23
Jan

Wednesday – Testing The Lows

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Apple, Motorola, and some brokers disappoint and back down we go. Despite a rebound in Asia, U.S. markets are set to open nearly 3% lower. 

Commodity Watch

  • Crude Oil. The March contract fell $0.71 to $89.21 as the world markets tumbled. Oil had retreated by as much as $3 and change falling to within a hair's breadth of $85 and a technical breakdown before recovering most of the day's losses. The EIA report is delayed until tomorrow for the MLK holiday. This morning crude is trading off another $1.45 as another downturn in the equity markets casts doubt about the resiliency of the economy.
  • OPEC Watch: The prospect of an output hike at the Feb 1 meeting is clearly dead. The prospect of an emergency output reduction, to stem a continued drop in the price of a barrel of crude is rising.
  • Natural Gas fell a whopping $0.32 to $7.67 despite colder than expected weather that is now expected to last longer than expect. The EIA will not be delaying this week's gas report meaning Thursday will be dual report day. Gas is trading off a few pennies this morning.
  • Industrial Recession Fears Bugged Gas Yesterday:

Heres One Important Houston Energy Bank's Take On Industrial Gas Consumption: "While there is a range of views as far as the extent that a recession would hit U.S. natural gas demand, analysts broadly agree that a prolonged slowdown would lead to at least somewhat lower consumption. ...for example, projects that natural gas demand would increase by an average 1 billion cubic feet a day in 2008, roughly in line with the increase in the gross domestic product. But the forecast will likely prove to be too optimistic if the economy weakens. If you believe the U.S. is going into a prolonged recession, then that bcf per day of demand driven by power is going to be impacted,"  ~ Tudor, Pickering.

ZComment: While it an economic downturn could indeed lead to the much talked about and frankly over-rated "demand destruction" I would point out the relatively high prices endured during this decade have already "winnowed the field" so to speak.

  • In the future, higher gas prices and not recessions will responsible for lower industrial demand unless processes simply to ratchet back to a high degree (i.e. significantly lower steel, glass, concrete etc production).

  • Since 2000, prices have been relatively high to what was once considered normal for gas...and the industrial complex changed. Not overnight but definitely through necessity. Process gases were substituted for more expensive methane when possible and weaker, margin wracked industries like Paper in some cases were able to entirely do without or greatly supplement their gas their once high gas burdens.

  • Finally, while the chemicals complex is the greatest portion of the U.S. industrial sector consuming natural gas and while the polyethylenes and other domestically produces thermoplastics could see a contraction in consumption, a large portion of this offset could itself be offset via greater a demand from ammonia make (fertilizer) as the government subsidized green fuels movement continues to bloom.

Refining Multiple Update: Nothing bullish yet evident and I think its early to play to the group on the expectation of a seasonal bounce. 

crack-spread-011808.jpgclick to expand regional crack spread graphs

Holdings Watch: (updated holdings are on the holdings tab)

Calls: A Little Bottom Fishing

  • (COP) February $70 Calls for $2.75 (with the stock down 6% at the time).
  • (PBR) February $105 Calls for $2.15 average
  • (RIG) February $140 Calls for $1.30.

Puts: No Action

Stocks: No Action 

Stocks We Care About Today

(COP) Reported

  • Earnings: EPS of $2.71 vs a consensus estimates of $2.38 (range of $2.12 to $2.58)
  • 4Q production volumes were up 4.5% sequentially. E&P income of $2.6 B was up 25% largely on the back of higher prices.
  • Refining utilization inched up to 95% fro 94% in 3Q; refining segment income pf $1.1 B slipped 14% sequentially which is not bad given the prevalent weak margins during the quarter.
  • Lukoil income nearly doubled
  • Midstream revenue increased as NGL pricing did, coming in at $0.16 B
  • They repurchased 7 billion shares last year and expect to take in 2 to 3 B in the first quarter.
  • No change to capital program
  • Upstream guidance is flat to off a percent with 4Q levels which is a normal seasonal pattern for them.
  • Conference call at 11:00 EST

Dry Bulk Shipping: The turn is coming:

