22
Feb

Friday Morning – Oil and Natural Gas Report Reviews, CHK Results, And Invading Turks

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As it's Friday and people are tired of reading by this point I thought I'd change the normal order of the post putting (CHK) at the top. We've had a love/hate relationship with the stock for quite some time now. Make that, we love the company, but trading in the stock has been ... trying at times as we wait for the Street to warm to the story. Very lately, the company has started to garner more of this warmth, the result of a string of undeniably positive press releases that basic whap the analysts on the head and some are finally waking up. Last night CHK reported a stellar, if not altogether un-telegraphed, fourth quarter. Before I get into the details let me say that although the quarter itself was strong, and that the company has adeptly portrayed the hidden potential of the story, 1Q08 production guidance is sequentially flat which may not make a lot of people with short term focuses very happy this morning.  

CHK Beats The Street. Everyone knew it would be a strong quarter as they had already disclosed an operations update. So I'll spend only a little time on how they did in the quarter and instead focus on what's new in this release.

  • Reported 4Q07 EPS of $0.93 adjusted for items, beating the Street's estimate $0.81 (range was $0.73 to $0.94).
  • More importantly cash flow per share was $2.54, vs the Street's $2.23.
    • The better than expected results are due to a combination of top line performance (better than midpoint guidance volumes and higher than expected gas prices) and lower than expected costs (both lease operating expense (LOE) and production taxes were below the low end of guidance. 
  • 2008 and 2009 Guidance:
    • Production guidance was left unchanged from their November forecast. Mid point of the range gets you 20% unit volume growth in 2008.
    • The Drilling Capex budget increased 12% (or half a billion dollars) versus the prior budget for 2008...that's a little odd given that most recent views on costs are pretty flattish but they are leaving their production guidance unchanged.  Half a billion dollars more spent on drilling and we see no extra growth? Makes me think this will be another year of continually rising production growth targets.
    • Cost guidance - increased a fraction with a decidedly lower view on production taxes more than offset by higher expect G&A. Notably, there was no increase to LOE/Mcfe which is expected to remain at the very low level of $0.90 to $1.00 in both years.
  • Hedge update:
    • they have swaps on 70% of expected volumes at $8.69 in 2008;
    • 33% of expected volumes at $8.94 in 2009.
  •  They established 1Q08 guidance:
    • mid point of the production guidance range is 2.2 Bcfepd which gets you flat sequential growth. The range for the quarter is fairly tight 2.2 Bcfepd, + or - 200 MMcfepd so they are not looking for a big sequential boost even at the upper end of the range. That may not please the Street, at least initially as it backend loads the year and comes after a string of sequentially strong quarters. It does not concern me and it may create a buying opportunity.
    • Given quarter to date gas prices and CHK's cost guidance for the quarter the Street is still too low even if production comes in sequentially flat.
  • Valuation: CHK trades at 4.5x 2009 estimated CFPS. Given their massive untapped potential, their 15 year reserve life, and the fact that the 2009 Street estimate when contrasted with their guidance looks tentative and light this is very cheap. The recent move in the shares has done little to nothing to close the valuation gap with CHK's big cap E&P peers who generally trade in a range of 5 to 6x '09 numbers. 

chk-valuation-022108.jpg

  • The press release does add some good value by pointing out the massive acreage accumulations and reserve potential in both developed plays like the Barnett Shale and in emerging plays where the company is tight lipped like the increasingly hyped by others Marcellus Shale where CHK is the largest acreage holder.  
  • Conference call at 9 EST. 

 

Commodity Watch:

  • Natural gas rallied on Thursday after the release of a generally in line storage number (172 Bcf draw) reaching as high as $9.05 before retreating to close the day down 7.4 cents to $8.891. The decline came amidst falling crude prices. This morning gas is trading off $0.05 to $0.07 in a rare (as of late) divergence from crude.  I expect gas to fall back to the lower $8s soon but it may take warm weather (about 10 days out) to get us there.

gas-table-021508aaa.jpg

  • Credit Suisse Survey Shows Top 50 Company Gas Production Accelerating. A friend of the blog sent over CS's weekly gas piece which this week contained their producer survey. The survey shows production from the Top 50 U.S. gas producers up 3% sequentially in the fourth quarter and 6.5% YoY. While not all inclusive, the top 50 companies encompass just under half of U.S. daily natural gas production and give you some idea of trend. In a good year, U.S. gas production grows 2%. I used to run one of these surveys and while thankfully its no longer my job I can point out some pitfalls I see here that lead to an overstatement of growth, chief among them being property acquisitions from outside of the top 50 itself so that the numbers are not apples to apples. However, in general, the survey points to accelerating growth (something we already know about) with said growth coming from unconventional gas plays. Another hiccup here is that the other, less well capitalized portion of U.S. production (everything smaller than the Top 50) is not represented by the survey and may actually be declining. Still, production growth was undeniably high last year and appeared to be accelerating as the year drew to a close which I would view as somewhat bearish, especially given the recent pop in prices. 
  • First Arctic Sourced LNG Reaches U.S. Shores. After a series of delays, (STO)'s Snohvit field and accompany Melkoya liquefaction processing plant (off Norway in the Barents Sea) have delivered their first LNG shipment to the regas facility in Cove Point, Maryland. (STO) plans to market 2.4 Bcm per year (or 85 Bcf per year or 0.23 Bcfgpd) from the project into the U.S. This is the planned U.S. share of the project's volumes as determined by acquired capacity at the Cove Point terminal. You can read all about the project here and just keep in mind that when the Norwegians say Bcm or billion cubic meters, the conversion is 1 Bcm = 35.3 Bcf. 
  • Crude Oil: traded off before the report, rallied after a bigger than expected build in crude stocks was disclosed and then sold off fairly hard into the close, ending down $1.47 at $98.23. Call it profit taking (for we have seen a $13 per barrel rally in the last 10 trading days) with little evidence that economy has healed itself or that production has slowed. Demand from refineries certainly has although the end user, both drivers and people who heat their homes with oil in the U.S. are not shrinking from high prices to a significant degree. This morning crude is trading up about $0.75.
  • Turkish Troops Cross Iraqi Border On The Ground. According to the news story I read this morning, 10,000 troops have crossed six miles into Iraq in pursuit of Kurdish rebels. Read more here.
  • Where is Henry Okah Watch? These inquiring minds would like to know.mend.jpg Okah may be guilty of everything from attacks on oil facilities to attempting to purchase SAMs as the Nigerian  government alleges but since there is a rumor out there that the government "accidentally" shot him, why not counter it with a picture of Okah holding a recent newspaper in his jail cell? It seems that the Yar 'Adua's Nigerian government doesn't take the most simple steps to reduce tensions but instead uses MEND like the 12th man to rally oil prices. I'd also point out that the arrest of another MEND leader, Mujahid Dokubo-Asari, triggered the wave of attacks starting in 2005 that has left one-fifth of Nigeria's production shut in. One man's rebel is another man's freedom fighter. I'm not condoning the tactics of either side but the government has broken a string promises longer than the trail of tears here and I'm just saying that maybe it's time for both sides to go back to the bargaining table. Apologies for the rant.

