07
Jan

Multiple Update Monday

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Kind of a slow news day today but a report out of (HK) bears watching (see below). I expect news to pick up before we get into earnings season from several of our favorite names. This morning broad market futures point to a slight bounce after last week's drubbing. I would expect dollars to continue to pour into the cheap and more secure energy sector as fears of a recession intensify. While there may be some trepidation over the impact a recession would have on oil demand it is clear that current valuations don't current reflect current prices anyway. I plan on using this week and next to examine an energy sub-sector per day, along with my other usual musings, culminating in a list of "must haves" names for 4Q earnings and beyond. If you missed the weekend wrap click here.

Commodity Watch

  • Crude Oil: Crude traded up 1.6% last week to close at $97.85 after hitting triple digits for the first time (on a non-inflation adjusted basis). This morning crude is trading off slightly with a strong dollar, continued recession fears and a January warm up in the States.
  • OPEC Watch: $100 Oil "Not Necessarily Very High". The headline from new OPEC president Chakib Khelil, the oil minister of Algeria who took the reigns as head of the cartel January 1. Khelil said that high oil demand was being pushed by "China and India but also by the Middle East whose consumption has risen immensely. When you take that into account, 100 dollars is not necessarily very high."   "The surge in price will probably go on until the end of the first quarter of 2008, before stabilizing during the second quarter," Khelil said Saturday.
  • OPEC Watch 2: Libya's top oil official, Shokri Ghanem, said last week that the producer group could do little about $100 oil as most members were already pumping flat out. Iran's oil minister echoed these comments stating that OPEC could do little to increase production from current levels even if the group agreed to another production hike at its next week meeting on Feb. 1.

 

  • Natural Gas: Increased 7% last week to $7.85 despite a seemingly absurd low storage withdrawal report last Thursday. This morning gas is off a dime with the warming temps.
  • Last week turned out to be much colder than expected. The CPC put gas-weighted HDDs at 225 for the week, up strongly from a previously expected 205. This should boost gas demand north of 180 Bcf in this Thursday's report which would boost the YoY deficit in storage by about 100 Bcf.
  • This week's warming trend to hurt gas demand. Degree days are expected to slide to 140, levels not seen since the third week of November which should result in a sharp drop in gas demand.

Multiple Monday Watch: Just wanted to start the year off on the right foot as far as tracking sector valuations, making note of oddities/exceptions where relevant. Today's multiple review: refiners.

Refining Sector Watch: Refiners got a lot cheaper last week. Estimates were for the most part unchanged but sentiment turned decidedly more bearish with the inventory report which viewed as a snapshot in time was pretty bearish for products. 

  • When I see forward multiples touch the 7x's for the group leaders I start to think enough is enough. However, given how rough around the edges this market has gotten I'm sitting patiently on the sidelines until we get closer to reporting season.
  • 4Q estimates continue to edge slowly lower as we approach 4Q reporting season (so far only VLO has announced a date).
  • The little stocks that were the champions of last summer are this winter's goats as you can see from both the staggering percentage declines from those mid summer peaks and from just the first 3 trading days of the year.
  • Crack spreads continue to languish. I have the regional table out in the Tuesday post but trust me, its nothing to get exited about ... unless you're a short.
  • I expect this group to rebound later this Spring and while I reserve the right to trade various names in it from time to time (probably long FTO prior to earnings and maybe VLO) as a whole I can see the Street dumping shares between now and March.

refiner-multiple-010408.jpg

Stocks We Care About Today

(HK) Completes Monster Horizontal Elm Grove Well. The Killen 13 #3H had initial production of 16,500 Mcfepd. This is a big step up from the first few horizontal efforts here which IP'd at 2,400 to 4,000 Mcfepd. They plan to drill another 10 horizontal tests here in 2008 and while I would not expect all of them to fall into the "monster well" category this is certainly encouraging. Look for more details on costs but a well of this size sort of resets your economic considerations for the horizontal potential here. It's also possible that they will bump up the number of Hz wells they will drill here this year. Click here for a refresher on (HK).

 

Odds & Ends

Analyst Watch: (VMC) upgraded from sell to neutral at UBS.