  • (BHP) last night reported iron ore production climbed 9% to a record in the 4Q. Output of iron ore totaled 27.7 million metric tons helped by improved production at expanded mine operations in Western Australia.
  • CNBC Has Discovered The BDI; They Usually Are A Good Contrarian-- Indicator For This Kind of Group Move, always late to the party. In a sure sign of the apocalypse, CNBC said their is something called the Baltic Dry Index yesterday and pointed out its near collapse since October. The BDI has actually stopped falling and is inching higher. The Chinese will likely settle their iron ore negotiations prior to Chinese New Year on Feb 8th at which point they start snapping up ships to carry all that ore from the first bullet point. Going long soon.

(BJS) - "Volatility and lack of visibility" cause BJS to withdraw prior 2008 guidance.   While BJS only missed by a penny with yesterday's 1Q08 results, the removal of guidance (was $2.45 to $2.55 vs analysts 2008 expectations which were already down to $2.32) is pretty ominous. The stock was only off a dime as investors expected even worse after SLB's comments regarding North American activity levels and pricing.

Odds & Ends

Analyst Watch: Strong buy ratings for (SLB) from Argus and for (SD) from Simmons. BofA ups solars (STP) and (CSIQ) to buy from hold. BofA then cuts coals (BTU), (FCL), (ACI) from buy to hold.

100 Responses to “Wednesday – Testing The Lows”

  1. 1
    Jonesey Says:

    Z how do you see that large net short position you mentioned in the weekend post impacting NG prices after yesterdays drop?

  2. 2
    Sambone Says:

    8:53 am EST

    Nymex Crude Follows Equity Mkts Lower

    By Greg Meyer
    Of DOW JONES NEWSWIRES

    From MARKET TALK:
    [Dow Jones] Nymex crude keeps drifting lower as fears of US recession occupy a market lacking in other news affecting supply and demand. The market also “continues to follow the lead of the global equity markets,” which were down overnight, says Jim Ritterbusch of Ritterbusch and Associates. Front-month Nymex Mar crude -$1.61 at $87.60/bbl. (greg.meyer@dowjones.com)

    Reported earlier:
    LONDON — Crude oil futures fell more than $1 in London Wednesday as U.S. recession fears continued to raise question marks over the strength of future crude oil demand.

    In the absence of any fresh fundamental news, crude markets again took their lead from equities. But volatility on global bourses failed to inspire confidence among crude traders that the U.S. Federal Reserve’s 75 basis point rate cut will succeed in shepherding the U.S. economy away from a slowdown.

    “Uncertainty about the near future and impact the latest financial crisis is likely to have on global growth remains,” said Sucden analyst Andrey Kryuchenkov, adding it is spurring speculators to reduce net long positions in crude and its products.

    At 1231 GMT, the front-month March Brent contract on London’s ICE futures exchange was down 86 cents at $87.59 a barrel.

    The front-month March light, sweet, crude contract on the New York Mercantile Exchange was trading $1 lower at $88.21 a barrel.

    The ICE’s gasoil contract for February delivery was down $6.50 at $770.25 a metric ton, while Nymex gasoline for February delivery was down 213 points at 225.93 cents a gallon.

    Much as markets at the start of the week had shrugged off U.S. President George W. Bush’s $150 billion financial stimulus package, the Fed’s surprise announcement attracted doubts Wednesday over its potency to swiftly rescue the U.S. economy.

    “The impact of an interest rate cut of whatever magnitude is felt several months down the road,” said Mike Wittner, analyst at Societe General in London. “To the extent that interest rate cut equals stronger economy, equals stronger oil demand, equals stronger prices, that’s all true…but in the second half of year, not now.”

    The dominance of economic headlines in recent days had shoved oil market fundamentals to the background, analysts said Wednesday, and the market was therefore looking ahead to Thursday’s U.S. Department of Energy inventory data for an injection of fresh fundamentals news.

    This week’s data has been pushed back a day due to Monday’s Martin Luther King Jr. Day holiday in the U.S.

    In the weekly inventory update, U.S. crude oil stocks are expected to have grown for the second straight week, up 1.8 million barrels in the seven days to Jan. 18, according to the average of a survey of 10 analysts compiled by Dow Jones suggests.