exp-vs-act-021508.jpg

The Oil Report Review:

Crude Oil: Saw a much bigger than expected build and I think it is this build, in a recent string of builds which are seasonally pretty normal, that helps OPEC make their argument that the markets are adequately supplied if not over supplied. If oil strays back into the low $90s or high $80s I wouldn't be at all surprised to see the Cartel take 500,000 bopd off the market (or at least tell the world that that's what they are doing).   

Refinery Utilization Hits New Low For This Week of the Year. Way back in the third quarter, (VLO) was predicting this maintenance turn season would be a big one. They were not wrong. As I said in yesterday's post, having flipped through the nightly reports from the EIA I was seeing a lot of refinery glitches and thought the number could get pretty low this week. This is the one thing that will rally crack spreads...basically not making a whole lot of product. Of course that won't work if demand falls with a weak economy but read on for more on that. 

 utilization-021508.jpg

EIA Sees Rising Utilization Relative to Recent Year Spring Levels In 2008... In their weekly oil report, EIA's message is that Spring 2008 could see increased refining availability relative to 2006 and 2007 which were witness to higher than expected unplanned outages compared to the pre-Katrina period 2002 to 2005. This argument hinges in large part on BP finally restarting their Texas City refinery, the one that suffered an explosion in 2005 and which is still only partially operational and the fact that Valero's McKee refinery is operational this year. You'll recall that the McKee snafu was the outage that sparked "the great crack spread rally of 2007" which in turn caused the refiners to have a very good first nine months of the year before rising oil and full inventories cracked there story, so to speak.

...And I Would Add A Few Caveats To EIA's Outlook. While it's true that McKee is expected to be up and running this Spring the timing of the return of BP's Texas City plant, if it returns during the spring at all, is uncertain. Then you've got Alon's, albeit smaller, Big Spring Texas facility that may or may not be back up in two months. But I think the bigger "if" is all the deferred maintenance since Katrina. Many facilities have done the bare minimum in terms of maintenance in an effort to shore up production. This is causing things to break and while I don't keep an actual tally, reading those nightly snafu reports gives one a sense over time that problems are becoming more frequent and widespread in the U.S's mostly aged refineries. Combine the need to catch up on maintenance with the low incentive current crack spreads provide a refinery owner with to stay open and you get a better idea of why that green line in the preceding graph looks the way it does.

Imports remain within seasonal norms if not a tad high. You can just hear OPEC saying, "see, its not our fault!"

crude-imports-021508.jpg

Stocks continue to rally. You would think that oil prices might soften as the green and blue lines converge in the chart below. OPEC is watching this chart very closely. No really, this actual chart as some one at Saudi Aramco visits ZEB on a daily basis. 

crude-stocks-021508.jpg

Gasoline:  Inventories are very full yet prices remain high (blame high oil prices, planned and unplanned refinery outages and persistent demand).

Gasoline Demand is hanging in there and even rebounding despite the fact that many recent converts to Bearishness repeatedly cry "demand destruction". Maybe they mean lack of YoY growth? Considering that prices for all commodities are up high double digits from year ago levels I think the consumer is more likely adapting to paying more for their staples (gasoline, bread, milk, beer) and putting off big ticket purchases. We definitely can't seem to drive less.

 gasoline-demand-021508.jpg

Gasoline Stocks: The picture still says it all but this should begin to rollover soon.

gasoline-stocks-021508.jpg

Holdings Watch:

CALLS

  • (OII) - Added March $65 calls for $2.10. Still holding the $70 calls which ran into the buzzsaw of earnings disappointment yesterday. The earnings conference call went very well here and the stock caught at least one intra-day upgrade from Hold to Buy from a prominent energy focused bank but given the sloppy broad market trading yesterday, bottom fishers were few and far between. 

Odds & Ends

Analyst Watch: I'll add these in the comments section.

 

Have a great weekend if I don't talk to you on the site! 

98 Responses to “Friday Morning – Oil and Natural Gas Report Reviews, CHK Results, And Invading Turks”

  1. 1
    coco Says:

    Turkish military has launched ground incursion into northern Iraq — CNN
    The incursion is backed by the Turkish air force and is targeting specific Kurdistan Workers Party (PKK) targets in Iraq. The action follows cross-border shelling early on Thursday by Turkish soldiers and follows attacks by the PKK on targets in Turkey from the Kurdish region of northern Iraq. There had been no immediate reports of casualties. Apr WTI crude oil has moved to the highs of the overnight session, quoted last at $99, +$0.77. Separately, Reuters reports that Iraq expects to resume Kirkuk crude exports to Ceyhan in a “matter of days,” citing a Northern Oil Company engineer.
    Reference Link

  2. 2
    Sambone Says:

    7:51 am EST

    Crude Higher After Dip Lures Buyers

    By Nick Heath
    Of DOW JONES NEWSWIRES

    LONDON — Crude prices climbed over $1 in London trade Friday after Thursday’s lower closes failed to extinguish the bullish momentum that has propelled crude prices to record highs this week.

    News of a Turkish incursion into northern Iraq lent some support to crude values, although many suggested it was complementing, rather than steering, the move higher, with technical trading again a key driver.

    “When you see the technical strength we had early in the week, it is still too early to ignore that — people will still buy the dips,” Olivier Jakob of Petromatix said.

