    when is CLR going to get options…just keeps rising.

  75. 75
    zman Says:

    nevermind, it has options ….hmmmmm…..just about no volume and massive spreads but they exist

  76. 76
    TTupp Says:

    z you have apa?

  77. 77
    zman Says:

    T – yes, $100 (about even) and $110s (ouch) since mid November.

  78. 78
    zman Says:

    Crazy market, RIG jumped from up $0.88 in #73 to up $2.30 and climbing as the broad market climbed out of the hole.

  79. 79
    TTupp Says:

    i think they have gypsies in the control room at nyse

  80. 80
    zman Says:

    T – hear ya and I guess I like gypsies.

  81. 81
    TTupp Says:

    just took some pbr. brazil just came out with some upbeat economic data for full year gdp ect. new discoveries out the ying yang, and this looks like it might start a new but brief rally to ~120

  82. 82
    zman Says:

    and you know I’m long the Jan 115s there for the last couple of days, right?

  83. 83
    TTupp Says:

    yepper. i think you picked them up the same day i did, buti picked up the decmembers, i sold them for a decent gain yesterday am for a handsome profit (they were losing too much time value each day with exp so close, and being somewhat otm), avoiding the afternoons nasty sell-off, but also the awesome snap back rally based on the company and sub-sector fundies.

    hindsight-should have held them for ONE MORE DAY for 200% insteady of 75%. but im not going to let it get me down, i took em on the 3:50pm dip at a respectable price- and if our evil plan works out Z- sell into strength at ~120 friday morn! lol

  84. 84
    zman Says:

    well said T!

  85. 85
    TTupp Says:

    call me t-bone lol

  86. 86
    Nicky Says:

    Z re #54 – yes I saw an expectation for a 2 million draw.

  87. 87
    Nicky Says:

    Todays rally seems to come down to Goldman upgrading their price outlook for 2008. the distillate draw and the Fed.
    If Goldman were the reason then the back of the curve would have narrowed to the front and it did not!
    US East Coast heating oil supplies remain at 1 % over the five year average.
    As for the Fed – Bernanke showed today that he is more interested in holding up the equity markets than dealing with the bigger threat of inflation.

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