    Gasoline inventories are seen to have grown by 1.6 million barrels, according to the analysts’ average, while stocks of distillate, which includes heating oil and diesel fuel, are expected to have increased by 100,000 barrels.

    But after prices touched their lowest levels in more than a month Tuesday, Thursday’s data could see crude values edge lower still, some suggested.

    ICE Brent traded down to $85 a barrel Tuesday, its lowest since the end of October, while Nymex crude touched six-week lows near $86 a barrel.

    “This week’s numbers could get us there, especially if the data shows that demand is finally starting to give way after months of holding steady,” said Edward Meir, an analyst at MF Global in New York. “A higher-than-expected rise in crude stocks will also be a negative, although it should not cause as much downside damage as a drop in the demand readings will.”

    With economic uncertainty contributing to the more than 10% drop in prices since Nymex light, sweet crude hit its record $100.09 a barrel at the start of January, the Organization of Petroleum Exporting Countries is increasingly likely to leave production quotas unchanged when it meets Feb. 1 in Vienna, many said, an expectation providing some fundamental support for crude prices.

    “I don’t see anything in the fundamentals that is supportive,” said Jim Rintoul of TheOilTrader.com “The only support is that OPEC will almost certainly roll over.

    “There’s no chance of a hike, but if we see this continue, we may even see them put through a cut,” he said.

    —By Nick Heath; Dow Jones Newswires

  3. 3
    Sambone Says:

    How wacked is that COP beat the street numbers and the stock is down premarket.

  4. 4
    zman Says:

    J – it is supportive over time as new shorts come in, pointing to the storage overhang, at least to the five year average and say “prices must fall”. But the drop yesterday was a function of economic fear, not weather. That data is pretty hard to pin down (impossible in any thing close to real time) so I expect that the words “protracted downturn” to need to come in to play before people take it seriously. At this point I would expect some of the shorts who’ve been around and wrong to cover after the economy gave them a lucky break…especially given the current weather. I had been thinking a pull back to mid $7s was in order but due to tough comps which the current weather is making less tough. Now I’d expect very near term prices to fall in a range of $7.50 or a little lower up to $8.25 with Spring falling into the mid $6s.

  5. 5
    zman Says:

    Sam – hard to overcome 3% off sale on the Street. When the market rallies so will COP.

  6. 6
    Sambone Says:

    Looks to be another ugly day IMO

  7. 7
    zman Says:

    well, the open is more than half way to yesterday’s lows if that’s any indication. Still could close green.

  8. 8
    Jonesey Says:

    So, basically were looking at a roller coaster ride between the mid $8s and mid $7s through the end of winter; as guys like Flynn point to artic blasts continuing to pulse down from Canada to bounce prices up and strong storage numbers to push them back down in breaks in the weather??

  9. 9
    zman Says:

    Flynn is a trader and those arctic blasts matter more to him but the spikes they create are not sustainable. You could see $10+ gas at certain price points in the Northeast, no problem and I guess he’d say, see, told you so. I’m a trader too but my focus on gas is primarily to work up a price deck for modeling E&P results. Definitely see a roller coaster this winter and into late Spring. Longer term production is rising, demand is rising slower, imports are the wildcard. The storage overhang was created by weak weather, that can be fixed. The cost of drilling in the growthy areas starts to get margin below $6 henry hub so as we approach mid $6s plans will change and the rig count will trend a little lower (trending sideways right now with current prices).

  10. 10
    zman Says:

    “So Now What, Ben?” T-shirts with a picture of an ivory tower on the back now for sale in the gift shop. ~ prices are in Euros.

    People are saying 25 bps at next meeting.

  11. 11
    zman Says:

    6 down broad market days in a row.

    2256 points or 16% off the high on the Dow.

  12. 12
    sane Says:

    How about a shirt that says “What, me worry?” on the front and a picture of Big Ben on the back

  13. 13
    zman Says:

    Sane – that would be priceless

  14. 14
    Jonesey Says:

    Thanks for the insight Z.

  15. 15
    Sambone Says:

    How about “Goldilocks and the Three Bears”.