    At 1226 GMT, the front-month April Brent contract on London’s ICE futures exchange was up 55 cents at $96.79 a barrel.

    The front-month April light, sweet, crude contract on the New York Mercantile Exchange was trading 39 cents higher at $98.62 a barrel.

    The ICE’s gasoil contract for March delivery was unchanged at $888 a metric ton, while Nymex gasoline for March delivery was down 101 points at 251.19 cents a gallon.

    Thursday’s lower closes brought to an end a six-day run of higher closes for front-month Nymex light, sweet crude futures. U.S. Department of Energy inventory data and U.S. economic indicators were seen spurring investors to take profits out of a rally that has led Nymex crude to top out at a record $101.32 a barrel.

    Weekly figures from the DOE revealed another build in U.S. crude stocks, exceeding analysts’ expectations to climb to 4.2 million barrels. Gasoline inventories rose 1.1 million barrels last week, while distillates fell by 4.5 million barrels.

    “The higher-than-expected crude build seemed to outweigh the steep draw in distillates, thus spoiling the “perfect score” the bulls were hoping for given that gasoline came in line with estimates,” said Edward Meir, analyst at MF Global.

    Meanwhile, the state of the U.S. economy was also under scrutiny Thursday with the Philadelphia Federal Reserve reporting that regional manufacturing fell more than predicted in February. The data renewed fears that economic growth in the U.S. is slowing, a situation that many doubt is conducive to sustaining triple figure crude prices.

    “The market may not yet feel comfortable with holding above $100 just yet, and unavoidably, the next batch of economic indicators is going to weigh on sentiment,” said Harry Tchilinguirian, senior oil market analyst at BNP Paribas in London.

    But with a gloomy U.S. economic outlook not a recent development, analysts suggested that investors may be discounting the U.S. economy’s woes in favor of strong oil and commodity demand growth elsewhere — particularly in China, Asia and the Middle East.

    “Recent trends in speculative activity suggest that market participants are not fully convinced that slowing growth in the developed world would necessarily cause sustained price weakness in commodities,” said analysts at Barclays Capital.

    Price movements Friday are also likely to be subject to fluctuations linked to end of week position squaring, brokers said.

    “Provided there are no fundamental or geopolitical shocks, today’s key will be end of week position squaring. Whether this is short covering from yesterdays sellers or long covering from the weeks bulls is the big question,” said energy brokers at ODL Securities in London.

    Traders said news Friday that Turkish armed forces had escalated their ongoing conflict with Kurdish rebels injected some geopolitical risk premium into crude prices. Turkish forces mounted a ground incursion into northern Iraq after Turkish warplanes and artillery bombed suspected rebel targets Thursday.

    —By Nick Heath; Dow Jones Newswires

  3. 3
    Sambone Says:

    Tale Of Two Markets In US – Winter Vs Spring

    By DAVID BIRD
    A DOW JONES NEWSWIRES COLUMN

    NEW YORK — The U.S. oil market is experiencing the classic mid-February dilemma: Focus on the upcoming spring/summer driving season or the fleeting winter.

    An unwelcome added twist this year is that the price of diesel fuel — which powers the trucks and trains that move goods nationwide — is at a record high.

    That may add further pressure to the struggling economy in the U.S., the world’s largest oil consumer, and a major force in setting the near-term path for oil prices.

    Slower U.S. economic growth, helped by oil-price related inflation, could in turn slow already sluggish oil demand in the U.S. and globally. The issue is front and center for OPEC ministers who meet March 5 to determine near-term oil output levels.

    U.S. crude oil futures prices retreated from record highs above $100 a barrel on Thursday, but mixed signals from latest inventory data cloud the market’s near-term direction.

    Nymex crude oil for April delivery settled at $98.23 a barrel, down $1.47, after the March contract expired Wednesday at a record $100.74 a barrel. Heating oil and gasoline futures prices also dropped, but remain within pennies of record highs set earlier in the week.

    Gasoline futures prices shed 6.32 cents to $2.52 a gallon, while heating oil lost 1.65 cents to $2.7381 on Thursday following the release of weekly U.S. government oil data.

    Michael Wittner, analyst at Societe Generale in Paris, said in a report the mixed U.S. data were bearish for crude, neutral for gasoline and moderately bullish for heating oil and diesel.

    U.S. oil demand surged 5.9%, or nearly 1.2 million barrels a day — the biggest gain in a year — in the week ended Feb. 15. At 21.311 million barrels a day, demand is the highest since Dec. 28, according to the federal Energy Information Administration.

    4-Week Demand Weak Vs Year Ago
    But oil demand over the latest four weeks lags the year-ago level by 1.1%, EIA data show. That’s the biggest decline in any four-week period in 13 months.

    The jump in demand in the latest week was spurred by a 15% rise in use of distillate fuel (heating oil/diesel) to a five-year high of 4.825 million barrels a day.

    Nationwide distillate inventories are 6.8% below a year ago and at the lowest mid-February level since 2005, which helped push retail diesel fuel prices to a nationwide record high of $3.503 a gallon, up 92.3 cents from a year ago.

    But four-week distillate demand is running 1.9% below a year ago, and with just weeks left in the winter season, forecasts don’t show a clear weather pattern in March for the Northeast U.S., the world’s largest heating oil market.

    Ahead of the peak spring/summer gasoline demand season, U.S. gasoline inventories stand at their highest levels since 1994.

    At 230.264 million barrels, gasoline stocks are sufficient to cover 25.2 days of demand at current levels, more than the five-year average of 24.5 days.

    Gasoline stocks have swelled by 36 million barrels since Nov. 2, turning a 5% year-to-year deficit then to a 4% surplus — the biggest since October 2006.

    Analysts said they believe gasoline stocks have neared their peak, amid reports of stepped up exports of winter-grade fuel. Still, crude oil prices account for 68% of the retail price of gasoline, so high inventories may not provide much relief at the pump.

    Crude Stocks Up, Runs Down
    Lofty inventories could snug in coming weeks amid continued refinery maintenance work, either planned or unplanned.

    Crude oil input to U.S. refineries averaged 14.5 million barrels a day in the latest week, the lowest level in a year, and plants utilized just 83.5% of capacity, the lowest in nearly two years, EIA data show.

