07
Feb

Thursday Thrashing – Gas Preview and Oil Review Slideshow

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The market is called about a percent lower on lackluster (CSCO) results, a cautious outlook from (WMT) and a possible indictment of Bear Stearns. In energy land, both (DO) and (SUN) posted less than stellar results and crude is being dragged down by that broad market weakness and continued selling from yesterday's big inventory build. On the plus side, (APA) reported a nice quarter. While E&P results continue to trickle out (EOG tonight) they will be given little notice if the market continues to shed multiple percentage points per week. Alternative energy, which ran with crude, is likely to rollover as consumers and utilities shy away from major purchases ...especially if oil starts to look vulnerable to a plunge toward $80 or lower.  

Commodity Watch:

  • Natural Gas: Continues to flirt with $8 as cold weather waxes, wanes, and waxes again.  This morning gas is trading up another 5 cents.
  • My Number: 170 to 180 Bcf. Last year saw a withdrawal of 219 Bcf and the five year average is 177 Bcf. So we should give up a little ground to the year ago number (we're already in a steep deficit so I really don't care) but tread water or even slightly erode the surplus to the five year average. 
  • Imports: saw a big jump week to week with abnormally high volumes coming down from Canada and the first > 1 Bcfgpd LNG week in 3 months. 
  • Weather: it was cold last week with a reading of 212 HDDs, which is nearly normal but well below year ago levels of 240.
  • Street Consensus: 190 Bcf.
  • Crude Oil: Tumbled after a larger than expected build in crude. Oil fell $1.27 to $87.14 and critical support remains as $85. This morning oil is trading off another $0.65 as global equity markets look set for another weak day.
  • EIA Economist Sees Recession Impact Having More of a Muted Impact Than People Think. Since this is an opinion I happen to agree with I'm printing. The EIA's economist says that after years of adjusting to high oil prices by way of increased efficiencies the overall impact (lower bound I might add) would be a reduction in U.S. demand of 400,000 to 500,000 bopd (on average for the year). This jives pretty well with my earlier comparisons of GDP slack periods and recessions to U.S. crude demand.
  • Nigeria Watch:  Rebels agree to go back to the peace talk table but MEND abstains. Ok, first you gotta love the rebel leader who is a non-MEND (movement for the emancipation of the Nigerian Delta) and who is talking nice now, Government Ekpemupolo. I once knew a guy who's parents named him Doctor; that didn't work either. Anyway, MEND who scheduled attacks last weekend is still talking tough and vowing more violence.
  • EIA Says It May Bump Up SPR Rebuild. Looking to add 125,000 bopd between May and September. I'm sure what the point of press releasing these musing is since as soon as they say they will or won't be refilling the SPR they do the opposite within a week or two.
  • Nigeria Watch: Shell says 130,000 bopd of Bonny Light crude will be shut in through March since it has been unable to complete repairs to the Nembe creek pipeline damaged last year. These volumes are on top of the 500,000 bopd already shut in by rebel efforts in the Delta.

 

EIA Oil Inventory Review

exp-vs-act-020108.jpg

 

 

Crude Oil: 7 million barrel build. Much bigger than expected. Combination of higher imports, lower demand.

Take This Crack Spread and Shove It. Refinery utilization fell again and by more than was expected. Most analysts were looking for utilization to fall 0.1% but it took another nose dive to 84.3% which is pretty much on top of the record low for this time of year. This resulted in another drop of 140,000 bopd less barrels being needed by the industry to make product.

 utilization-020108.jpg

Crude Imports Bear Watching. Recent tanker tracker quotes have pointed to a rise in OPEC shipments extending into late February.  

crude-imports-020108.jpg

 

crude-stocks-020108.jpg

Gasoline: Sees a sizable build as demand slips for a sixth consecutive week. Although production continued to weaken, imports continued to ride the top of the historic chasing unseasonably high current prices. Gasoline stocks are now slightly higher than last year and 5% above the 5 year average. 