  16. 16
    Jonesey Says:

    It’s okay if you take out energy and food, inflation isn’t rising too much. How many things can they try to “exclude” when they look at inflation before they realize there’s nothing left to measure?

  17. 17
    zman Says:

    J – If you buy a lot of airplanes I hear the discounts are pretty good right now.

    Sam – who are the 3 bears? Ben, Bush, and Paulson?

  18. 18
    Sambone Says:

    #17 Three bears is the economy, stock market, and Sambone.

  19. 19
    zman Says:

    I was thinking the Goldilocks was the economy and she looks like Amy Winehouse (Sam see wikipeadia on that one).

  20. 20
    Sambone Says:

    9:43 am EST

    Nymex Crude Drops Amid Economy Worries

    BY GREGORY MEYER
    Of DOW JONES NEWSWIRES

    NEW YORK — Crude oil futures edged lower Wednesday, echoing world stock market reaction to fears of a U.S. recession.

    Light, sweet crude for March delivery was recently down $1.54, or 1.7%, at $87.67 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange fell $1.37 to $87.08 a barrel.

    After more severe losses early Tuesday, oil markets were buoyed somewhat by the Federal Reserve’s three-quarter percentage-point cut to its benchmark interest rate. But neither the Fed’s move nor word of legislative progress on a U.S. fiscal stimulus package were enough to stave off losses in global equity markets, which in turn weighed on crude.

    “We’re getting caught up in the stock market meltdown and declining expectations of oil demand in the future,” said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

    Nymex oil futures are now more than 12% off their record intraday high of $100.09 a barrel, reached 20 days ago.

    Record-high oil prices, driven by a combination of growing global demand and a tight supply picture, have helped pressure consumer spending in the U.S., the world’s largest energy user.

    The economic impact of oil prices adds pressure on the Organization of Petroleum Exporting Countries to raise output quotas at a meeting in Vienna next Friday. But crude’s recent price drop, financial market volatility and typically lower demand in the second quarter of the year make an increase less likely, analysts say.

    “We see practically no chance for an output change at the February meeting,” Barclays Capital analysts said in a research note.

    Indonesia’s OPEC governor, Maizar Rahman, told Dow Jones Newswires on Wednesday that the Fed rate cut may help boost oil demand, but added OPEC may wait one to two months for a clear direction in oil prices to emerge before making a decision on the group’s crude production levels.

    Potentially adding more pressure to crude prices, analysts surveyed by Dow Jones Newswires expect U.S. crude stockpiles to have increased for the second straight week in data due out Thursday from the U.S. Department of Energy.

    Crude oil inventories are expected to rise by 1.8 million barrels in the week ended Jan. 18, according to the mean of 10 analysts’ forecasts.

    Gasoline inventories are seen growing by 1.6 million barrels, according to the analysts’ average, while stocks of distillates, which include heating oil and diesel fuel, are expected to have increased by 100,000 barrels.

    Refinery use is seen climbing by 0.1 percentage point to 87.2% of capacity.

    “A higher-than-expected rise in crude stocks will…be a negative, although it should not cause as much downside damage as a drop in the demand readings will,” said Connecticut-based MF Global analyst Edward Meir.

    Front-month February reformulated gasoline blendstock, or RBOB, fell 3.36 cents, or 1.5% to $2.2470 a gallon. February heating oil fell 3.24 cents, or 1.3%, to $2.4402 a gallon.

    —By Gregory Meyer, Dow Jones Newswires

  21. 21
    sane Says:

    Re: 19

    The economy has been quivering like a crack head lately.

  22. 22
    Sambone Says:

    Goldilocks is Ben and the talking heads saying it’s not to hot or too cold, but just right. Not

  23. 23
    zman Says:

    Fox chick led me astray on AAPL. I didn’t buy but I may still block the channel.

    COP trying to tick back over 70

    PBR must have lost the location of yesterday’s monster discovery the way it is trading. It’s a massive gas condensate discovery. What is the one type of energy Brazil is short of? Natural gas. They import most of their needs from Bolivia. There’s probably a short in that news on Bolivian gas producers.

    If Goldilocks had a brain, she would have shot the bears.