    In the meantime, crude oil inventories rose 4.2 million barrels in the latest week and have gained 8%, or 22.4 million barrels, in the past six weeks. At 305.3 million barrels, stocks are the highest in three months and are enough to cover 21 days of current crude runs. That’s just above the five-year average of 20.5 days, but less than the 22.7 days recorded a year ago.

    -By David Bird, Dow Jones Newswires

  4. 4
    Sambone Says:

    Nigerian Judge Orders Lawyer Access To Detained MEND Leader

    Associated Press

    ABUJA, Nigeria — A Nigerian judge Friday ordered the government to allow lawyers representing a detained militant leader to meet with their client, held on suspicion of illegal arms procurement, kidnapping foreign oil workers and other crimes.

    The plaintiff’s lawyers launched a court challenge Thursday charging the government is illegally detaining Henry Okah, a suspected oil-region militant leader who was sent back to Nigeria after months in prison in Angola. Friday, Judge Babs Kuewinmi gave an initial order in the case, saying the government must allow Okah to see his lawyers.

    The police said late Thursday that Okah was under investigation for involvement in the theft of weaponry from armories around Nigeria — marking the first confirmation the courts-martial of 12 officers also accused of gunrunning were linked to the unrest in the southern oil region.

    Authorities also said Okah was involved in the kidnapping of oil workers and oil-infrastructure sabotage in the restive southern oil region, where militants are agitating for more petroleum-industry resources for their impoverished region. The police also said Okah purchased surface-to-air missiles in hopes of bringing down aircraft.

    Okah was arrested last year in Angola on suspected gun-running charges and extradited back to Nigeria last week. The main militant group Movement for the Emancipation of the Niger Delta, or MEND, said it had heard rumors Okah had died in prison, but the government said he was safe in custody.

    The militants have made Okah’s release one of their preconditions for ending their attacks on oil infrastructure and workers. But their activities continued even after the government met their demands for the liberation of other leaders.

    Stepped-up militant and criminal activities in the southern oil-producing region over the past two years have cut nearly 20% of Nigeria’s normal crude output.

  5. 5
    zman Says:

    Oil gave up all of the morning’s dollar rally and is now just barely green.

    Nat gas is trading off a dime now towards Nicky’s official breaking down levels in yesterday’s post.

    Thanks for the Henry Okah story Sambone.

    CHK call starting in 1 minute.

  6. 6
    Nicky Says:

    Morning all – support levels for natural gas are as follows:

    8775
    8530
    8510
    8350
    8320
    8160
    8130

  7. 7
    Nicky Says:

    If WTI is going to stage a wave v rally now then it needs to stay above 9765.

  8. 8
    zman Says:

    Morning Nicky, Thanks very much!

  9. 9
    scoop006 Says:

    Z Inflation, what inflation. Just came back from the local bagel shop. They raised their prices.1 plain bagel to go, nothing on it $1.10. Guess I’ll have to develop a morning appetite for pretzels.

  10. 10
    zman Says:

    Huge jump in Capesize rates: up $8000 back to 113,000

    Panamax up slightly, handymax off slightly

    http://www.dryships.com/index.cfm?get=report

  11. 11
    zman Says:

    CHK commenting on natural gas markets:

    See many bullish factors for the next 2 years:

    rising elec gen, high oil prices, higher coal prices and colder winter this past year.

    thinks the range will average $8 to $10 over this two year period. sounds reasonable to me.

  12. 12
    zman Says:

    More CHK

    “unit costs are on the decline as service industry capacity increases faster than demand”

    PV10 of reserves increases $400 million for each $0.10 up move in gas…they see gas strip up $1 each year (2008 and 2009) or up $4 billion in value per year.

  13. 13
    zman Says:

    Guidance change:

    Ok this makes more sense to last night and explains the sequentially flat. Their volumetric production payment was treated as a sale, not a forward payment. Therefore the reserves and production come off the books. As such, when they kept production guidance “flat” with estimates given in November your actually see those levels rise 90 MMcfepd, the production associated with the VPP. That’s good news in that it means they really raised guidance.

    They say the next set of monetization VPPs is close and there has been high interest.

    They see an MLP of the midstream assets getting down in April.

  14. 14
    zman Says:

    CHK Q&A:

    Barnett infrastructure constraints: gathering capacity is always an issue but they think its well in hand at least for them; takeaway capacity via interstate pipelines is not the issue.

    Acquisition thoughts: don’t want any as they’ve said. They’re sticking to their guns on being done with acq’s.

  15. 15
    zman Says:

    DSX on the tape with a nice Panamax contract, 2 years for $60,500 per day. That’s a very nice rate.

    Drybulks looking to open up.

  16. 16
    zman Says:

    CHK – Q&A

    analyst so far are looking pretty far forward, 1Q numbers not brought up so far. The VPP removing 90 mmcfepd means the guidance is not sequentially flat.

  17. 17
    zman Says:

    CHK – Call going very well, I remove my negative reservations on the short term look from a guidance standpoint.

  18. 18
    apbd Says:

    Is the call going well enough to buy April’s?
    apbd

  19. 19
    zman Says:

    Call yes, market no

  20. 20
    zman Says:

    CHK call over. Went well. Ended with a nod to those 1.1 mm acres in Appalachia that are prospective for Marcelus Shael development. No details on that as usual…but they are adding rigs there.

    Group opened green, now uniformly red as the broad market rolls lower. nat gas refuses to quite get to the first breaking point.

    IOC getting slapped on low volume, still no news.

  21. 21
    Nicky Says:

    Would like to see yesterdays lows in WTI taken out impulsively…96.67

  22. 22
    Sambone Says:

    Off subject; I am writing my mortgage company today to find out if they have my loan on their books.

    http://www.bloomberg.com/apps/news?pid=20601109&sid=aejJZdqodTCM&refer=home

  23. 23
    zman Says:

    group can’t go higher today with either a big re-rally in commodities (don’t see that) or the S&P turning around. Possible.

  24. 24
    zman Says:

    Merrill taking some big name financials to sell. My question would be why were they rated anything other than that before?

    http://www.marketwatch.com/news/story/financial-stocks-freddie-fannie-lead/story.aspx?guid=%7B1970E93A%2DD2F1%2D4D6E%2D8C56%2DC709A135BAF3%7D&dist=hplatest

  25. 25
    zman Says:

    So Sam, if they don’t have your note, do you have to pay?