 

gasoline-production-020108.jpg

 

gasoline-imports-020108.jpg

 

gasoline-demand-020108.jpg

Gasoline stocks are more than adequately supplied.

 gasoline-stocks-020108.jpg

Distillates Also See A Build: Although heating oil stocks remain low that seasonal demand is waning. ULS stocks remain more than adequate. Looking for prices to dip soon.

distillate-stocks-020108.jpg

Holdings Watch

(IOC) - added to March 20 call position for $2.50. Radio silence at ELK 4 will make me take puts soon.

Stocks of Interest Today & Earnings Watch:

(APA) Reports A Beat

  • EPS of $2.92 vs expectations of 2.52. More importantly,
  • CFPS came in at $5.36 versus expectations $5.10. 
  • Have not yet seen guidance as this came out right before post time, will add color in comments.
  • Conference call today at 12 ET

(DO) Throws Up A Brick

  • Reported EPS of $1.19 (including $0.42 of non-recurring tax expense). Even reversing this out the company falls short of Street guidance of $1.68.
  • Revenues of $667 were also short of expectations of $681.
  • Special dividend of $1.25 was at the low end of expectations. Some analysts (chiefly Wachovia) had been selling upside for this number from the expected range of $1.25 to $1.35.
  • Contract drilling costs were higher than expected.
  • Conference call today at 10 EST.
  • This will obviously drag service and especially RIG through the mud.

(DO)'s Segment Margins slipping pretty hard YoY, but stabilized sequentially

do-segment-marginsa.jpg

(SUN) Reported a loss but excluding one time items their 4Q EPS comes to $0.20, short of expectations of $0.36. I may re-enter my puts here as the recent decline in industry utilization is not helping to work off high inventories but is instead being met by weaker demand (both weather and driving). 

Odds & Ends

Analyst Watch: (PXD) raised to buy at Citi while FBR cuts their price target from $70 to $60, (CLR) initiated at buy at Jefferies with a $30 price target, 

92 Responses to “Thursday Thrashing – Gas Preview and Oil Review Slideshow”

  1. 1
    texana Says:

    z on options for apa in this type of mrkt will u wait till the conference call to sell or sell on the morning pop thx tex

  2. 2
    zman Says:

    3 out of 4 times you’re better off selling the initial excitement. However, if we can have a market up day tomorrow I think follow through could carry it over $100.

  3. 3
    zman Says:

    so I may sell it and buy longer higher…hard to say…wish I could find guidance.

    markets coming back up a bit from lows, any economic news to blame?

    that news out of Nigeria displaces about 0.75% of U.S. refining capacity demand for crude.

  4. 4
    Nicky Says:

    Morning all. Broader markets look to be opening into support. Should this area fail then next stop is 1300 spx.
    Japan actually ended up overnight although their futures have slid again this morning with the US market.
    FTSE didn’t like comments out of the BOE that they saw inflation risks which may limit their rate cuts. Trichet STILL hawkish.
    Cisco awful, retail numbers awful, job numbers slightly better than expected.

  5. 5
    Nicky Says:

    There is a Fed speaker on at 1pm – this is the guy who dissented at the last rate meeting so this could be the loose cannon for today.

  6. 6
    zman Says:

    Texana – that open on APA should answer the question for you … no sell yet for me.

  7. 7
    zman Says:

    PBR getting a nice bounce on a bio-fuels plant opening.

    whoa APA getting flogged suddenly, looks like someone trying to force it lower , reserves looked fine, I’m sure guidance will be on the call and in another release…would have thought a lack of 2008 guidance would have shot it down before the open if it was going to. Very odd .

  8. 8
    zman Says:

    Added a segment gross margin break out table for DO above.

    Getting on their conference call now as the stock approaches session lows down 6

  9. 9
    Nicky Says:

    SPX hits 1317 which is the 61% retrace of the rally.

  10. 10
    zman Says:

    Thanks Nicky, nice call to the numbers re SPX so far!

  11. 11
    zman Says:

    DO Call Notes:

    11 billion backlog…no big changes since December contracts with Brazil.

    RE GOMEX jackups – seeing “pretty strong interest” …looks terrific compared to how it used to look.

    Seeing some slippage in construction in Brownsville and Singapore. Don’t expect it to hurt plans yet.

    …very few new JU ‘s headed into the Gomex…sounds like they expect rates to turn up more here.