  24. 24
    Sambone Says:

    To late, the bears ate the girl, ya know.

  25. 25
    zman Says:

    For Cowboys fans from Doc. Like you don’t have four minutes to lose on a day like today:

  26. 26
    Popeye Says:

    HK taking a pounding, probably because I added yesterday.

  27. 27
    TTupp Says:

    did we get oil inventories?

  28. 28
    zman Says:

    Popeye – No news. Estimates ticking up a little. They are going to be able to talk about that giant horizontal well in Elm Grove on the call (which is still not scheduled) and their plans to drill at least 10 more this year. Don’t see any broker comments although their might have been a reiteration today. I’d guess nervous fund bailed looking at the volume already high this morning.

  29. 29
    Sambone Says:

    T – Tomorrow. MLK holiday on Monday moved it to Thursday.

  30. 30
    zman Says:

    T: delayed until tomorrow due to MLK

    P: HK makes no sense but people are piling on right now. It’s not like it trades at a premium at all.

  31. 31
    Sambone Says:

    Street doesn’t like RIG either today.

  32. 32
    zman Says:

    XOI: down 4%
    XNG: down 2.5%
    OIH: down 4%
    Dow: down 0.9%
    S&P: down 1.0%

    sector ration continues

  33. 33
    zman Says:

    Solars down 5 to 15% apiece today

    COP call starting

  34. 34
    zman Says:

    COP 4Q slideshow:

    http://www.conocophillips.com/NR/rdonlyres/3638CF93-E729-4581-8166-A8BB39986D4E/0/4Q07slides.pdf

  35. 35
    Sambone Says:

    Nicky’s broker

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

  36. 36
    zman Says:

    Panic on some charts setting in:

    FSLR now down $20, looks to see $150 soon.

  37. 37
    zman Says:

    Analysts on COP sound pleased … not that it matters today.

  38. 38
    scoop006 Says:

    Cramer bought 200 shares of COP,says too cheap

  39. 39
    Sambone Says:

    Energy patch starting to get real cheap. I’ll be in soon.

  40. 40
    zman Says:

    COP has lots of company. I won’t spend another dollar until the …

    COP management sees falling Canadian gas imports and sees less LNG coming to U.S. than other people think as shipments are “competed” away.

    RIG/DO just getting destroyed

  41. 41
    Popeye Says:

    Flynn: blame OPEC.

  42. 42
    zman Says:

    Your tax dollars not at work:

    “The economy has been able to withstand it until now,” Bodman said. “I believe the $100 price of oil is starting to have an impact,” he told reporters while visiting Cairo.

    Could he be a little more vague? This guy is less effective than Bernanke.

  43. 43
    zman Says:

    APC down 8% today. If you have anything to do with energy people just hate you now. This is getting well into oversold territory.

  44. 44
    zman Says:

    Good luck getting the S&P off the ground with 15% of it (energy) getting mugged.

  45. 45
    zman Says:

    This kind of market highlights the essential options trading concept of scaling in. I put 20 to as much as 33% on of what I feel comfortable trading with the first trade. Then I watch and wait. Yesterday’s bottom fishing trades are painful but not catastrophic. Given the speed with which the sector is becoming cheaper this method gives you an opportunity to grab the next strike down or fold or do nothing at all. If you swing for the fence with that first trade and the market proves you wrong, well, that’s just bad.

  46. 46
    Popeye Says:

    I keep saying no mas on HK but I can’t seem to resist, violating my rule on buying the stock on at least a hint of a confirming reversal.

  47. 47
    zman Says:

    Rig down $11 (9%)- no news

  48. 48
    Sambone Says:

    Wow, they are really exiting the patch now.

  49. 49
    zman Says:

    Sam, aye capitulation. My bottom fish trades went straight into the toilet. See #45.

  50. 50
    Sambone Says:

    Hmmm, VLO right at support. Can’t decide.

  51. 51
    Sambone Says:

    Just bght ALJ

  52. 52
    zman Says:

    I’d consider taking some DIG calls with it off 12.5% now but the strikes don’t go down this far.