  26. 26
    Dman Says:

    Re. 24:

    “And next up, the pot releases it’s ratings on kettles…”

  27. 27
    Nicky Says:

    nat gas bounced – have we had a weather report come out or something?

  28. 28
    Nicky Says:

    Broader market – spx MAY find support in the 1325 region.

  29. 29
    zman Says:

    Dman – No kidding

    Nicky – re 27. It happened as crude bottomed on the day, one last gas higher perhaps.

    Also, Aubrey McClendon was speaking of higher gas prices on the CHK call. The chap has some swing and people respect his thoughts on gas as much as Mark Papa’s over at EOG. Aubrey after all is now the third largest gas producer in the states so it’s kind of like EF Hutton. Anyway, his comments were geared toward the longer term time frame, but I noticed gas seemed to be lifted during the call.

  30. 30
    zman Says:

    The big five list of U.S. natural gas is now as of the fourth quarter:
    1) BP 2.183 Bcfgpd
    2) COP 2.101
    3) CHK 2.041
    4) APC 2.013
    5) DVN 1.845

    CVX, XOM and RD are further down the list.

    CHK will head the list probably by 3Q08.

  31. 31
    zman Says:

    Nicky – you think SPX has a chance of holding this 1331 level or does it fall to 1325 today. Just trying to figure out if I should take a nap.

  32. 32
    Nicky Says:

    It could happen into the close today or Monday morning I think Z. Conversely if we were to get any bad news over the weekend (bond insurers) then we could tank Monday and retest the lows..
    We are in a triangle and need to break out of it impulsively so far the move down has not been that which is why the bullish case still has a chance of playing out.

  33. 33
    ram Says:

    “EF HUTTON” – That’s going back about 20 years.

  34. 34
    zman Says:

    Ram – I guess that makes me old but I just want to be the EF Hutton of energy blogs, lol.

  35. 35
    Dman Says:

    24 continued:

    What I find amazing is that Merril isn’t simply too embarrassed by now to be rating other big financials. But I guess they got to somehow keep a straight face and make like they have credibility.

    Broad markets: Vince Farrell at TSCM said on 20 Feb that the thought the Dow would retest 11600(=Jan lows) on the combination of weak economic data and $100 oil. So far, so good on that prediction.

    I don’t know if everyone has seen this but the recent spike in precious metals has been partially driven by power shortages in South Africa causing a shortage of platimum (can’t run the mines). So the platinum/gold spread has inflated, which puts upward pressure on gold and maybe even oil, since these commodities tend to have strong correlations. What it all means is another question…

  36. 36
    zman Says:

    I’m loath to point it out but energy stocks are well off their lows now. And not so much the gassy as the oily names. Except for UNG which is once again spiking here with gas now up 6 cents (but still below $9 so maybe we’re getting a lower high).

    Nicky – 11-15 day forecast shows continued cold now in the NE.

    Dman – I did see something about the S. Africa thing and also you’ve got coal production problems in Brazil and Australia which has pinched some iron ore processing and therefore steel goes up. We’re in a perfect storm of commodity price inflation. Stories on wheat this week have been scary for the fixed income types…up double versus year ago levels due to smaller wheat crop due to larger corn crop planted for ethanol. Morally reprehensible negligence on the part of law makers to demand more corn based ethanol.

  37. 37
    Nicky Says:

    This near vertical move up looks somewhat bullish I am disappointed to say Z in nat gas. You noticed it got right to the key level and reversed.

  38. 38
    Nicky Says:

    wti looks like it wants to make a run for it too now.

  39. 39
    Nicky Says:

    A move over 9050 likely means new highs for nat gas…

  40. 40
    freeflow Says:

    This move in UNG is ridiculous

  41. 41
    zman Says:

    UNG is tracking the April contract to a tee. Agreed, ridiculous move…short squeeze on. The only good thing about it is is that if it can move up this fast it can move down equally as fast.

  42. 42
    zman Says:

    Its not just gas, oil now up a buck and flying…even RBOB is up now. Any commodity news you guys see? Somebody blow something up somewhere?

  43. 43
    Nicky Says:

    Broader market – volume is lower today on this move down which is normally a bullish sign – hard to see right now!

    Can’t see any news except the weather Z for energy which CNBC of course are making a huge deal about. Like lets remember it will get warmer and we are not entering an ice age!

  44. 44
    ram Says:

    About 35 plus years ago scientist thought we would enter another ice age.

  45. 45
    zman Says:

    Houston ship channel shut for second day. That and stories that the Kurds are going to go after oil infrastructure in retaliation for Turk incursion into Iraq (that’s reporter hype if you ask me and pretty far fetched logistically)

    Nicky – yeah, you haven’t heard much from Al Gore this winter. Last year when it was warmer than normal he was banging the “I told you so gong”.

    Ram – I know, lol, I know.

    Really weird day: OII is actually up now.

  46. 46
    Nicky Says:

    Well I guess they have plenty of reasons to run it up into the close today.

  47. 47
    zman Says:

    Some brave analyst must be out saying the quarter wasn’t so bad at OII, now up a buck.

  48. 48
    Nicky Says:

    Nat gas – the April contract posted new highs. If the March contract is going to post a new high resistance above the Wednesday high of 9120 is at 9215.

  49. 49
    Sambone Says:

    12:14 pm EST

    Nymex Crude Shows Renewed Vigor, Topping $99

    By Gregory Meyer
    Of DOW JONES NEWSWIRES

    From MARKET TALK:
    The crude rally might still have some life left in it yet. April crude futures are trading 80c higher on Nymex at $99.03, after settling lower for the first time since Feb. 12 on Thursday, and falling as low as $97.16 earlier in Friday trading. The recent swing higher may be a delayed reaction to low U.S. refinery utilization and a big draw on distillates seen in Thursday’s EIA data, says Peter Beutel of Cameron Hanover. Yesterday, the market ended lower as it focused on the increase in oil and gasoline inventories, with the latter hitting a 14-year high. “We’re doing ok with gasoline inventories, but if we don’t have a recession we’re going to need them,” Beutel says. “The (EIA) report had a couple bullish factors that I thought got lost in the shuffle.” (brian.baskin@dowjones.com)

    [Dow Jones] Crude’s rebound peters out as demand doubts upstage Turkish military action in Iraq, a weaker dollar and snowfall in the Northeast. This week’s data showing US crude inventories are swelling may also be leaning on oil. “It is hard to justify a $100/bbl price in an environment where both inventories and recessionary fears are rising,” writes Mike Fitzpatrick at MF Global. Nymex Apr crude -45c at $97.78/bbl. (greg.meyer@dowjones.com)

    NEW YORK — Crude oil futures rebounded Friday morning, fed by concerns about supply from Iraq and a weaker dollar.