46 Responses to “Multiple Update Monday”

  1. 1
    Sambone Says:

    8:53 am EST

    Nymex Crude Rises Above $98 On Iran Report

    Dow Jones Newswires

    1350 GMT [Dow Jones] Nymex crude jumps above $98/bbl after CNN report that Iran boats threatened US Navy ships Saturday in the Strait of Hormuz, the narrow entrance to the Persian Gulf. Feb crude +17c at $98.08/bbl after trading around $97.60 before the report. (MC)

  2. 2
    Sambone Says:

    9:10 am EST

    Iran Boats Threatened US Navy Ships In Hormuz Straits Sat-CNN

    DOW JONES NEWSWIRES

    NEW YORK — Five Iranian revolutionary guard boats harassed three U.S. Navy warships sailing in the Straits of Hormuz Saturday, Cable News Network reported Monday.

    Citing U.S. officials, CNN reported the Iranian boats made threatening moves and headed toward the U.S. ships. The Iran boats also made threatening radio transmissions, which one U.S. official said included the taunt that “I am coming at you. You will explode in a couple of minutes.”

    The U.S. warships manned gun positions and were prepared to shoot, according to CNN, but the Iranian boats suddenly turned away after coming as close at 200 yards to one of the U.S. ships.

    The U.S. ships were in international waters at the time.

    The Straits of Hormuz, a narrow passage between Iran and the United Arab Emirates, is a key route for international crude oil shipments.

  3. 3
    kiaora Says:

    Z….missed fridays PBR call. Still a workable idea today?

  4. 4
    zman Says:

    K – yeah, 9 point swing that we are on the downside of … the Febs would be my next add just to give you a little more time … they should have more positive production news but it may be as long as a month before it comes.

  5. 5
    zman Says:

    I like the group up more than the market on a negative $1 oil day. Iran gunboats, yeah, there’s a threat, lol.

  6. 6
    Sambone Says:

    9:52 am EST

    Nymex Crude Slips On US Growth Concerns

    By MATT CHAMBERS
    Of DOW JONES NEWSWIRES

    NEW YORK — Crude oil futures slipped Monday as traders questioned the strength of the U.S. economy and its ability to support global crude oil demand. Forecasts for mild weather in the U.S. Northeast, the world’s biggest heating oil market, also weighed on prices.

    The futures spiked briefly after a report that five Iranian Revolutionary Guard boats harassed U.S. Navy warships Saturday in the Strait of Hormuz, the entrance to the Persian Gulf. No shots were fired, and prices returned to negative ground.

    Traders’ focus is still on the U.S. economy “for the most part,” said Tom Bentz, an analyst at BNP Paribas Commodity Futures in New York. The report on Iran “gave us a pop, but it happened on Saturday and, although it’s nerve-wracking, nothing really happened.”

    Light, sweet crude for February delivery on the New York Mercantile Exchange was recently down 73 cents, or 0.8%, at $97.18 a barrel. Brent crude on the ICE futures exchange fell 34 cents to $96.45 a barrel.

    Crude oil futures have drifted lower since Jan. 2, when they touched $100 a barrel for the first time ever and settled at a record $99.62. But the futures’ inability to push higher after breaking triple digits for the first time the next session is weighing on prices, traders said.

    A weak U.S. December jobs report, released Friday, focussed attention on the potential for an economic slowdown in the U.S., which is the world’s biggest energy consumer.

    Also not boding well for short-term U.S. oil demand, the National Weather Service is predicting warmer than normal weather in the U.S. Northeast from Jan. 12 until at least Jan. 20 in its six-to-10 and eight-to-14 day outlook charts. Nearer-term forecasts are also predicting warm weather.

    “Contributing to some of the selling pressure are forecasts for unseasonably warm weather in the Mid-West and Northeast over the next five days, which will reduce demand for heating oil,” Addison Armstrong, an analyst at TFS Energy Futures in Stamford, Conn., said in a research note. “Longer range forecasts are also expected to yield warmer than usual temperatures for the month of January, keeping a lid on demand.”

    Front-month February reformulated gasoline blendstock, or RBOB, fell 3.25 cents, or 1.3%, to $2.4785 a gallon. February heating oil fell 2.35 cents, or 0.9%, to $2.66 a gallon.