    Sam – I’m thinking bigger is better when they rally unless your long term and then stocks. TSO should run well this Spring and its almost at support as well. VLO I like too but not before earnings.

  53. 53
    zman Says:

    Where’s the stimulus package? oh, yes, held up by politics.

  54. 54
    Sambone Says:

    Z – Give me favorite list of companies that you want to own long term again. Need oil, gas, drillers, services, etc.

  55. 55
    zman Says:

    FSLR down 35 to $147. Gotta think recent holds here will change to buys soon.

    Sam – will do.

  56. 56
    Sambone Says:

    VLO, COP, and HAL have hit my buy targets.

  57. 57
    zman Says:

    Just tried and missed FSLR calls.

    Sam: The Long Term List

    Majors: COP

    Int’l: PBR

    E&P: APA, APC, (HK & NFX are good takeout candidates)

    Pure N Gas Growth Plays: CHK (cheap and high growth), SWN (extreme growth), SD (high growth)

    Ind. Refiners: VLO, TSO, FTO

    Service/Drillers: RIG, OII, CLB, HAL

    Other emerging interesting: PQ

  58. 58
    Popeye Says:

    Energy coming off the LOD? I hope so, bought more HK @ 14.41.

  59. 59
    apbd Says:

    Just looked at the refiners. Nobody’s ever drive again?

    Z: Any thoughts when it’s time to consider the dry bulks (DRYS) again?
    Thanks,
    apbd

  60. 60
    zman Says:

    Popeye – best of luck with it. I still see no news and now, it being down 8% on the day is on par with a lot of moves in the group.

    Energy does seem to be off lows despite another slump in the broad markets.

    Thoughts on FSLR – suddenly oversold, reminds of the dry bulks a lot. A move up of half today’s loss should yield about a 40% return on some steeply out of the money calls in March.

    A – re refiners, people are driving just fine but the refiners continue to do little more than break even on that high priced gas you’re buying – see today’s charts.

    Drybulk getting very close.

  61. 61
    zman Says:

    damn, missed the FSLR

  62. 62
    scoop006 Says:

    anyone follow VNO?

  63. 63
    zman Says:

    Scoop – sorry, no.

    FSLR – bricked the rebound there, now down $23 from $36

  64. 64
    zman Says:

    market trying to go green

  65. 65
    zman Says:

    another size build in crude and gasoline expected tomorrow. Any miss on the imports side or a slight recovery on the refining side after last week’s dip and we could see a small than expected build or draw which bounce crude towards $90.

  66. 66
    Dman Says:

    Entered calls on OII, HAL, HK.

    Z – Do you still like the entry on PBR here? It acts like someone else made the find, but the world will figure it out soon enough, right (?)

  67. 67
    doc Says:

    A strange sad day. All of my longs are red & all of my shorts are green. This has never happend before. Net-Net I am down huge for the YTD with CHK sinking.

  68. 68
    Dman Says:

    CHK drilling a hole in the market with one of their spare rigs…

  69. 69
    zman Says:

    Dman – love the company, love the find, hate this market. Entry here? Tell me what the market is going to do energy tomorrow, lol.

    The concept that this potential recession is going to trash oil demand is complete bunk. Dent it? Maybe, the evidence in previous instances of recession is mildly convincing of dent potential at best…and it lags so you won’t see serious “destruction until 6 months from the downturn (that’s negative) GDP.

    HK for earnings as I don’t see a catalyst pre call. Therefore, I’ll wait til we get closer to add calls to my share position.

    Doc – you do scale into positions, no? CHK fundamentals have done everything you could have wished. Stock probably does $10 CFPS this year given their hedges even if the strip deteriorates from here so we are trading at 3.5x NTM results. We’re growing to grow production 20+% and service costs are leveling off to declining in general but as the most active driller, our leverage puts us to enjoy better than average costs reductions. From a technical standpoint the chart fell out of bed today but at least it fell into support. Will add more but at the $35 and/or $37.50 March strikes for the call on 2/21.

  70. 70
    zman Says:

    suddenly dow up 45 with nasdaq still down 24 ponts. Energy sector losses cut in half, Chinese oils going positive.

  71. 71
    zman Says:

    ZTRADE: March $60 DRYS Calls for $5.60.