    Light, sweet crude for April delivery was recently up 61 cents, or 0.6%, at $98.84 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange climbed 81 cents to $97.05 a barrel.

    Front-month oil prices reached a record $101.32-a-barrel intraday high Wednesday as the March contract expired and fresh speculative money flowed into the market. Rising inflation and a weakening dollar have lured buyers seeking a hedge to commodities.

    “Oil seems to have defied evidence of a slowdown in growth and has instead decided to focus on the larger commodity world around us,” said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. “As the economy slows and commodities fly, talk of stagflation is all the rage.”

    The euro had reached a fresh three-week high against the dollar Friday on concerns about a U.S. recession and a report that showed signs of resilience in the euro-zone economy. The dollar’s weakness has supported dollar-denominated crude futures by making oil cheaper for buyers using other currencies.

    Earlier Friday, crude rose more than $1 after the Turkish military launched ground incursions in Iraq in pursuit of Kurdish separatists. After prior air strikes, it was Turkey’s the first confirmed ground operation across its southern border since the U.S.-led invasion of Iraq.

    Iraq’s oil production was not reported to be affected by the incursion. “While getting more overt and increasing in scale, the dynamics of the dispute do not seem to have changed particularly, and in our view they are more illustrative of the instability of the regional politics in north Iraq rather than pose any direct threat to oil flows in the regions,” Barclays Capital analysts said in a note.

    With a snowstorm hovering over the U.S. Northeast, the world’s largest heating-oil market, and the National Weather Service foreseeing below-normal temperatures there for much of the rest of February, heating oil futures were strong. U.S. stocks of distillates, which include heating oil and diesel fuel, fell by 4.5 million barrels last week, according to U.S. Department of Energy data released Thursday, triple the amount expected.

    “We are getting a little bit of a lift on the weather,” said Peter Donovan, a vice president at Vantage Trading in New York.

    Front-month March heating oil futures rose 2.06 cents, or 0.8%, to $2.7587 a gallon. March reformulated gasoline blendstock, or RBOB, was down 15 points, or 0.1%, at $2.5205 a gallon.

    —By Gregory Meyer, Dow Jones Newswires

  50. 50
    Sambone Says:

    #47, that would be Leman and RBC.

  51. 51
    Sambone Says:

    Uncle Phil

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

  52. 52
    zman Says:

    Thanks Sam

    UNG no longer looks like a double top

  53. 53
    Sambone Says:

    Turkey Military Launches Ground Incursion Into Iraq

    By Gina Chon
    Of THE WALL STREET JOURNAL

    BAGHDAD — The Turkish military said its ground troops entered Iraq in large number Friday, an escalation of Ankara’s fight against Kurdish separatists and a move that could complicate relations with the U.S., an ally of both Turkey and the Kurdish regional government in Iraq.

    The Turkish incursion came as the U.S. received encouraging news on another front: Shiite cleric Moqtada al-Sadr announced Friday he was extending a six-month cease-fire that his Mahdi Army militia imposed last August. The extension — for another six months — was greeted as welcome news by U.S. officials, who have credited the cease-fire with boosting security.

    The Turkish military had threatened for months that it would send ground troops into Iraq in its fights against the Kurdistan Workers Party, or PKK. But it has relied largely on air-bombing campaigns. Limited, cross-border incursions to target the Kurdish group — which operates along the Turkish border in northern Iraq — also have been reported recently, but unconfirmed.

    The Turkish military said Friday in a statement that troops would return to Turkey as soon as their goals are achieved, and added that the operation will contribute to stability and peace in Iraq. The Turkish media reported as many as 10,000 troops had entered Iraq, but it wasn’t immediately possible to confirm those numbers. A coalition official in Iraq said military intelligence indicated there were only several hundred Turkish ground troops in Iraq.

    Kurdish officials in Iraq worried that the ground incursion could mark the start of wider scale operations in Iraq. The Kurdish militia, the peshmerga, was put on alert in Iraq’s semi-autonomous Kurdish enclave in the north. An Iraqi government spokesman said he understood Turkish desires to target the PKK, but called on Ankara to respect Iraq’s borders.

    Friday’s incursion represented the first confirmed, large-scale deployment of Turkish troops in Iraq since the U.S.-led invasion in 2003. While Turkish troops launched ground operations against the PKK during Saddam Hussein’s rule, Friday’s actions could complicate U.S. and Iraqi efforts to bring down violence in the region. Iraqi Kurds have been accused of giving sanctuary to the PKK, although the Kurdish regional government in Iraq last year vowed to root out the rebels.

    Rear Adm. Gregory Smith, U.S. military spokesman in Iraq, said the U.S. understands the Turkish incursion is a limited operation to target the PKK, and said Washington received assurances from Turkey that it would do everything possible to avoid “collateral damage to innocent civilians or Kurdish infrastructure.”

    Separately, U.S. military officials lauded Sadr’s extension of his cease-fire. Imams read the decision of the extension at mosques Friday. According to a statement read during the midday prayers, Sadr said he still wanted time to reorganize.

    Before Sadr announced his decision, some members of his militia and Sadr political officials had pushed for an end to the cease-fire. That had worried some U.S. officials. The militia officials had complained about a government crackdown on Sadr followers, particularly in the southern Shiite region where a power struggle among several Shia groups is taking place. The U.S. military also has used the cease-fire to go after what it called rogue Sadr elements.

    Adm. Smith has repeatedly praised the cease-fire in the past, crediting it with helping to ease violence in Baghdad and elsewhere. He said it also opened up militants, who don’t respect the cease-fire, to retaliation from coalition forces.