    —By Matt Chambers, Dow Jones Newswires

  7. 7
    Sambone Says:

    Going red

  8. 8
    zman Says:

    Group way to the red, low volume, across the board selling.

  9. 9
    Nicky Says:

    Morning all.

    Energy – wti appears to be tracing out c of iv. If so this should undercut the 95 area before reversing for the final leg higher in v.

    It is possible to say that the whole move higher is done as there are a clear five waves up….. it would take a move under 89.15 to confirm that.

  10. 10
    Nicky Says:

    Broader markets – almost at the November lows now (Dow 12724 and SPX). Of greater importance are the August lows of 12518 and SPX 1370.

  11. 11
    Nicky Says:

    There was a triangle count playing out on many of the indices which is now all but eliminated – starting to look more and more like a 3rd wave lower.

  12. 12
    Nicky Says:

    At some stage we are going to see a very sharp rally and I am thinking maybe a surprise rate cut could be the catalyst.

  13. 13
    Nicky Says:

    WTI has support at 95.90.

  14. 14
    Nicky Says:

    Distillates has support at 26140.

  15. 15
    apbd Says:

    Whasssss happening? Are rigs sinking in the gomex?
    apbd

  16. 16
    Denise Says:

    I agree on bounce-we are getting oversold
    Doing some buying-may be early

  17. 17
    Nicky Says:

    RBOB has support at 24280

  18. 18
    Sambone Says:

    RECESSIONS

    From

    To

    # of Months Bear Markets Peak to Trough*
    Dec. 1969 Nov. 1970 11 NA
    Nov. 1973 March 1975 16 45%
    Jan. 1980 July 1980 6 21%
    July 1981 Nov. 1982 6 31%
    July 1990 March 1991 8 23%
    March 2001 Nov. 2001 8 48%
    Courtesy of Securities Research Corporation

  19. 19
    Nicky Says:

    WTI next level of support is 94.70

  20. 20
    zman Says:

    Thanks Nicki for the levels and Sam for the recessions.

    A – if a rig had sunk the operators would have been up, not down. This is just panic selling, volumes picking up but the declines appear to be leveling out and slightly reversing. We’re 10 days from Jan option expiration so I’m staying patient for the moment.

  21. 21
    Nicky Says:

    Distillates has support in the 25800 region. A move below 25330 would argue for the whole move up being over.

    RBOB would have to undercut 23180 for the same confirmation.

  22. 22
    Nicky Says:

    Dennis Gartman has apparently gone short oil.

  23. 23
    Nicky Says:

    Okay WTI has now undercut the wave i peak at 94.73 and satisfied the requirement for wave iv if v is playing out as an ending diagonal.
    The alternative count mentioned above is that v is done.
    Under either count a bounce should be imminent.

  24. 24
    zman Says:

    Nicky,

    Below your 94.70 level oil looks 92 to 90 to me. Would like to see it get it out of the way so we could focus on how the stocks are going to do instead of worrying about $95 or $100 hurting the economy.

  25. 25
    Brian08 Says:

    I think I’m going to have to type 1000 times…Listen to Nicky…Listen to Nicky…

    Great call on $95…I wussed out and didn’t go short USO…

  26. 26
    zman Says:

    Working away on some driller thoughts, slight greening of the screen but nothing worth commenting on just yet. Thinking we could see a nice reversal late today or tomorrow if oil can hold around $95. DO pretty tempting down here as it tries to go green.

    Also, watching APC and APA pretty closely, not in now but interested in being in the Febs prior to earnings. These guys should both have production related news prior to the end of the month and earnings.

  27. 27
    zman Says:

    DRYS punching through the last of its $70 level support. Just under $68, down 7% on the day. Rest of group looks worse. Calls still outweighing puts 2 to 1.

  28. 28
    zman Says:

    ZTRADE: Entering APA January $105 Calls for an average of $2.60.

    Stock is trading off with oil and the group and the market today. Oil is doing its best to hold $95. APA is the most leveraged to oil among the large cap E&P crowd and this will be another quick trip. Given their history for this time of year its likely we could get news on the exploration front prior to earnings at month’s end.

  29. 29
    zman Says:

    Hey Nicky,

    Oil closed over $95, what’s your best read now?