    …more to come…

  12. 12
    zman Says:

    DO Notes

    4Q was a little hinky for operations
    36 days more downtime on one rig in the GOmex

    32 days of longer than expected perf testing on new rigs and upgrades

    extended downtime on international rig due to an invasive mussle attaching itself to the rig – that’s pretty one time I’d say. $5 million cost to remove some clams from the lower hull + plus missed revenue time.

    very tempted to buy this thing now.

  13. 13
    zman Says:

    EOG running into earnings tonight, I’m not chasing.

    APA cleaning up now.

    More DO notes:

    DO says its not exposed to further mussle issues in the future. Stock is cleaning up.

    inflation sees 10% this year for the industry – this is their costs and the costs that Cramer was talking about

  14. 14
    zman Says:

    DO Notes:

    10% inflation of costs
    9% increase in other costs but they will be offset by higher revenues.

    DO status report out – will have a look, stock really cleaning up as the call progresses.

  15. 15
    zman Says:

    RIG is going to go positive if the market holds up. DO quarter is very one time and very company specific.

    The margin chart about and the cost guidance DO is giving pretty much tell you that Cramer was wrong.

    Gas withdrawal: 200 Bcf

  16. 16
    zman Says:

    ZTRADE: COP FEB $75 Calss for $1.06 on that gas number.

  17. 17
    rseidman Says:

    Z:
    When do you think we should let our CHK Febs go.
    A large loss is still better than a complete loss

  18. 18
    rseidman Says:

    Z: Perhaps you see something I don’t see regarding CHK

  19. 19
    QUARRYMAN Says:

    Z.,

    What about the HAL and RIG calls?

    Any news coming on these this week?

    Can you think of any good oil patch hedges to short?

  20. 20
    zman Says:

    Those are $37.50s and I plan to hold them to Monday. Monday would be the last day that gas could provide a bit of a pop (last weather forecast). As far the stock its performance isn’t out of line with the group…just mired right now. Monday may break it out. Earnings aren’t until after expiry but they may have a reserve report out early, never can tell.

  21. 21
    zman Says:

    Q – simply got to get the market to go up to get them up. Service is off ~ 20% ytd, RIG is only seeing improved rates in the deepwater, DO just outline the costs of running a rig and they are pretty well contained. Non-revenue offset costs are going to rise about 10% this year which is not bad. The stocks are trading lower due to them being a source of funds (up a lot last year) and not based on fundamentals (either current valuation or prospects).

    NFX is the same way, the flow of news is all better than expected…and no one cares.

    APC had a good quarter and is off 7% or so since.

    APA had a great quarter, good reserve report, and you can barely get it up a dollar.

    Notice I’m doing less trading of late and sticking to the liquid names as they will bounce back first.

  22. 22
    redjack Says:

    Z…the NOV cc was a lot more upbeat than the DO cc…

  23. 23
    zman Says:

    Q – as far as news this week for those 2 names: No, not this week.

    Shorts: SU, USO on crude breaking $85…right now oil is trading flat to up at 87.23. Resurgent cold demand and Nigeria to blame.

    RJ – I didn’t think the DO call was downbeat.

  24. 24
    zman Says:

    RJ – and I’m guessing that NOV has undeservedly been flogged last two days. That’s a market thing of late…pick a direction and run with it. If DO closes red they will have a bad day for 2 to 3 more days likely.

    RS – CHK may also run into earnings which is the week after next. Since we’re just out of the money, the 37.50s could easily clear a buck. But I hear you.

  25. 25
    zman Says:

    TRADE: Out DRYS March $60 calls for 11.95 average, up 113%. Will reenter higher strike soon.

  26. 26
    zman Says:

    ZTRADE:

    Out 2x position in RIG February $140s for $0.80, down 70%.

  27. 27
    zman Says:

    That last trade should have been the $130s, same loss.

  28. 28
    Nicky Says:

    Market acting very weak right now. We would need to take out 1338 spx to signal some sort of bottom.

  29. 29
    zman Says:

    Nicky – hows RBOB and heat look to you? I’m thinking lower soon given both the charts and the inventories.