    “Coalition and Iraqi security forces will continue to work closely with the Iraqi people to protect them from these criminals who violate the law and dishonor the commitment made by al-Sayyid Muqtada,” the U.S. military said in a statement.

    Sadr called for the cease-fire last August after his militia clashed with government forces, largely loyal to a rival Shiite group, the Supreme Islamic Iraqi Council, in the southern city of Karbala, where millions had gathered for a Shiite religious holiday.

    During Friday prayers at a mosque in Sadr City, an imam delivered a message from Sadr’s office asking that pilgrims now headed to Karbala for another Muslim event control their emotions and asked that they not display pictures or signs that link them to any political party or militia.

    The extension of the cease-fire should help U.S. commanders as they assess the results of the U.S. troop surge, which brought 30,000 additional troops to Iraq. The last of the surge troops are scheduled to leave by July. About 155,000 troops are currently in Iraq.

    —By Gina Chon, The Wall Street Journal

  54. 54
    Nicky Says:

    New highs for March nat gas. It appears that this mornings low was iv and we are now in v up. Its the final move for this rally before we get a decent pullback. 8770 remains the level we need to take out for confirmation the upside is done.

  55. 55
    Sambone Says:

    Chesapeake Energy CEO Says Demand Lifts Gas Prices

    By JEANINE PREZIOSO
    Of DOW JONES NEWSWIRES

    HOUSTON — Increased demand for U.S. gas-fired electricity generation will drive the price of natural gas higher over the next two years, Chesapeake Energy Corp. (CHK) Chief Executive Aubrey McClendon said during a conference call Friday.

    Higher overall commodities prices will help lift gas prices, McClendon added, as will the push to eliminate intensive carbon-emitting fossil fuels such as coal to generate electricity.

    “Natural gas prices may have upside in them during the next two years, among these rising electricity usage in the U.S., stubbornly high oil prices, higher coal prices and the emerging environmental trend (to burn cleaner fossil fuels),” McClendon said.

    Recent frigid winter weather in the U.S. Northeast and Midwest has driven prices above $9 per million British thermal units on the New York Mercantile Exchange and is helping sustain higher gas prices, he added.

    Oklahoma City-based Chesapeake will be able to sell “multiyear” hedges, meaning it will sell its gas ahead into the market at a fixed $10 per million cubic feet this year, McClendon said.

    McClendon then jumped into a discussion about the aging oil and gas work force, an ever-present industry concern, by touting that 2,500 of his company’s exploration-and-production employees are under the age of 30.

    “Five years ago that number was less than 5%,” he said.

    The company plans to continue to expand its output by drilling on its properties, rather than by acquiring other companies or properties, he said. Chesapeake is not in the mergers and acquisition market, McClendon added.

    The company expects to increase its first-quarter natural gas production between 198 billion and 202 billion cubic feet, and between 851 billion and 861 billion cubic feet for the year. It also expects growth in oil production as prices have risen above $100 per barrel in recent days.

    Chesapeake is extremely active in drilling in the Barnett Shale, widely considered one of the largest U.S. natural gas fields, located in the Dallas/Ft. Worth area.

    Digging underground in an urban area will always bring constraints, McClendon said, responding to an analyst’s question.

    Laying pipe under “several million people in an urban area” isn’t the “easiest thing in the world to do,” he said.

    Turning to the global gas market, McClendon said he expects an uptick in the use of natural gas as developing economies in China and India seek to “abate pollution.” China currently burns vast quantities of coal to generate electricity, sending prices higher.

    “The world is short on commodities these days,” McClendon said. “The world is short clean-burning, environmentally friendly natural gas.”

    Imports of liquefied natural gas will remain thin in coming years as prices for the fuel remain higher in Asia and Europe. The U.S. would benefit from building a liquefaction plant to liquefy and export natural gas to supply the world’s increasing thirst for LNG, rather than another import terminal, McClendon added.

    “I’ve joked but it’s got a serious factor…which is I think it would be more profitable to build an LNG liquefaction plant in America than it would be to build another re-gas plant,” McClendon said. “We’re looking for partners, if anybody wants to join us on that.”

    Shares of Chesapeake were trading recently at $43.75, down 1%.

    —By Jeanine Prezioso, Dow Jones Newswires

  56. 56
    Nicky Says:

    Another energy idiot wheeled out on CNBC in fact the usual Friday lunchtime idiot – Ray Carbonne – ‘nat gas is about to explode to the upside on cold weather’. Where has he been for the last month.
    He also says ‘I was very excited to see that the move above 100 in oil was on higher volume.’ Wrong. It was made on low volume as March expired.

  57. 57
    zman Says:

    Another energy idiot? Wow, harsh but true!

    Maybe I’ll add an Energy Idiot Watch to the post.

  58. 58
    Nicky Says:

    Sorry it was a little harsh but whoever doubts the speculation in this market just needs to listen to these guys. They continually talk their own book and distort the facts…

  59. 59
    zman Says:

    No apologies necessary…completely agree. Those kind of guys need only a chart and short term sound bite to be the strongest proponent or bear. Speaking of guys like that, what’s PF saying about natural gas, he was a bull, since its still going up I’d guess he’s still a bull.

  60. 60
    Nicky Says:

    Last I saw he was recommending buying it on a pullback.

  61. 61
    zman Says:

    well, I guess he would have been right

  62. 62
    Nicky Says:

    Well to me fwiw nat gas looks very close to a short term top. Maybe a pop and drop and a move back through 9050 maybe the first indication.

  63. 63
    zman Says:

    funny how the gassy stocks aren’t buying this move up in NG prices at all.

    Nicky, I agree re short term top, just don’t have the spine to short more yet.

  64. 64
    Nicky Says:

    Broader markets. Dow down 5 of the last 6 sessions.
    I believe we are approaching some sort of short term low as the A/D continues to show higher lows as the SPX makes lower lows, indicating less and less selling is taking place at each new low.

  65. 65
    T-Tupp Says:

    i love when you guys use the term “wheeled out” hahaha it fosters visions of invalids in straightjacket’s spewing nonsense and drooling on themselves.

    i had to shut off the TV like last week; CNBC is compounding my frustration with this market….