  30. 30
    Sambone Says:

    Uncle Phil. Is he the same guy as Dr. Phil? LOL

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

  31. 31
    cattleman Says:

    Kaman – If you’re around, Friday you inquired about steaks. Send me a note at okifarmer@yahoo.com and I’ll send you some info. You also mentioned doing a little research on ethanol. There has been a lot of talk about cellulosic ethanol in the last year, in fact two plants were proposed for this area and later cancelled. I’d be very interested in what you turn up.

  32. 32
    zman Says:

    Cattle,

    Re Cellulosic: There are several private cos with processes that work in the lab. STKL (Sunopta) is the only public co with cellulosic process that has been implemented on a commercial scale. Beans and corn are definitely not the answer.

    There’s one that Bush visited called Novozymes based out of Copenhagen but I have not idea how to trade it.

  33. 33
    zman Says:

    Cattle,

    Here’s another one about which I know nothing except today they said they are working with a nationally recognized lab to commercialize their cellulosic tech.

    (GFET)
    http://www.foxbusiness.com/markets/industries/energy/article/gulf-ethanol-retains-national-laboratory-test-cellulosic-products_426224_11.html

  34. 34
    cattleman Says:

    Z – The input costs for raising and harvesting grass is quite high, when you add the transportation (picture a 12-1500 pound round bale) it doesn’t seem logical. As a way to use an already existing by product the argument seems a little more plausible.

  35. 35
    zman Says:

    C – from what I understand, these technologies could be used on any bio material with a low sugar count, like paper sludge or the tailings from a diaper plant. You could see small facilities set up everywhere there is a large paper facility for instance so then transportation cost goes away and the cost of disposal gets reversed to a revenue stream. As far as green material goes, some people are working on the corn stalks.

    Hey, look at DO trying to make a run for the green.

  36. 36
    cattleman Says:

    Z – Very good, thanks.

  37. 37
    doc Says:

    I just got line have not read above. I have a number of Jan. Chk calls to roll over this month. How do you your charts look for CHK the rest of this week & next.

    Phil

  38. 38
    doc Says:

    z when will CHK report?????

  39. 39
    zman Says:

    Hey Doc,

    I flipped to Febs last week on the $37.50s just out of preservation of capital interests although I still hold some $40s. My though for the next week or so is:

    1) we get a recovery rally in the group soon

    2) natural gas has one more bounce left in it on a big number Thursday (notice oil is off on reasons from the economy to the weather yet NG is trading up a few cents near 5 week highs). That equals big number coming…just took a look at last week’s imports and they show weak LNG and Canada so again, the withdrawal should be big given the weather was the coldest of the season. and

    3) CHK may have some exit rates to talk about or they may wait until the first week of Feb which doesn’t help you out on the Januaries. In past years they have either waited for reserve report which comes out first 10 days of Feb and prior to the 4Q report or they have gone ahead and gotten it out early along with some Barnett Shales stats. The decision tree there is complex but if the stock caves much more I’d say there is a good chance they get something out early. Remember that they delayed hookup of a number of wells in the Barnett during the 4Q to prop gas prices (call it what you want but that was the reason) and so 4Q average and 4Q exit will show a wider divergence than typical.

  40. 40
    Sambone Says:

    3:13 pm EST

    Nymex Crude At 2-Week Low On Economy, Weather

    By MATT CHAMBERS
    Of DOW JONES NEWSWIRES

    NEW YORK — Crude oil futures slumped to a two-week low Monday, losing almost 3% as indications of a slowing U.S. economy and forecasts for record temperatures in the U.S. Northeast spurred concern demand won’t be enough to keep prices near $100 a barrel.

    Light, sweet crude for February delivery on the New York Mercantile Exchange fell $2.82, or 2.9%, to $95.09 a barrel, the lowest settlement for a front-month contract since Dec. 24. Brent crude on the ICE futures exchange fell $2.30 to $94.49 a barrel. Final settlement for Brent wasn’t yet available.

    The fall extended a slide Friday as the worst U.S. nonfarm payrolls data in more than four years, and the highest unemployment numbers in more than two, spurred more worries the U.S. could be heading into recession. The U.S. is the world’s biggest crude oil consumer and jobs data is seen as heavily linked to demand. The reaction was in contrast to some instances in recent months, where crude has risen on negative economic numbers, partly as traders saw an increased chance of a U.S. rate cut.