  30. 30
    j Says:

    Alon cuts rates at Ca. refinery on poor margins

    NEW YORK, Feb 7 (Reuters) – Alon has cut rates at its 85,000 barrel-per-day refinery in Long Beach, California due to poor refining margins, according to a company spokesman.

    Two of the four crude units have been shut and two others, with a combined capacity of 54,000 bpd, are running at reduced rates, Alon spokesman Joseph Israel said.

    The refinery will continue to operate at current rates through February, while the company continues to monitor refinery margins.

    “We will continue to adjust throughput

  31. 31
    zman Says:

    Getting more and more tempted to by calls on DUG just looking at the broad market charts. Looks to me like until the DOW tumbles another 300 to 400 points good news on individual companies will treated as a 1 or 2 day event at best. Spreads are awful though.

    Anybody got the name of those alt energy ETFs?

    IOC had a 1% of shares block trade earlier, now ticking up.

  32. 32
    zman Says:

    APA conference call in 2 minutes. Worst hold music ever. Stock rallying a bit into the call.

    Drybulks putting on a nice rebound today. Thinking of adding QMAR calls.

    Majors trying to move up here. Oil putting on a nice rebound – Nigerians.

  33. 33
    Denise Says:

    Good morning-unusual comment by my ace T/A lady this am-says when she sees someone on CNBC arguing with a smart technician that the technicals are awful to which the ta person says they are not.
    Too much bearishness by the media coupled with the fact there are fewer new lows-We are due for a rally
    I also briefly watched Cramer this am-and he was really dispirted(good tell when he gives up the ghost)
    We will see-

  34. 34
    Denise Says:

    Z-Mr K just said his favorite short was the DUG today

  35. 35
    zman Says:

    APA 4Q07 C.C.

    laundry list of massive reserve targets this year. Egypt, Australia, Brit Columbia,; total exposure is 2B barrels net

    nothing really new so far aside from a few positive well results.

    Project development news all looks on track, nothing earth-shaking so far.

    International gas fundamental comments:

    seeing gas prices move up globally, they’ve been profitable at $1 to $2 and those are all moving up to the $7 level as LNG demand is increasing and international gas markets become more developed. They made this point in the pr but are hammering it home on the call. This could lead to some upward revision to 2008 and beyond estimates.

  36. 36
    zman Says:

    D – usually when I get bummed enough to consider hedging everything the group is about to turn up. This recent beating has been over the top.

  37. 37
    zman Says:

    D – so he’s thinking energy a bounce?

  38. 38
    Denise Says:

    Doug is shorting Dug today-
    I am joining in

  39. 39
    Denise Says:

    Z-hmmmm…
    My three best Tells-Cramer on the floor-Mr K bullish(for a few moments) and my TA
    lady rarely ever makes a comment during the day. The stars might be aligned for a day or so

  40. 40
    zman Says:

    RE APA – I’m holding a little longer.

  41. 41
    Denise Says:

    According to Reuters-GM says 1/2 its cars will be running on ethanol by 2012

  42. 42
    zman Says:

    APA call going very well, analysts pleased, etc. Looks to me like upside to current estimates on the way.

    NFX reports for 2/12. I expect a very positive call / report there. Stock is off from 3Q and off today. Will enter calls tomorrow.

    D – those likely will be E capable to 15%. Note the e85. Also, most people don’t know that your mileage goes down with ethanol, lol. So from a hydrocarbons standpoint, using current ethanol production methods, its at best a wash.

  43. 43
    zman Says:

    APA just said international jackup rates appear to have peaked near term and are falling. I’ve seen those flattening but not seen a lot of talk of international dayrate decline.

    APA approaching session highs in the Q&A.

  44. 44
    Denise Says:

    Mr K just covered his coal shorts-
    Thinking of buying BTU for a trade

  45. 45
    zman Says:

    APA conf call

    “N. American service costs are coming down”

    Reiterating SLB’s comments two weeks ago. We all know it but it’s good to hear them say it. Should be lifting to the domestically focused E&Ps – APC may actually go green now.

  46. 46
    zman Says:

    APA will be speaking at CS first boston conference tomorrow, call is over, very upbeat, holding calls at least into the morning.

  47. 47
    zman Says:

    RS – you can sell those CHK calls for 2x what they were at the open right now.