  72. 72
    zman Says:

    That should kill the stock ones and for all.

  73. 73
    zman Says:

    Dow up 120…this market has no idea about value.

  74. 74
    zman Says:

    PBR suddenly up $3 off the low and rallying fast….its like flipping a switch.

    COP, which beat by the way and had a good CC, is still off 2.5%

  75. 75
    Sambone Says:

    443 point swing on the Dow today.

  76. 76
    TTupp Says:

    pbr off a ramp

  77. 77
    Sambone Says:

    Wow, 503 point swing today. This is a “Melt up”.

  78. 78
    Popeye Says:

    Go energy!

  79. 79
    Sambone Says:

    3:21 pm EST

    Nymex Crude Ends At 3-Month Low On Economy Fear

    By GREGORY MEYER
    Of DOW JONES NEWSWIRES

    NEW YORK — Crude oil futures slumped to their lowest close in three months Wednesday as traders foresaw a weaker U.S. economy cooling oil demand growth.

    Light, sweet crude for March delivery closed $2.22, or 2.5%, lower to settle at $86.99 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange dropped $1.75 to $86.70 a barrel.

    Crude prices fell a day after the Federal Reserve announced an emergency three-quarter percentage-point interest rate reduction. Traders took the cut more as evidence of economic weakness in the world’s hungriest energy consumer than a sign Fed Chairman Ben Bernanke will be able to forestall a recession.

    “The market is responding to concerns about recession, notwithstanding Bernanke’s 75 basis point rate cut,” said Bart Melek, global commodities strategist at BMO Capital Markets in Toronto.

    Oil markets moved in tandem with equities for much of the day, though the Dow Jones Industrial Average had pared back most of its losses by the Nymex’s 2:30 p.m. EST settlement time. Though stocks and commodities don’t necessarily track one another, crude traders said they took the stock market’s early tumble as bad news for the economy.

    The Nymex close was the lowest for a front-month contract since Oct. 23, when oil settled at $85.27 a barrel. Brent crude last closed lower, at $86.64 a barrel, on Oct. 30.

    In the intervening three months, oil prices soared, briefly peaking at $100.09 a barrel, as the market responded to threats to supply, a weaker dollar and strong demand growth in Asia and the Middle East.

    But mounting signs the U.S. economy is headed for a recession have shifted focus toward demand in the nation that remains the world’s largest user of oil.

    “Energy prices are much more a barometer of economic sentiment and capital market conditions than a mirror image of overall supply conditions,” said Mike Fitzpatrick, an New York-based analyst at brokerage MF Global, in a client note. “The price descent may prove brutally swift.”

    The economic impact of higher oil prices adds pressure on the Organization of Petroleum Exporting Countries to raise output quotas at its meeting in Vienna next Friday. But crude’s recent pullback, financial market volatility and typically lower demand in the second quarter of the year make an increase unlikely, many analysts say.

    At this point, OPEC members are sending mixed signals.

    The United Arab Emirates’ oil minister told Dow Jones Newswires the organization will be addressing concerns about a slowing U.S. economy at the meeting, but declined to say whether he favored a production hike or for OPEC to leave its output unchanged.

    Venezuelan oil minister Rafael Ramirez said Wednesday OPEC shouldn’t increase oil output and dismissed fears a U.S. slowdown could hurt crude prices. Meanwhile, Indonesia will ask the organization to increase its output by 500,000 barrels a day if demand increases, Indonesia’s OPEC Governor Maizar Rahman said.

    Potentially adding more pressure to crude prices, analysts surveyed by Dow Jones Newswires expect U.S. crude stockpiles have increased for the second straight week in data due out Thursday from the U.S. Department of Energy.

    Crude oil inventories rose 2.1 million barrels in the week ended Jan. 18, according to the mean of 16 analysts’ forecasts.

    Gasoline inventories are seen growing by 1.4 million barrels, according to the analysts’ average, while stocks of distillates, which include heating oil and diesel fuel, are not forecast to have changed. Refinery use is also seen as unchanged.