    “That employment number Friday was the wake-up call regarding deterioration in the economic situation,” said John Kilduff, senior vice president of energy risk management at brokerage MF Global in New York. “$100 oil can’t be sustained with that backdrop, a lot of what we had seen in crude’s run-up to these levels was correlative to amazing job growth over the past couple of years.”

    Early in the session, crude oil futures turned briefly positive after a report that five Iranian Revolutionary Guard boats harassed U.S. Navy warships Saturday in the Strait of Hormuz, the entrance to the Persian Gulf. But no shots were fired during the confrontation and traders’ focus turned to other matters, leading oil to slide.

    The report on Iran “gave us a pop, but it happened on Saturday and although it’s nerve-wracking, nothing really happened,” said Tom Bentz, an analyst at BNP Paribas Commodity Futures in New York.

    Crude oil futures have lost nearly 5% since Jan. 2, when they touched $100 a barrel for the first time ever and settled at a record $99.62. The following session they hit an all-time intraday high of $100.09, before closing lower.

    Heating oil futures led crude lower Monday, with the National Weather Service predicting warmer-than-normal weather in the U.S. Northeast from Jan. 12 until at least Jan. 20. The region is responsible for 80% of the nation’s heating oil demand.

    On Tuesday, New York City temperatures are expected to hit 64 degrees Fahrenheit, just one degree short of the record high for that date.

    “Contributing to some of the selling pressure are forecasts for unseasonably warm weather in the Midwest and Northeast over the next five days, which will reduce demand for heating oil,” Addison Armstrong, an analyst at TFS Energy Futures in Stamford, Conn., said in a research note. “Longer range forecasts are also expected to yield warmer than usual temperatures for the month of January, keeping a lid on demand.”

    Front-month February reformulated gasoline blendstock, or RBOB, fell 8.12 cents, or 3.2%, to $2.4298 a gallon. February heating oil fell 9 cents, or 3.4%, to $2.5935 a gallon.

    Traders will now focus on weekly U.S. government oil inventory data due Wednesday for signs of tightness, or otherwise, in the oil market. The data is expected to show the eighth straight weekly draw in crude oil inventories, according to the average forecast in a Dow Jones Newswires survey of analysts. A modest 300,000-barrel draw is expected, according to the estimates.

    Gasoline stockpiles are seen growing by 1.7 million barrels, while distillates, which include heating oil and diesel, are expected to fall by about 600,000 barrels. Refinery use is seen growing by 0.2 percentage point to 89.6% of capacity.

    —By Matt Chambers, Dow Jones Newswires

  41. 41
    zman Says:

    Doc

    CHK not yet said 4Q. Last year is was second half of Feb with the reserve report coming in the first half of Feb.

    One more thing on them, they are widely expected to make their reserve adds getting them just north of 11 Tcfe of reserves for the year end number (up from just south of 10.6 Tcfe at 3Q). They could beat this by booking offsetting PUDs in those wells they just hooked up when the numbers come out giving the Street a bit of a surprise.

    The ratings companies are putting a drag on the stock as always because they simply don’t understand the concept of a barrel in location A not equaling a barrel in location B or as I say a Barrel is not a Barrel is not a Barrel. Moodies and co are treating the VPP as debt but let me tell you that the upside potential for those particular eastern reserves pales in comparison to CHK’s other potential. They are going to produce them b/c they are economic and long lived anyway so why not get the $1.1 B on the front end of the 15 year period instead of wait. Then you reinvest the capital in projects that will have a much higher return and that’s reason to throw stones? The rating companies do not understand oil and gas company reserves sufficiently but when they gang up on a stock, some investors get worried. As to gas prices heading lower in the near future, CHK is highly hedged and will post best in large cap class growth next year, which will overcome the slight 2008 chill in gas prices most analysts are now looking for (soon to be in a range of $6.50 to $7.50p; now at $6.75 to $8)

  42. 42
    Alhambra Says:

    two bills – http://www.bloomberg.com/apps/news?pid=20601109&sid=ac7ZyK0ovWrM&refer=home

  43. 43
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