  48. 48
    Nicky Says:

    I agree Denise. When you look at the futures this morning this market has behaved very well today – the nasdaq is even positive now.
    We could get an absolute blast higher any time.

  49. 49
    Nicky Says:

    Keeps backing off the 1338 spx area – been there 3 times now.

  50. 50
    zman Says:

    Nicky – there’s another trip to and failure to hold 1338 for you.

  51. 51
    zman Says:

    SPX at 1340.

  52. 52
    zman Says:

    Ztrade: Entering March 80 DRYS Calls for $4.80.

  53. 53
    zman Says:

    Wiki updated for trades. RK, I am looking at installing a true wiki plug in this weekend.

    APA on fire now.

    APC actually green.

    CHK up 2%, very rare, don’t miss seeing it.

  54. 54
    Dman Says:

    Oops, looks like I missed the fun part of the day.

    Z- top 5 suggestions for share accumulation here?

  55. 55
    zman Says:

    Dman – we’re talking stocks, not options right?

  56. 56
    Dman Says:

    Z- yes indeed, stocks…

  57. 57
    zman Says:

    Dman, as you know, I don’t do that anymore as I my licenses are all (thankfully) expired.

    But I hold the common on HK and NFX both of which are reducing operating costs, extending reserve life, reducing F&D costs and won’t be on their own for long.

    SD owned as well …interesting long term but nothing to set your hair on fire right now.

    PQ another very interesting little E&P.

    SWN probably the fastest grower out there but priced like it. Very well run, may have an issue with production taxes later this year though.

    KWK – gassy company that trades with oil due to high NGL in the mix. Very high growth, very well run.

    I think the EVEP (gassy) and MVO (oily) are interesting ways to play the game and get paid while you wait and I’m close to taking on some of one or the other (in the IRA) or maybe a different name in the RT group soon. See last weekends’ wrap for a few more deets on those.

    Right now though this market stinks.

    There are also a number of interesting names under $5 that if you have patience could turn out to be big but in this market are toxic. They’ll all be speaking at IPAA OGIS next week and I’m sure I’ll highlight one or two.

  58. 58
    scoop006 Says:

    Z You think Feb $105/110 DO calls have any value

  59. 59
    zman Says:

    Sent to me by a subscriber:

    Ship broker warns of potential disaster fro drybulk sector.

    http://www.lloydslist.com/ll/news/viewArticle.htm?articleId=20017502992

    Bill – any thoughts. It seems like a bit of an oversimplification on the adds swamping current capacity of ships and China slowing down steel making or taking it from domestic iron ore supplies instead of having to ship it in. Going to run this by a transportation analyst.

  60. 60
    zman Says:

    Scoop – that depends more on the broad market than the stock itself.

    I have heard on two calls today more signs of slowing in the international jackup market. I’m also staying away from ATW into the close and earnings which may be the wrong play but better safe than sorry.

  61. 61
    zman Says:

    Scoop – you still short FSLR, earnings on the 13th.

  62. 62
    scoop006 Says:

    Yes $170 in @ 15.50 almost pressed the sell button this morning @$20.” Regrets I have many.”

  63. 63
    zman Says:

    Re Solar – lot of new competition coming, lots more capacity, here a new story every week. Gotta wonder if FSLR’s multiple can hold up. I honestly don’t want to own it across and earnings date as you have no idea if the estimates are close or if a beat will matter.

    That YGE just keeps circling the drain.

  64. 64
    scoop006 Says:

    Re YGE last FRI. the $20c’s were@.65 and Mon./Teus. were $4.00+

  65. 65
    scoop006 Says:

    #64 correction The $22.50’s were.65,not the $20

  66. 66
    zman Says:

    wild isn’t it? a fella with a fast trigger finger can make a fortune buying the lows and trading the tick chart.

  67. 67
    scoop006 Says:

    I must have arthritis in my fingers

  68. 68
    zman Says:

    me too but I watched it go from down 7 to down 2 several times today over very short periods of time.

  69. 69
    Denise Says:

    My wave/voodoo man said spx 1310 was the make or break level-who knows we have 30 minutes left
    I noticed the dow went positive when that Gasparino fellow came on the tube-boy I am tired of him

  70. 70
    zman Says:

    same thing goes for DRYS on the wild trading.