    Front-month February heating oil dropped 4.95 cents, or 2%, to settle at $2.4231 a gallon. February reformulated gasoline blendstock, or RBOB, fell 2.98 cents, or 1.3%, to $2.2508 a gallon.

    —By Gregory Meyer, Dow Jones Newswires

  80. 80
    zman Says:

    SLB just went green…first time since earnings and at 77, pretty far off the recent high of 110

    HK green – nice move popeye!

    PBR green now.

  81. 81
    zman Says:

    APC people…not would probably be a good time.

  82. 82
    Sambone Says:

    Wow, 574 point swing. Was down 327, now up 250. The TRIN tells me that there are more sellers than buyers, but how can that be?

  83. 83
    Popeye Says:

    I hope someone picked up DRYS near the lod.

  84. 84
    TTupp Says:

    900 total points lost then gained since yesterdays close!

  85. 85
    TTupp Says:

    long tails on daily candlestick charts are usually a nice reversal indicator. among our ridiculously oversold condition; however long it will last. i agree with nicky that it will take one last leg down to 11,500 or so, and maybe some consolidation in that area for a bit.

  86. 86
    TTupp Says:

    bond insurers getting bailed out

  87. 87
    TTupp Says:

    abk running from 8$- $14 prob by close

  88. 88
    Sambone Says:

    This is crazy, look at the move on RIG today.

  89. 89
    zman Says:

    PBR too Sam and COP finally getting some respect, lol.

  90. 90
    TTupp Says:

    wow like magic i covered all the puts i had for a daytrade at about 1pm. thank god

  91. 91
    Dman Says:

    Wow. That’s one zany day finished with. One for the books.

  92. 92
    Sambone Says:

    631 swing, Wow. ABK and MBI looks to be bailed out.

  93. 93
    zman Says:

    amazing amount of late trades still going through

  94. 94
    TTupp Says:

    great. stupid platform kept not showing fills and didnt know i kept getting filled when i thought i canceled the order than re-entered it, i kept getting filled. so now i have frggin 100 contracts of vlo calls instead of 10. im pissed

  95. 95
    zman Says:

    T: that stinks, see 93…not surprised. who is that so I never use them.

  96. 96
    TTupp Says:

    td waterhouse (the brother of td ameritrade) . this is the second time they have done this. might have to get a 4″ T1 fiber optic cable ran to my house- obv. thats what they will blame it on if i call and complain.

    i use interactive brokers for my fund, but all the retirement accts i take care of for family are with td. terrible. ive been shopping around for a while for a new broker.

  97. 97
    TTupp Says:

    td is hilarious. i got a new platform from them they just came out with in the summer (light years behind) “the active trader platform”, i think it was programed by a bunch of first graders, and revised by apes.

  98. 98
    zman Says:

    HOLDINGS TAB UPDATED:

    I actually had a pretty decent day.

    Also, there is a new tab called Holdings Wiki that subscriber rkpagdala and I have been discussing. It’s in html so its just symbols and no more. The purpose is two fold:

    1) to allow a quick place to put the symbols and that they be drag and droppable to get a quick quote on systems that allow that and
    2) to provide a place for subscribers who wish to disclose some or all of their holding to the group. Just drop them in a comment on the tab and I’ll put them in the top of the page.

    I don’t know if there’s a big call for either but I was asked for this and I’m nothing if not accommodative.

    Z

  99. 99
    Wyoming Says:

    Thought this was interesting:

    http://news.yahoo.com/s/ap/20080124/ap_on_re_us/drought_nuclear_power

    Also read a comment about the PBR find above, condensate finds are OK if it drops out while flowing up the well. If the condensate forms in the formation while it is flowing to the wellbore, then it is a little more tricky as there are 2 phases flowing in the rock.

  100. 100
    zman Says:

    Wyo – thanks for the headsup. This has been happening every summer as a combination of low water levels and hot water, too hot for the circulation system in a nuke, have combined to shutter a smaller % of nuclear capacity. It also has from time to time a negative impact on hydro although this years snow fall totals should produce enough melt to have much of an effect this spring. Still, the only only swing fuel to nukes is gas as both nukes and coal generally run balls to the wall.

    By the way, working up a piece for month end on IOC.

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