  66. 66
    T-Tupp Says:

    this has to close ugly

  67. 67
    zman Says:

    Hey T, much more of this on NG and they’re going to be wheeling me somewhere. Short interest there in 45 minutes

  68. 68
    zman Says:

    Wow, APA going trying to go positive…loser of a day starting to improve.

  69. 69
    Popeye Says:

    The guy who painted the tape on IOC yesterday just went black. Well for a few minutes anyway. Volume does not suggest news.

  70. 70
    zman Says:

    Popeye – I roll to April if no news by mid week. Nice little profit so far, no reason to waste it. Agree with you re volume…the options I’m holding saw higher bids when it was down this morning which isn’t what you’d normally expect.

  71. 71
    T-Tupp Says:

    nicky- wheres the bearish line in the sand close on spx?

  72. 72
    zman Says:

    think she said 1325

  73. 73
    Nicky Says:

    We are into the area of support here T – if 1325 were to fail we would likely be looking at 1307.

  74. 74
    Nicky Says:

    AMBAC bail out could be in the offing this weekend according to CNBC – this could offer a shot in the arm to the market.

  75. 75
    freeflow Says:

    I hope no one bails out UNG this weekend…

  76. 76
    Sambone Says:

    Ok, gang
    Moody’s is coming up on it’s self imposed deadline to complete it’s review of the “Monolines” (MBI, ABK, etc.) with in 7 days. They said by the end of February, so that means next Friday. Since the Monolines still are not out of the woods, if Moody’s downgrades, watch out below. I think it will pull the energy stocks down also, because of the crowd effect.

  77. 77
    Nicky Says:

    Wow guys look at the market go – AMBAC?

  78. 78
    Nicky Says:

    Moodys have just downgraded the re-insurer for MBIA….

  79. 79
    zman Says:

    FF – ouch. Need to defrost the forecast.

    CFTC shows positions of both longs and shorts in NYMEX gas rallied but the short position grew more. Again this week they were very large, uncommonly large increases in both positions. New records for short interest and net short interest (Long-short). And the squeeze continues.

    IOC – people betting next week is the ticket.

  80. 80
    zman Says:

    Wow Nicky, thanks for getting this market to wake up, LOL!

  81. 81
    Nicky Says:

    Definitely not FF – even as I watch it continue to go up after hours! Wave v’s are often straight up gut wrenching affairs – this one is no exception – so time to brace up!!

  82. 82
    Sambone Says:

    CNBC saying bailout on ABK on Monday or Tuesday

  83. 83
    zman Says:

    any idea how much such a bailout will cost?

  84. 84
    Nicky Says:

    Cycles are due to peak into Wednesday/Thursday of next week so this could run for a bit. I am sceptical as to whether they can take out 1396 on the spx on this run. First things first 1368 is first big resistance.
    Bernanke speaks on Thursday – you have been warned!

  85. 85
    reefguy Says:

    ioc action near the close up 7.37%

  86. 86
    Sambone Says:

    #83 – No numbers just the headline that the “Banks may announce a plan as soon as Monday or Tuesday. Details are being worked out and could fall through” Charles Gasparino, CNBC. ABK up a buck.

  87. 87
    Sambone Says:

    This news is what’s driving the market into the close, IMO

  88. 88
    Popeye Says:

    IOC running.

  89. 89
    Sambone Says:

    3:40 pm EST

    US Stocks Lower Led By Financial, Technology Sectors

    By KATE GIBSON

    U.S. stocks fell Friday, with financial and technology stocks fronting the decline as negative news hit both sectors.

    “We had to follow the negative news; it’s the perfect storm of bad news for financials,” said Art Hogan, chief market strategist at Jefferies & Co.

    After posting gains at the start, the Dow Jones Industrial Average fell 109 points to 12177.

    The reason behind all of this volatility is because the market is unsure of the longer-term direction of the U.S. economy,” said Robert Pavlik, chief investment officer of Oaktree Asset Management.

    The blue-chip declines were led by Intel Corp., down 3.3% to $19.64, and Citigroup Inc., down 2.8% to $24.35.

    The S&P 500 fell 13 points to 1330 while the technology-laden Nasdaq Composite declined 32 points to 2269.

    Shares of Intuit Inc. fell 11.6% to $26.33, after the software company reported a drop in fiscal second-quarter profit Thursday.

    The fall for financials was prompted by Fannie Mae, whose shares are off 5.8% to $27.32, and Freddie Mac, off 8.5% to $25.39, after downgrades from neutral to sell by Merrill Lynch analysts.

    On Thursday, the major U.S. stock indexes fell more than 1% after data highlighting the slowing economy sank early optimism on the technology sector.

    “I think the driver is going to be — and has been for a while — the kind of yin and yang between inflation and recession,” said Paul Nolte, director of investments at Hinsdale Associates. Listen to Nolte.

    “There’s a tug of war between folks that believe that we’re at or near a bottom, and want to start to look through the first half to the second half, and price in earnings. Then there’s a second group that doesn’t believe in the “E” in P-and-E levels, and believes every rally should be sold,” said Hogan.

    —Kate Gibson

  90. 90
    zman Says:

    IOC = catching ABK wave plus “next week is the week” speculation.

    You gotta like Gasparino with the CYA statement, “could fall through” … that alone would be worth a 200+ point swing on the Dow.

  91. 91
    Sambone Says:

    Question – Who is this guy gasparino?

  92. 92
    zman Says:

    charlie g. is a national enquirer style reporter for CNBC…mr. rumor or mr. scoop. reminds me of a young Dan Dorfman.

  93. 93
    zman Says:

    …and right now I like him a lot, lol.

  94. 94
    Sambone Says:

    Hmmm, well today this cat has moved the Dow by 242.

  95. 95
    zman Says:

    bet you a hat CNBC makes a commercial about how Charlie rallied the market.

  96. 96
    zman Says:

    Patron-thirty

    Have a great weekend guys….weekend wrap out in the morning…got any requests…put em here.

  97. 97
    Sambone Says:

    Ya know this is scary. If one rumor like this from somebody can move the US market like this, this means to me that it’s on a knife edge. This puppy can get dirty real quick watching this action. I think I’ll go even more short on Monday.

  98. 98
    Sambone Says:

    Tini time!

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