    Denise – gasparino was the one breaking the bear stearns story early….he’s generally bad for the markets, lol.

  71. 71
    Denise Says:

    I know thats why I was suprised when we went green-he seems to be rehashing the known news every day at 2:30

  72. 72
    Denise Says:

    Z- I know I have asked this before-but any change in your thinking that Elk4 results might come after Feb expiration?

  73. 73
    zman Says:

    D – They could but I expected them this week. I own Marches for that reason.

  74. 74
    zman Says:

    When I say expected I’m saying: 1) its been a little while since the last drill report (Jan 17) and based upon that and how far they had to drill to TD you’d think they could reasonable have been down (at least into the prospective pay zone) by the end of the month. Why no news? No idea. Very tight hole as you could guess from the relative importance it has to the company. If it were bad news and leaked the stock would be much lower by now. The little bit of selling we’ve seen is nervous hands thinking we should have heard something by now. It makes me a little nervous too and if we get nothing tomorrow I hedge up.

  75. 75
    Denise Says:

    Z-IOC someone making a bullish bet?(I am not a option person) look at feb and march volume-calls/puts-what is your read or any one knowledgable?

  76. 76
    irished Says:

    boss man
    any thoughts on FTO march 40’s. Lots of buying today.
    thks

  77. 77
    zman Says:

    FTO is my favorite little refiner and the one I think has a good chance to beat numbers. They beat last quarter and are down 20% since then. Sweet-sour spreads have stayed wide (actually widened) during the 4Q so other than a little volume hit (which should be factored in) over a fire they had back in December. The call on Feb 28 will need to address when the Wyoming refinery will get back up to full capacity.

  78. 78
    Dman Says:

    Speaking of wild, todays swing in OII is 6.6% on no news. Anyone for daytrading? If these swings persist, the ranks of the fast trigger dudes will swell and then the fun will really start. What odds that Cramer returns to his minute by minute performance?

    Irony of the day: Doug Kass, the “dedicated short”, shorts DUG. But um…wouldn’t that make him *long* something. He might have been responsible for what looked like a short squeeze today, LOL. What will his buddies say at beer o’clock?

  79. 79
    zman Says:

    D – one second, wow volume, one second

  80. 80
    Nicky Says:

    Exhausting markets – we need today’s lows to hold and today’s highs taken out to continue what is potentially an up cycle into 11/12th Feb.

  81. 81
    zman Says:

    D – looks like two strangles for 10,000 contracts, one feb , one march.

    Here’s a pretty good explanation of the strangle:

    http://www.optionsxpress.com/educate/strategies/strangle.aspx

  82. 82
    scoop006 Says:

    Z check .NBRCF big volome

  83. 83
    Popeye Says:

    Reading the late comments today reinforces what I was thinking all morning which is, I need to start playing the swings. I’m holding enough shares that I only need a few dimes/week to make a nice profit.

  84. 84
    zman Says:

    Nicky – too true. Very hard to make a buck right now.

    Anybody big non-energy making news after the close today?

    Oil and natural gas moving higher in the after markets.

  85. 85
    Dman Says:

    Nice finish for CHK…

  86. 86
    zman Says:

    NBR looking like a turnaround story but I did not listen to the call. See that nice volume and looking at the chart, that’s kind of interesting.

  87. 87
    zman Says:

    Dman – should be 40+ given where these cats can hedge natural gas given the strip. They’re still the Rodney Dangerfield of E&P companies.

  88. 88
    scoop006 Says:

    Re NBR Twice, last year there were takeover rumors at the $30 trading level

  89. 89
    zman Says:

    The Thursday night gas report post is up.

  90. 90
    zman Says:

    ATW earnings out:

    $1.20 vs expected $1.16. Revenues topped by a little as well.

  91. 91
    Nicky Says:

    It looks as if this nat gas rally could run a bit further to me – say to the 8450 region.

  92. 92
    zman Says:

    Two pretty tough comps for gas ahead.

    EOG numbers just hit the tape. Preliminary read would say people are going to like them.

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